Return to Sender

Nov. 10, 2003
DistributionReturn to Sender Wiith product returns costing U.S. suppliers more than $100 billion each year, theres small wonder shippers are increasingly
Return to Sender

Wiith product returns costing U.S. suppliers more than $100 billion each year, there’s small wonder shippers are increasingly looking for ways to gain greater control of the process.

No industry segment experiences as much in the way of returns as retail, and it gets even worse for online retailers. On average, 20% of an e-tailer’s products are returned, a figure consistent with the experience of Home Shopping Network (HSN). “Twenty percent is pretty typical for retail,” says Steve Ayer, HSN’s vice president, information technology. “Our percentage of returns varies by product categories.”

Sheer numbers of shipments and returns are daunting: HSN ships more than 32 million packages each year, of which 6.4 million are returned. Keeping track of both forward and reverse logistics operations requires extensive use of available technology.

With corporate offices and broadcast facilities located in St. Petersburg, Fla., HSN has five warehouses around the country, four of which handle both forward and reverse operations. Its Fontana, Calif., facility handles only forward hard goods and health and beauty products. The Waterloo, Iowa, warehouse does both forward and reverse logistics for these products. Forward and reverse logistics for hard goods and jewelry are performed at two separate locations in Salem, Va. HSN uses its Roanoke, Va, facility for forward and reverse ready-to-wear and health and beauty logistics.

According to Ayer, a great deal of manual processing and e-mail communications have been required in handling returns. As with products of all sorts, disposition options for HSN include:

  • refusal — the returns are too old or not HSN products
  • return to stock as available for sales (AFS)
  • return to the original vendor
  • refurbished and returned to AFS stock, particularly jewelry
  • sent to HSN’s retail outlet for liquidation
  • sold to jobbers for liquidation through big lots, flea markets and the like
  • destroyed — items like cosmetics and food items.

Until recently, HSN has been using a warehouse management system (WMS) from Optum Inc. for handling its AFS inventory, and a legacy mainframe system for returns and non-available for sale (NAS) product. That is now changing as HSN integrates its best-of-breed operations into one system with all work to be completed by the end of the year when the mainframe is eliminated. The goal is to fully integrate reverse and forward logistics so that HSN only has one WMS instead of two.

With the new system, HSN has complete visibility of each return from its receipt to final disposition, Ayer notes. There are no “drops from inventory” during transfers between HSN’s business entities.

HSN also uses a supply chain solution from Retek Inc. to provide near real-time visibility of all fulfillment center inventories. Retek’s integrated or independently deployable solutions include merchandise optimization and planning; merchandise operations and management; inventory optimization and planning; and supply chain management.

Additionally, HSN uses an order management solution from Siebel Systems Inc. for near real-time customer credit information. Depending on which components are used, the Siebel software offers the possibility of end-to-end visibility into the entire order management process with its customer order management, product and catalog management and pricing management.

HSN has conveyors in the facility that handles the largest number of returns, moving product to the proper pallet for disposition. For the most part, it’s a hand-managed process.

“Levels of automation are a function of the numbers of different kinds of products that you have to handle and the logistical realities of the physical environment you’re working in,” says Ayer. “So, we automate where it makes sense and where there is a reasonable return on the investment. But where it doesn’t make sense and where it just works better manually, we’ll do it manually.”
When orders are placed, HSN moves quickly — the goal is within 48 hours — to send products to final customers. Most packages are relatively small, so the primary carrier for outbound is the United States Postal Service, although HSN does use a number of other carriers.

In terms of customer service, return information is included in each outbound package.

“We don’t ask our customers to call us to have to do a return, or to go through a web site to get it done,” explains Ayer. “All they have to do is take the return label off the order summary we send — which is a packing slip — and put it on the package with the product and return it back to us.”

HSN has seen the following process improvements in its reverse logistics operations, according to Ayer:

  • Predisposition of returns can be based on merchant-specified criteria at an item, category or division level.
  • Product images are now displayed at returns stations, improving item identification and fraud detection.
  • Integration with the order management system provides HSN the ability to accept or reject a return based on a combination of age, customer service or fraud indicators.
  • System-directed movement of products to value-added re-processing areas for refurbishment and reboxing.
  • Systemic tracking of refurbished and reboxed inventories, with box recipes and extended product descriptions available to processors.
  • Pallet-level transfers of product between warehouses.
    To date, HSN has completed the first of five warehouse implementations, and has been pleased with the results. According to Ayer, the company is on target to replace the mainframe within the timeframe.

For LaserNetworks Inc., a supplier of toner cartridges and printing and imaging equipment, the answer to its unique reverse logistics requirements has been to outsource to a third-party logistics provider (3PL). LaserNetworks provides both service and related copying products to an extensive network of customers throughout the U.S. and Canada.

Based outside of Toronto, LaserNetworks has 12 branch offices across Canada, and through Ensenda Inc., a 3PL, the company has office and warehousing presence where it doesn’t intend — at least in the short-term — to have proprietary branches.

LaserNetworks has a customer service center, open 12 hours each day. “For rapid response to service needs, we have technicians in every one of our locations,” says Graham Wood, LaserNetworks’ vice president of operation. “Where we don’t have company centers, we use third-parties, who are linked to us.”

Wood believes his company has a competitive edge in its ability to quickly provide customers with a remanufactured product.

“One of our value equations,” explains Wood, “is that we provide a remanufactured product that is tested as equivalent or better than a new one.” Selling points include lower costs and a positive environmental aspect — “Our toner cartridges don’t usually end up in landfills,” Wood says.

The key part of reverse logistics operations for LaserNetworks is the pick up of used cartridges.

Although the company has facilities within the U.S., it doesn’t manufacture in the country. “Our primary remanufacturing facility is in Oakville [Toronto],” says Wood, “and we have a secondary disaster recovery site in western Canada. We also have contracts with two third-party organizations in case both of our plants are in trouble.”

LaserNetworks has been using Ensenda’s services for two years. Previously it had its own distribution capability using, in some centers, its own vans and delivery personnel. In other centers, its technicians serviced part of the time and delivered toner cartridges and picked up empties part of the time. In remote locations LaserNetworks uses courier services.

“We had to manage everything,” remembers Wood. “We decided that having our own vans was a business we didn’t want to be in. Once we established a 3PL relationship with Ensenda, we chose to reduce the number of vans. Skilled service technicians are fairly highly paid, and we felt we were overpaying to have them do routine tasks like delivering and picking up toner cartridges — and they weren’t really happy about doing those tasks either. Now, we no longer have service technicians delivering cartridges — it’s all done through Ensenda.”

LaserNetworks has grown rapidly, starting with four employees in 1987, and now employing more than 100. Thanks to its use of third parties, the company has been able to expand into new areas. As Wood explains, “We can put a strong sales person in a location, have Ensenda find a site for us to warehouse full cartridges and empties being returned, and contract for a third-party service technician until we have enough base business to establish a company-owned center. It offers a low-cost expansion opportunity for us.”

When Ensenda delivers new toner cartridges, it also picks up customer empties. “Keep in mind, it’s a raw material for us,” Wood notes. “An empty cartridge needs to come back to our process in order for us to provide the cost effectiveness.

According to Wood, LaserNetworks has a very high return rate, in excess of 75%. He attributes this success to the company’s returns programs, its relationship with Ensenda and the way the company promotes its service to its customers. LT

November, 2003

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