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Fleet optimization done painlessly: supermarkets are beginning to find out what other retailers have known for years--it doesn't pay to bury product in the warehouse. Cross docking could be the answer to this problem. (Distribution & Logistics).

A fly step, or handling process, that can be eliminated in the supply chain helps to streamline fleet utilization. Conceptually this is a no-brainer; operationally it is a feat that is much harder to pull off.

Ideally, products should be able to simply "pass through" warehouses and distribution centers without stopping, certainly without having to be put into slots for a prolonged period of time. The best way to move product through a warehouse is with minimal handling--take it off a manufacturer's truck, put it on the dock and carry it straight onto another truck bound for retail.

Thus explains cross docking. While a beautifully simple concept, its operational complexity remains enormous. The reality is that trucks arrive at warehouses or distribution centers from multiple manufacturers, forcing the pallets to be broken up and rebuilt. It is at this point that cross docking loses most of its innate charm. Yet, with the proper support tools and coordination, cross docking can work effectively and drive costs out of the system.

"I think some retailers have been doing it for years, but the grocery retailers are just starting to do it," says Chris Kane, vice president of sales and marketing for Kane is Able Inc. The Scranton, Pa.-based distributor works with retail clients such as Sam's Club and Topps. "They [supermarket retailers] are recognizing the enhancements and savings coming from cross docking. We have seen that the mass merchants have adopted cross docking much sooner than grocery."

Kane expects that most supermarket retailers will soon begin taking advantage of cross docking for elements of their supply chain distribution. Several different types of cross docking exist that can be applied. In a white paper entitled, Crossdocking: Just-In-Time for Distribution, Kevin R Cue, of the Naval Postgraduate School's Graduate School of Business & Public Policy, based in Monterey, Calif., defines four different types of cross docking:

* Distributor cross docking: Inbound products from different vendors are consolidated into a multi-SKU pallet, which is delivered as soon as the last product is received. For example, computer distributors often source components from different manufacturers and combine them into one shipment in merge-intransit centers, before delivering them to the retail customer.

* Transportation cross docking: Shipments are consolidated from different shippers in the less-than-truckload (LTL) and small package industries to gain economies of scale. For small package carriers, material movement in the cross dock is conducted by a network of conveyors and sorters; for LTL carriers it is mostly through manual handling and forklifts.

* Retail cross docking: Product from multiple vendors is received and sorted onto outbound trucks for different stores. Retail cross docking has been cited as a major reason that Wal-Mart surpassed Kmart in retail sales a decade ago.

* Opportunistic cross docking: In any warehouse, the transfer of an item directly from the receiving dock to the shipping dock to meet a known demand.

WHY CROSS DOCK?

Implementing a cross-docking program can be challenging for manufacturers and retailers, but like any supply chain enhancement program, it can increase supply chain efficiencies and drive down costs.

"Of the four major functions of warehousing--receiving, storage, order picking and shipping--the middle two are typically the most costly," according to Cue. "Storage, because of inventory holding costs and order picking, is labor intensive. Cross docking is a logistics technique that eliminates the storage and picking functions of a warehouse, while still allowing it to serve its receiving and shipping functions."

Product flow is much faster in a cross-docking operation because products are routed to their next or final destinations as soon as they are received. As a result, inventory is greatly reduced--saving not only storage costs but the costs of the inventory itself.

Retailers ultimately should be able to trim warehouse space, since the majority of cross docking in the supermarket industry takes place at the retailer's own distribution center. If cross docking is used with perishable products, then the amount of frozen and refrigerated storage space should also be reduced, offering retailers significant savings.

"Stockholding warehouses and distribution centers are coming under greater pressure to meet the requirement of a more demanding consumer market, yet reduce operational and overhead costs to maintain profit growth," said Michael Johnson, warehouse and systems design manager for Amsterdam-based TNT Logistics, in a landmark paper, Developments in Cross-Docking in Retailing, that was presented to the Institute of Logistics annual conference in 1998.

In many respects, noted Johnson, this combination could be viewed as a "no-win" situation for retailers because operational costs have to be reduced yet throughput has to increase; inventory has to be reduced as product lines increase; and sales space has to increase, although shop storage will decrease.

"It is these sorts of demands that have spurred the growth of cross docking," said Johnson. "Whilst not pretending to solve all issues, it does offer significant opportunities to reduce costs in the distribution center by reducing inventory and hence physical size, whilst accepting and managing a larger range of product lines at greater throughputs. A cross-dock system has the potential to reap many benefits for the retailer and to justify its implementation in terms of reduced overhead and costs."

SYSTEM IN OPERATION

Cole Myer was the first retailer in Australia to implement automated cross docking as a major component of its supply chain. Designed by Siemens Dematic, located in Grand Rapids, Mich., the cross-docking system provides Cole Myer with the ability to cross dock the contents of 200 trucks per day, with the facility generally cleared of stock by 6 p.m. In addition to sorting more than 5,000 bulk cartons into discreet order quantities each hour, it can sort cartons to exact in-store locations, such as a particular floor for multilevel stores.

According to the Siemens Dematic organization, product is manually loaded into the system at the distribution center from a bank of pallets where incoming merchandise is staged. The majority of cartons are supplied with bar-coded labels, which identify the products' destination. Those cartons without bar codes have them applied before being placed on the cross-docking system.

Three feeder lines convey cartons from the goods receipt to the sorter induct station where the physical characteristics of each carton are automatically determined by a series of photoelectric sensors. The control system also determines the weight of the carton based on the amount of power being drawn by the induct conveyor belt. An array of 14 barcode laser scanners are used at the induct station to make sure the bar code labels on the cartons are correctly scanned, regardless of their orientation. This data is used by Siemens Dematic's control system to track the carton through the sorter and instruct the sortation controller to divert the carton at the correct sort lane.

After the cartons are diverted at a particular sort point, they accumulate on a gravity roller conveyor at the end of the sortation lane. Pallets are hand-stacked and transferred by forklift or pallet truck to the designed staging area for each store.

PRODUCT EXPERIMENTATION

While some observers have lofty predictions of how much an effective cross-docking operation can reduce warehouse storage space, these ideas are still far from fruition. Most cross-docking operations, especially those within the supermarket industry, are very small in nature and limited to certain product categories. Current estimates place the amount of total SKUs being cross-docked at around 5%.

Generally, supermarket operators have done a better job developing cross-docking programs for products that need quick delivery or that haven't traditionally been well-slotted within the warehouse than consumer packaged goods manufacturers have.

"Some retailers are doing cross docking for seasonal merchandise, and some are doing it for categories that they take and run promotions for," says Kane. "We do a lot of value-added services where we'll build displays and tie them in with a promotion and cross dock them right at the grocery distribution lane."

On the other end of the product spectrum, many supermarkets are implementing cross-docking programs with their perishables. The idea is that these products, especially produce, need to be moved out quickly from warehouse storage. So far, these programs have met with mixed success.

"They were trying to use it with their freshest products, but a lot of the drive wasn't there to really develop sophisticated programs because it was often just cheaper to use manpower," says David Habib, vice president of product consulting for Denver-based Swisslog. Part of the problem with successfully implementing a perishables cross-docking program is that software tools are not growing as quickly as the need for such a program, adds Habib.

Similar to other logistical best practices, cross docking is highly dependent upon the management of data flow across all supply chain parties. Cross docking, without accurate and timely data, is often relegated to boxes sitting on loading docks or empty trucks waiting for a shipment. Accurate vendor shipping and delivery information (advance shipping notifications) need to be communicated to the warehouse and also to the inbound and outbound trucking companies. Likewise, the retailer has to have the inbound orders pre-allocated to the individual stores. An error on the part of any participant, even a small one, can ruin the entire shipment.

According to Habib, many supermarket operators have been employing their own homegrown data systems or are still using older systems, which are mostly batch systems. With a batch system, the lead time must be much longer than some of the newer systems that are on the market.

Swisslog has developed a Warehouse Manager real-time system that not only manages the inbound product, but is able to "hot flag" those items that need to be cross docked or that can work well in a cross-dock situation. The system has a voice manager component that directs the put-and-pick of products in a cross-docking program, guiding employees to the most advantageous floor space to temporarily store products for cross docking. The system's Automation Manager then directs the product into the put-away area or to an outbound door.

Habib believes that as new software is developed and retailers try to achieve more cost savings, maximize product selection and maintain margins, cross docking will become more prevalent in the grocery industry.

RELATE ARTICLE: CROSS DOCKING

Caption: Cross docking is highly dependent upon the management of data flow across all supply chain parties.
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Author:Litwak, David
Publication:Grocery Headquarters
Date:Oct 1, 2002
Words:1709
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