Monday, June 9, 2008

Cross-dock Revival

Cross-docking is an old idea with a new life, thanks to soaring transportation costs and capacity issues that are forcing shippers with time-sensitive supply chains to turn their warehouse operations into flow-through distribution channels.

"In an era when we have a strong emphasis on minimizing inventory and its costs, the cross-dock is sometimes referred to as the perfect warehouse," said Richard Armstrong, CEO of Armstrong & Associates, in his "Warehousing in North America: 2007" report.

Cross-docking was long regarded as a challenging, piecemeal strategy best suited to dealing with one-off distribution situations. But Thomas Patterson, senior vice president of warehouse operations at Saddle Creek, a third-party logistics and warehouse provider, said pain at the fuel pump may be convincing some shippers and service providers that the trade-off with cross-docking complexity is worth the other supply chain savings.

"I think the most important element here is that this is not a brand new concept by any stretch of the imagination," Patterson said. "But given the issue not only with just-in-time demand but also with fuel prices, you really have to construct an optimal supply chain, and cross docking… can be very effective to solve niche problems and challenges as well as supply-chain-wide challenges."

In an anonymous online survey performed for Saddle Creek by Reed Business, 52 percent of 547 respondents said they were currently cross-docking; 28 percent said they'd been doing it for more than 10 years. The strategy has enjoyed a renewed popularity, the Reed Business survey found, with 32 percent having adopted the practice within the past three years.

Patterson defined cross-docking as the process of receiving a product and shipping it out the same day using processes and technologies that bestow some supply chain efficiency that didn't exist before. Those benefits might show up as reducing the number of deliveries to a retailer for an LTL carrier consolidating many shipments into a truckload; or as reduced inventory carrying costs for a shipper using a cross-dock to deconsolidate and then reconsolidate products from multiple plants into customer or route orders for retail delivery.

According to Patterson, cross docking makes the most sense for shippers whose existing order cycles and distribution methods aren't equal to customer requirements; when existing distribution extends cycle times and increases obsolescence; when inefficient distribution creates inefficiencies in production; when lengthening supply chains make on-time performance prohibitively expensive; or when distribution costs exceed sales growth.

The Reed survey found 31 percent of respondents recorded two or more days of cargo storage time at their cross-docks. However the cross-dock is employed, Patterson said, "There have got to be cost savings."

A big barrier to that can be a lack of commitment to the strategy on the part of the 3PL or its customer. "You're not going to be successful in this model if you just put a cross dock out there and don't support it," Patterson said.

"If the guy in manufacturing isn't going to manufacture any differently… if the customer isn't aligned with what you want to do. … The building won't fix that," Patterson said. The cross-dock itself "will become a problem for the supplier, the shipper."

Visibility that tracks the movement of goods is the most important type of technology necessary to supporting a cross-dock. "Technology has to keep up with the speed of the movement of the product," Patterson noted. "The information associated with the product has to move at an equal or better speed. You almost by definition have to be real-time on all your transactions."

For this reason, Patterson said, many shippers rely on third-party logistics providers to run their cross-docks. A 3PL brings expertise, technology and infrastructure that most shippers would rather dedicate to their core competencies, he said.

Moving forward,

Jeff Roach

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