For this supply chain -- one DC is better than five
Office supplies distributor Daisytek put down deep roots by consolidating into one DC to cut costs, ship orders the same day, and improve pick rates 40%.
By David Maloney -- Modern Materials Handling, 7/1/1999
When visitors arrive at Memphis International Airport, they are greeted with a sign that reads "Welcome to Memphis, America's Distribution Center."Just as the sign says, Memphis really has become a distribution heaven. This is due primarily to the many companies that have moved their operations close to Fed Ex's primary hub, positioning themselves to reach customers quickly.
One of the first to see the value of this strategy was Daisytek International, a company that distributes office consumables from computer ribbons to ink jet cartridges.
Instead of continuing to build new facilities that would take products closer to their customers, Daisytek chose a more radical approach by consolidating five warehouses into one large distribution center.
That consolidation plus a 40% increase in order fulfillment efficiency due to paperless picking systems lets Daisytek meet critical cutoff times and process 95% of orders same day. Combine that with its proximity to Fed Ex and Daisytek is able to ship orders same day until 10 p.m. while reducing overall distribution costs. Meantime, the company has grown ten-fold to $1 billion since moving to Memphis.
Doing more with less
"We had grown the business traditionally," says Scott Talley, vice president of distribution. "We would look at a new market, put up a warehouse, throw a few people in and lots of inventory. But we couldn't automate, we had a lot of duplicate stocks, and order cutoffs were poor. It was hard to manage. To spend more to do that just didn't make sense."
Talley says the company needed to increase productivity and improve their same-day ship rate of 75%. They also sought to reduce overall operating costs. The situation was further complicated by an ever-increasing inventory as major manufacturers introduced new computer products each year, requiring Daisytek to stock compatible supplies. If Daisytek followed the traditional model, at least five new DCs would be needed.
Daisytek had built its distribution niche on getting small quantity items to customers quickly. Talley admits it was not easy at first to convince customers that a consolidated structure would improve service.
"It was very difficult when we pulled the warehouse down in Los Angeles to tell a customer there that they would get better service from Memphis than from L.A.," he says. "The big challenge was finding a way to make air freight pay."
Consolidation allowed them to cut overall inventory while increasing the variety of products offered. Paperless picking systems also cut costs of filling orders including labor. Daisytek saw additional savings on transportation costs inbound to Memphis, as it is cheaper to receive inventory into one place than five.
These accumulated savings now allow Daisytek to ship orders via air freight while still charging customers the equivalent ground rate.
While Daisytek has built its business on office consumables, it has recently expanded its distribution services to handle an acquired videotape division and a third party logistics (3PL) operation known as Priority Fulfillment Services.
"PFS stock includes everything from Tiki torches to high-end printers," says David Mitchell, PFS general manager of distribution. It is also the fastest-growing part of Daisytek and recently added e-commerce capabilities.
Daisytek processes orders for all three businesses simultaneously. Handling such a wide range of products (26,000 stock keeping units in all) is not easy. It takes an efficient warehouse management system (WMS) and a well-conceived materials handling plan.
As products are received, both cases and pallets are counted, checked for accuracy, and their bar codes scanned to acknowledge receipt for the WMS. About 80% of receipts are stored in pallet racks. The WMS assigns a rack location for storage and a forklift delivers the pallet to it. At the rack, the driver scans the bar code identifying the location and the one on the pallet, linking the two for the WMS.
Broken case items go directly by lift truck to a staging area before they are used to restock a pick face in either flow racks, bin shelving, or a three-pod carousel. Most replenishment is done in the morning, while picking is done in the afternoon and evening.
The flow racks are for the faster movers while bin shelving holds moderate-movers. Carousels are for the slowest movers.
Talley says the 80/20 rule applies to Daisytek. "The top 250 SKUs represent 80% of our business transactions."
For full case picks, the WMS sends picking instructions directly to lift trucks. Picks are made and delivered directly to shipping.
Less than full case picks can be made from either of two picking cells. One cell, which processes orders with multiple picks, has flow rack and bin shelving, both outfitted with pick-to-light technology. The other cell also has pick-to-light flow rack and bins plus carousels. It is dedicated to single item picking.
The WMS directs all orderpicking. It instructs workers on the number and size of shipping cartons to assemble for each order. Shipping labels are also generated by the WMS.
At the pick stations, workers scan the shipping label bar code. This signals the pick-to-light systems that a particular order needs to be filled, and the lights come on at various storage locations. Workers simply pick the items in the quantity shown by the system.
When orders are complete, shipping cartons are released to the conveyor for delivery to shipping. Before arriving, however, each box passes a fixed bar code scanner and then a digital camera that captures a digital photo of the contents of each box. The photos are stored for future reference to aid in resolving discrepancies.
Next the conveyor passes products to a packaging area where foam, newspaper, or other paper dunnage is added accordingly. The boxes are sealed, weighed and scanned again before being sent off to a pop-up wheel sorter that diverts products to one of four shipping lines. About 20,000 packages are sent each day.
The majority of packages sent through the sorter head to the Fed Ex lane. A Fed Ex employee is actually stationed at the bottom of the line during peak hours to immediately scan packages into their system. The big advantage for Daisytek is the late Fed Ex cutoff that allows for same day processing during critical evening hours.
Being able to receive items next day is a huge selling point for Daisytek customers, according to Talley. "They don't have to order it in advance or put it in a warehouse. Instead, they can focus on selling."
"Once we did the consolidation, we got the late order cutoffs, the high flow rates, and the Fed Ex service," says Talley; "we blew the doors off of everybody. It was the growth engine."
System Snapshot
Daisytek International
Memphis, Tenn.
VP of distribution: Scott Talley
General Manager of distribution: Jim Cafferty (DaisyTek); Dave Mitchell (Priority Fulfillment Services)
Facility size: 600,000 square feet
Number of SKUs: 26,000
Peak monthly throughput: 450,000 packages
Conveyors: Rapistan Systems 972-929-7712
Lift trucks: Raymond/Shaw Material Handling Systems 901-386-1081
Carousels: Diamond Phoenix 704-782-8221
Hand held scanners: Telxon 214-341-5383
Fixed scanners: CiMatrix 800-468-9503
Warehouse management system: J.D. Edwards 972-774-2600
In-line scales: Mettler Toledo/Memphis Scale 901-332-5070
System integrator: Numina 630-323-0110
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