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.