Cross docking has been used by manufacturers and shippers for the past 20 years, and it has long been at the heart of LTL carriers' operations. Now we are seeing more companies incorporate cross docking into an operating model called "flow distribution." This model offers significant benefits in terms of cost, time from source to shelf, asset productivity, and inventory lead times. Moreover, flow distribution can serve as the foundation of a fully synchronized supply chain.

Traditionally, retailers operated a network of distribution centers that held both cycle stock and safety stock inventories for most or all of their products in each of their marketing territories. These DCs would receive and store goods as well as replenish retail outlets. Doing so involved many steps, such as unloading suppliers' trucks, receiving and putting away the goods, holding the goods in inventory, and then picking store-replenishment orders, recording the transaction, staging goods on the dock, loading the trucks, again recording the transaction, and generating shipping documentation.

Even in the most efficiently-run facilities, this cumbersome process involved double handing—once to receive goods and put them away, and another to pick them from inventory and load the outbound trailers. It also required holding a significant amount of inventory at DCs.

Flow distribution eliminates many of those steps. It typically involves cross docking products through the suppliers' premises, moving them through a cross docking area at the buyer's DC, then shipping them directly to stores.

Flow distribution offers powerful benefits. These include: 1) dramatically reduced inventory lead times; 2) rapid replenishment cycles from supplier to store; 3) significantly increased asset productivity, since large holding spaces and supporting equipment are no longer required; and 4) significantly reduced operating costs, such as costs for handling, storage, damage, and obsolescence. We believe that flow distribution could reduce overall operating costs by more than 25 percent.

Flow distribution also requires distinctive processes in distribution centers. These include:

• Communication of frequent, accurate store-level orders to suppliers to make replenishment ordering processes work effectively;
• Reconfiguration of distribution networks, with market-based cross docking facilities near the ultimate stocking locations, strategic selection of products to be flowed, and careful management of inventories for non-flowed goods and backup stock for flowed goods;
• Effective cross docking operations using enhanced warehouse management operations and systems;
• Enhanced supplier capabilities including fast-cycle inbound processes and the ability to build store-level pallets; and
• Tight integration and collaboration with suppliers, providing visibility into and advance notice of store-level replenishment needs.

We are seeing an increasing percentage of goods being "flowed" today. Several supply chain leaders have set up their ordering and distribution infrastructures so they can flow the majority of their goods. We do not believe that flow distribution will ever constitute 100 percent of direct-to-store shipments, but it is conceivable that leading players could flow 50 percent or even 75 percent of their merchandise.

Flow distribution will not be easy to achieve, but it will provide profound advantages for companies that can master this operating model.