Many companies depend on Christmas sales to make their year. For these manufacturers and retailers, the biggest challenge to making a profit is not selling the new red widget with the Christmas tree on the side of the box, but processing Christmas overstocks in the first quarter of the year. The big high from holiday sales is often counted by a big low from high return rates in the first quarter. Welcome to the bi-polar world of holiday sales!
For companies that must live in this bi-polar world, there are two options for processing seasonal overstock and Christmas returns. One option is to outsource seasonal returns processing to a qualified third party (3PL) and the other option is to operate a temporary returns facility internally. If a company is considering outsourcing to a 3PL, the following guidelines will help ensure success:
- The scope of the project must be clearly defined with estimated inbound volumes, outbound volumes by processing category, pricing, approval processes, with clearly defined start and end dates.
- Ensure inventory processing requirements are documented in detail and given to the third party processor prior to any pricing and contract development.
- The documented processes should become part of the contract as a defined scope of work.
- The 3PL (third party processor) must be prepared to guarantee a minimum amount of processing space and storage space at a specific location.
- A fixed / variable pricing model is usually best for both parties. This is when the 3PL charges a flat monthly rate for fixed expenses such as rent, utilities, etc, plus a cost per unit for each disposition – scrap, refurbished, new, clean, or what ever the various conditions of the goods you expect to receive.
- Expectations for “A stock”, “B stock”, “Scrap”, and overall yield rates should be clearly stated and pricing should be based on these expectations. Establish clear volume bans for each category plus rules for price adjustments if the actual volumes in any one category are outside the established volume bans.
- Any 3PL startup costs and decommission costs should be clearly specified.
- Productivity incentives and penalties based based on volume adjusted budgets should be included in the contract.
- A clear change order process must be documented to address any unanticipated processing requirements that may be outside of the scope of the agreement.
- Ensure appropriate insurance coverage is in place for the inventory that will be processed.
- Avoid any lean provisions that would allow the 3PL to restrict access to the product, this includes the third party from holding merchandise over payment disputes etc.
The second option to consider is to set up and operate temporary return centers internally. In order to set up a temporary facility and operating it internally, you must have the infrastructure to support the operation and the management that can focus exclusively on the temporary operation. Once you determine you have the internal support needed and the leadership, you will want to ensure you keep the following in mind:
- Define capital assets and personnel that will be required for each week the temporary facility will be open.
- Define lead times and availability for both, in detail.
- Identify sources for fixed assets and facility labor. Many companies leverage their distribution staff and assets which will be available during the first quarter.
- Develop contingency plans for space, equipment, temporary employees and management in case volumes are significantly higher than anticipated.
- Identify SPOC (single point of contact) to plan, oversee and report on the project
- Ensure lead times for identification and contracting of temporary space, equipment, and employees are sufficient.
- Identify mile stones from the start of planning to decommissioning.
- Establish weekly meetings/calls to communicate progress in planning, startup, processing, and decommissioning of the temporary facility.
- Define “Red Flag” process that will be used to communicate issues during the event.
Whether you choose to outsource Christmas returns’ processing or set up a temporary solution and manage it yourself, one of the best things you can do is to conduct an “After Action Review” within 30 days after last of the seasonal returns has been processed. This meeting should include everyone who had anything to do with the temporary facility and notes should be taken and sent to everyone to ensure they improve the process the following year. Whether you are going to outsource or do it yourself, the key to handling seasonal returns processing successfully is to “Plan Your Work and Work Your Plan.”