July 1, 2008
Logistics technique reduces costs, improves service

All Businesses are faced with the challenge of managing their supply chain operations. A changing business model — the shift to Internet-driven, customer-centric service — is putting more pressure than ever before on logistics operators to run “perfect” supply chains. Cold chain logistics management is no exception.

In fact, the stakes are higher in cold chain operations than in many industries, particularly in the food and beverage segment because of the short shelf-life of the products and high-frequency of deliveries.

“Perfect orders — identified as on-time, accurate, and complete — are a food and beverage company's most significant key performance indicator (KPI),” said Ron Cain, president and chief executive officer of TMSi Logistics, a third party logistic provider, headquartered in Fernandina Beach, Florida. “Neglecting this crucial KPI puts companies at risk of losing customers and, ultimately, causing permanent damage to their bottom line.”

Many companies cite capacity issues, customer demands, and inbound/outbound logistics as some of the greatest challenges facing the food and beverage industry today, he said. “One way that companies are conquering these challenges is through cross-docking, a practice that has demonstrated great improvements in the transportation of perishable goods.”

Basically, cross-docking is the practice of receiving goods at one door of a facility and shipping out through another door almost immediately, without putting the goods in storage. This helps eliminate the storage and picking functions of a warehouse.

Moreover, product flow accelerates as products are routed to their destinations as soon as they are received. This is particularly important for perishable or high-value products, which should not be sitting in inventory. With less inventory, labor and storage costs are reduced, as are the costs for the inventory itself.

Nationwide, more companies are finding cross-docking to be a business advantage. Cain cited results published in the 2007 Food Logistics Industry Report that show that nearly 43% of respondents have increased their cross-docking practices in the past five years. Respondents included grocery companies and food and beverage processors.

Why the recent shift to cross-docking? The benefits of cross-docking, especially in refrigerated transportation, are “significant,” he said. The key benefits are reduced costs and improved service levels for the customers, which ultimately improves a company's bottom line.

Success ingredients

A basic cross-docking system has three parts, explained Cain. First, inbound shipments are received and unloaded. Second, the shipments are sorted in a staging area, allowing for easy movement to a corresponding loading dock. The final step is loading the products into trucks for distribution.

“This easy three-step process requires minimal personnel and less time and space than traditional warehousing methods,” he said. “Shipments usually remain at the facility for no more than 24 to 48 hours, although cross-docking schemes are flexible and can be tailored to a company's individual needs.

For example, one company may receive inbound loads twice a day yet ship out only once a week. Another company may receive inventory and dispatch shipments daily.

While almost any company can implement cross-docking, some companies are inherently more susceptible to cross-docking success than others. Cain said companies that experience rapid growth are often good candidates for the technique. “Since goods are usually received and shipped in less than 48 hours, inventory is kept to a minimum, and the need for costly warehousing and storage improvements is eliminated.”

The nature of the shipped product also is important to the success of cross-docking. Companies that must transport a large volume of temperature-controlled goods in a short amount of time with high accuracy reap the most benefits from cross-docking.

“The timely and efficient movement of perishable items reduces costly less-than-truckload (LTL) shipments, as well as the percentage of goods that surpass their expiration dates on warehouse shelves,” said Cain.

Businesses that suffer from debilitating high transportation or labor costs should consider cross-docking as a viable option, he said. “By consolidating LTL shipments into full loads at dedicated cross-docking facilities, a company is able to justify the time and expense of implementing a cross-docking system based on the transportation savings alone.

“A company choosing to cross-dock will benefit from labor savings since fewer workers are required for warehousing, and a decreased number of drivers are needed as LTL shipments are reduced.”

Service enhancement

Along with cutting labor, storage, and transportation costs, cross-docking improves the level of service a company can ensure. A successful cross-docking plan is flexible enough to address unexpected events such as shipment delays, production delays, and demand swings, all of which affect the ultimate quality of service provided.

“Unlike traditional shipping and warehousing methods, cross-docking is a dynamic and responsive model that eliminates the rigid, linear value environments of outdated supply chains,” said Cain.

“Furthermore, companies can realize substantial service improvements by cross-docking because it minimizes or eliminates the time that perishable goods sit in warehouses before reaching the marketplace. Frequent deliveries also allow the customer to continuously replenish inventory, ensuring that customer inventories are always full with limited or no overstock.”

Another service-related benefit of cross-docking is that it allows distributors to deliver a customized mix of goods to the customer. Well-organized cross-dock schemes are able to break pallets into individual orders and use picking systems to retrieve merchandise stacked on pallets layer-by-layer or case-by-case, Cain said. A supplier is able to send delivery-ready shipments to the cross-dock, which can then be routed directly to the customer.

Core focus

The trucking industry is comprised of an extensive network of trading partners, including suppliers, manufacturers, distributors, and retailers. “All aspects of business, including cross-docking and effective cold chain management, have, therefore, become a collaborative effort,” he said.

“As a result, many companies responsible for refrigerated transportation are choosing to outsource their cold chain operations to a third party logistics provider.”

Cain said outsourcing to a 3PL allows a company to focus on core competencies, leaving the work of managing cold chain — and its cross-docking scheme — to a qualified collaborator.

To achieve all the possible benefits of cross-docking, he advised companies to: “Assess whether your existing infrastructure is capable of making the change to cross-docking, or if there is greater benefits in entrusting your cold chain operations to a qualified third party provider.”

About the Author

David Kolman

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