cross-docking

What is cross-docking?

Cross-docking is a procedure where goods are transferred from inbound to outbound transport without a company handling or storing those goods. Cross-docking methods include continuous consolidation and de-consolidation. There are also two types of cross-docking according to whether the customer is known or unknown before goods are distributed. Cross-docking has obvious benefits for virtually any industry, but it is especially useful in food and beverage, retail and eCommerce, and chemicals.

Understanding cross-docking

Cross-docking is a procedure where goods are transferred from inbound to outbound transport without a company handling or storing those goods.

Irrespective of the business or industry, the carrying costs associated with inventory management can be expensive and difficult to reduce.

These costs arise from warehouse maintenance, storage, labor, transportation, insurance, depreciation, and shrinkage, to name a few.

Since these costs typically comprise 20-30% of the inventory’s total value, there is also a sizeable opportunity cost from having so many resources tied up in inventory management

This is where cross-docking can be useful. The strategy saves time and money since products are transferred from inbound to outbound transport with minimal storage and handling on the part of the business.

Cross-docking normally occurs in a custom warehouse or docking terminal that is partitioned into inbound and outbound lanes.

Another space known as the cross-docking terminal is set aside to sort, pack, and redistribute the inventory. In most cases, inventory spends less than 24 hours in the facility before it is sent out.

Cross-docking types

There are two main types of cross-docking:

Pre-distribution

Where the goods are unloaded, sorted and reassembled according to predetermined distribution instructions.

That is, the customer is known before the goods are loaded into outbound transport.

Post-distribution

Where the goods are held in the cross-docking facility for a little longer while a customer is identified based on demand.

While post-distribution is not as efficient, both retailers and suppliers benefit from the extra time to make smarter, more profitable decisions on where to send their inventory.

Cross-docking methods

Here is a look at a few of the ways cross-docking can be performed:

Continuous cross-docking

The most basic form of cross-docking with a non-stop and direct flow of inventory that moves from inbound to outbound shipping via the cross-docking area.

This is an ideal method for when the customer is known and many trucks are arriving at different times of the day.

Consolidation

Where multiple smaller shipments are consolidated into one larger shipment before it is sent out.

Goods awaiting consolidation are stored in a designated area and do not need to be warehoused in the interim.

De-consolidation

The opposite of consolidation where a large load is broken down into multiple smaller loads such as the movement of goods from railcars to trucks.

De-consolidation is often used in direct-to-consumer (D2C) businesses because it tends to be more efficient.

Where is cross-docking most beneficial?

The benefits of cross-docking as an operational system can be had in almost any industry. However, it is particularly important in the following industries:

Food and beverage

Restaurants, for example, require a continuous and reliable stream of goods to operate efficiently.

Cross-docking also reduces the likelihood that foods will spoil in transit since they are not stored for long periods.

Retail and eCommerce

Companies like Walmart and Amazon have redefined consumer expectations around availability, convenience, and price.

Cross-docking can move items quickly and reduce instances of low or no inventory.

Chemicals

The shipment of chemicals can be expensive and dangerous and as a result, inventory should be handled as little as possible.

This makes chemical shipments ideally suited to cross-docking.

Costco cross-docking case study

costco-business-model
With a substantial part of its business focused on selling merchandise at the low-profit margin, Costco also has about fifty million members that each year guarantee to the company over $2.8 billion in steady income at high-profit margins. Costco uses a single-step distribution strategy to sell its inventory.

Costco generally sells inventory even before they’ve paid it.

As pointed out in its annual report: 

We buy most of our merchandise directly from manufacturers and route it to cross-docking consolidation points (depots) or directly to our warehouses. Our depots receive large shipments from manufacturers and quickly ship these goods to individual warehouses. This process creates freight volume and handling efficiencies, eliminating many costs associated with traditional multiple-step distribution channels.

Walmart cross-docking case study

Another example of cross-docking, which is part of its business model and distribution strategy, is Walmart.

walmart-business-model
With over $555 billion in net sales in 2021 the company operates a differentiated Omni business model with three primary units comprising Walmart U.S, Walmart International, and Sam’s Club (approximately 12% of its net sales) a membership-only warehouse clubs. Together with Walmart+, a subscription service including unlimited free shipping, unlimited delivery from its stores, and discounts launched in 2021. 

For instance, in 2018, approximately 78% of Walmart U.S.’s purchases of store merchandise were shipped through 157 distribution facilities located throughout the U.S.

The remaining merchandise gets shipped directly from suppliers.

Through these facilities, Walmart processes and distributes both imported and domestic products to the operating units of the Walmart International segment.

As Walmart explains, shipments typically spend less than 24 hours in a cross-dock facility, and sometimes less than an hour.

Sam’s Club uses a combination of our private truck fleet, as well as common carriers, to transport non-perishable merchandise from distribution facilities to clubs.

The segment contracts with common carriers to transport perishable grocery merchandise from distribution facilities to clubs.

Sam’s Club ships merchandise purchased by members on samsclub.com and through its mobile commerce applications by a number of methods from its dedicated eCommerce fulfillment centers and other distribution centers.

Read Next: Supply Chain, AI Supply Chain, Metaverse Supply Chain, Costco Business Model.

Connected Business Concepts

Vertical Integration

vertical-integration
In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through customers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.

Backward Chaining

backward-chaining
Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.

Supply Chain

supply-chain
The supply chain is the set of steps between the sourcing, manufacturing, distribution of a product up to the steps it takes to reach the final customer. It’s the set of step it takes to bring a product from raw material (for physical products) to final customers and how companies manage those processes.

Data Supply Chains

data-supply-chain
A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distribution to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.

Horizontal vs. Vertical Integration

horizontal-vs-vertical-integration
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.

Decoupling

decoupling
According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.

Entry Strategies

entry-strategies-startups
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.

Disintermediation

disintermediation
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all, can produce products that customers want.

Reintermediation

reintermediation
Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.

Scientific Management

scientific-management
Scientific Management Theory was created by Frederick Winslow Taylor in 1911 as a means of encouraging industrial companies to switch to mass production. With a background in mechanical engineering, he applied engineering principles to workplace productivity on the factory floor. Scientific Management Theory seeks to find the most efficient way of performing a job in the workplace.

Poka-Yoke

poka-yoke
Poka-yoke is a Japanese quality control technique developed by former Toyota engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent defects in the manufacturing process that are the result of human error. Poka-yoke is a lean manufacturing technique that ensures that the right conditions exist before a step in the process is executed. This makes it a preventative form of quality control since errors are detected and then rectified before they occur.

Gemba Walk

gemba-walk
A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.

Dual Track Agile

dual-track-agile
Product discovery is a critical part of agile methodologies, as its aim is to ensure that products customers love are built. Product discovery involves learning through a raft of methods, including design thinking, lean start-up, and A/B testing to name a few. Dual Track Agile is an agile methodology containing two separate tracks: the “discovery” track and the “delivery” track.

Scaled Agile

scaled-agile-lean-development
Scaled Agile Lean Development (ScALeD) helps businesses discover a balanced approach to agile transition and scaling questions. The ScALed approach helps businesses successfully respond to change. Inspired by a combination of lean and agile values, ScALed is practitioner-based and can be completed through various agile frameworks and practices.

Kanban Framework

kanban
Kanban is a lean manufacturing framework first developed by Toyota in the late 1940s. The Kanban framework is a means of visualizing work as it moves through identifying potential bottlenecks. It does that through a process called just-in-time (JIT) manufacturing to optimize engineering processes, speed up manufacturing products, and improve the go-to-market strategy.

Toyota Production System

toyota-production-system
The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.

Six Sigma

six-sigma
Six Sigma is a data-driven approach and methodology for eliminating errors or defects in a product, service, or process. Six Sigma was developed by Motorola as a management approach based on quality fundamentals in the early 1980s. A decade later, it was popularized by General Electric who estimated that the methodology saved them $12 billion in the first five years of operation.

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

Dynamic Pricing

static-vs-dynamic-pricing

Price Sensitivity

price-sensitivity
Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Price Ceiling

price-ceiling
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. 

Price Elasticity

price-elasticity
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes. Price elasticity, therefore, is a measure of how consumers react to the price of products and services.

Economies of Scale

economies-of-scale
In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

diseconomies-of-scale
In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Network Effects

network-effects
network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Negative Network Effects

negative-network-effects
In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Main Free Guides:

About The Author

Scroll to Top
FourWeekMBA