Valuable products and large product line replacements make effective return logistics indispensable to Matas. In 2014 the company decided to improve their return logistics by investing in a custom designed sorter. Two years later the first solution of its kind in Denmark was commissioned. The results have surpassed all expectations.

In recent years, returns have become a critical issue in contracts between retailers and manufacturers. As a result, return logistics has become a competitive factor, particularly in the retail industry, with Matas, according to Logistics Manager, Jesper Amsinck, being one of the companies for whom it is most important in the Danish market. Although the company has had a successful approach to return logistics for several years, in practice it was a necessary evil that placed heavy demands on the logistics department.

Jesper Amsinck explains: "Matas replaces a significant number of product lines three times a year in response to new product launches by major manufacturers such as Estée Lauder. These line replacements account for the majority of returns and were handled manually in the past. Simply described, the returns were delivered to the warehouse in a complete shamble, and then had to be sorted, scanned and registered. It is not easy as it might sound, once you realise that it can be practically impossible to distinguish one version of a product from another by visually examining the packaging, making it necessary to double check the barcode. Previously, it took 8 employees up to 8 working weeks to sort through the returns from one line replacement, which translates into 7,000 working hours annually. On top of which we have to deal with the everyday returns as well."

Matas has been the leading chain of drugstores non-stop since it was founded in 1959. Today, the chain consists of approximately 275 brand stores and 15 franchise stores and retails almost 20.000 different products. The high turnover and line replacement rates necessitates the distribution of 55.000 euro pallets a year, and makes logistics one of the company's most important focus areas.

"Although the return logistics process was time consuming, prone to human error, and a significant source of breakage, it was also profitable," he continues. "We recognised and documented as much in 2013. But at the time, we became aware that there was a lot of room for improvement. Which is why we began looking into different solutions."

Custom designed sorter and new processes
"During 2014 we decided to invest in a sorter and asked Langebaek to advise us on supplier selection as well as design and implement the solution. As a first step, we accompanied Langebaek on a visit to a trade show in Germany to have a closer look at some of the potential suppliers and their solutions. Based on what we learned, we chose to enter into an agreement with Optimus, a Dutch company that specialises in sorters, at the end of 2015."

Matas might be one of the largest retail chains in Denmark but this was in some ways a 'small' order for Optimus. It was the first time the company had been asked to deliver a solution for products with the characteristics that define Matas' assortment: Small size, low weight, and, in some case, high fragility. This combination presented the team with a rather unique design challenge, which was solved in an exemplary collaboration between Matas, Langebaek, and Optimus.

"While the sorter was being designed, we worked on new principles for the return logistics and on embedding the requisite process changes, in the warehouse as well as each store. The most significant changes we made, were to limit the number of product lines in our returns process and assigning the rough sorting of the returns per manufacturer to the stores. Simultaneously, we completed a closer integration of the relevant management systems to gain a better understanding and control of the financial impacts of the return logistics."

Higher effectiveness, fewer errors, and less breakage
The custom designed sorter, new principles, and new processes were all operational in March 2016, just in time for the first major line replacement of the year. Expectations were high.

"It was something of a trial by fire," Jesper Amsinck continues. "For the sorter as well as both store and warehouse employees. As is always the case, some things didn't work quite work the way we intended or as well as we anticipated, but overall, the launch was much more successful than we expected. We have already reduced hours spent on returns significantly, freed up employees with specialised skills for more important and interesting tasks, reduced the number of errors and almost eliminated waste. It's had measurable effect, on employees as well as the bottom line.

And another thing
The new sorter has already proven its worth. But Jesper Amsinck hasn't finished. As it turns out, the sorter has also helped to solve a problem that had nothing to do with returns.

"We typically deliver between 1 and 3 shipments per store per week, depending on the size and location of the store," he says. "The primary challenge for us, and for every other national retail chain, is to ensure that all stores receive the shipments roughly at the same time. But in addition, we also have to deal with ad hoc requests from the stores, driven by variations in demand. Earlier this year, for instance, we had a surprising heatwave in May, which caused the sale of sunscreen to increase earlier and more steeply than we had forecast. All of sudden we had to urgently replenish inventories in a lot of stores."

"Previously, warehouse employees would have had to drop everything they were doing to deal with this type of situation. Even then, it might have taken us a few days to fill all the orders resulting in lost revenue. The new sorter has put an end to that. Instead of using it for scanning and sorting returns, we simply reverse the flow and use it to scan and pick products 50 stores at a time. Which means that by assigning just a few employees to the task, we can fulfil the extra orders within a day or two. It's not the reason we invested in the sorter, but it's an added benefit that makes the investment all the more profitable."