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:

  1. 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.
  2. 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:

  1. 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.
  2. 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.
  3. 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 example

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.

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

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