ADS Solutions Wholesale Distribution Software Blog

7 Tips for Cross-Docking

7 tips for cross-docking
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.

Top 5 Pricing Strategies for Distributors

top 5 pricing strategies for distributors
Pricing strategies for distributors are critical; wholesalers and distributors compete on pricing with giants like Amazon and Walmart, and live in a world with razor thin margins. So how do they survive?

By employing the 5 pricing strategies illustrated in this infographic, distributors can remain competitive by can squeezing more profit out of each and every sale.

Before we delve into the top 5 pricing strategies for distributors, don’t think for a minute that today’s distributors survive by competing solely on price. Quite the contrary.

With pricing pressures from e-commerce competitors, it’s the value-added services like support, customer service, and industry expertise that keeps distributors’ value in the supply chain cemented firmly in place. However, there is no denying that price is first and foremost in many of our customers’ priorities. Therefore, in addition to the value-added services distributors bring to the table, it’s important that they make their customers feeling they are consistently getting the best possible prices.

So the question becomes, “How low can you go?” Fortunately, today’s distribution software can tell you that answer. Behind the scenes, it can compute a distributor’s profit on each item, as price varies. It can suggest additional items each customer is likely to want – items that carry a higher profit margin, making up for lower margins on other items in the same order. It can set lower and upper limits on pricing, so your salespeople don’t get carried away when trying to close a sale. In general, ERP software should support all competitive pricing strategies for distributors, ensuring that you squeeze every last cent out of each sale, while still making your customers feel like they are getting a fantastic deal.

Is this trickery? Or just an intelligent, modern way to leverage technology to your advantage?

The top pricing strategies for distributors are made up of a series of layered discounts available to different types of customers and on different tiers of products, in a way that mathematically maximizes your overall profitability. In a sense, pricing strategies serve as a way to provide preferential treatment to each and every customer, based on their pain points and unique purchasing patterns.

Let’s look at 5 ways distributors can squeeze more out of their pricing.

Pricing Strategy #1: Contract Pricing

At the very least, distributors can use contracts to define their pricing strategies. You can set up contracts by:

  • customer
  • product
  • category & subcategory
  • vendor
  • expiration date
  • ship-to or bill-to

Pricing Strategy #2: Special Pricing

Special pricing strategies are user-defined strategies tied directly to margins. They might entail giving discounts off list prices, or the reverse: marking up from your cost.

Pricing Strategy #3: Advertised Pricing

Does your distribution software allow you to program date-sensitive, short-term pricing on products you are advertising? What about at certain times of the year, when you may offer a blanket discount to keep your cash registers ringing? Terrific! Then take advantage of loss leaders.

Some distributors use loss leaders to stimulate sales of certain products, and advertise those loss leaders. Even though profit margins on loss leaders might be negative, what distributors profit on each overall order compensates for that. Advertised pricing is a way to structure these promotions, and automate start times and end times, so your sales people don’t have to worry about the details. Instead, they can focus on what they do best: selling.

Pricing Strategy #4: Quantity Break Pricing

If your customers are not feeling like they are getting royal treatment with pricing strategies #1-3, try tossing in some quantity breaks. There’s nothing like a two-fer to bolster sales volume. When applied to slow moving product categories, quantity break pricing is a great way to clear out sluggish or unwanted inventory. Try setting quantity breaks:

  • for specific customer pricing tiers
  • for all customers
  • for a specific product, where you can assign a specific dollar price or give a percentage discount off list
  • at each quantity break level (e.g. 10% off 1-50 items, 15% off 51-100 items, and so on)

Pricing Strategy #5: Discounts by Warehouse

Offering discounts by warehouse gives distributors an opportunity to move select inventory faster. A ‘warehouse’ doesn’t need to be a physical warehouse: it can be grouped inventory that you’ve moved to a certain part of your existing warehouse or inventory that is associated with one of your business units. Just use your software’s ability to group, price, and sell products by ‘warehouse’. You can use this strategy on just about any classification of inventory.

Conclusion: Let Your Distribution Software Support Your Pricing Strategies

Distributors work in a fast-paced environment, often processing thousands of transactions each day. You don’t want your sales people fumbling around trying to figure out exactly what pricing incentives have been approved and which are restricted: the process of offering discounts to entice and keep customers should be quick and easy. By setting up and maintaining pricing structures inside your distribution software, you can be assured that you will squeeze every cent out of each and every order.

Download “5 Top Pricing Strategies for Distributors” Infographic