Here’s a question for operations-minded people: should you cross-dock?
Cross-docking refers to moving a product from a manufacturer to a fulfillment warehouse, which then turns and delivers it directly to the customer with little or no material handling in between.
Why would a fulfillment operation do that? Sometimes, it makes more sense for a retailer to cross-dock an item than to hold it in inventory. For example, you carry a unique piece of jewelry that appeals to a small portion of your target market. It’s so special that it’s challenging to find with other retailers, but it doesn’t sell more than 100 a year. You want to continue selling the product, fully packaged in your pretty pink box with your logo on the side that your customers know you for, but you don’t want the jewelry sitting in your warehouse taking up space (and costing you money!) when you have other items that turn over more quickly.
Is it right for you? It all depends on your ecommerce business goals. Here’s a breakdown of the benefits and drawbacks.
- Reduced labor costs – Cross-docking eliminates the “pick” in pick, pack, and ship, saving valuable time in the order lifecycle. Also, since the product comes directly from the manufacturer or wholesaler and is ready to ship, there’s no inventory replenishment involved inside the warehouse.
- Reduced warehouse footprint – For retailers with a limited warehouse footprint (or who would instead free up space for higher-selling or higher-value SKUs), cross-docking makes sense. Since that item isn’t in stock, it’s not sitting on the warehouse floor, taking up valuable space – and possibly costing you money.
- No inventory ownership – When you cross-dock, the product comes in, gets scanned into your OMS, and heads back out. There’s no need to inventory the item, set up reorder instructions, pay vendors for large orders, or track the SKU for shrinkage or damage. The inventory is owned by the sending company only!
- Easier for bulk orders – If you’ll be selling items in lots, it’s much easier to have them packaged, labeled, and ready to ship at the dock than to pick and assemble a package of those items before shipment.
“But why not just drop ship the product instead?” you might ask.
In some cases, shipping directly to the customer makes more sense. If a retailer wants to control the customer’s overall brand experience (i.e. custom packaging, labeling, shipping an order complete versus split-shipping an order, etc.), then cross-docking becomes a more attractive option.
There are a few drawbacks to cross-docking, however.
- Project management – Cross-docking operations don’t run themselves: it takes technology, time, effort, and capital investment to develop a long-term program that works. If cross-docking is something your operations would benefit from, it may make more sense to talk to an outsourced provider who already has this system versus attempting to start your own.
- Supplier trust factor – A successful cross-docking operation depends on suppliers who provide the right product on time and in perfect condition. If that’s not the case, then orders quickly get delayed, causing customer frustration and a lot of headaches. That’s why it’s essential to consider the supplier trust factor when adding cross-docking to your inventory repertoire – and choose only partners you know can deliver (no pun intended).
When done correctly, cross-docking can give retailers a more comprehensive product mix without the headache of more inventory management while still allowing them to control the customer experience.