Cross Docking Strategy – What it is and how to set it up
All e-consumers want the best. Quick delivery is one of the factors that drive their level of satisfaction with online stores. At the other end of the chain, e-commerce players have spotted this trend and have increasingly engaged with logistics strategies. Cross Docking methodology may provide the ideal solution for this matter.
When prices, product quality and payment methods are similar, in this case, delivery will then probably be the key opportunity to make your offering stand out.
In this respect, Cross Docking may be an effective strategy to boost the competitive edge. Properly deployed under the right conditions, it can streamline logistics processes and get deliveries through to your customers faster. Has that piqued your interest? Now let’s learn about Cross Docking strategies and how to set them up!
What is Cross Docking?
A retailer using Cross Docking logistics procedure does not necessarily have to keep products in storage at a distribution center. When an order is placed, the retailer sends a purchase request to their supplier, who will then send the products to the retailer.
When products reach a retailer’s distribution center, internal processes are streamlined because items have already been sold, so there is no need for storage.
The retailer will have to check items on their inbound dock to detect any discrepancies.
Then the process jumps directly to picking orders and follows the normal workflow. Now we have clearly shown that cross docking means shrinking distances between your company and your supplier while cutting operational costs and lowering inventory risk.
Now let’s take a look at the advantages and disadvantages of this model for e-commerce.
What are the advantages of Cross Docking?
Here are a few of the main advantages of Cross Docking:
- retailers bear less risk of having products left on shelves since an order is only sent to a supplier once the item has been sold by their online store;
- one of the major costs for e-commerce is holding inventory; cross docking strategy means we can cut back or even largely eliminate these costs;
- less inventory investment is needed since when forecasting the quantity we are going to sell, we have to take a risk on some items;
- distribution centers occupy significantly smaller sites since we do not need so much storage space;
- higher inventory turnover, since products purchased are the top sellers and biggest revenue drivers for online stores.
How does Cross Docking work?
Cross Docking methodology may seem like an ideal logistics system to meet the demands of online stores, but it does involve complexities and tight integration across sectors. It requires radically different ways of managing your stocks and purchase/sale systems.
This is an aspect that wrong-foots many e-commerce owners. The absence of comprehensive knowledge and thorough planning for operations may pose a risk for the entire strategy and cancel out its advantages.
Here are a few barriers that get in the way of proper functioning for this methodology:
- major investment is needed to integrate supplier and store systems;
- weak supplier controls may lead to inventory losses and consequently harm end customers;
- slower final delivery rates for customers, since they have to wait for items to reach a distribution center before starting the process;
- higher costs of delivering items to retailers, since more deliveries will be made during the month than under the traditional model that concentrates hundreds of items on just one cut-off date;
- less bargaining power, since this model enables retailers to transfer some responsibilities to suppliers;
- possibility of narrowing a store’s contribution margin since each purchase has a smaller quantity compared to just one purchase at a given time.
What we mean to say is that using Cross Docking methodology can be very advantageous for your business, but it involves managers changing the way they think.
Manufacturers, distributors, online stores and logistics companies need to leave differences aside and work together for everyone to develop their business.
Therefore, you must see whether your segment allows this strategy to be adopted by asking the following questions:
- is delivery time critical for customers in your segment?
- do product margins allow you to absorb higher costs of shipping goods to your distribution center?
- will your supplier work closely with you or will you be just one more buyer?
How is a Cross Docking strategy set up?
E-commerce is one of the segments that use Cross Docking methodology the most and although it poses several advantages for a company and clients, it is preloaded with obligations and precautions that must be taken to avoid turning the method into a business villain.
So we have listed some key recommendations to help adopt the strategy and make the most of it. Check it out:
- assess your ABC curve and identify potential items as well as suppliers that may be ready for Cross Docking. If you opt for A curve items, you will have a high potential for savings, but you will also have to worry about more details; after all, this curve should account for over 70% of your sales;
- adopt different delivery “speeds” such as economical, normal and express. If a customer chooses an economical delivery, you can work with these items within Cross Docking methodology;
- select the suppliers that have the best inventory controls and with whom you already have previous relationships. If a problem arises, you can rely on them to find a quick solution;
- review your internal processes to enable any adjustments for Cross Docking. The whole operation must be working harmoniously
One of the factors that can affect an online store’s success is quick high quality delivery, since this process directly affects consumer satisfaction. Therefore using Cross Docking is a very attractive alternative for e-commerce in Brazil particularly. But remember: adopting it involves planning and properly thought out approaches.
Omnichannel and Cross Docking?
We must also mention the benefits of implementing this strategy for your company. There are numerous benefits for stores selling a wide range of items, such as supermarkets and drugstores.
These two segments may be holding hundreds of thousands of items and each of their stores may have different availabilities for each item. When we implement cross docking in-house, we can serve customers more products and stock more items.
This methodology uses what is known as a delivery pocket or pool in which a store is selected as the main one serving a region’s customers while other smaller stores located nearby will top up the assortment of products offered.
If a customer comes in to buy a medicine for a headache, one for a cold and another for a cough, the main store may have the cough medicine while two nearby stores have the others.
Deploying this strategy will ensure both higher sales and orders for higher average tickets.