What Suppliers Need to Know About Cross Docking

Cross docking increases the efficiency of the order to store process. Products are moved at a lower cost from suppliers to end consumers.

A cross dock distribution center has multiple doors, or “docks,” for unloading and loading trucks. Large distribution centers may have hundreds of docks. Cartons from suppliers arrive at docks on one side of the distribution building, are batched by outgoing truck load with other cartons, and then are loaded onto outgoing trucks from docks on the other side of the building.

Here is how a shipment from a small business supplier to a retailer is typically moved through the cross docking process:

  • The supplier ships cartons to the distribution center
  • The supplier’s cartons are unloaded at an in-coming dock and onto a sophisticated system of conveyer belts
  • The cartons are sorted based on final store destination
  • The sorted cartons are moved across the distribution center building and grouped by final store destination with cartons from other suppliers
  • Truck-size lots of cartons are directed to an outgoing loading dock area
  • The truck-size lots are loaded onto an out-going truck bound for a specific destination store.

Benefits

The supplier benefits directly from cross docking by getting product into stores faster and indirectly by lowering costs for the retailer which helps reduce the final price for the end consumer and consequently increases the number of units sold.

The retailer reduces labor, inventory, and shipping costs because:

  • Product is handled less
  • Inventory is held for shorter periods reducing inventory carrying costs
  • Warehouse costs are saved because product is not stored
  • Fewer but larger shipments are sent to stores saving on transportation costs
  • Expensive small-volume shipments to stores are eliminated.

Mark for Store

Mark for Store is frequently a requirement for suppliers who ship to a cross dock distribution center.

Mark for Store cartons have to have a UCC bar code shipping label that includes the final destination store identification. The store identification specification varies by retailer. In addition to be being human readable, the store identifier number is usually, but not always, encoded as one of the bar codes on the label.

Mark for Store labeling is not always required for various reasons. For example, some categories of product are kept in inventory at the distribution center and then sent to stores as stock is depleted at the stores. Another example is an order that is only for one store. The distribution center will know the store destination from the order and the UCC bar code label so additional Mark for Store labeling is not needed.

EDI Plays an Essential Role

Efficient cross docking requires EDI Purchase Orders and Advance Ship Notices (ASN’s) as well as bar code labeled cartons.

ASN’s sent via EDI are essentially electronic packing slips. ASN’s from suppliers support distribution center visibility into inbound shipments and supports planning of receiving staff, allocation of receiving docks, and arrangement for out-bound trailers. You can read more about ASN’s by clicking on this link: Read about ASN’s.

ASN’s in conjunction with UCC bar code labels enable automated scanning, sorting, and movement of cartons from receipt at the unloading dock, through the distribution center’s system of conveyer belts to the outgoing loading dock. The ASN’s and UCC carton labels will be used again by the receiving dock at the final destination store.

Contact us anytime to find out more about how we can assist your small business.

RFID Tags Are Back

Radio Frequency Identification (RFID) tags are back. You may recall from ten years ago that Walmart announced they would require all suppliers to apply electronic RFID tags to all of their products. But the initiative for the entire supplier base fizzled because of cost. News about the electronic tags faded from the spotlight.

The situation is different in 2014. Not only have costs for RFID tags have been reduced, but today’s competitive omnichannel environment requires that retailers have accurate inventory information about exactly what is available in each store.

Consumers who consult their smart phone while in a store expect to find the item in the store that the web site says is in the store. Retailers who want to support online orders by either shipping from the store or by providing pick up in the store have to know precise inventory information at the store level.

The primary advantage that has emerged for RFID tags is speed and accuracy of in-store inventory.

  • Speed – RFID tags on individual products support scanning of up to 15,000 items in an hour compared to about 300 items per hour with UPC bar codes. Complete inventory counts can be done for an entire store several times a month instead of the traditional practice of counting inventory once per year.
  • Accuracy – Better inventory accuracy increases sales by having the right product in the correct place on the selling floor or available for shipment.

A second advantage is that loss prevention is enhanced by the ability to track individual items as they move through the retailer’s distribution system. Stores lose millions of dollars a year due to theft, both internal and external. For example, American Apparel estimates that it experiences up to 60 percent of their inventory shrinkage from internal theft and process issues.

A third advantage of RFID technology is that it enables retailers to closely monitor planagram compliance so that store displays are continuously marketing products as intended. For some products, such as shoes, this is especially important. If a shoe style is not displayed, the consumer won’t buy it because they don’t know it is available.

A fourth advantage is that the tags enable new ways of interacting with customers. Burberry’s is testing a smart mirror that automatically makes suggestions to the customer for accessories based on the RFID tag in the garment being worn in front of the mirror.

What are RFID tags and How Do They Work?

The RFID tag on individual items in retail is a tiny electronic chip and antenna. The particular kind of RFID tag being used is an Ultra High Frequency (UHF) Gen 2 V1.

The tags are about the size of two grains of rice. RFID tags are small enough to be embedded into the UPC bar code label or they may contained in a separate label altogether.

Current requirements are for the chip to contain the same information as a UPC bar code (i.e. the supplier’s GS1 Prefix and Item Reference Number) and also a serialized number that uniquely identifies a particular item called a Serialized Global Trade item Number (SGTIN). These three numbers are collectively called the Electronic Product Code (EPC) serialized number.

The tags do not have a battery. An RFID reader can pick up the information in the tag through the reflection of radio waves emitted from the reader.

Unlike a printed UPC bar code label, RFID tags can be scanned from a greater distance, scanned much faster, and do not require line of sight to be read. The tags can even be read through cardboard cartons and through racks of clothing.

Cost

Cost has been reduced. According an Accenture study of 116 retailers and their suppliers, an RFID tag costs about 10 cents and the labor to attach it costs about 20 cents. TrueCount sells RFID tags for between seven and 12 cents each depending on the quantity ordered.

Wide-Spread Use

An Accenture survey revealed 48 percent of retailers have plans in place to deploy RFID technology. Just over 75% of retailers who have implemented RFID plan to expand it into additional product categories. 80% of suppliers who use RFID technology are doing so because their customers require it.

Currently adoption is highest for the categories of apparel and footwear. ChainLink Research reported that last year over one billion apparel items were RFID tagged.

Examples

  • American Apparel is rolling out RFID to all stores.
  • Fred Meyer is currently surveying apparel suppliers to determine their RFID tagging capabilities.
  • J.C. Penney said in 2013 it would tag all merchandise with RFID tags, but then backed off and currently only requires tags on footwear, bras, fashion jewelry and denim.
  • Macy’s is using RFID tags in the shoe department in every one of its 850 stores. Additionally, all “size-intensive” replenishment items are being tagged, which represents about 30% of revenue. By the end of this summer, Macy’s plans to have half of all replenishment vendors sending merchandise with RFID tags affixed.
  • Saks Fifth Avenue and Lord & Taylor, both of which are owned by Hudson’s Bay Company, are using RFID tags on footwear to ensure that the correct shoes are always exhibited according to the planagram. The displays are audited every day for compliance with the planned presentation. After two years of experience with pilot projects, the tag requirement is being rolled out for most merchandise categories through the first quarter of 2015.
  • Walmart is using RFID tags on apparel items.

What This Means to Your Small Business

If you sell apparel or footwear, you may already be tagging your products. If not, you can probably expect larger retail customers to require it in the near future.

Retailers will continue to add more product categories for which they require RFID tags as benefits accrue for apparel and footwear. Rollout priorities will probably be initially driven by products with many sku’s for sizes and colors, followed by products with high turnover and products with higher loss rates such as jewelry.

There is a good chance that further RFID cost reductions and continuing omnichannel pressure for accurate in-store inventory will eventually drive retailers to require RFID tags on almost all products.

In the past retailers checked new suppliers and audited many cartons of existing suppliers to verify that carton contents matched the associated EDI Advance Ship Notice (ASN). Now retailers using RFID can quickly verify every single carton’s contents at the receiving dock without opening the cartons. Suppliers will have to ensure packing of cartons is accurate 100 percent of the time and always matches the EDI advance ship notice document. Of course this is the requirement even now, but in the future packing mistakes will very rarely, if ever, be missed by the retailer.

Online Retail Trends You May Have Missed

The retail industry is showing strong growth with the addition of 230,800 jobs in the 12 months through June. Although the majority of retail sales are still made in stores, online sales are the biggest growth area. Online retail sales increased by 17 percent in the past year based on a 2013 U.S. Department of Commerce report.

Amazon vs. the World

According to the National Retail Federation, for the first time, Amazon has joined the ranks of the top 10 retailers after growing a whopping 27 percent last year to almost $43 billion in sales.

In stark contrast, the top 25 retailers’ online revenue added together is not as great as Amazon’s. One of the fastest growing in online sales was Walmart with online sales growth of 30 percent last year. But Walmart’s total online sales just barely match Amazon’s growth in sales of $10 billion.

Delivery Competition

To counter Amazon prime delivery time of 2 days for most orders, brick and mortar retailers are building on their wide-spread physical presence for delivery of online orders and to increase shopping convenience. Shopping center vacancy rates continue to be low and rents are gradually rising in part due to new national brand retail outlets.

Walmart has the most aggressive store expansion. Walmart will open about 300 new Neighborhood Market and Walmart Express stores this year, adding more online delivery coverage. In addition to more stores, Walmart opened three new online fulfillment centers in 2013 to support its goal of being able to deliver online orders anywhere in the country within 2 days.

Grocers have lagged other retailers in online sales growth, but the order online and pick up at a store delivery method is starting to grow. Publix is having notable success.

Whole Foods and Trader Joe’s are quickly adding stores to progress towards a national foot print. Whole Foods is beginning to experiment with online ordering and pick up in stores. Trader Joe’s sells their products on Amazon but not does not have an online store.

A just completed study by PriceWaterHouseCoopers found that only about 1 percent of U.S. consumers purchase most of their groceries online, but the study goes on to say that the technology landscape and changing demographics will drive more growth in the future. The U.S. is playing catch up with England where 5 percent of groceries are bought online.

Kroger, the largest U.S. supermarket chain and second largest U.S. retailer, recently announced the purchase of online vitamin retailer Vitacost. Vitacost had surprisingly large revenue last year of $383 million from the sale of vitamins, herbs, health foods, and nutrition products.

Not All Retailers

Some retailers are proceeding more cautiously. Target has started testing a small-store urban initiative called Target Express. Costco is intentionally staying away from smaller stores for now.

In the small-format value category, Dollar General supports online orders but not delivery in stores despite having over 11,000 retail locations. Family Dollar with almost 8,000 stores has no online order offering at this time.

Any Order Method

EDI transactions for online orders frequently have unique requirements. CovalentWorks supports EDI capability with your retail customers for online orders or any order method that is needed. Contact us anytime to find out more.

Challenges for Implementing EDI Transactions with Trading Partners

Implementing EDI transactions has many challenges. Every EDI trading partner had different specifications and each one has their own process for testing and implementation. The reason for this is that every EDI trading partner has their particular business rules, their uniquely configured internal systems, and their own implementation process.

Specifications

Data sent and received through EDI documents for the same transaction type, but with different trading partners, will contain different data. The relationships between data within a document will vary as will the relationships between data on related document types.

For example, a purchase order from one partner may be similar, but will not be same as a purchase order from another partner. Other transaction types, such as invoices and advance ship notices, have large variances in their data requirements.

Some EDI partners have been doing EDI for a long time and have not changed the version of EDI they employ while others are more or less current.

Requirements may differ by type of supplier. Some partners will have different specifications for suppliers of product that is sold to end consumers in stores, for drop ship direct to consumers, for pay by scan consignment, for direct to store delivery, and for “not for resale.”

The types of EDI transactions required varies. Some retailers want purchase orders and invoices only. Many also require Advance Ship Notices and the associated bar code shipping label. Some require additional transaction types such as purchase order acknowledgements, purchase order changes, order status reports, planning schedules, product activity data, inventory updates, catalogs, payment remittance advices, and others.

One constant across all trading partners is that functional acknowledgments will be sent to indicate receipt of an EDI document and functional acknowledgments will be expected to indicate the supplier has received documents.

Retailers will almost always us the ANSI X-12 standard. Industrial customers, especially in the automotive supply chain may use a different standard, the EDIFACT standard.

Either way, as discussed above, every trading partner will employ different requirements within their chosen standard. The standards dictate file formats, data element names, groups of elements, etc, but still leave considerable room for each trading partner to implement what their business needs.

Implementation Process

The implementation process varies by trading partner. All require testing unless a third party EDI provider is used by the supplier and the third party EDI provider has obtained an exception to testing.

The testing process with some trading partners is informal, but most have their process which must be followed. Some will send a test order. Some will send a live order and then require testing for all other transaction types.

Some have a testing web site to download and upload transactions. Some assign one testing analyst for all transaction types. Some have a different person with whom to work for each required transaction type.

Occasionally a trading partner will move each transaction type to production status as testing is completed. Most will want all required transaction types to be fully tested before moving the supplier to production status.

A few trading partners like phone calls, but most strongly prefer email communication during the testing process. Some will provide fast test results in a few hours, some will take days and a few will take weeks to provide feedback. Some like lots of communication during testing and others have their process they want to have followed precisely with minimal back and forth discussion.

If all of this sounds like a big headache, we can take care of it for you. Contact us anytime to find out more.

How EDI Improves Customer Relationships

EDI improves customer relationship because it speeds up processes between companies and improves the accuracy of the information they exchange. Large customers know from decades of experience with thousands of suppliers that by using EDI documents both parties save time and money.

If large customers only ordered once or twice per year from suppliers then EDI’s benefits would not be so great. But in today’s hyper-competitive environment, inventory levels must be carefully managed and that dictates frequent order cycles with each supplier.

Most large customers require EDI compliance from suppliers as a condition for doing business with them. Large customers have sophisticated systems for efficiently managing all phases of the order cycle. They like EDI because their systems for ordering, receiving, warehousing and payment can be set up to automatically interact with EDI capable suppliers.

Let’s take a look at the major phases of the order cycle from the supplier’s perspective of their relationship with their customers.

Ordering

EDI purchase Orders and the associated acknowledgments let your customer know you have their order. You get the orders quickly and with precise information for exactly what your customer wants and when they want it. Misunderstanding are minimized. Getting orders sooner enables you to ship faster if your customer wants it. And it gives you more lead time to plan production, packing, and shipping.

Some large customers may want you to ship directly to end consumers. An electronic order cycle is the only way to meet the timeliness of delivery that today’s consumers demand.

Shipping and Receiving

EDI Advance Ship Notices (ASN’s) let customers know your shipment is on the way so they can plan their receiving labor and logistics. The ASN tells them how your products are packed so they can receive them quickly and accurately. Bar code labels on your shipping cartons speed up their receiving process and inventory update accuracy.

Billing and Payment

Not getting paid accurately and on time can put a strain on any relationship. EDI invoices give your customer precise information about your bills which speeds up their accounts payable process. Billing disputes and delays are minimized and you get paid faster. Lost invoices are greatly reduced because EDI acknowledgments let you know your customer has your bills.

Just Say “Yes”

Although your large customers will most likely require EDI capability of your company, you can begin building your relationship with them by telling them from the beginning “yes, we are EDI compliant and can meet your specific requirements.“ “Yes, we can receive EDI orders, send EDI ASN’s, bar code label our cartons, send you EDI invoices, and exchange any other EDI document types you require.” “Yes, we can do branded packing slips if needed.”

CovalentWorks takes care of EDI headaches for thousands of small businesses so they can say “yes” to their customers’ demanding EDI compliance requirements. Contact us anytime to find out more.