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 third part of our four-part series on state of the art reverse logistics systems (RMS), we will cover critical elements required to properly cutoff, pick, and ship product out of a returns facility. As you will remember, in the first part of our series we discussed the receiving process. In the second part of our series we talked about disposition management, repair processes, and work-in-process (WIP) features of the reverse logistics system. The final phase of processing goods through a central returns facility is the shipping process. This is literally where the cash register rings in the reverse logistics process.
Perhaps the most important metric in a return center is inventory turns. The shipping process determines the number of inventory turns a return center can achieve. A good benchmark for return center inventory turns is between 20 and 30 turns per year. This is only possible however, if your RMS is structured to monitor inventory, process return authorizations, pick items and ship the returns properly and in a timely manner.
Shipping product out of a reverse logistics processing center is quite different from shipping product out of the distribution center. In a distribution center orders are received, picked, and prepared for shipment. The outbound process is fairly uniform and is controlled by the order picking process and the transportation preparation requirements. However in a return center, shipping is quite different. Items are cutoff based on vendor agreement terms and conditions, not “shipping orders” or transportation requirements. Because of the importance of this cutoff criteria, a reverse logistics system must have several additional features that typically do not exist in a traditional warehouse management system.
The triggering mechanism to pick and ship goods in an RMS is the cut off criteria. Remember, upstream in the returns processing functions, items have been segregated based on item condition and “return point”. Each of these return points will have its’ own “cutoff criteria”. By “cutoff”, we mean segregate sorted goods into shippable quantities. There are three basic methods to cutoff returned or recalled items in a state-of-the-art RMS: By quantity of items, cases or pallets; by “cap” which establishes a percentage of sales by time period; by value of goods that is to be shipped; or time that the oldest item has been processed within the returns facility.
Each return point can have a unique cutoff. In addition to this unique cutoff a “global cutoff” should be set as well. The global cutoff will usually be something like “ship every 30 days or $10,000.” The RMS shipping process will be set up to run through a hierarchy that looks to the individual return point cutoff criteria first and then to the global cutoff. Once one of these are reached, the return authorization (RMA) must be processed.
Return authorization is the process of “getting permission” from the company you are going to send the returns. This notifies the receiving party of the quantity and make up of the returns and it establishes the basis for the financial transaction that will be processed upon shipment. There are 4 types of returns authorization (RA or RMA):
- Call for RA – A phone call must be made to get an RA number that will be used to track the return
- Fax or Email for RA – Same as calling for an RA but processed automatically by the RMS
- Standing RA – An RA number is used by the sender but no advanced notice or approval is needed to ship
- No RA Needed – no tracking number, advanced notice, or permission needed
Often the RA process is used by the receiving parties to delay shipment and the resulting claim. Because of this, an RMS must have a number of RA reports that can track RA aging, RA dollars outstanding, etc. The RA process and RA monitoring reports are critical to keep return product flowing through a returns facility. This part of the RMS must be very robust and flexible to ensure product is shipped and the financial claims are filed in a timely manner.
As I said earlier, the shipping modules of an RMS is literally where the cash register rings in the returns process. Up to the point of shipping, the returns process has only cost money. You’ve collected a lot of broken stuff and stuff that has been recalled but it is still your stuff. The shipping process cuts it off, ships it out, and charges to the receiving party for the shipment. In order to do this effectively, the RMS must have a flexible return point cutoff process, aging reports, picking logic, manifest capabilities, verification processes, and financial transaction processes built into the shipping module.
Be sure to check back with us for our forth and final segment on The State of the Art Reverse Logistics System. In the final segment we will discuss key reverse logistics reports and systems visibility capabilities that a state of the art RMS must have.