Crossdocking as a Supply Chain Strategy

Crossdocking as a Supply

Chain Strategy

By reducing reliance on inventory buffers and expediting

customer orders, crossdocking promotes a flow-through

supply-chain pipeline.

Ray Kulwiec

rossdocking as a distribution tactic

is not new. However, its use con-

tinues to grow with the popularity

of just-in-time (JIT) methods, and as supply

chain concepts such as collaboration take

hold, and sophisticated information tech-

nologies proliferate.

Crossdocking is pri-

marily a warehousing practice, but in

order for it to be efficient and successful,

there has to be close coordination and

continuous, high-quality information flow

among manufacturer, distributor, and cus-

tomer levels.

What it is: A broad definition of

crossdocking is the transfer of goods and

materials from an inbound carrier to an

outbound carrier, without goods or prod-

ucts actually entering the warehouse or

being put away into storage. Thus, the

products "cross the docks" from the

receiving dock area to the shipping dock

area. Reality is a bit more complicated

than this broad definition, since there are

several versions of crossdocking, as

described in the accompanying box,

"Common Types of Crossdocking." And it

is clear that the shipper, typically the man-

ufacturer, carries a high degree of respon-

sibility for making crossdocking at its cus-

tomer (distributor) facilities successful.

Crossdocking can provide significant

inventory savings. In its purest form, there

is no storage. Therefore, there is no rout-

ing to storage areas, no subsequent

retrieval from storage racks, and no re-

routing back to dock areas. Both the costs

of holding inventory and the costs of han-

dling the inventory are eliminated or dras-

tically reduced. In addition, crossdocking

Target Volume 20, Number 3

In Brief

Author Ray Kulwiec explores crossdocking as a means to improve

supply chain performance. The article describes the Owens Corning

approach to crossdocking, along with Sears and Wal-Mart activities.

Readers will also find counsel on "when crossdocking does – and

doesn't – apply."

provides improved customer service by

expediting customer deliveries.

Owens Corning's Approach

Most warehouses can crossdock at

least a portion of their incoming materials.

Owens Corning, based in Toledo, OH,

reports a range from a small percentage to

40 percent to 50 percent, depending on the

location. This manufacturer practices

"opportunistic" crossdocking, as well as

direct loading of outbound shipments from

the production line. Opportunistic cross-

docking takes "hot" items such as back-

ordered or late-arriving goods and moves

them directly to outbound shipping areas

instead of moving them first to storage

and putaway. Even if some of the needed

goods are in inventory, crossdocking of

the arriving items is performed to save

time and expedite orders. In some cases

the "hot" items are combined with prod-

ucts coming directly off the production

line to make up outbound orders.

According to Logistics Systems

Development Team Leader Barry

Burnham, crossdocking at Owens Corning

occurs primarily at multi-purpose ware-

houses co-located with the company's

production facilities. They serve retail and

wholesale facilities, and other distribution

warehouses.

The company moves large, bulky

materials such as fiberglass insulation,

pallets of glass reinforcements, and vinyl

siding. Efficiency of material movement is

a major concern. By reducing the number

of "touches" applied to materials, the com-

pany has experienced substantial reduc-

tions in labor, product damage, and cycle

time. Burnham states that crossdocking

is performed exclusively for palletized or

otherwise unitized loads. Turns for most

crossdocked items average 25 to 50 per

year.

Primarily they are finished goods.

Crossdocking is not applied to materials

coming off the production line that have

curing or quality testing requirements.

Third Issue 2004

Common Types of Crossdocking

Several types of crossdocking can be practiced, as follows:

Full

pallet

load

operation:

This simplest, and usually least costly, version involves receiving an incoming load that is

marked and separated by outgoing orders. The pallet loads are simply sorted and re-routed into outgoing trucks hav-

ing different destinations.

A classic example can be found in a less-than-truckload (LTL) truck terminal, where prod-

ucts never touch the floor, but move directly from one truck to another.

Case-lload

order

makeup:

In this version merchandise arrives at the dock sorted and marked by stock-keeping units

(SKUs). However, the goods must be segregated by customer order, generally requiring that pallet loads be broken

down. Cases may then be re-palletized and the new loads delivered to appropriate outbound vehicles.

Hybrid

crossdocking:

In some cases materials in storage at the warehouse are blended in with incoming materials,

and these newly completed palletized orders are then routed to outbound trucks. Likewise, some of the incoming

goods may be routed to temporary storage in the warehouse instead of all being crossdocked. (See Figure 5.)

Opportunistic

crossdocking:

"Hot" items, such as late-arriving products on back order, are often crossdocked rather

than being placed in inventory and order-picked. Such goods may be crossdocked directly upon receipt, or combined

with items from storage. The operation can be vital in enhancing customer service.

Truck/rail

consolidation:

Products may sometimes come in by both truck and rail, and need to be consolidated in

order to complete customer orders. Here the goods are combined and sorted for shipment within 24 to 48 hours. A

related tactic is pool-car forwarding. Here, goods are picked up by truck and transferred to a rail boxcar at the ship-

ping origin point. Then, at the rail destination, the goods are unloaded and transferred back into trucks for final

delivery.

Short-tterm

storage:

Promotional or seasonal merchandise, or awkward, bulky items, may be stored temporarily off-

site, or in a yard trailer, until just before shipment, when they are moved to the cross-docking area. This approach

works well for a space-limited warehouse, or where warehouse handling may be extremely tedious and time-consuming.

In many locations, received items are

combined with goods carried to the dock

area in ware carts. Picking is done from the

carts to make up outbound loads that also

contain received materials. This "compro-

mise" solution provides flexibility and saves

on transportation and handling to and from

traditional storage areas in the warehouse.

At Owens Corning, various levels of

information systems support crossdocking

as well as other warehouse operations.

They include enterprise resource planning

(ERP) software, warehouse management

systems (WMS), yard management systems

(YMS), radio-frequency data communica-

tion (RFDC), and bar coding. Line loading

from production has been practiced for sev-

eral years. Opportunistic crossdocking has

been mostly implemented as the WMS and

YMS software systems have been deployed.

A Supply Chain Issue

Crossdocking today is a supply-chain

issue, requiring collaboration among mem-

bers of the chain. In fact, says Toronto-

based management and logistics consult-

ant Dave Luton, crossdocking in an era of

Target Volume 20, Number 3

Translation of the Acronyms

Crossdocking is an important element in a synchronized supply chain. In turn, supply chain management today

relies on the use of various information technologies and techniques whose acronyms have become an "alphabet

soup." Brief explanations of the acronyms are provided:

ASN Advance ship notice. An electronic notification that a product is

due, before it is received

ERP Enterprise resources planning

LTL Less-than-truckload quantity for shipment

OMS Order management system. A cross between planning and execution

software. OMS performs order entry, inventory management, order

processing, and customer service. It prepares the shipping and delivery

execution program, which is then transferred to a warehouse management

system.

POS Point of sale

RFDC Radio frequency data communication

SCM

Supply chain management.

The process of optimizing the flow of

materials and products from the supplier's supplier to the customer's

customer.

TMS Transportation management system. An execution software system that

plans freight movement, oversees freight rating, selects the route and

carrier, and manages freight bills and payments.

VMI Vendor managed inventory. A process in which the vendor assumes

responsibility for replenishing the customer's stock as needed.

WMS Warehouse management system. An execution system that manages the

operations or a warehouse or distribution center, including receiving,

crossdocking, putaway, inventory control, order picking, replenishment,

packing, and shipping.

YMS Yard management system. An execution system that manages yard

operations, including receipt of carriers, dock scheduling and spotting, and

operator activities relating to receiving and shipping.

minimal inventories is the element that

links the supply and demand sides of the

chain.

Luton notes that market forces are

continuously increasing pressure on supply

chain management (SCM) performance, with

requirements for 1) increased throughput

with lower inventories, 2) more product lines

with lower operational costs, and 3) more

value-added services provided to customers.

In the past, says Luton, the traditional

SCM model relied on the use of inventory

buffers at strategic points within the supply

chain to alleviate the uncertainty between

supply and demand (see Figure 1). Note

that in this example the supply and demand

chains are de-coupled, and inventory

buffers are used to provide a connecting

link. Today, however, the objective is to

synchronize the supply and demand chains

(Figure 2) to provide flow-through opera-

tion made possible by crossdocking. In this

model, the chains are coupled, and cross-

docking replaces inventory buffering as the

linking mechanism.

Obviously supply-chain reliability is

critical when operating with minimal

inventory buffers. (If product does not

arrive from the supplier on time, there is lit-

tle contingency in the inventory buffers.)

Therefore, information sharing is crucial.

Before considering the role of

advanced information technologies, look at

a simple and basic information technique

— labeling. The easiest labeling scenario is

when stretch-wrapped pallet loads travel

intact to the ultimate destination. Since

each case in the load does not have to be

identified, only the pallet requires identifi-

cation, on two faces if possible.

On the

other hand, incoming pallet loads that have

to be broken down will require labeling of

individual cases or items, and the number

of pieces to each consignee identified.

Crossdocking becomes more compli-

cated when less-than-full-case situations

are involved. Unpacking, picking, packing,

and labeling obviously are more time con-

suming. Some distributors choose not to

crossdock less-than-full-case deliveries.

IT the Key

Information sharing and collaboration

among trading partners are critical for suc-

cessful crossdocking which, in turn, pro-

vides the means for supply-chain synchro-

nization. At the supplier or manufacturer

level, important information technologies

(IT) include production scheduling,

advance ship notices (ASNs), and trans-

portation management systems (TMS). At

the warehouse execution level where

crossdocking is performed, warehouse

management systems (WMS) perform daily

planning and execution. This step involves

an awareness of future orders, plus knowl-

edge of the destination of an incoming item

even before it is received. Also, yard man-

Third Issue 2004

Figure 2.

Supply and demand chains are coupled and synchronized by crossdock-

ing, which replaces or greatly minimizes inventory buffers.

Figure 1.

Traditional supply-chain-management model uses inventory buffers (tradi-

tional warehousing) to maintain product flow between disconnected supply (manu-

facturer) and demand (customer) chains.

Traditional Supply-Chain Model

Synchronized Supply-Chain Model

agement systems (YMS) may be involved.

By providing visibility to all dock and yard

storage locations, the YMS paves the way

to better, advanced crossdocking planning.

Finally, at the demand or customer level,

point-of-sale (POS) software is an impor-

tant tool, along with order management

systems (OMS) and, in some instances,

vendor-managed inventory (VMI) systems.

Further information on these various sys-

tems is provided in the box, "Translation of

the Acronyms."

Crossdocking at Sears

Collaboration with trading partners is

certain to be one of the next big areas for

improvement and development, according

to Lt. Gen. (ret.) Gus Pagonis (Figure 3),

who is president of Sears Logistics

Services, an in-house logistics/distribution

provider for Sears, Roebuck & Co. Pagonis,

who was the top U. S. Army officer in

charge of all logistics and distribution dur-

ing the Gulf War in 1991, is also a senior

vice president for distribution at Sears,

headquartered in Hoffman Estates, IL. He

notes that collaborative forecasting in par-

ticular is critical for making crossdocking

work properly.

Pagonis explains that with the broad

array of products Sears handles, ranging

from nuts and bolts to fashion items to

refrigerators and lawn tractors, crossdock-

ing must be programmed and monitored

carefully. A major part of the process is cor-

rectly forecasting arrival of goods and the

availability of space, time, and onsite mate-

rials needed to create outbound loads for

same-day shipment to all the department

stores in Sears' U.S. network. Not only

diversity of products, but also their season-

ality, affects when items are received, in

what quantity, and whether or not cross-

docking is appropriate. In the north, for

example, patio furniture and lawn-care

products are not likely to be shipped in late

fall or early winter; snowblowers are. In

warm climates on the other hand, demand

continues for lawn equipment and lawn

furniture virtually throughout the year.

Sears operates ten appliance distribu-

tion centers (DCs) in the United States, along

with seven large, general merchandise ware-

house distribution centers. Store replenish-

ment and sales event needs are met through

crossdocking of vendor-supplied goods,

through the seven general merchandise DCs

to the stores. Crossdocking is performed at

virtually all DCs, but the extent to which it is

performed varies by the product category, or

"channel." Thus, for the channel comprising

appliances and other "hard-line" goods,

about 60-70 percent of incoming products

are crossdocked, and 50-60 percent for other

lines. Bar coding is used extensively in all

networks, and radio-frequency data commu-

nication (RFDC) capability exists in all loca-

tions. Sears is investigating applicability of

radio-frequency identification (RFID) tech-

nology in its systems.

Typically the DCs receive truckloads of

merchandise from vendors, generally in the

form of pallet loads or large units (such as

Target Volume 20, Number 3

Figure 3.

Lt. Gen. (ret.) Gus Pagonis, president of Sears Logistics Services, an in-

house logistics/distribution provider for Sears, Roebuck & Co.

refrigerators or stoves). When necessary,

pallet loads are broken down to the case

level, and outgoing loads assembled and

shipped out to stores the same day, when-

ever possible. Given the magnitude of SKUs

handled by Sears, cycle times are very

important for getting the right products to

the right stores on time. Smaller items, in

less than full-case quantities, are not cross-

docked, but directed to storage and put-

away for subsequent order processing.

Some of these items may be products such

as tools, which are assembled into packs

that customers will readily take home from

stores.

Sears has been practicing pro-

grammed crossdocking for about ten years.

All partners in the chain — suppliers, distri-

bution centers, and retail stores — have

benefited from the significant inventory

savings. Inventory benefits have included

not only the values of inventories that had

to be held in the past, but also the savings

in warehouse space and costs of handling

and storage in the warehouse. The savings

are best illustrated by the fact that addition-

al DCs have not been built to support new

formats and increased unit disbursements.

When Crossdocking Does — and

Doesn't – Apply

Consultant Dave Luton identifies the

following types of products as generally

being suitable for crossdocking:

• Back-ordered items

• Seasonal (or promotional) merchandise

• High-volume products in steady demand

• High-value products

• Products having short leadtimes.

On the other hand, Luton points to the

following products as not generally being

suitable for crossdocking:

• Bulky, awkward items that are difficult

to handle

• Items arriving before seasonal promo-

tions begin

• Slow-moving, low-value products

• Items purchased in large bulk quantities

• Products having long leadtimes (includ-

ing overseas shipments).

Crossdocking is practiced in a diversi-

ty of industries. The grocery industry is a

natural, because it typifies a closed-loop

system, involving daily deliveries from sup-

pliers, and regular deliveries to a fixed set

of customers. Surprises are usually uncom-

mon. Parcel delivery companies also are

practitioners, although at the case or pack-

age level. Typically voice data, bar coding,

and RF systems are used in such opera-

tions. Various manufacturing industries,

automotive parts distribution, and, as we

have seen, retailing, are other strong appli-

cation areas for crossdocking.

In discount retailing, Wal-Mart has

been identified as the king of crossdocking.

In fact, industry sources have pointed to

crossdocking as one of the major factors

accounting for the company's rise to pre-

eminence in its field. Wal-Mart reportedly

delivers about 85 percent of its merchan-

dise using crossdocking operations.

Suppliers are part of the process. Using a

private satellite communications system,

Wal-Mart transmits point-of-sale (POS)

information to suppliers, to keep them

informed about sales activities and trends.

Suppliers (manufacturers) are instructed to

pack orders so they can be readily cross-

docked at Wal-Mart's DCs. Thus, some sup-

pliers are now picking orders of mixed

SKUs (stock-keeping units) that are packed

for individual stores. When they arrive at a

Wal-Mart DC, they do not go into inventory

storage, but keep moving and, whenever

possible, are processed out the same day.

In any case, such merchandise stays in the

warehouse for less than 48 hours. From the

supplier's point of view, greater effort is

required in packing for crossdocking. On

the other hand, the practice results in better

customer service by getting goods to stores

faster and helping to keep shelves filled.

Crossdocking has helped Wal-Mart

achieve significant reductions in inventory

and safety stocks, and therefore in the cost

of holding inventory. It has also helped the

company achieve purchasing economies by

dealing in full truckload quantities. The

result has been a significant reduction in

the cost of sales.

The company's logistics

practices have helped to keep prices down,

Third Issue 2004

thereby benefiting the ultimate customer.

Technology is an important part of

Wal-Mart's logistics processes, and this fact

was highlighted in the company's recent

mandate that suppliers provide radio-fre-

quency identification (RFID) tags on pallets

and cartons they ship to the company, by

January 2005.

The use of RFID is expected

to improve efficiency and speed of receiv-

ing operations, including crossdocking.

Bar coding, used widely today, requires

a line-of-sight scan, typically made by an

employee using a hand-held scanner.

Because RFID does not require line-of-sight

scanning, less labor is required. Further, a

good deal of time may be spent positioning

the goods so bar code labels are in a line for

line-of-sight for reading. With RFID, cases

can be stacked without considering label

orientation.

A bar code scanner typically scans one

bar code at a time. An RF reader, on the

other hand, can read multiple tags. Besides

speed, accuracy can also be improved.

RFID can track inventory without relying on

an operator doing a scan (a source of error

can occur if the operator performs an

inventory move without performing the

necessary scan).

A Compromise Approach

Pure crossdocking (Figure 4) does not

always work. While it has been a major tool

for helping to reduce costly inventory hold-

ing and for expediting orders, it has not

been a total replacement for storage. Late

changes in customer orders, canceled

orders, incomplete production runs, ship-

pers running out of stock, outbound vehi-

cles not filled to economic capacity, and a

host of other circumstances may make

crossdocking a questionable alternative to

storage at times, even with the best of

information technologies at work. A com-

promise approach, which some have called

"pause in transit," provides some degree of

storage to supplement crossdocking opera-

tions.

The compromise scenario designs for

crossdocking, but also provides for a cer-

tain amount of storage. The storage may be

Target Volume 20, Number 3

Figure 4.

In the simplest form of crossdocking, pallet loads from incoming trucks

are routed directly to outgoing trucks, for shipment to various destinations such as

retail stores. It is usually good practice to keep receiving and shipping docks close to

each other, preferably on the same side of the building. Or, in some cases, a long,

narrow building permits easy crossover even if docks are on opposite sides.

Figure 5.

Incoming materials are blended with items coming from onsite storage to

complete outbound loads. If the warehouse is co-located with a manufacturing facility,

items coming off the production line may be sent directly to pallet make-up to be

blended with items coming off arriving trucks. In some instances, some incoming

materials may also be routed to storage instead of all being crossdocked immediately.

in outdoor trailers, or within the warehouse

but close to the shipping area. Racks may

be provided near dock doors to facilitate

quick retrieval of items that were not

immediately crossdocked. Some of these

approaches may be more properly termed

staging rather than storage, because of

their short-term duration. The compromise

staging/storage/crossdocking approach

may also help the manufacturer maintain

economic production volumes while still

fulfilling the needs of partners down the

line in the supply chain.

It has been said that the best ware-

housing is no warehousing at all. Obviously

that sentiment is impractical, but cross-

docking in its various forms can provide

alternatives to the utopian dream. When

properly executed and monitored, it can

serve as a tool for synchronizing the supply

chain, and for producing significant space,

labor, and inventory savings.

Ray Kulwiec is a writer specializing in mate-

rial handling, manufacturing, and supply

chain topics. Based in Arlington Heights, IL,

he has covered these fields for many years as

an editor, and has served on the board of the

Materials Handling & Management Society.

He can be reached at [email protected]

Footnotes

1. Westburgh, Jesse T., "Cross Docking in the

Warehouse — an Operator's View," Ackerman

Warehousing Forum, August, 1995, The Ackerman

Co., Columbus, OH.

2. Inventory turns can vary widely depending on indus-

try and application. Annual turns of 80-100 are not

uncommon in automotive assembly. In less-than-truck-

load (LTL) terminals, they can be twice a day or over

500 per year.

3. Luton, David, and Bard Critoph, "Warehouse

Design for Supply Chain Synchronization," 2003

Supply Chain & Logistics Canada (SCL) Annual

Conference & Tradeshow, Canadian Association of

Supply Chain & Logistics Management.

4. Luton, David, "Cross-docking often proves effective

as alternative warehousing strategy,"

Internal

Logistics

, August, 1999.

5. "Logistics Execution Systems: A Guide to

Understanding and Procuring LES," Logistics

Execution Systems Association, Charlotte, NC, 2002,

http://www.mhia.org/LESA

6. "Solutions: Cases," University of South Carolina,

Computer Science & Engineering,

http://www.cse.sc.edu/~zavalagu/MGSC798ESCcase

s.htm

7. "Crossdocking: Giving your product wings,"

Modern

Materials Handling

, December 2003, Reed Business

Information, Newton, MA.

8. "Wal-Mart Outlines its RFID Plans,"

Modern

Materials Handling

, December 2003, Reed Business

Information, Newton, MA.

9. Singer, Tom, White Paper, "Understanding RFID —

A Practical Guide for Supply Chain Professionals,"

Tompkins Associates, Raleigh, NC, 2003.

10.Patterson, Don, "Pausing-In-Transit — A Distinctive

Option in Distribution," Ackerman Warehousing

Forum, April 1999, The Ackerman Co., Columbus, OH.

11. Specter, Sara Pearson, "How to crossdock suc-

cessfully,"

Modern Materials Handling

, January 2004,

Reed Business Information, Newton, MA.

12. Napolitano, Maida, Gross & Associates, "Making

the Move to Crossdocking: A Practical Guide to

Planning, Designing, and Implementing a Cross Dock

Operation," Warehousing Education and Research

Council, www.WERC.org

Third Issue 2004

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