Who should care about returns?

Turns out, you should, as should everyone else in your organization from the warehouse receiver to the CEO.

By John M. Hill, principal, TranSystems | ESYNC -- Modern Materials Handling, 5/5/2008

In most organizations, returns are an afterthought. That’s too bad because if they are properly monitored, returns provide significant insight into your product quality and the efficacy of your marketing programs. How efficiently you handle returns can impact your sales, costs and profit margin as well as your customer service performance.

The challenge is monitoring; that is, measuring the costs of returns processing versus the impact of the program on increased sales, market share or other metrics management deems appropriate.

Warehouse impact and costs

The problem is that all too frequently, neither the physical process nor the accounting is formalized. Yet, at some point, packages are opened and inspected. The returned material is reworked, returned to stock, scrapped or recycled. Depending upon the volume, returns eat up space, increase direct and indirect labor requirements and impact other warehouse operations. Further, the timeliness and efficiency of processing directly impacts the firm’s customer service image in the marketplace.

The costs don’t end there. Returns processing includes transportation to and from the customer, disposition and inventory carrying or write-off. And, don’t forget the costs associated with non-merchandise returns; i.e., pallets, totes, carts, racks, recyclable products, plastic and paper packaging, sorting, cleaning, freight, etc.

In other words, the logistics cost and environmental impact of your returns policy could well be double or more that of a non-returned shipment. What can be done to contain these costs?

Managing the returns process

If returns are a normal component of your business mix, two areas need attention to manage them: Corporate policy and related procedures, and physical handling.

Corporate (or marketing) policy and procedures

Effective returns procedures begin before a customer even places an order. Carefully consider including returns forms and shipping labels with original shipments. They are an open invitation for returns from fickle purchasers. The same is true for offers of “return freight paid” and “pick-up service”. Don’t eagerly accept returns as credit for additional sales.

Whenever possible, anticipate the ultimate disposition, making the decision before arrival and providing easy-to-follow rules for the warehouse. Encode return authorization numbers by disposition type to facilitate handling and to give priority to those products requiring the speediest processing.

Permit direct credit from inbound packing lists for certain categories of product. Do not allow delays in inspection and credit issuance until it is too late to refute a deduction from payment. Consider external processing opportunities depending upon the nature of the return to reduce the load on the warehouse; for example, destroy in the field or ship direct from the field to the ultimate disposal location. If your returns volume is heavy, consider using a third-party reverse logistics company.

Physical handling

Once a return hits the receiving dock, it must be dispositioned and handled. The warehouse must be configured to permit streamlined returns material flow after quick, efficient “paperwork” processing.

There are several steps to that:

• Include returns in the warehouse design process.
• Provide adequate space for inbound staging and outbound dispositioning.
• Returns are a housekeeping challenge—locate them out of the mainstream if possible.
• Consider automation to facilitate flow. For example, sort automatically to identify and count for credit, to move to scrap or restock location, etc.
• Don’t forget about non-merchandise returns; e.g., dunnage that must be handled and recycled.

With a WMS, pre-coded return authorizations (bar coded if feasible, handwritten or marked on the package if not) are the key to efficient dispositioning. With or without a system, however, you can do the following:

• Formalize your returns handling operation. Assign personnel to the team, full or part-time, depending upon the volume. Give them the tools and hold them responsible for performance.
• Rapid disposition decision-making requires the most experienced people. Assign less experienced personnel to ancillary tasks such as opening and de-trash, data entry, rework (unless specific skills required), repackaging and restocking.

Nobody says that returns are easy, but with effective corporate policies and warehouse procedures, handling returns can be as seamless as shipping the order in the first place.