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Cross-docking: The need for speed

November 17, 2008

In today’s high velocity supply chain world, companies are increasingly focusing on distribution methods that will drive efficiency and increase customer satisfaction. To achieve these goals, cross-docking has been pushed to the frontline of the distribution strategy.

What is cross-docking?

Cross-docking, in short, is the shipment and receiving of goods by bypassing the storage facility. In the process of cutting out the need for a storage facility, inventory can move quickly from one end of the supply chain to the other. For all of its simplicity, cross-docking requires detailed planning and collaboration with partners. Companies require advance knowledge of product shipment and final destination of goods.

How is it used?

Cross-docking is used in a variety of strategies that include consolidating loads of less-that-truck load (LTL) carriers, consolidate loads from multiple suppliers and/or plants, deconsolidating orders, and preparing for shipping.

What are the advantages?

One of the key advantages of cross-docking is that companies are reducing their need for warehousing space, which reduces inventory holding cost. Cross-docking facilities are much cheaper to set up and run than warehouses and companies can save on the capital investment in warehouses.

Some of the biggest advantages for companies are transport related. Companies can achieve significant cost savings, by consolidating loads of LTL carriers. Pallets that are heading for the same destination are consolidated and staged by order sequence. Companies like Toyota have used this strategy to great effect. With the increased reliance on Just-in-Time (JIT), parts are being shipped at higher frequency and lower quantity.

The increased speed in the supply chain helps companies to reduce product cycle time and move product quickly and efficiently down or up the chain. As inventory is not kept in storage, companies require less stock.  Many companies, however, do not start cross-docking primarily for cost reasons.  They start to improve customer service. Today’s customers require greater speed and are also more demanding. Companies should establish clear goals and be willing to test different options. For companies that want to streamline operations and increase the supply chain velocity, cross-docking may be the right solution.

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