Supply chain management is all about flows. Material flowing through warehouses is no exception. Conventionally the warehouses were set up as inventory buffer points along the supply paths so that demand fluctuations across the network could be smoothed. That provided stability to the planning and operations of the supply chain.
But better technology, integrated systems and near real-time information exchange have all made it possible now to operate the warehouses more efficiently. Where the product and demand attributes allow, it is possible to leverage cross-docking opportunities and reduce the inventory buffers at the warehouses.
Cross-docking basically involves receiving the merchandise at the inbound docks and then shipping it out shortly after without the need to stock it at the warehouse. If planned and executed properly it saves the intermediate disposition, storage and order fulfillment tasks in the warehouse. Well planned cross-docking operations save resources across the board, at the warehouse like labor, space, and equipment; and also technology resources by simplifying the process.
As cross-docking does not require the inventory to be stored at the warehouse, it provides dual advantages of:
Operational Efficiency: As the material does not have to be stored at the warehouse, and directly moves from the receiving docks to the shipping docks or staging areas, the warehouse operations are more efficient.
Inventory Efficiency: As the inventory moves directly from the receiving to shipping docks, there is no storage at the warehouses for the cross-docked items and that reduces the total system inventory in the supply chain.
There are two variants of cross-docking that can be leveraged. Both of these address different situations and need specific process/system capabilities but both are founded in the cross-docking concept and provide the same advantages.
Planned cross-docking or flow-through
Planned cross-docking is a deliberate strategy for the supply chain. It consists of determining the products that will be the best candidates for cross-docking/flow-through operations, and then deploying a complete demand and supply management process that leverages the flow-through strategy at the warehouse. These products will typically show the following characteristics.
Such products will normally have consistent demand that is not too high or too low. They can be seasonal as long as the seasonal demand has the same stable characteristics, and the processes can handle data specific procedures. The values of these attributes need to be established based on the sales history data, averages, and the speed of movement of specific merchandise. If the demand is too high then the items may be best served with a direct-to-store distribution model, and if the demand is too low/intermittent, then stocking at DCs may be required to consistently meet service levels.
They have good handling characteristics, through they can be conveyable or not. Flow through operations may require staging, pallet-breaking, and re-packing; and some product may just not have the physical characteristics conducive to that.
Once the target products have been determined, the implementation of the strategy requires that the supporting business processes are adjusted for making the shift. Some of these are discussed below in the section on pre-requisites.
This is an ad-hoc cross-docking process that takes advantage of real-time information exchanges among various distribution and fulfillment systems. Opportunistic cross-docking identifies when an inbound shipment or part of shipment (LPN/pallet) can be used to fulfill an outstanding order by directly routing the inbound merchandise to the staging or shipping docks for an outbound order. Opportunistic cross-docking is typically a pure cross-docking exercise and does not require any break-pallet or other similar intermediate tasks.
This type of cross-docking is not as process intrusive as the above. It is simpler to implement, and only requires that the warehouse systems have real-time visibility into all requirements, on-going shipping and receiving activities, and yard inventory; and that they can react to such information dynamically. This means that the warehouses are using the RF based devices and processes, rather than paper based processes.
Technically, most of the current systems are deployed in an integrated fashion, networked with other enterprise applications through messaging, and can exchange information in real-time; thus making this a reality. Therefore this largely becomes a business decision.
This type of cross-docking may also not provide any significant inventory reduction benefits but this is broadly applicable across most products, and provides the warehouse operation efficiencies without large changes in the business planning and execution processes.