Returned merchandise, whether in consumer or commercial supply chains, has become a fact of business life. In the highly competitive business world, poor handling of returns can suck the lifeblood from a company.

February 2007 - Material Handling Management Magazine
By Clyde E Witt

Third-party providers (3PLs) are relieving some of the pain of returns, even showing their clients how to staunch the flow. Here's what reverse logistics specialists are doing today to do more than just take back what someone does not want.

Reverse logistics is not mainstream shipping. It requires more communication and strong customer service skills on the part of an outside provider. It also requires some unusual up-front planning and inventory forecasting, says Tom Giovingo, executive vice president, Fidelitone Logistics (Chicago, www.fidelitone.com).

"The provider has to do the physical part," he says, "and [the 3PL] also has to do the data collecting part that ties directly into the customer's accounting systems."

As an example, he cites his company's work with the nation's largest provider of home services, one of its larger customers. "We provide the support, in both directions, for more than 1,000 manufacturers that supply repair parts. They order repair parts through us and we ship to one of their facilities or directly to the customer. We also provide parts to the technicians to install."

	Returns processing can mean inspection, refurbishing, repacking and returning goods to inventory. Once the labor intensive work is finished, the client receives pertinent inventory information.

And when things come back? Parts returned for whatever reason have to be inspected to see if they've been used. Then Fidelitone Logistics must determine what the disposition of returned parts will be according to the plan established by their client.

"What happens to returned items is our customer's call," says Giovingo. "It might be recycled, scrapped or, if clean, go back on the shelf."

With consumer goods returns it's a bit different, he says. "Another of our customers, DMSI, returns are a bit more straightforward because we're dealing with a finished product, not parts." DMSI is an internet and catalog marketing company with catalogs and sites such as Showplace, Home Center, Room for Kids, Montgomery Ward, Popular Club, Home Visions, CharlesKeath.com and YourKidsDirect.com.

Why consumer goods are returned is often anyone's guess. Giovingo says boxes sometimes just arrive on the doorstep. Inspection of returns involves determining if the shipment was wrong, wrong color or wrong size, or if the item is defective. Again, it's his customer's call as to what the disposition of the returned item should be.

On the commercial side of the returns business, like repair parts, returns can account for 3% to 5% of sales. With consumer goods returns as percent of sales are much higher. As a service provider Giovingo reports all of these costs to his customers so they're aware of any additional expenses.

"It might seem counter productive," says Giovingo, "but we work with our customers up front to build a plan that will reduce their returns expenses." Fidelitone Logistics does that through analyzing data, looking for geographic areas or stores that might have higher than average returns.

"Maybe there are employee training issues that need to be addressed," he says. "It's our job to raise the flag, not correct the problem."

When to outsource returns
Companies seeking outside help to handle returns are most often trying to change their business, says Giovingo. Fidelitone Logistics starts by getting a thorough understanding of where the client company is in its battle against returns, and then working with them to change the rules of how they process returns. Most often, he adds, companies are looking for better service and more flexibility, things they can't do themselves because of physical limitations or lack of data management systems.

When it began handling Best Buy's returns, Fidelitone Logistics needed to illustrate why data capture is important, even for returns. It instituted a bar code labeltracking program that brought benefits to both Fidelitone Logistics and to Best Buy.

Warehouse automation is a big part of spare parts replacement for Fidelitone Logistics clients where returns can range from washers and screws to large palletized items.

"An item taken to a Best Buy store for return is given a special bar code label that, when scanned, populates Best Buy's [accounting] front end so its financial reports are aware of the return," explains Giovingo. "When we close out the back end of the transaction, based on how they want us to handle the item, the label is scanned and all of the information is shared. The entire transaction can be automatically closed."

Aside from not having to deal with the physical aspects of returned merchandise, companies that specialize in returns offer a level of expertise and a wealth of knowledge and experience most individual companies don't have. "We gain experience working with a variety of clients," says Giovingo, "and we can share that knowledge base with other clients."

Information management is key to the service that these outside providers offer. Returns information can be analyzed to find trouble spots. Then processes can be developed, and business rules modified, to make more sales a one-way transaction.*

*Edited version of the February 2007 article.