When Target Stores decided in 1991 to take a serious look at the back end of its supply-chain strategy -merchandise returns - their logistics team saw several key opportunities to improve efficiencies not only at the store operations level, but for its vendors and customers as well.

For example, adoption of a central return point would move messy, complicated processes from the back rooms of the individual retail stores, so store managers could more fully focus on filling their selling space with the right merchandise at the right time. The opportunity for theft and additional product damage while returned merchandise awaited disposition would be dramatically reduced. And vendors would be dealing with large, single shipments of merchandise returns from a central facility as opposed to a constant bombardment of smaller, sporadic shipments from each of the 700-plus Target retail stores.

The central return concept made sense as a general strategy, but the specifics involved in designing and executing a complex reverse-logistics program constituted uncharted waters for the Target team. The company turned its attention to a third-party operator concept and proceeded to evaluate skills and capabilities available on the open market.

From a select group of third-party logistics providers considered by the company, GENCO Distribution Systems emerged as offering the best solution. Pittsburgh-based GENCO was then developing a solid track record managing returns programs for the grocery industry.

Now, more than five years into the program, the Target-GENCO partnership revolves around a GENCO-operated Central Return Center (CRC) that uses a license-plate concept and sophisticated software to direct, track and trace all merchandise returns, from the minute customers arrive at the in-store service desk to the final disposition of each and every item.

	"When the product comes into the return center, we scan each license plate as the item comes off the pallet, SKU by SKU." - Curtis Greve

"We provide Target with the software that enables them to process return goods from their
stores back to the manufacturers, distribution centers and salvage buyers," explained Curtis Greve, senior vice-president of customer service for GENCO. "We also actually physically manage and operate the Central Return Center for them in Indianapolis." The CRC is a leased facility dedicated exclusively to Target. A two-shift operation involving approximately 150 GENCO team members processes goods and materials in and out of the facility's 190,000 square feet of storage space. The center is located on the west side of town, five miles from the airport and within easy reach of the interstate.

"The CRC is our facility but we run it exclusively for them," said Greve. "The manager and all the people who work there are GENCO employees, so in effect, we enable Target to have a full management and software company that focuses purely on their reverse logistics process." Target then is free to direct its capital and human resources to the company's core business function.

Here's how it works. When a customer arrives at the service desk to return a purchased item, the Target customer service team member scans the item and keys that information into the system. A small bar-coded tag called a license plate is produced and then affixed to the returned item - defective items and marketing returns alike. Return policies and instructions for all SKUs (stock-keeping units) are on-line with details of disposition instructions for that particular item.

Returned merchandise again is scanned as it is loaded on a pallet, then shrink-wrapped to minimize damage and improve security. The pallet of returns travels back through one of 14 LTL-like hubs - 10 Target distribution centers and four designated LTL terminals - where truckload-quantity shipments are collected before being transported to the CRC in Indianapolis.

As GENCO employees unload each pallet, the license plate on each item is scanned and the item is sorted in different categories based on product type. From there, each item goes to a "home location" in a series of racking. Then, according to "cut" criteria established by the respective buyers, the GENCO team members pull those goods to Target's requirements and get them ready for shipment back to the vendor.

"When the product comes into the return center, we scan each license plate as the item comes off the pallet, SKU by SKU," said Greve. "That information basically is matched up systemically against the files that have been downloaded by the sending stores. Once we scan the item here at the CRC, we sort it out by vendor, then cut it up into bills of lading" using criteria pre-determined by the respective buyers. "Once we hit that cut point, the system tells us that we have these bills of lading that are cut and available to ship. Vendors either have a standing return authorization or we fax them a request for authorization, or we call the vendor and tell them what we have heading back to them and ask for a return authorization number."

"Each vendor can be different, but once you set up a vendor, it's a pretty standard process."

The software system produces pallet tags for outbound transport. "The system drives us to pick the correct pallets, which we then stage on the dock. We weigh it, then we use the reports, the manifest, and pallet tags to identify the load and put it on the right truck. So basically, it systematically processes the return."

It's just like a distribution center, only in reverse, he said. "We get a conglomeration of various products from various vendors on one pallet, then we sort it back out into its vendor return points and ship it out that way. A distribution center operates just the opposite: You have a vendor from a particular manufacturing plant sending in one homogenous grouping of items that gets slotted, then they break it out by store and mix it up based on store orders. We basically just put that process in reverse."

The transportation of returned merchandise from the individual stores through the hub and spoke network inbound to the CRC is pre-determined, as Target uses carriers under contract, primarily J.B. Hunt and Werner Enterprises. Outbound transport from the CRC to the individual vendors generally is performed by small package provider United Parcel Service, as well as Consolidated Freightways, J. Hunt and Werner.

The license plate concept provides a chain of custody and responsibility as well. The returned item becomes the individual store's responsibility once it arrives at the service desk. Once the goods are scanned inbound at the CRC, that transfers the responsibility to the CRC operator, GENCO. Once those goods are shipped back out from the CRC, that information is transmitted on a daily basis to the host system at Target headquarters. This has two effects: It relieves the merchant of their responsibility from a financial standpoint, and it notifies Target's accounts payable system, which generates a charge-back to the vendor.

Since the inception of this strategy, Target feels that their objectives of reducing backroom congestion and removing expenses out of the process have been achieved, including benefits to their suppliers such as combined or consolidated returns from one source vs. multiple store returns.