Many warehouses have their forward product flow down pretty good -they can juggle receiving, putaway, picking and shipping at any speed. But what happens when customers make returns and the process has to work just as well in reverse? Unfortunately, reverse logistics can stymie even the smoothest distribution center, and product often gets put aside and forgotten. That can have a direct impact on margins.

'There are different mindsets between forward and reverse logistics,' says Curtis Greve, president of Genco Retail Services. 'In forward, you're receiving against paperwork; it's merchandise you're expecting. In reverse, you don't know what's coming in until it gets there.

'Reverse logistics is triage,' says David Landau, director of product management at Manhattan Associates. 'You have to take a first look at the products coming back in, and instantly decide on the state of the product, the reason for the return.'

Just as battlefield medics must decide which injuries need to be treated first, warehouses have to swiftly handle unexpected returns.

'If it's unopened and clean, and you just shipped the wrong product, maybe you can return it to stock,' Landau says. 'If it's been opened and it was the wrong size, then you have to repackage it. If it was damaged, you have to determine its value, and whether to refurbish it, sell it as damaged goods, or simply throw it away.'

Regardless, the best way to handle it is to be prepared. Before you ever ship the product, there are three steps you can take to make reverse logistics easier, says Denis Reilly, CEO of USF Processors:

1. Make sure you've defined the rules between all members of the supply chain, so when returns come in, you know instantly how to handle them - which products you'll return to the factory, which you'll re-sell, and which you'll discard.
2. Have technology to support the process. Without data about the returned item and the customer's account, it's tough to take action that returns the item to stock and satisfies the customer.
3. Clear a dedicated space in your warehouse. Don't just stack returns in a corner.

It's crucial to establish processes and procedures for handling returns, which are messy by definition. 'For many warehouses, the biggest shocker is when returns come back sloppy,' Reilly says. 'Returned product comes back as onesies and twosies, instead of by pallet and case; so companies stick it in the corner of the warehouse where it builds up.'

At Distribution Fulfillment Services, the distribution arm of the Spiegel Group, process is essential to handling nearly 6 million returns a year in a timely fashion. The company promises customers that it will credit their accounts in 14 days after the return is received. 'We're successful because we're good operators,' says Brad Grimsley, senior vice president for operations support and development. 'We measure processes and we monitor every variable cost.'

Reilly agrees with the need for efficient returns operations. 'With the speed of business today, everybody wants to move inventory off the books if it's not selling, especially if it has a short lifecycle or high value. You can't sit on electronics and hold it for three months, because the value would fall by 50%.'

Then there's the information side of the equation. When a returned product reaches the warehouse, workers must have the right tools to collect information about it.

One solution is to ship a return label with every order, says Ray Greer, CEO of Newgistics, a provider of returns management services and labels. That provides two benefits; it makes the process more convenient for customers, and it lets warehouses track the path of every return by scanning a unique bar code on every label. In a recent application with catalog orders from Eddie Bauer, Spiegel, and Newport News, Newgistics found that 77% of customers making returns used the pre-paid, pre-addressed, return shipping label that was packed with their order.

Proper labeling starts the data capture process. But it's just as important to have systems in place for collecting bar code data. This extends all the way from determining the returned item's next destination in the warehouse to crediting a customer's account in short order.

The quickest way to sort returns and credit customers is to use the appropriate software. A good warehouse management system (WMS) should have four key attributes, says Doug Hopper, senior business consultant at Logility.

First, it should allow you to accept returns against a return authorization number (if the customer has phoned customer service before mailing the item), or to create a new account on the warehouse floor, in the case of surprise returns.

Second, the WMS provider should do training on all levels before implementing the new software; not just floor workers, but also clerical and corporate. 'If you don't do the training, you're in for trouble,' Hopper says. 'With any WMS, there is a ton of set-up work that must be done up-front before you flip the switch.'

Third, a good WMS won't dictate your returns process. Some companies use a 10-step returns process, but the ideal number depends on your building, workforce, and product type. Five steps or 25 steps might be more efficient.

And fourth, you must be able to change your mind, Hopper says. A scalable WMS will let you grow, in case your company makes an acquisition, or changes product lines.

With all that said, it's possible that handling returns is just not for your operation. Fortunately, you have options here - third-party logistics (3PL) providers. Many 3PLs now offer services as well as software - 'they can find a plant, staff the property, and run the return center for you; a whole turnkey solution,' Landau says.

According to Reilly, there are four sure signs that a 3PL might be the way to go:

1. Returns are piling up in a corner of your warehouse

2. You don't know the reasons for the returns

3. You haven't established policies with vendors and customers before shipping

4. You're throwing away most of the returned product

But this convenience comes at a cost, Landau warns. The service itself costs money, and it can be tough to keep your customers satisfied when the 3PL is the only one who knows where their credit is.

Not a problem, says Steve Windsperger, VP of Information Systems for ReTurn Inc. In terms of cost, a good 3PL system pays for itself, preserving the value of returns. And in terms of customer service, on-site batch or real-time processing can register customer credit as soon as a warehouse receives each return, he says.

Instead, the most common challenge in using a 3PL is simply transmitting data between returns management software and a company's WMS. The 3PL usually needs master files, like item, vendor, and customer databases. But a company that's been handling returns internally doesn't have practice with computer import and export formats.

Customers considering outsourcing should measure their efficiency in running returns through their distribution channel. That can waste time when a standard WMS system doesn't run as well backwards as forwards. 'One customer couldn't process returns to stock and to defectives at once; their system needed a new order to send a defective return to a different place, so they were doubling their cost on that,' Windsperger says.

Whether it is a 3PL handling returns or your own staff, there is a trend now to 'take reverse logistics as far into the field as possible,' Landau says.

For instance, Home Depot hires contractors to install hot water heaters. Instead of asking the store to ship every faulty unit back to the factory, the company asks those contractors to do on-site inspections, and choose between repairing and replacing. 'You have to empower people in the field to make that choice,' says Landau.

A company can ease the pain of processing returns. But in the end, the only way to handle them at the speed of modern business is to follow the ancient motto: Be prepared.