Chapter 6. What Is Cross-docking?

Welcome to Chapter 6 of our order management guide. In this chapter, we’ll explain what cross-docking is in order management.

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What Is Cross-docking?

Cross-docking is a fulfillment method where a customer orders an item that the seller might not  have, and so they order it from the vendor to send it to their warehouse and then ship it directly to the customer.

The term ‘cross-docking’ originated in the 1930s. It refers to goods crossing a shipping dock from arriving vehicles and being loaded onto other vehicles, which then take the goods on the next leg of their journey.

Typically, items arrive and are immediately sent out for delivery, spending almost no time in the warehouse.

Here’s how cross-docking works:

1. The customer makes an order.
2. The seller checks their inventory and sees they don’t have the item in stock.
3. The seller then orders the item from their vendor.
4. The vendor sends the item to the seller’s warehouse.
5. The seller then prepares the order—the product may need branded packaging, promo materials, free samples, etc. (The item may be part of a kit, so the items need to be grouped.)
6. The seller then ships the product to the customer. Instead of a courier service, delivery could be done by the seller’s vehicles or staff.

When Should Cross-docking Be Used?

Cross-docking is an effective way to get orders to customers when you oversell a product and cannot fulfill an order.

Larger e-commerce companies don’t rely much on cross-docking as they usually have enough control over their inventory to prevent overselling.

It can be costly to order just one small item and have it arrive from the vendor and sent out when they could make a much larger order, which would be more cost-efficient.

Cross-docking is more often used by smaller businesses, where managing to fulfill one order is more significant and can make the difference between a profit and a loss.

As mentioned in the previous chapter, having several additional options for fulfilling orders can be helpful for businesses so they can always fulfill orders regardless of the situation.

Some companies refer to cross-docking when they send inventory to FBA (Fulfillment By Amazon) or another fulfillment center from the vendor before sending it out to customers. However, this is not a generally accepted way of using the term.

Cross-docking is also good for handling seasonal goods or when demand is exceedingly high, as it helps sellers better react to changing customer demand.

Outside the scope of e-commerce, freight companies also use cross-docking on a large scale. This requires large distribution centers called cross-docking terminals.

What Is the Difference between Cross-docking and Shipping via a Warehouse (Direct Shipping)?

The difference between cross-docking and direct shipping is that you don’t store the inventory at your warehouse. Inventory arrives at your warehouse and immediately leaves for the customer.

Your warehouse literally just becomes a place to quickly sort orders, not a place to store them.

However, with direct shipping, you have the inventory ready in your warehouse and ship it to the customer when you receive orders from a customer.

As mentioned above, the size of your business may impact your shipping method, or you may use multiple methods, utilizing them only when they make the most sense.

How Is Cross-docking Different from Dropshipping?

Cross-docking can sometimes be confused with dropshipping, but there is a significant difference between the items arriving at the seller and who handles the delivery to the customer.

Dropshipping and cross-docking are similar in that in both methods, the seller doesn’t have the inventory on hand at the time of the customer’s order, but the vendor does.

The difference between cross-docking and dropshipping is that the order arrives at the seller’s warehouse before being sent to the customer, while in dropshipping, the vendor handles the delivery to the customer.

Because the seller handles the delivery to the customer, cross-docking can be more expensive than dropshipping. In dropshipping, the seller never comes in contact with the products in the order. 

Cross-docking allows the seller to add branding and packing to the order and ship it themselves (they may even use a company-branded vehicle), which you can’t do with dropshipping.

Furthermore, cross-docking allows you to inspect the order, which is vital if it contains fragile items or you haven’t used the vendor before.

You will not get a chance to check the order with dropshipping because you never see the product(s) .

A whole business can rely on dropshipping as a business model, but this is not practical for cross-docking.

Cross-docking can sometimes be referred to as dropshipping with extra steps. It can be more laborious and time-consuming for the order to go from the vendor to the customer because it stops first at your warehouse.

However, your business may prefer cross-docking to ensure brand identity and quality.

What Are the Types of Cross-docking?

There are two types of cross-docking in e-commerce—pre-distribution cross-docking and post-distribution cross-docking.

Outside of e-commerce, there is manufacturing cross-docking, distributor cross-docking, and transportation cross-docking. We will not focus on these, but they are good to know about.

1. Pre-distribution Cross-docking

Pre-distribution cross-docking is the most commonly used method of cross-docking, and it is often used synonymously with the term ‘cross-docking.’

Things flow as normal, straight from the vendor to the seller and then straight out the door to the customer, as explained above.

2. Post-distribution Cross-docking

Post-distribution cross-docking is the same as pre-distribution cross-docking with one step extra—the inventory stays with the seller for a short time before it can be shipped.

This can sometimes be a strategic decision if it must be decided where or how a product should be delivered to a customer.

Alternatively, there could be scenarios where you planned to send orders out immediately, but something prevented you from shipping the product to the customer as soon as the item arrived from the vendor.

For example, the courier contacts you and says they cannot fulfill the order that day, so you need to hold it for a day more.

Such scenarios may frustrate the customer, especially if you promised delivery on a specific date, but it is out of your control (you may want to find a way to make it up to them in such situations).

What Are the Main Benefits of Cross-docking? Top 5

1. Cross-docking allows sellers to avoid canceling orders for products they don’t have in their inventory.
2. Cross-docking reduces storage costs (and the need for large warehouses), as orders go straight to customers once they arrive.
3. Reduces the possibility of inventory spoilage and damage as products don’t sit around the warehouse all day.
4. Great for perishable goods, goods close to expiring, and goods that must be kept at certain temperatures or conditions, such as medical goods.
5. Cross-docking allows you to inspect the quality of goods before sending them out, which you can’t do with dropshipping.

What Are the Disadvantages of Cross-docking? Top 5

1. Cross-docking relies on a precise schedule. You rely on the vendor to get the order to you and then the courier to arrive. If the supply chain is volatile, you are more vulnerable to this exchange not going to plan.
2. Items could be damaged when quickly transported from the vendor’s vehicle to the courier’s, preventing you from completing the order.
3. If you are in a rush, you may forget (or not have time) to quality check incoming orders and send customers poor quality, broken, or wrong products, which impacts your reputation.
4. Cross-docking is more expensive than dropshipping because you must ship the product yourself.
5. No inventory control compared to direct shipping. You rely entirely on your vendor’s ability to meet orders and that they have the needed items in stock.

Key Points From Chapter 6

You’re now an expert on cross-docking. Remember these key points.

• Cross-docking is an order fulfillment method in which orders are sent directly to the customer immediately after arriving from the vendor.
• Cross-docking differs from dropshipping in that the orders arrive at the seller’s warehouse before being shipped instead of the vendor handling delivery.
• There are two types of cross-docking—pre-distribution cross-docking and post-distribution cross-docking. In post-distribution cross-docking, products are not immediately sent to customers.
• The biggest benefits of cross-docking are quick shipping, reduced storage costs, reduced possibility of inventory spoilage or expiry, and it gives you a chance to inspect the goods.
• The biggest disadvantages to cross-docking are that it relies on precise scheduling, items can be damaged when transferred, you may fail to check quality, it can be more costly than dropshipping, and you lack inventory control.

We also covered cross-docking in Chapter 3 of our inventory management guide. You can check it out here.

In the next chapter, we’ll cover why you must use software for order management.