July 2007 | Case Studies | DC Solutions

Bean There, Returned That

Tags: Warehousing

A new materials handling system helps L.L. Bean meet its 100-percent satisfaction guarantee and offer many happy returns.

Building its business around high-quality outdoor equipment and clothing, L.L. Bean's sales channels include seven retail stores, one dozen outlet stores, the Internet, and its nearly 100-year-old catalog.

But it's not just the product that Bean built its reputation on—it's also the retailer's 100-percent satisfaction guarantee.

The roots of that guarantee trace back to 1912, when Leon Leonwood Bean designed the Maine hunting shoe and advertised its benefits to hunters by distributing a three-page flyer. While Bean quickly sold 100 pairs of shoes, the majority of customers returned them when the rubber bottoms separated from the leather tops.

Determined to make his customers happy, Bean refunded their money, fixed the problem, and forged ahead. The rest, as they say, is history.

Today, L.L. Bean continues to guarantee its products, allowing customers to return any item that doesn't measure up. It also works hard to make the returns process as quick and easy as possible, and lives by the philosophy, "everything must go right."

While that kind of service makes customers happy, it also presents myriad challenges to the company's logistics operations. L.L. Bean shipped 48 million units last year, of which six million were returned.

During the holiday season, the returns department braces for an 18-fold increase in volume. On its busiest day last year, the department processed 47,000 individual returns.

Reaching Higher

L.L. Bean places such a high priority on returns that it established a special reverse logistics center at its distribution campus in Freeport, Maine.

The facility, which measures 135,000 square feet, houses a staff of 500 processors who handle customer returns and exchanges. About 85 percent of returned items include a refund request, while 15 percent require an exchange. Returns services also include repairs.

In 2006, L.L. Bean decided that the reverse logistics center's 15-year-old materials handling and processing systems were in line for an upgrade.

"Every year we look for ways to improve our processes," says Barb Wood, senior manager, returns operations for L.L. Bean. "Last year, we focused on the material flow."

One method the company considered was to centralize package opening upon receipt. As the concept moved into the pilot stage, L.L. Bean sought feedback from its reverse logistics center employees.

That's when the process began to "morph into something more," says Wood. "We decided to try the idea of dedicating single employees to handle each account every step of the way, eliminating non-value-added steps in the process."

With this fairly detailed homegrown solution in the works, L.L. Bean looked for a partner that could provide the equipment needed to get the job done, along with the engineering expertise to implement the processes.

"We considered three different vendors," says Wayne Steele, L.L. Bean's industrial engineering supervisor, "and selected VARGO Companies."

VARGO Companies is comprised of three strategic companies located in Ohio, California, and Texas, and specializes in system integration, software solutions, and materials handling equipment.

It set itself apart from the other vendors L.L. Bean considered because it presented a solution that would increase the retailer's flexibility to meet the challenge of flowing product to 160 processors, and ensure minimum work-in-process. VARGO developed a simulation model that spelled out, in detail, how the system would work.

"VARGO's methodology was different than other vendors we considered," says Steele. "The intelligence within the equipment was higher, and the documentation was in place to back it all up."

L.L. Bean approached VARGO with well-defined objectives. "The company knew what it wanted, but wasn't sure how to get there," says Carlos Ysasi, vice president of systems engineering for VARGO.

Controlling the River

L.L. Bean's most pressing challenge was controlling product flow.

"A river of product was rushing in the door, and the company had no control over how it was delivered to the processors," says Ysasi. "So VARGO took control of the product flow to provide L.L. Bean the right amount of product at the right time."

VARGO's solution incorporates a dual-loop system controlled by flow meters and proportioning dividers. Automatically delivering product avoids delays caused by processing workloads, and ensures that all workstations receive product on time.

At the center of the process are VARGO's dynamic workflow control system and product distribution conveyors. As returns come in the door, "spreaders" convey them to workstations. Automatic speed control transfers product via a "waterfall" that cascades product from one conveyor to another.

Using an expected workforce-staffing estimate for each product loop, the system automatically measures product volume in each loop, and quickly adjusts to workforce changes.

L.L. Bean achieves this optimized work-in-process distribution by monitoring workflow and estimated workforce to ensure the product-processing loops are continually in balance.

Now, as a product comes in the door, one associate can handle it from the time it is picked off the conveyor belt to be scanned, processed, and prepped, to the time it is sorted to a tote and placed back on the conveyor for reintroduction into L.L. Bean's inventory.

Sticking to the Schedule

L.L. Bean scheduled the implementation for the time of year when the volume of returns is low, and finished just in time for the peak holiday season.

"We used a phased-in approach to replace the old system," says Steele. "We were able to stay on track with the planned schedule, and the physical install took a total of three months."

"While returns were still being processed with the legacy system, we were installing the new system, and training employees for the switch," says Ysasi. "It was a complicated transition but we made sure to keep communications open between both teams."

Today, 80 percent of returns can be processed with one touch to reduce re-handling, a big change from the old days.

Within the first few months of using VARGO's system, L.L. Bean's productivity jumped. Employees who formerly processed 16.5 units per hour now handle 18 per hour, a number that Steele expects will increase during peak season.

Cost savings have been high as well—the simple act of shaving seconds off processing each return leads to hundreds of thousands of dollars in labor savings. By eliminating two handoffs, the company also has improved merchandise operations and maintained "first in, first out" returns processing.

The improvement that pleases Barb Wood the most, however, is the reduction in injury rates.

"We've brought injuries down by 50 percent," she says. "The employees have been very happy with the system, a change that is usually tough on them. They are excited about their new work space and process improvements."

In addition, L.L. Bean is pleased with the ROI it expects from the new technology. While it costs about $14 million annually to run the returns department, the company considers it money well spent because keeping customers happy pays off in spades.

The key to the success of the new returns processes is that Bean listened to its employees.

"Our returns center employees led us to this solution," Wood points out. "The solution appears very simple, but the intelligence behind it is what makes it work."

In the future, L.L. Bean may add a third loop to its two new ones. But for now, the company is as satisfied as its customers with the new returns system.