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Word doesn't treat cross-references like equations in Excel: the program won't update them in real time, causing references that move to display incorrectly.
The article also introduces you to Doc Tools Cross Reference Manager – an advanced Word add-in that makes the work with cross-references much faster and easier and that can help you automatically repair and prevent cross-reference problems in the future.
However, Microsoft Word 2010 seems to offer no way to support this. You can specify which fields are used for the entries in the Bibliography and in what order for the different types of bibliography entries that are pre-defined.
I've searched everywhere I could and all tutorials show how to create either footnotes, or the second scenario presented above. When you want to add a reference in a document use Insert - Thank you for your interest in this question.
We've probably all had the frustration of having a reference in your text that says something like "As explained in paragraph 3.1..." and then in the course of editing your document pargraph 3.1 becomes paragraph 3.4 and suddenly your text is wrong.
Even worse is when you've used a LOT of manual cross-references and you know that many of them have subsequently changed and you have to manually page through your document and check/update each and every one. Luckily Word has a cross-reference capability that can prevent those problems.