Best Practices for Returns Processing

Aug 19, 2009 3:43 AM  By

Reverse logistics is a crucial and growing part of the supply chain process, but many companies fail to measure their returns process with the same rigor they use for outbound distribution.

The Supply Chain Consortium’s recent Distribution Center Operations Report and earlier Reverse Logistics: Returns, Refunds and Recalls Hot Topic Report delve deeper into this topic by asking: How well do companies plan their returns processes? What systems do they use? Who pays for transporting the returned product? What credit options are companies allowing?

Below are some findings from the reports and further insights that you may use to see how your company measures up in regards to reverse logistics.

  • The top six reasons for returns are: 1) Customer ordered incorrect product or size; 2) Customer decided product not needed or wanted; 3) Customer returned with no reason given; 4) Product did not fit description on website or in catalog; 5) Product did not fit customer’s expectations; and 6) Company shipped incorrect product or size. Only the sixth reason is clearly an error made by the company.
  • Internet and catalog sales have a higher percentage of returns than sales through standard distribution channels.
  • More than half of the survey respondents request feedback from customers on their returns process. Most don’t feel good about what they learn.
  • Less than half of the companies require pre-approval for a return.
  • Warehouse management systems are the most common systems used for returns processes, although many use more than one system.
  • Responses for the “ship-to” locations for returns are different for retailers than for manufacturers. Retailers are more likely to ship returns to a company-operated facility or store, and manufacturers have them returned to their fulfillment centers.
  • Retail companies are likely to pay for returns transportation, while manufacturers most often expect the customer to pay.
  • Events that trigger a refund or credit and the time interval from receipt to refund or credit vary greatly by company and industry. But nearly 60% of all companies issue refunds or credits within 24 hours.
  • The most common disposal methods for return products are: reselling through the primary channel, discounting through a secondary channel, or returning the product to the vendor. (click here for chart)
  • Recycling of products leads the list of environmental concerns with respect to returns processing.
  • There is no great indication of which department or organization owns returns, and the position level responsible for returns varies by company size.

Every merchant wants to reduce returns; following the industry’s leading practices can help. For instance you have to understand the metrics of the returns process, and measure and continuously improve processing performance.

You should also review company return policies and customer service practices to reduce returns. And you can use information technology to track and monitor the process and provide information on returns to the rest of the organization.

A few other things you can do:

  • Organize for returns processing and development of efficient practices.
  • Provide adequate physical facilities and resources.
  • Improve product quality and packaging. (click here for chart)

Overall, in terms of reverse logistics, companies need to focus on their returns policies and customer service, information technology, markets and speed, organizing for returns, physical facilities and resources as well as product quality and packaging.

The bottom line is, to successfully manage the reverse logistics process, you must pay attention to all the aspects of the returns process just as you have for the forward process. You can’t just run the process in reverse.

Bruce Tompkins is executive director of The Supply Chain Consortium (, a source for supply chain benchmarking and best practices knowledge for retail, manufacturing and wholesale/distribution companies.