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Cross-docking favors the timely distribution of freight, a better synchronization with the demand, and more efficient use of transportation assets. The distribution center essentially acts as a high throughput sorting facility for several suppliers and customers. Cross-docking is particularly relevant to the retail sector (often within large retailers), to parcel deliveries (sortation centers), but can also be applied to manufacturing and distribution. Its advantages involve minimizing warehousing and economies of scale in outbound flows (from the distribution center to the customers). With cross-docking, the costly inventory function of a distribution center becomes minimal while still maintaining the value-added functions of consolidation and shipping. Inbound flows (from suppliers) are thus directly transferred into outbound flows (to customers) within a short time frame and limited warehousing. Shipments typically spend less than 24 hours in the distribution center, sometimes less than an hour when parcels are involved.
In a conventional distribution system, goods are stored in a distribution center (or kept in inventory at the supplier) and wait until ordered by a customer. Under such a setting, it is difficult to have shipments that are not less than truckload (LTL). With cross-docking, goods are already assigned to a customer. The distribution center receives goods from suppliers, sort them directly to be shipped to a consolidated batch (often including other orders from other suppliers) to customers. Since there is for each supplier fewer shipments, most of them are full truckload (FTL).
Cross-docking can be applied to a number of circumstances.
- For manufacturing, cross-docking can be used to consolidate inbound supplies, which can be prepared to support just-in-time assembly (parts for different stages of an assembly line).
- For distribution, cross-docking can be used to consolidate inbound products from different suppliers which can be delivered when the last inbound shipment is received.
- For transportation, cross-docking involves the consolidation of shipments from several suppliers (often in LTL batches) in order to achieve economies of scale with FTL. Since many deliveries are returning empty, it gives the opportunity for “backhauling”. Trucks returning to the distribution center can pick up a consignment from a supplier.
- For retail, cross-docking concerns receiving products from multiple suppliers and sorting them for outbound shipments to different stores. The world’s biggest retailer, Wal-Mart, delivers about 85% of its merchandise using a cross-docking system with a typical turnover of 90% within a day.