Companies large and small are increasingly turning their reverse logistics responsibilities over to third party logistics providers (3PLs).

There are good reasons for that, says Tim Konrad, president of reverse logistics for GENCO (www.genco.com), a 3PL that handles returns for a number of major retailers.

“A DC's main job is like a fire hose,” says Konrad. “Everything points out. The focus is on selling product and delivering it to a store or the customer. It is not on giving credit for product that's been returned.”

In addition, there's an issue of scale. Often, reverse logistics represents too small a piece of a DC manager's responsibility to warrant much attention or develop processes to do it efficiently.

Finally, DCs are configured to handle uniform cartons or pallets, and returns are rarely that tidy.

The following are some of the best practices 3PLs have established to overcome these difficulties and handle returns effectively:

Do it in volume: One retailer, or one store, may not generate enough volume to support an independent returns process. But by working with multiple stores, or multiple retailers, a 3PL generates the volume that allows it to streamline and automate processes.

Establish vendor agreements: 3PLs establish clear business rules about which products can be returned and under what conditions, how customers will be credited and how the product will be handled when it is returned.

Implement a software package: The best 3PLs have software programs that allow them to automate those business processes.

Receive, inspect and dispose: The key to effective returns management is the ability to receive and inspect incoming merchandise, and then figure out the most profitable disposition of that product. Ideally, the product is put back on the shelf and sold again, but that's not always possible.

A 3PL may also return the product to the original vendor, sell it in a secondary channel where it will end up in discount stores, donate it to charity, send it to recycling or destroy it.

Reconciliation: Finally, a 3PL establishes a process to reconcile with the customer, either through point of sale information or some other unique identifier.