Breaking The CycleBy Kim S. Nash | Posted 2003-01-17 Print
Technology helped the $41 billion a year retailer improve the way it processes 23 million items returned each yearand make money doing so.
Breaking The Cycle To escape that cycle, Sears in 1993 hired a service company for "reverse logistics"—the management of returned products as they swim back upstream along the supply chain. Pittsburgh-based Genco Distribution System provides three giant warehouses, plus most of the staff, to handle Sears' unwanted goods. Since 1999, Genco has processed at least 23 million returned items every year for Sears.
Genco also supplies most of the hardware and software, a key attraction for Sears. Most retailers pinch funding for reverse-logistics operations. They don't see the sense in investing because there is a tradition of accepting losses on returns as a cost of doing business.
"We're an after-the-fact industry here," says Clay Valstad, director of central return center operations at Sears in Hoffman Estates, Ill. "It's not our core business and it's not likely I'm going to get capital for information technology," Valstad says. "But it is the third-party's business and they are willing to make investment in software and research."
Genco's custom-built R-Log software, which runs on Sun Microsystems Unix servers, tracks several variables associated with each Sears item. That includes which store the product came from, the proprietary Sears item number, the stock-keeping unit (SKU) number and the price Sears paid for it. The SKU number identifies other attributes as well, such as the name of the supplier.
At Sears, most returns go back to suppliers. (For a more detailed look, see "How Sears Makes Money on Returns," p. 55.) Other potential paths include online auctions, discounters, discounters, resale next year, recycle, donate or destroy.
Those decisions are made at Genco-run return centers in Sacramento, Calif.; Columbus, Ohio; and Atlanta. Genco's R-Log compares data on incoming returns against a 60-gigabyte Oracle database that tells how to route the hundreds of thousands of products Sears sells, including clothing, appliances, electronics, tools, toys, car parts and home decor.
For example, apparel maker OshKosh B'Gosh wants all returned merchandise back, then gives Sears full credit for it. OshKosh doesn't allow Sears to sell its products to secondary markets. In contrast, private-label clothing made for Sears can often be sold overseas at a discount, with the label ripped out. And, products such as gardening supplies can be stored and resold the next year. Craftsman tools often go to online auctions.
In the past, individual Sears stores only casually approached the process. They lacked easy access to a central database of information to guide them and would often make errors in how and when they shipped items back. Tags would be missing, handwritten paperwork would have incorrect SKU numbers. Those mistakes cost them refunds.
"Our job is to maximize the value of that item as it goes back up the supply chain," says Curtis Greve, president of Genco's retail division. R-Log "tells people on the floor where to ship the product to get the biggest return for the customer," he says.
R-Log also feeds data to Sears' internal PeopleSoft accounting and analysis systems. As merchandise arrives at a return center, credit notations are made electronically to the accounts of the individual store that sent it. Such prompt return crediting frees up funds for new buying by Sears merchandisers.
Sears fingers problem products and suppliers by running reports to see which manufacturers are slow to bestow proper credit or where the highest return rates are coming from. Buyers at Sears use that data when negotiating with a given company.
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