Returns Management in Your Supply Chain


Every supplier, either wholesale or retail, has to deal with returns and defective products at some time or another. It’s all a part of doing business, but usually results in a financial loss, and a quandary as to how to dispose of the returns. If a company were to institute a returns management program for dealing with returns, there is a possibility to recoup some of the financial loss.

The typical supply chain process in wholesale or retail businesses consists of:

  • Purchasing a product from the manufacturer or a third party
  • Receiving the merchandise, determining a mark-up price and placing it on the shelf
  • Selling the product to the consumer, where it will be kept and used – or returned
  • Processing a returned product through customer service and returns department

The process that takes place, from the customer service department taking in the returns to the final destination of the product, is called returns management. This is one area of the supply chain that many view as a loss to their business, but it has long been overlooked as a hidden revenue stream.

You want to capture as much of the value of the product returned as possible.

Statistically, 80% of all returned merchandise can be placed back into stock immediately. A few will need a simple repackaging. Of the majority of the returns that are not able to be restocked immediately, some can be returned to the manufacturer under warranty and the store can recoup their entire loss; others can be undergo a test and repair process where they are refurbished, repaired, or remanufactured, either within the store itself or through a third party.

Having a returns management program in place to handle all items returned to the store is essential to a business. Policies should be instituted at the store level for customer service agents taking in the returns. They must be trained in the correct procedures to ensure minimizing costs. That would include sorting returns in the appropriate manner:

  • Items that can be immediately returned to stock
  • Items that can be repackaged and then returned to stock
  • Items that are under a manufacturer’s warranty
  • Items that can be tested and repaired for future resale
  • Items that are not covered under warranty and cannot be repaired for resale (which may qualify to be donated to charity or trashed).

Once the items are sorted, a set policy needs to be in place to take the appropriate action to redistribute the products to their required destinations.

For items that are leaving the store, communication with the various agencies should include authorization and tracking numbers to guarantee credit and ease in follow-up. Shipping of the merchandise needs to be the most efficient and least costly method, and this could be negotiated with the manufacturer or remanufacture service provider. If you are outsourcing your returns to be tested and repaired communication should be set up with the remanufacture agency as to turn-around time and warranties.

With an effective and efficient returns management process, a business will minimize its loss from products returned, and increase its bottom line in revenue.

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2 Responses to “Returns Management in Your Supply Chain”

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