A Returns Management System (RMS) is key to operating an efficient and economically sound reverse logistics function. Many companies underestimate the impact a quality RMS can have on their customers, the cost of processing returns, and the recovery rate on returned inventory. The fact is that the system you use to process returns is the key to maximizing the impact of reverse logistics on a company’s bottom line. There have been a number of studies that have found that improving your reverse logistics capabilities can improve a company’s line by 3% to 5% of revenue. This cannot be accomplished, however, without a well designed system that will drive the returns process.
If your company does not have a state of the art returns management system you have three options. First, you can live with what you have and continue to let money fall through the cracks and get thrown in the garbage. Second, you can attempt to write a package using internal resources, which will cost twice as much as promised, providing half the benefits, and take twice as long to to implement. Third, you can buy a state of the art RMS from one of over 30 companies that have been developing and implementing returns systems for many years.
Based on our combined 40 years of experience in designing and implement reverse system, the only option that makes sense is to buy a package from a software provider that has experience implementing returns management systems for similar companies. When buying an RMS there are a few key features that clearly separate the contenders from the pretenders. Purchasing a software package that has the required features and is installed by experienced reverse logistics professionals will pay big dividends. In fact, if you buy software that doesn’t have the right functionality in production, you are wasting your money and most likely financing the development of a new module for the software vendor you’ve selected.
When deciding which RMS application to buy, how will you know if you the software includes the components you will need to maximize the value of the returned assets that you will be processing? If you ask your software provider to explain the following, you will be able to separate the best-in-class from the jokers-in-class when it comes to reverse logistics software:
- Explain the process flow of goods and what happens to goods after they are received.
- Show me the report for units that are scrapped.
- Show the process for scrapping a unit and how you capture and track parts that will be used to repair other units.
- How does your system account for the parts inventory that is used to repair product?
- Can your system re-disposition parts that are not needed?
- Does your system facilitate parts harvesting / liquidation?
- Can your system track separate inventories of units that have different owners?
- How are Bill Of Materials (BOM) stored in the system?
- Can your system support more than one BOM per model?
- How does your system support warranty returns and related repairs?
- How many classifications of repaired units do you have and how are is the inventory valued?
- Show me the productivity reports for receiving, repacking, repair techs, picking processes, and shipping.
- Can you re-designate finished goods as liquidation, A, B, or C stock goods?
- When do you designate how and where to ship goods, can you add change shipment status from LTL to Small Package, or Truckload?
- Show me how your system supports selling refurbished goods directly to the customer or B2B?
- Does your system provide sustainability reports that provide an audit trail for carbon footprint reporting purposes?
- Can your system process credit back to the customer based on condition at time of receiving and based on diagnostic results?
- How does your systems track and process consolidation fees and transportation fees for both inbound and outbound processes?
- Demonstrate how your system processes advanced service parts orders and other similar transactions?
- Are all your reports available on the web and do you provide a report writer as part of your standard system?
If you ask a reverse logistics software provider these twenty questions along with the follow up questions that will naturally come up during the software demo, you will quickly be able to tell the wanna-be’s from the best-in-class providers. The last and most important step in purchasing reverse logistics software is to check their references. These references should be from companies that are similar to your own. If you are an electronics manufacturer and all the references are retailers, you can bet the software provider does not have the package you need to drive your process. Finally, insist on touring most, if not all of the reference locations to see the process and software in action. During the tour, talk to the customer’s implementation team. They will tell you what it really costs and how well your potential RMS provider performed during the implementation phase.
While buying an RMS package is usually the best option for companies looking to improve their reverse logistics capabilities, you must do be sure to get the right software providers involved in your RFP process and you need to go the extra mile in completing your due diligence before your company writes a big check for the software solution.
In this final installment of our four part series on components of a state of the art reverse logistics system (RMS), we will discuss critical reports and visibility requirements. The prior three parts of this series have described capabilities an RMS must have to receive, process, verify, and ship assets that flow through a company’s reverse logistics pipeline.
Before we go too much farther, it should be pointed out that there are two basic infrastructures used to process returns. One we will call the “Direct” model and the other we will refer to as the “Centralized” model. The Direct model is simply processing returns directly from the field to it’s final destination. This is a decentralized design that relies on people in the field or store to prepare and ship goods. A good example are small, mall based retailers that take back returns and sends the goods directly to the vendor or OEM. The second infrastructure is the Centralized model. This model revolves around a central location where all returned goods are shipped to from the field. Goods are then received, prepped, consolidated by final destination/disposition, and shipped. The vast majority of large retail chains use a centralized model to process returns.
Whether an organization should use the Direct model or the Centralized model depends on a number of factors. These include:
- Volume of returns
- Disposition of returned assets
- Residual value of returns
- Number of field or store locations
- Amount of labor required to process returns in the field vs centralized processing costs
- Risk from processing errors
- Regulatory risks
- Existing field systems
- Cost of centralized facilities
- Transportation costs
- Corporate infrastructure
Whether a company has a centralized model that relies on an RMS for processing and visibility or if they use a direct model that relies on a point of sale system or some other back office application to process returns, the visibility requirements are the same. The following is list of reports or visibility requirements broken down by functions:
- Advanced shipment notification – receipts in transit by date, store/field/customer, carrier
- Receipts by store/field location/customer - by receiving, RMA, month, quarter, year
- Returns by SKU/Category/OEM – by RMA, month, quarter, year
- All reports will need to show quantity and value per unit and in total
- Total units processed – by day, week, month, quarter, year
- Units received and processed by disposition – Return to OEM, liquidated, repaired, restocked, donated, recycled, destroyed – by day, week, month, quarter, year
- Manpower reports showing hours worked within each function
- Thru Put – In returns facilities thru put is typically calculated as follows:
Total Units Received / Total Variable Hours
- Shipments waiting for return authorization – by date, value, quantity
- Pick tickets outstanding
- Hazardous material manifests ready for shipment – by class
- Manifests – by date, OEM, liquidator, recycler, charity
- Inbound receipt verification
- Cycle inventory
- Physical inventory – in total, by OEM, category, dollar, units
- Process verification – by function, employee, month, quarter, year
- Location verification – by type of location: bulk, rack, flow rack, shelf, security, etc, day, week, month, quarter year
- Outbound verification – by OEM, liquidator, hazardous shipments, recalled/regulated shipments, random manifest
When it comes to visibility there are endless variations for each type of report listed above. The first RMS put in Walmart’s returns center in 1988 had a total of 26 reports. Today, the average RMS has over 100 reports out of the box and many now incorporate an easy to use report writer.
Best in class reverse logistics systems today offer all reports via the net and can be accessed from anywhere in the world. As with all reporting, however, executives responsible for RMS report development should be careful not to get too caught up in developing new reports or constant reformatting of existing reports. Visibility is only valuable when decisions are being made that impact the business in a positive manner.
Over the next five years, every company will have to rethink their existing reverse logistics network, infrastructure, and systems. As the cost of transportation continues to escalate, the cost of processing will drive dramatic changes in disposition. The decisions around these changes must rely on quality data that comes from an organization’s reverse logistics system. This system will be your only source for the accurate data needed to revise existing returns networks and will be critical in maximizing the value of returned assets and minimizing associated risks in the future.
The system used to process returns is the critical component of a reverse logistics process. The returns system will determine if a company is going to maximize the value of returned assets or if they will needlessly throw money in the trash, literally.
For many companies, if you had to draw a picture of a car that would represent their reverse logistics process, it would look like Fred Flintstone’s car. For other best-in-class organizations, the car would look like a Ferrari. The question is “what differentiates a Flintstone from a Ferrari?” The answer is the returns management system (RMS). There are not many supply chain executives who have any experience with returns and even fewer IT executives. It is this lack of experience and knowledge about reverse logistics that leads to poor decisions when it comes to building or buying a reverse logistics system.
In this four part series, we will help the uninitiated understand what to look for in a quality returns system. We will describe critical capabilities needed in a state of the art RMS. We will explore what differentiates a state of the art reverse logistics systems from lesser “returns processing systems”. In this first part of our series, we will talk about the receiving process. In the second part of the series we will discuss processing requirements to disposition assets, drive repair practices, as well as direct and monitor physical processing. In part three we will cover the processes that drive shipping, financial transactions, and quality assurance. The last of our four part series will discuss visibility requirements and key reporting capabilities that will be needed.
The Receiving Process
The receiving process of an RMS should accomplish two primary functions. First, the receiving process should identify and credit the “sender” of the assets for what they shipped to the processing facility. Second, the receiving process adds the value of the returned asset into the “inventory” of the returns processing facility. Before an item can be refurbished, repaired, repackaged, recycled, or sold, it has to be properly identified and recorded in the processing facility’s inventory. In the world of returns it isn’t “garbage in, garbage out” that you worry about. You worry about good inventory in and garbage out. That costs money.
To ensure this doesn’t happen, you must have a quality receiving process at the front end of your RMS. The RMS should drive a process that answers the following questions as goods are received:
- When did the item arrive at the facility?
- Where did the item come from?
- Who was the shipper?
- Is there any damage and should a freight claim be filed?
- What is the SKU / Model number / Serial number or other identifying number for item identification?
- Is the asset “hazardous” or some other regulated classification?
- What is the condition of the item? (New, defective, damaged, damaged beyond repair, in original packaging, etc.)
- What quantity is received?
- What is the value of each item received?
- What is the total “inventory” of the shipment that has been received?
Once this information is collected for each shipment, the process of crediting the sending customer/store/plant can take place. One of the critical differences between an Returns Management System and a Warehouse Management System (WMS) is that most WMS’s rely on processing receiving against a PO. In the returns world, there usually isn’t a PO or similar document and the condition of what is received can vary greatly. The condition of the individual item determines how the asset is valued and how the item flows through the process.
An important back office function relies on the RMS receiving process. That is the reconciliation of what the sender says they shipped versus what was received. One of the challenges that exists in the world of returns is that most of the customers, stores, plants, or consumers are not properly equipped to determine the condition of the item they are returning. They have no way to determine the condition and the value of the returned asset based on the condition. The accuracy of goods shipped is not reliable and the preparation and packaging of the item is not sufficient to prevent significant damage during shipment. These issues cause differences in valuation and drive the need for a back office reconciliation process.
Identifying the item, determining the condition and valuing the item is the critical capability of the RMS receiving process. Once this information is gathered, the process of inspecting, refurbishing, repairing and dispositioning the assets can take place. It is at this point in the process that the value of the asset is determined. Without a well thought out receiving process, the value of the returned assets could be lost when the item is received in the returns facility, before the process really gets started.