ETD: 975 SPECIAL REPORT - Inventory: Controlling Returns

[E-Tailer's Digest]

  E-Tailer's Digest --- Everything for the  Retailer
  Issue #0975          May 4, 2006
  George Matyjewicz, Moderator         mailto:georgem at gapent.com
  Published by:  GAP Enterprises, Ltd.  http://www.etailersdigest.com
----------------------------------------------------------------
  CONTENTS
  [1]  Greetings
  [2]  SPECIAL REPORT - Inventory: Controlling Returns

----------------------------------------------------------------
  [1]  Greetings.
----------------------------------------------------------------
Hi All:

Today we have a special report entitled "Inventory: Controlling 
Returns."   Statistics show that returns make up as high as 19% of 
sales.  Controlling returns - both physically and financially, can 
add to your bottom line.

We have analyzed warehouse operations at clients and the findings are 
always the same -  there is little control over returns.  Yet, it is 
so simple to do, and will add to your net profit.

What do you think?  Will this help you?

Now, let's get to everything for the retailer.

Sincerely


George Matyjewicz, PhD
Chief Global Strategist, GAP Enterprises, LLC
mailto:georgem at gapent.com
http://www.etailersdigest.com

----------------------------------------------------------------
  [2]  Inventory: Controlling Returns
----------------------------------------------------------------

+ + + + +  S P E C I A L   R E P O R T + + + + +
            "Inventory: Controlling Returns"
               by George Matyjewicz, PhD
                Chief Global Strategist
                 GAP Enterprises, LLC


As we all know, customers don't always return goods that they are 
authorized to return.  Sometimes they don't even return what we 
sell.  So how do you control returns?

In a busy warehouse, returns are often received, maybe recorded, and 
put aside until somebody can check out the merchandise.  The problem 
is that the credit department doesn't know whether they can authorize 
a credit to the customer, since they don't know what has been 
received.  And the goods are in limbo until somebody does check them.

A better and simple approach to controlling returns is as follows:

1.	Create a virtual warehouse in your inventory system called 
"Returns."  This is a holding warehouse that cannot ship 
goods.  Rather it is created to receive goods and then transfer them 
to the main warehouse when inspected.

2.	As goods are received, log them in and record them in the Returns 
warehouse.  At this point,  the goods can merely be recorded as 
received in total, i.e., if the customer has a Return Merchandise 
Authorization (RMA) authorizing them to return 48 pieces, record the 
receipt as 48 pieces.  The actual count will be verified 
later.  Also, the returns reason code will be recorded later when inspecting.

3.	Physically move them to the Returns warehouse, i.e., a section set 
aside in the main warehouse to hold returns.

4.	A policy should be established to check merchandise not later than 
24 hours from receipt.  This gives the credit department the proper 
information to allow them to issue a credit.

5.	When time permits (not later than 24 hours from receipt), check 
the returned merchandise to see if:
	a.	We received what we authorized the customer to return, i.e., 48 
pieces from the above example.
	b.	The goods are not damaged and are fit for resale.
	c.	We received what we sell.

	It is not unheard of for a customer to send back a radio or toaster 
to a company that only sells apparel.  It is not uncommon for a 
customer to send back more than what was authorized, i.e., they clear 
their floor of merchandise that does not sell (in the case of a 
wholesaler selling to a retailer).

6.	If the customer returns more than what was authorized, a decision 
has to be made:
	a.	Should you keep the merchandise and give them credit?
	b.	Should the excess be returned? (after calling them and explaining 
the issue).

7.	If a customer returns what you do not sell (e.g., the toaster or 
radio), the customer needs to be called to alert them of the 
error.  In some cases the customer doesn't care, and will require 
that you give them credit anyway.  You need to analyze the customer 
and decide what to do.

8.	If the goods are damaged, you need to decide who caused the 
damage, and, if caused by the customer, you need to decide whether to 
approve the credit request.  Obviously the relationship with the 
customer will dictate this decision.

Once the goods have been examined, the following must happen:

1.	The credit department must be told of the status of the returns, 
i.e., fit for resale and authorization approved.

2.	A code must be recorded in the system to determine what type of 
return, e.g., damaged goods (customer damaged), damaged goods (from 
supplier),  refused, not able to collect (for CODs), etc.

3.	The goods must be put away for resale:
	a.	Goods should be re-boxed and labeled.
	b.	Goods must be transferred from the Returns warehouse to the main warehouse.
	c.	The transfer must be recorded in the inventory system, which 
should be a transfer from Returns warehouse to the main warehouse.

Some companies charge a return stocking fee (usually 15% of the 
sale), which covers the cost of this handling procedure.

Returns should be recorded separately in the financial 
statements.  You must have a general ledger account in the P&L 
section called "Returns" and the returns received must be posted to 
returns, and not be shown as a net reduction of sales.  At the end of 
the year, you want to analyze returns, and try to determine where you 
are having problems, and correct them.

For example, if you find that 40% of your CODs are being returned, 
you may not want to offer COD shipments (credit cards may be a better 
approach).  Or if the goods are damaged because of the supplier, it 
may be time to find another supplier.  Keep in mind, a reduction in 
returns goes straight to the bottom line.

###

About the author.  George Matyjewicz, PhD is the Chief Global 
Strategist and a principal of GAP Enterprises, LLC.  GAP Enterprises, 
LLC is a professional firm of marketing and management Solutionists 
whose charter is to provide unique and innovative marketing and 
information solutions to owners and managers of companies worldwide. 
We provide direction, common sense advice and "hands on" guidance in 
programs designed to optimize your strategic direction.  http://www.gapent.com/

----------------------------------------------------------------
  Links to follow
----------------------------------------------------------------
GAP Enterprises, Ltd.		http://www.gapent.com/
E-Tailer's Digest                       http://www.etailersdigest.com
Interim Help			http://interimhelp.com
Marketing Your Web 		http://www.gapent.com/myweb/
Automated Press Releases      http://www.automatedpr.com