Office supplies logistics at Dimerc Office

In 2016, Empresas Dimerc, the parent company of Dimerc Office, Chile’s largest distributor of office supplies to business, automated the picking processes in its 216,000-square-foot distribution center in Santiago.

Among its goals: To become the most modern distributor of office supplies in its home country, but to also rival the best of its peers worldwide. “We are continuously evaluating process improvements and looking at possibilities for automation,” notes Ignacio Calvo, Dimerc Office’s logistics manager.

The project came at a time when Dimerc was seeing significant growth in its business as it strove to provide national distribution to every big company in Chile and planned to add third-party drop-ship and fulfillment services. The company has no stores, so the orders picked to serve some 4,000 customers every day are delivered directly to office buildings. “We needed to increase our production capacity, control our labor resources, improve quality and decrease errors along with decreasing the number of credit notes we issued for missing items, damaged goods and other mistakes,” Calvo says. Accuracy was also important in reducing the number of returns that had to be dealt with.

The solution: Working with a Santiago-based systems integrator (SDI Systems), Dimerc expanded an existing conveyor system; installed a three-level pick module for item picking using pick-to-light and RF scanning to enable pick-and-pass picking based on the velocity of movement of SKUs; implemented RF-directed carton picking in place of paper-based picking; added an array of scanners for quality control as well as a quality control area; and installed a high-speed shipping sorter that can handle 6,000 cartons per hour and service 21 dock doors.

The result has been a 30% increase in productivity. More importantly, Calvo adds, “we have been able to fulfill our dispatched orders on time, managing to deliver more than 99% of orders within 24 hours.” The facility processes about 33,000 cartons per day.

Building on history

Celebrating more than 80 years in business, Dimeiggs Distributor was founded in 1937 as a supplier of paper-related products to bookstores and small retailers by Jorge Naser Kaba, an immigrant from Syria. By 1993, Dimeiggs was the leading supplier of school and office-related products in Chile. Four years later, in 1997, Dimerc Office was created to specialize in the distribution of office supplies to small, medium and big companies alike. The company expanded sales and distribution operations into Peru in 2011.

In recent years, growth has been rapid: Between 2012 and 2017, the company doubled its annual revenue from $100 million to $200 million in U.S. dollars, making it the leading supplier of office supplies in South America. Dimerc is currently one of Chile’s Top 10 “Best Company for Employee Financial Future.”

The more than 200,000-square-foot distribution center is essentially two facilities in one: Approximately half the DC distributes products for Dimeiggs while the other half manages distribution for Dimerc. Those distribution operations serve more than 26,000 customers a year in Chile while a separate DC serves more than 8,500 customers in Peru. The Santiago distribution center fulfills more than 4,000 Dimerc orders per day on average, shipping more than 99% of orders within 24 hours and the remainder in less than 48 hours. An estimated 60% of the volume is shipped as full cartons, with unit picking accounting for 35% of volume and full pallets the remaining 5%. While its direct-to-consumer e-commerce channel is small today, they have plans to grow that business in the future. Dimerc also offers drop-shipment and fulfillment services to its suppliers, who are managing 20,000 SKUs and 10,000 SKUs in those respective channels. The items are sold through Dimerc’s Website and delivered to the customer using Dimerc’s logistics network, but the fulfillment areas are managed by Dimerc’s partners.

With all of that growth, Dimerc’s existing order-picking processes were no longer up to the task. “We had mid-level automation in picking and a significant percentage of our processes were paper-based and manual,” says Calvo. Productivity wasn’t sufficient to keep up with growth without adding more people and multiple shifts, and accuracy was suffering.

In addition, Dimerc was grappling with trends and challenges that will sound familiar to Modern’s North American readers. For one, more sales were coming through the company’s online platform, driving a need for faster fulfillment and fewer errors that might result in credits or returns. It also put extra emphasis on last-mile delivery strategies.

Dimerc uses several picking methods, including pick-to-light in a fast-moving goods area.

While some might assume that manual labor is plentiful in South America, as with the United States and Europe, it is getting harder for distribution centers to recruit and retain help. “Even though we have manual labor in Chile, it’s becoming increasingly more expensive, which makes automation more attractive,” says Calvo. “With automation, we don’t have to expand the labor pool as much, and the job itself is friendlier, which helps decrease turnover.” In the pick module, for instance, associates are responsible for an area that’s about 40 feet long, which reduces the amount of walking during a shift compared to manual picking.

With growth and labor trends as a catalyst, Dimerc launched a project to investigate automation in 2013, a task that was accomplished in three phases and represents the largest technology investment the company has made to date.

Building in phases

The first phase, which took roughly a year, was benchmarking. “We developed the project with three logistics consultants and visited more than 20 distribution centers in the United States, Brazil and Europe,” says Calvo. Based on those site visits, the Dimerc team generated a portfolio listing the best practices it had observed among world-class distributors; the different logistics models and technology choices; and the advantages and disadvantages of each.

Among the technologies considered were pick-to-light, pick-to-voice, put-to-light, radio frequency identification, mini-load automated storage and A-frame order fulfillment. Mini-loads and A-frames were rejected because of the cost relative to their operations. Pick-to-light was chosen for item-level picking, which accounts for roughly 40% of the orders, and RF scanning was chosen to enable slow-moving items and case picking.

The solution was aimed at increasing the productivity and accuracy of picking activities. When it came to the design, Dimerc wanted to identify how to improve its processes; how to make space for the new equipment within the existing building while accommodating growth; and how to communicate with an existing warehouse management system (WMS). In addition, the implementation had to be done in a way that didn’t impact normal day-to-day order fulfillment activities, which meant a lot of night and weekend work. All in all, the solution had to be simple and efficient without being disruptive.

Given the number of SKUs managed in the facility and the number of orders filled each day, associates had to cover a lot of floor space to fill an order in the old manual way of doing things. To counter that, the design developed by the system integrator included a three-level pick module with 22 zones.

The first mezzanine level is devoted to larger items that need to be on the bottom of a shipping carton while the third level is reserved for the fastest-moving items—a total of 14 zones are dedicated to the fastest-moving items. The second level is reserved for slow-moving items. Associates are directed by lights on the first and third levels while RF scanning is used in the slow-moving area.

The facility uses a pick-and-pass methodology for item-level order fulfillment: Cartons pass through the first level, are conveyed to the third level and then back to the second level if any items from the slow-moving storage area are required. Once all of the items have been picked, a carton goes to packing and then to the shipping sorter.

The system includes fixed scanners and an in-line scale to automatically check weigh an order as quality checks. Cartons can be automatically diverted to a quality assurance (QA) area for inspection when required. All first-time orders for new customers are sent to the QA area to make sure no errors occur on their first order. The new system has cut errors in half, to 0.26%. From quality control, cartons that have been approved are conveyed to the sliding shoe shipping sorter and sent to one of 21 shipping lanes.

Conveyable cartons can be picked from one of two possible areas: Orderpickers are used to pick from rack storage, which are then inducted onto the carton sorter. The remaining cartons are picked from a two-level, pick-to-belt area. Once inducted onto the conveyor, full cartons are conveyed directly to the shipping sorter.

With the design complete, the second phase—implementation—got underway, followed by phase three—commissioning. The system was officially up and running in 2016. Within eight months, Dimerc was hitting the rates used to justify the investment.

With two years of operation under its belt, Calvo says the improvements in productivity, accuracy and on-time delivery only tell part of the story. “It is one of our biggest investments, and it has been of great support to the company’s growth. Tasks in the distribution center are easier for our associates, which helps with retention. And, it has meant better service for our clients and our suppliers see the potential to develop new business opportunities.”

See an in depth system report here.