Most distribution organizations have optimized order fulfillment to a high degree. Maybe there are a few percentage points of improvement available on downstream order fulfillment and visibility. However, 99/100 executives I meet with are forthcoming in saying that they have not put much, if any, focus on perfecting their returns process.
Often times Operations Executives will say:
“Our returns process has been a byproduct of doing what is needed to simply process the transaction while balancing the day-to-day job functions. Our process is a bit of a ‘Frankenstein’ built by happen chance.”
The real challenge rears its’ head when a distributor hits $100M+ in revenue and the returns process becomes a big, hairy problem across multiple departments.
- Inconsistent Experience: Customers will get a different experience and process based on the branch/warehouse they are interacting with
- Lack of Visibility: There is no clean way for all parties within the org to gain visibility to a return status or origination of the problem.
- Accounting Errors: Finance departments struggle to identify how much and when to apply credit on a case-by-case situation
- Missed Credits: Identifying which returns are tied to vendor inventory returns is murky at best – leading to a black box of missed vendor credits and no reconciliation of credits between vendors and customers
The first step to implementing a returns process that will both delight a customer and ensure you are minimizing the cost associated is to classify each return into a ‘type’.
Hold up: No this is not the same as assigning a Reason Code. Your Reason Codes are why the item is being returned, not necessarily the process that needs to be taken.
Below are a few different return types and ways to standardize your returns process:
Stocking Returns
A stocking return means exactly that. There is nothing defective with the product and the item can be available for resale immediately. Often times companies are missing real time visibility to available inventory under this category. Because your business likely has reason codes like ‘picked wrong’ or ‘ordered incorrectly’ there is not real time clarity on what the item is that is being returned. Is the item on the order the same item coming back?
Stocking return sub categories:
- Order Entry Error
- Warehouse Picking error
- No longer needed
- Customer did not receive in time
- Customer ordered incorrectly
Gaining greater visibility on your stocking returns types will allow your distribution business to start looking introspectively and making operational improvements.
Dropship Returns
Most distributors will try not to allow returns on drop shipped items. However, in a world where we are often running certain lines on Just In Time Inventory, this isn’t always feasible. The challenge with dropship returns is that distributors are often left to the Manufacturers policies. We now enter into what we at Continuum call a ‘multi-party’ return.
End user > Distributor > Manufacturer
These returns can be some of the trickiest to handle internally. The customer (end user) doesn’t really care where the product was sourced. All the customer knows is that they no longer want/need the product. Depending on the situation at hand, you may decide to take this product back into inventory for resale or have the customer send it back to the manufacturer.
The problem with this scenario is that the context related to the return matters A LOT. We see often times this is where the warehouse and finance teams are not on the same page concerning what to do with the physical product and how to credit the account.
Do we credit the customer upon receiving the product? Do we take ownership of the product? Are we still waiting for a vendor to credit the distributor?
The above scenarios are not black and white. It is important to have a process in place that allows visibility and clear next steps for Sales, CSR, Warehouse and Finance teams.
Defective Returns
Defective returns often require the infamous Vendor Inventory Return – more on this in a second.
The first priority in any defective return is to focus on the customer. It is important to keep in mind that an end user engaged with a defective product has a Critical Selling Event at hand.
10% of a distributors business is won or lost every year based on how they respond in critical selling events.
If needed, the number one priority should be shipping a new product ASAP to correct the issue. The good news here is that most distributors have optimized the process of getting product out the door.
Assuming the customer’s immediate need is now solved – we are left with a tricky situation. We have either credited the customer and are waiting on credit from the vendor or are waiting to credit the customer until the vendor credits your account.
In either scenario the distributor holds all of the risk.
Vendor Inventory Returns
Vendor inventory returns are one of the trickiest return processes to handle, mostly because this cannot be a one-size-fits-all process. The B2B Returns process has left many black holes within the process – we believe that returns automation should not only solve for efficiency, but just as importantly; visibility.
Carrier claims:
No matter how good your organization is at fulfilling orders, any time we deal with a 3rd party carrier we risk lost shipments or products damaged in transit. Again, your customer does not care who is responsible for the issue at hand, they just know they want it corrected.
It is important to have a clear process for re-shipping a replacement product, crediting the account, and tracking carrier claims.
The Net Net
There is no way around it - B2B returns are complicated. It is important to have a well documented and streamlined process so that any new employee can step in an execute on a great customer experience that does not leave your company at risk for missing vendor/carrier credits.
Step one in this process is to map out the various types of returns that your business may experience. This will likely be different based on the type of products you sell and vertical you serve.
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