One of the biggest challenges for major retailers has been the efficient handling of returns. They might have forward logistics down to a science, but when it comes to product flowing in the other direction, there's no easy formula for determining the right timing of moves and the ultimate disposition of the goods in question.

That’s especially true for an operation the size of Sears Holdings Corp., which comprises nearly 1,700 stores operating under the Sears and Kmart brands. Inventory needs to be in the right place, but when it’s not, the retailer has to be able to move it swiftly to its desired location.

Redeployment becomes necessary for a number of reasons, including seasonal shifts and variable sales volumes between stores. Whatever the reason, the retailer’s goal is to get product back into regular inventory as quickly as possible. The alternative is liquidation: slashing prices just to get rid of the merchandise.

Until recently, Sears Holdings thought about forward and reverse flows as individual “one-way streets,” says Ivan Tchakarov, division vice president of logistics services. Despite an extensive supply-chain network, store-facing distribution centers weren’t equipped to undertake the redeployment of product. Sears needed an efficient way to handle the 1.1 million pieces that were coming back from stores into the reverse-logistics channel, destined for other stores as well as the retailer’s tier 1 suppliers. Time was of the essence, given the tendency of many items to age quickly, and become “non-productive.”

The answer came through a partnership with Genco, the third-party logistics (3PL) provider that is heavily involved in managing reverse logistics on behalf of its client base. “Genco helped our reverse network to develop into a mufti-functional network,” says director of reverse logistics John Komaromy.

The 3PL made it possible for Sears to review its supply chain from the standpoint of “product lifecycle logistics,” with goods moving in a continuous, circular flow, says Komaromy.

A Long Partnership

It wasn’t a brand new relationship. Genco had been serving Sears in some capacity for more than 20 years, notes Ryan Kelly, the 3PL’s vice president of strategy. Now it was being called on to manage the intensive procedure of product redeployment between stores, in addition to liquidation.

Genco has been running Sears’s inventory redeployment program for the past two years. It operates two Sears returns centers, in Grove City, Ohio, and McDonough, Ga. The facilities serve as points of receipt and reshipping for product coming back from Sears and Kmart stores.

Under the current system, product identified for return gets logged out at the store. The process is the same for customer returns, items going back to the vendor, and those slated for liquidation. Upon arrival at the returns center, they are scanned and disposed of according to rules set up by Sears’s buying and inventory teams, based on technology provided by Genco. Those items designated for redeployment are shipped to Sears’s forward-facing D.C.s for final distribution to the retail shelf.

Among the advantages of relying on Genco, Tchakarov says, is the easy integration of product across all paths that make up the reverse logistics flow. There’s no need for the stores to segregate returns according to their ultimate destination. Everything that’s moving out of the store can be loaded onto the same pallets, making the best possible use of trailer space. The process of disposition is handled by the Genco system at the returns centers.

On the transportation side, the carrier knows exactly when to pick up returned merchandise. “From a system perspective,” he says, “Genco provides a cradle-to-grave system. It provides a full-visibility and disposition cycle, from the moment the store needs to return something.”

Clearing the Backroom

Many retailers struggle with the problem of returned merchandise clogging up the backroom while awaiting a truck to take it away. Often there’s no set schedule for freeing up that limited space. Under the Sears system managed by Genco, stores observe a two-pallet minimum for triggering a pickup. Most retail locations are shipping between two and four pallets back to the returns center every couple of weeks. Considerations of density and scale “allow the network to be efficient from an economic standpoint,” Komaromy says.

Genco’s biggest challenge in managing the reverse flow is the need to run “a lean, process-oriented shop,” says Kelly. “You’re creating an entirely new process for what might be a one-off scenario.” There’s always the danger of adding unnecessary complexity and unproductive processes.

From Sears’s perspective, the Genco system has helped it to manage reverse logistics across sales channels, including online sales and returns. Tchakarov says it’s important to make the right decisions on where to liquidate product, to ensure the best profit margins while upholding the stores’ image as sellers of new, full-priced merchandise.

The returns program has garnered Genco a “Partners in Transformation” award from Sears, which the retailer bestows on vendors that deliver service innovations, improved financial performance or an “exceptional” customer experience, both in store and online.

Tchakarov sees additional opportunities for partnering with Genco. A key goal for Sears, he says, is the crafting of an omnichannel liquidation strategy. Up to now, product marked for liquidation has been funneled entirely through the returns centers. In the future, the retailer might rely on local consolidation and store-facing systems to streamline the liquidation process.

Genco’s technology could be of help. “At the end of the day,” Tchakarov says, “Genco has very a deep systemic integration with us.”

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