Cross-docking has a double meaning in the supply chain, so before we launch into these 7 tips for cross-docking, it’s important to understand the difference. For some, cross-docking involves organizing one’s warehouse to support the immediate receiving, sorting, and, if necessary, quick re-packaging of shipments from suppliers, then their nearly immediate release to customers, without ever storing the goods in inventory. For others, cross-docking is a misused but more common term that is synonymous with drop-shipping. Drop shipping is the process a retailer or distributor uses when they take an order from a customer for an item they do not regularly stock or that is currently out of stock, and simultaneously process a purchase order from their supplier (often the manufacturer), requesting the supplier to ship the item directly to the purchaser. The purchaser — a business or individual consumer — pays the retailer or distributor directly for the product and sometimes does not know, nor do they care, that the item never resided on the retailer’s or distributor’s shelf. The definition of cross-docking explored in this article will focus on the latter example where the distributor is the JIT conduit between the purchaser and supplier.
Benefits of Cross Docking
There are many cost- and time-saving benefits of cross-docking. Fundamentally, cross-docking alleviates the need for inventorying and warehousing products. When done right, cross-docking:
- reduces labor costs
- eliminates inventory holding costs
- frees up working capital and warehouse space
- reduces delivery time and transportation cost
- lowers warehouse expense because less square footage is needed
- savings from cross docking can be passed onto customers, allowing distributors to retain and acquire new customers by pricing more competitively
- fewer ‘touches’ mean less risk of handling damage which translates to fewer returns and happier customers
Simply put, cross docking saves time and money while improving customer satisfaction.
Clearly, there are many advantages to this JIT or “no-inventory” model, but there are also potential problems, as well. With that in mind, here are seven great tips for cross-docking that will help you reap the most reward from the practice, while also avoiding the common pitfalls.
Tips for Cross-Docking
1. Choose Products Most Appropriate for Cross-Docking
The first rule of cross-docking is choosing the products that are the best candidates for the practice. First and foremost, some of the best choices for cross-docking are items that have a stable and constant demand. Other great candidates are products that are consumer-ready, in the sense that they’re already packaged, bar-coded, and ready for sale. Furthermore, oversized, heavy, and difficult or expensive to ship items (think large home appliances, for instance) make good cross-docking products. Finally, definitely consider cross-docking products when the cost of a stockout is high. Other good candidates include:
- Pre-inspected products that don’t require quality control on your end
- Perishable goods
- Promotional or seasonal items
- Newly launched products whose future demand is difficult to quantify
2. Choose the Right Kind of Cross-Docking for Your Needs
There are actually a number of different ways to cross-dock products, and it all depends on what you do, who your customers are, and who your suppliers are. For instance, if you’re a distributor, you may have customers ask you to have product cross-docked to them directly from the manufacturer. On the other hand, you may be the one drop shipping directly to an end customer on behalf of a retailer. Depending on the type or types of cross-docking you choose to engage in, you’ll have to have different policies and rules in place to address the different scenarios. Spend some time defining and communicating your returns policies to your customers.
3. Consider Offering a Wider Selection of Products to Offset Lower Margins
For distributors who have product cross-docked from the manufacturer directly to their customers, one of the major downsides of cross-docking is a lower margin on products, because manufacturers often charge a convenience fee. However, because you don’t have to pay upfront for inventory that’s cross-docked, it means you use that working capital to offer a wider range of products. For instance, say you’re a distributor of household appliances. Instead of offering just refrigerators to your customers because you have to pay upfront to inventory them, you can have your refrigerators cross-docked directly from the manufacturer which frees up capital you can use to inventory and sell water heaters as well. In the end, although you end up with lower margins on the refrigerators, you have a larger product line, appeal to a wider customer base, and have more opportunities to make a profit.
4. Have a Solid Plan in Place to Track Cross-Docked Inventory
Another potential drawback of cross-docking is that you have less control over the inventory, and if you want to keep your customers happy, then it’s essential that you have measures in place to track products and orders. This can work in both ways: either the manufacturer is shipping directly to your customers, and the inventory never even enters your warehouse, or you’re drop shipping directly to customers, and the inventory involved goes through different channels than your regular product line. In either case, it’s necessary to have a strategy in place that allows you to keep a close eye on your orders, your inventory, and your fulfillments. The best way to do this is with inventory management and tracking software, which can help you keep an eye on where products are, where they’re going, and when they arrive.
5. Choose Your Partners Wisely
Because of the lack of control during cross-docking, it’s important that you choose partners that you trust. Just as you want to have sturdier measures in place to track cross-docked product, so too, you want to carefully vet the manufacturers that you have drop-ship for you or the retailers that you drop-ship for. The main reason for this is that you are ultimately the one responsible for making sure that product gets where it needs to go, and customer dissatisfaction can seriously damage your reputation if you choose the wrong partners. For instance, say that you ask a manufacturer drop-ship a refrigerator to one of your customers. You’re relying on that partner not only to ship the item but also to ship the right item to the right customer, on time. That’s a lot of trust you’re putting into another business partner, and a vetting process will help you choose our partners wisely. Similarly, if you’re cross-docking on behalf of a retailer, you’re trusting that retailer to provide you with all the right information to ensure you get the right product to the right customer, on time. All of this requires business software capable of tracking cross-docked or drop-shipped items.
6. Have a Clear Policy in Place with All Partners Involved
Part and parcel with choosing the right partners is making sure you have a policy laid out so that all parties involved understand their rights and responsibilities. There are many different points along the way where cross-docking can go wrong, and a solid policy will help to avoid issues such as:
- Who deals with returns and how they’re managed
- Who takes responsibility for lost shipments
- How shipping costs are calculated and paid for, and by whom
- How backorders are handled
- How tracking numbers and order information are shared
- How partners communicate with each other regarding inventory availability and stock-outs
7. Make Sure the Policy Is Clear for Customers, Too
Aside from profit, customer satisfaction is the main goal that you must keep in mind when making any business decision, because if the customer isn’t happy, then your business isn’t happy and won’t grow. And whether your customer is the retailer (where the manufacturer drop ships) or the end consumer, then you must ensure that your cross-docking policies are clearly laid out and understandable for the customer. Otherwise, this could lead to confusion and disappointment, and possibly a returned product, lost sales, and a bad reputation for your business.
Cross-docking can be a great way for businesses to sell products without having to spend time and money inventorying and warehousing them, but the practice must be done properly if you want to gain the most benefit. The key points to remember about cross-docking are that you have to choose the right products and the right type of cross-docking for your needs, and you must have clear strategies and policies in place to track and manage orders and expectations. Finally, your policies and strategies must be clear to all parties involved, including suppliers, retailers, and end consumers, because this is the only way to ensure that cross-docking will work for everybody and that your customers will be happy with the process. For more information about how ADS Solutions can facilitate cross-docking for your company, contact us today. We’d be happy to review your current cross-docking procedures and discuss whether our software can help your distribution business.