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How can I handle returns, exchanges, and back-orders?

4 years ago
Rita K

There are an enormous number of issues to anticipate when considering an OMS or WMS. One that you ought to spend some time on is how will you handle returns, exchanges, and backorders?

First, if you look at the most successful retailers (Nordstrom, Zappos, etc.) they have very generous return policies. The most important customer is the one you already have. You could spend a lot of money trying to recruit new customers, or spend a little money providing extraordinary service to the customers you already have. Every business is different and it’s possible that returns could cost you more than somebody else, but generally, across many retail environments, returns represent a small cost in most operations. In most cases, the positive customer experience you offer will more than outweigh the expense associated with allowing “no questions asked” returns. 

If you allow returns without questions, your customers will probably be happier. But, it’s critical to maintain real-time records of returns and manage credits, return-to-vendor activities, and return-to-stock activities, so items can be repackaged and made available for resale. Credit processing ought to be independent of inventory management processes. Automate the credit process, if possible. Remember, you have already accepted the cost as a customer service enhancement strategy. Certainly, a small percentage of your customers will take unfair advantage, but that is a part of the cost you have already accepted. Process credits automatically and immediately. Your OMS should create frequent reports to alert you to increases in return activity. These reports should relate back to your vendor and the particular items being returned. 

Even the most generous return policy needs to be monitored so that you can quickly identify real problems and address vendor management issues or concerns about particular products. Similarly, with exchanges, it’s important to keep a close eye on what is being returned and establish metrics to help you understand why. For example, is a particular apparel product being returned for exchange at a disproportionate rate because of sizing issues? Identifying a popular item and providing helpful sizing advice for customers can help you sell more, with a lower cost associated with returns and exchanges. A well designed OMS will allow you to customize reports that help you focus on the exceptions and make fast and well-informed decisions. Your WMS should have the capacity to accept returns without unnecessary administrative oversight, but with the ability to input data about why particular items are returned, and as mentioned above, to accumulate that data into customized reports that show trends and exceptions as they relate to particular vendors and / or products. Your WMS must also allow refurbished and repackaged items to be returned to inventory. It is important to consider how the cost information associated with these items will impact your average costing. It probably won’t have a significant dollar impact, but it might have an adverse system impact. 

It is important to understand how your system maintains average cost and ensure that items returned to inventory will not disproportionately effect those records. Your WMS must also be able to disassemble kits. If, for example, an order is returned for refund or exchange and there were 5 items that had been assembled into a kit (e.g., a telescope, an eyepiece, a tripod, a filter and a case) and only one of the items was defective (the case was damaged) the other 4 items must be disassociated from the returned order and returned to inventory, while the defective case must be addressed and a decision made concerning its disposition. The order might be repackaged with a new case and assembled into a new kit for redelivery. The order might be cancelled. Your OMS and WMS must communicate effectively to maintain data integrity. Often, an integrated WMS and OMS is the best solution. Does your OMS provider also offer a sophisticated WMS? There are many software options that do, and Avectous Integrated Software is a solid candidate for your consideration. During the processing of these activities, does your WMS have a way to identify where the inventory items are? Is there a “returned inventory hold” location? 

Are value added process accounted for? Again, your WMS ought to be sufficiently customizable that it can reflect the processes in use in your business.If your WMS assigns “receiving functions” to locations and personnel, it is a good idea to assign priorities to processing returns and exchanges. It is all too easy to handle the hottest emergency first and when the truck backs into the receiving dock, that is always the hottest emergency. A WMS with a “personnel load” function is attractive, because it not only tracks receiving activities, but allocates them in accordance with personnel and location availability.

 Your WMS will manage all warehouse activities in accordance with a warehouse map in two or three dimensions. When mapping your warehouse, make realistic forecast as to the amount of space you will need for processing and storing returns and exchanges. The location of the area to be set aside should correlate with the putaway location for the returned merchandise. Another consideration when choosing an OMS and WMS is how you will handle backorders. The integration of your return / exchange process and your backorder processes is worthy of some consideration. First, if you get a return that can be repackaged and put back into inventory, is there a way to associate that information with your backorder log? If the item can be sent directly from the return processing department to the shipping department, several time consuming steps can be avoided. Second, if an item is subject to a disproportionate number of exchanges (where a replacement item is sent to the customer) it may result in inventory shortages of that item. 

Again, a WMS and an OMS that allows the synthesis of this information and the creation of custom reports can help you to respond quickly to “out of the norm” rejections, to allow you to manage suppliers quickly and with accurate information to help them solve problems and help you to avoid them.

Avectous Integrated Software can meet all of these challenges. Please call us to discuss the challenges you face and learn how we can help you address them.

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