The major concern of big organizations in implementing an efficient supply chain network is improving the flow of material throughout a complex network. One way to improve the flow is with crossdocking and to expedite the process of materials throughout the supply chain channel. In this post, I would like to review the transformation of distribution center operations by using IT solutions to expedite the flow of products and minimize the cost of inventories.
The Trouble with Traditional Supply Chain Networks
Let’s start with a simple example (figure 1): The distribution center provides a consolidation point in the supply chain network and acts as a buffer to reduce the number of shipments and manage uncertainty. In a daily distribution process, the shipment of plants 1 and 2 arrive to distribution centers 1 and 2, are off loaded, and stored. When the distribution centers receive the demand from the customers (C1 to C4), they begin the replenishment process by retrieving the products from storage, loading them, and shipping them off. These processes are non-value added from the customer point of view, and considered waste. The best solution to eliminate or reduce these non-value added processes is to get the plants to the distribution centers at the right time, consolidate on the spot, and ship to customers with the right quantity. This holistic view of supply chain operations was hard to achieve in the past. In traditional supply chain networks, each site only corresponds to its next level transfer site, and lacked the information and visibility to connect the supply and demand efficiently. However, the beauty of end-to-end supply chain solutions with the help of IT is having the visibility of the entire network beyond one site and customer.
The Pros and Cons of Crossdocking
A broad definition of crossdocking is to transfer the goods and materials from an inbound carrier to an outbound carrier without storing it at a warehouse1. Advantages of crossdocking including minimizing the inventory and expediting the customer order, which leads to more customer satisfaction. If we summarize the distribution operation to some key processes, we would have:
- Picking, and
Implementing crossdocking would reduce above processes to just:
Crossdocking will decrease the inventory and safety stocks, and will eventually reduce the cost of inventory on hand, as well as labor costs and the number of part damage. Also, by implementing crossdocking, an organization can reduce the number of touches applied to materials, reducing the cycle time. Therefore, crossdocking is a good way to improve the flow of the material in the network. Nonetheless, implementing crossdocking is not easy, and needs a lot of consideration and prep. Crossdocking must be programmed and monitored carefully, and requires a good collaboration among all members of the chain. The basic steps involved in implementation of crossdocking are:
- An awareness of the demand at customer level (point of sale)
- Knowledge of the destination of incoming items even before their arrival at distribution centers, and
- The same unit of measure from both inbound and outbound carriers.
Moreover, it is not feasible to apply crossdocking on every part type. For example, the slow moving inventory parts should not be considered for crossdocking. The rule of thumb in selecting the right product for crossdocking should be back order items, seasonal parts, high value products, and products having short lead time. In the current version of Rapid Response, the order fulfillment distribution planner will be able to identify the parts that are fit for crossdocking. These parts are flagged as a crossdocking opportunity and are shown on the distribution planner dashboard. The planner sees a report of incoming and outgoing parts to/from a distribution center on daily bucket with the same unit of measure. This report will help the planner to easily send the report to a warehouse manager to prepare the dock for implementing crossdocking. In Summary, the crossdocking should not be used to replace inventory. Late changes in customer order, disruption in production planning, and shipment disorder are all examples that make the inventory inevitable in supply chain network. But if it implements correctly then it improves the flow of goods in the network and will reduce the holding inventory.
1) Crossdocking as a supply chain strategy, Ray Kulwiec , target volume 20, Number 3.