The reality is that returns are endemic in distance selling…so let’s deal with it!
I have over 10 years experience implementing back office systems in high volume mail order and ecommerce environments and it never fails to amaze me how little effort is expended by clients on returns management functionality. I guess it is viewed as a necessary evil - a cost of doing business. At system specification stage, organisations tend to concentrate primarily on sales-led features that will easily and quantifiably prove a new systems worth to employees and ultimately create return on investment. Revenue generating functions generally take precedence over cost savings, and business processes such as returns are often overlooked. Big mistake!
The True Cost of Returns?
At this point it is worth considering some facts: on average, 1 item out of 5 purchased is returned within the business-to-consumer ecommerce and mail order market. A thumb-in-the-air calculation suggests that for every 100 sales orders processed per day, you will require 5 system operators to adequately service the consumer. Based on the above ratio in an average sized mail order company processing 500 orders per day, you would expect at least 100 returned items per day.
Question: How much time (often hidden) does your organisation devote to returns management, and what cost can be attached to this process?
The problem is that returns processes cannot be easily regimented or costed. In most cases, a three line Sales Order will take, say, 2 minutes to enter, 1 minute to process and 3 minutes to pick and pack. The outcome of a returns action is not so easy to predict and as a result can absorb significant time and cost.
System & Process Solutions
Whilst returns management is often marginalised, it poses a unique problem – the process is not ubiquitous and every company manages it differently. Software providers have been chasing the holy grail of universal and workable returns management architecture for many years. Most have gone for the ‘best guess’ approach and fully documented the procedure, in the hope that end users will be amenable enough to change their processes. For smaller, more dynamic companies this can be a feasible option, but for larger enterprises this is not usually an option. A few enlightened software companies have concentrated on open solutions, where the computerised process can be configured to mimic the physical process. Whilst this approach is necessarily complex and demands significant business analysis, it ultimately delivers a largely automated and cost-effective solution.
To elaborate on this, let’s consider the ‘ripple’ effect caused by a returned item; items must firstly be identified as valid (checked against sales history), the customer contact record updated, stock and cost of sales corrected, and a customer returns transaction (refund or replacement) created. From a business process viewpoint, these activities represent distinct workflows within the sales order processing, customer service, stock control and accountancy functions, and most systems do not have the flexibility to handle them otherwise.
The Newtonian theory that ‘every action has an equal and opposite reaction’ is a prevalent theme, as every activity associated with a returned item is handled within one ‘rolled up’ process, with each step driving subsequent actions within other parts of the organisation.
Generally the stock handling processes will lag behind the speed at which you wish to service the customer. Therefore the best-practice approach is to split a return between ‘customer’ and ‘stock’ processes. This enables each side of the transaction to settled within an appropriate timescale, but removes the interdependencies, i.e. a stock item does not have to be inspected and processed before the customers’ request for, say, a replacement is processed. This reduces the administrative burden and focuses resource on revenue-generating activities.
User Ergonomics
Over and above the process issues posed by returns, there is clearly a need to present the system user with an intuitive and easy-to-use interface through which the customers request can be efficiently and accurately handled.
Future Developments
Even with advanced workflow management, handling returns does rely on a degree of manual administration. However, a new generation of ‘smart’ technologies are becoming available, that could potentially automate the entire process. Barcoding documents and products is now a cost effective solution for many companies. This enables tasks to be de-skilled using repetitive scanning to identify returns and products prior to processing. Further out, RFID (Radio Frequency Identification) systems have the potential to revolutionise the way in which organisations store data and manage events. RFID ‘tags’ can be attached to products storing all transactional data, which means that when items are returned the receipting and transactional management information can be generated as soon as they pass through the warehouse door.
RFID overcomes the shortfalls of other automation technologies such as barcoding, because it operates without the requirement for ‘line-of-sight’. We are actively developing RFID connectivity to augment existing functionality, but clients must ensure that its adoption is subject to thorough return on investment analysis. RFID is relatively expensive to implement, but the potential efficiencies and cost savings are immense.
Conclusion
Returns is a difficult topic. The financial impact on organisations is seldom quantified or understood and, very often, little investment is made on improving matters. However, returns is one of the key measurements of customer satisfaction and can be costly if handled badly. This is justification enough to analyse your processes and develop solutions to adequately handle the problem.