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November 21, 2006 3 Steps To Effective Return Management Returns are problem in many companies, not for the fact that they happen but most don’t know what to do with them. According to John’s article many companies just pile up returned items and get to them when time permits. In today’s fast moving world finding extra time is getting harder and harder to do, that is why returns need to be taken care as soon as they come back. Returned products usually sit in a pile till physical inventory or warehouse clean up and then just get thrown out. Talk about a WASTE of $$$!!! In the 3 steps that follow you will find what should go into an effective return policy and find out how to calculate exactly how much a return is costing you. Step 1 – Determine What Can Be Returned Most company’s limit the products that can be returned to the products that are currently stock. Any special orders or discontinued products usually should not be eligible to be returned. Customers should always know before they purchase the product if they are allowed to return it. Just think if you sell a product to a customer and then when they try to return it you tell them they can’t, I know that I would start to question the credibility of the product and may not buy it again. Along with telling the customer you should also try and put which items are returnable on their packing slips and invoices. The key here is to have the least amount of products come back to you that you can potentially not resell or recycle. Step 2- Process Returns Like Any Other Stock Receipts As returns come back to you should treat them as you would new inventory. Returned products can and should be classified in 4 specific categories: 1. Items that can be resold or used in its present condition This should be treated like a normal newly received item and put away in its proper location within 24 hours of getting it back. 2. The item must be repackaged or repaired before being returned to inventory This item should be should be immediately be sent to the department that handles these tasks. In the food industry this is almost impossible to do because you are handling products that loss all credibility of safety of product after they have been opened or damaged. 3. The item must be returned to the supplier. If your return system is set up to do that it should be on the next truck that goes to your vender. You do not want to be reasonable if something happens to that product while in your responsibility. 4. The item will be thrown out or scrapped The item should be immediately put in the dumpster or scrap area. You do not want a bad item getting back in your stock and potentially getting resold. Keeping a clean and organized system will help you stay away from product recalls or lawsuits. Step 3- Calculate What It Costs To Process A Return In Issue 55 and Issue 56 we discussed and explained what Activity Based Costing (or ABC Costing) is. ABC Costing is a way to determine the cost of an activity by looking at the tasks or activities that need to be done. To find out how much a return is costing you need to find out exactly who is handling the product, their hourly wage, and the average number of line items they can process in an hour. You then divide the hourly pay rate by the average number of line item processed to get the cost per line item. Let’s take a look at a example: In our example we are going to have 3 different people be involved in the return process: Receiver Hourly Wage: $20/ Per Hour Line Items Processed Per Hour = 30 items Cost Per line item = $0.67 ($20 ÷ 30 items = $0.67) Re-Stocker Hourly Wage: $15/ Per Hour Line Items Processed Per Hour = 20 items Cost Per line item =$0.75 ($15 ÷ 20 items = $0.75) Administrative Time to Issue Credit Hourly Wage: $18/ Per Hour Line Items Processed Per Hour = 6 items Cost Per line item =$3.00 ($18 ÷ 6 items = $3.00) Total Cost Per Line Item = $4.42 ($0.67 + $0.75 + $3.00 = $4.42) This number may seem low and insignificant but just remember lets say you get an average of 2 line item returns a day and you work 300 days a year. That is an average of 600 returns a year which is $2,652 a year ($600 x $4.42 = $2,652) and that number does not include freight charges or the time invested in why the returned happened. A Key to saving money is cutting a few costs here and few costs there. John said it best “Handling returns is not a pleasant task. But it can be kept under control by establishing some basic policies and procedures. By minimizing the time and effort necessary to perform this task, we can devote more effort to those activities that produce profits.” Next week we will again look at returns from a software perspective and track them to help identify the real costs of returns. Use These Steps To Help Design An Effective Return Policy For Your Company To Unsubscribe
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