For Distribution Fulfillment Services (DFS), the Columbus, Ohio-based distribution arm of the Spiegel Group, the successful handling of returns is every bit as important as filling orders for customers.

After all, Spiegel and Eddie Bauer, the brands supported by DFS, receive nearly 6 million returns a year. That many packages definitely commands special attention.

"Managing returns is all about keeping a promise made to a customer," says Brad Grimsley, senior vice president for operations support and development at DFS.

"Our job is to get a return back to the fulfillment center and credit the customer's account within 14 calendar days, and then reclaim as much of that merchandise for resale as possible."

While many leading companies have chosen to outsource their returns processing, DFS does it in house. A 3PL aggregates the shipments back to Columbus, but DFS processes all returned merchandise from the same facility where they fill orders.

Here's how the company has turned returns into a core operational competency.

Q How did you go about deciding to handle returns yourself?

BG If a company has a tight, well-defined returns policy you can probably hand that off to a third-party logistics provider. Our return philosophy is: if you're not happy, return it. That means we need the flexibility to make assessments about how to best handle a wide range of merchandise. We can do that better than a 3PL.

Q Has DFS ever outsourced returns?

BG Only the transportation. In fact, a lot of thought went into how we handle returns when we consolidated Eddie Bauer and Spiegel operations here in Columbus.

Q Why is it so important to handle returns in-house?

BG One of our jobs is to move product from a customer-return status back to first-quality status so it can be resold. We feel we know better than a 3PL what to look for in determining whether to put a piece of merchandise back into stock or to sell it through one of our outlet channels. And by removing that middle person, we're in a better position to put merchandise back out on the pick shelf quicker.

Q Is there a customer service advantage?

BG There certainly could be. We promise right in our catalog to deal with a return in 14 calendar days, and we live and breath by that expectation.

Q Let's talk about operations. Why are you successful?

BG We're successful because we're good operators. We measure processes and we monitor every variable cost. Then we equate those back to opportunities for savings.

Q What's the biggest challenge to handling returns?

BG First, you're dealing with individual items instead of cartons. And you're doing that without visibility into what's coming at you.

Q How does a customer notify you that they want to make a return?

BG They don't have to let us know. We've integrated a return label with the outbound label. A customer can simply place a return label on an item and drop it in a mailbox. It'll get sent to aggregation centers being managed for us by a 3PL (Newgistics, 512-225-6000, www.newgistics.com). Our first notification, or signal, that something is coming back is actually sent to us from one of the aggregation centers.

Q Are they sending you truckload shipments?

BG Yes. And we're just now at the point where they're giving us an advance ship notification of how many packages are coming from the aggregation centers. So we'll know that on Monday it looks like three trailers will be delivered and we can schedule staff accordingly. We also get a customer order number. We may not know the specific items a customer is sending back, but we have a starting point.

Q What happens when a truck hits your dock?

BG Receiving is pretty straightforward. We get palletized product in Gaylord containers. We acknowledge receipt of the truck's contents, so Newgistics knows that it's arrived. From there, a belt conveyor takes the packages up to an inspection area on the second floor. There, a mechanical carrier disperses the packages to various opening stations.

The only responsibility for the associates at that point is to open the package, identify the merchandise, and credit the customer. The merchandise is bar coded, but since that's an area where we don't have full wireless communication capability, they key in the order number. Once the order is opened, the customer's account is credited behind the scenes.

For the logistical movement inside the center, we create a sticky-back label with a unique ID for that item. It's placed on the outside of the packaging for the garment. If an item hasn't been opened, it goes to the side for return to stock. Otherwise, a belt conveyor carries the merchandise back downstairs, where it's inducted on to a tilt tray sorter.

Q What happens downstairs?

BG First, the tilt tray sorter drops returns into buckets or totes according to their merchandise type. So, all accessories go into a tote, all dresses go into another tote, and all tops go into another tote. Once we have enough of a specific item in totes, we set up a bank of exam stations with all the packaging materials to handle that type. Then we route the totes of merchandise down the line to be worked on.

Q Are the inspections done against business rules for disposition? BG Yes. The label we created includes all the possible dispositions. The associate then grades things according to whether they're first quality and can go back on the shelf; worn but not damaged, which might go to liquidation through our own outlet stores. Damaged goods might go to the Salvation Army or salvage. In the worst-case scenario, it's discarded.

Q How do you finish the process?

BG Once the merchandise is graded, the associate scans the unique ID code. Then they scan a bar code for the appropriate disposition. The vast majority of our returns go back to stock. So, the merchandise goes back onto the tilt tray sorter. The bar code is read, and the tilt tray sorts it into a chute that corresponds to a range of locations in our warehouse. That tote is routed via conveyor to the storage location, where another associate puts it away. Then it's done.

Q When you look at your operations, where are the areas where you could improve?

BG There's a continuous effort here to improve the internal four walls process and drive costs down as low as possible. That goes back to measure, monitor adjust, and measure again. But the things we're working on now are improvements outside the four walls of the facility. We're looking into ways to perform some activities at the aggregation center. For instance, we're looking into whether we can do returns to vendor from the aggregation centers, rather than bringing them back to Columbus first.

Q What's the one piece of advice you have for other companies that want to implement a successful reverse logistics program in-house?

BG Take care of the customer first. Then pay close attention to the speed at which you get merchandise to its final disposition. Most of your money is going to be spent inspecting. Anything you can do to optimize that process, the better off you're going to be.

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