Posts Tagged ‘Negotiations’

Over the course of the next eight weeks, most consumer goods manufacturers will receive and process between 30% and 50% of this years total returns volume. How they deal with this tidal wave of volume and the reconciliation of credits with their retail customers will have a profound impact on their future relationships.

As the former head of Walmart’s reverse logistics division, I use to be amazed at how many manufacturers set themselves up for a fall. Many seemed to go out of their way to earn a poor reputation that would carry over to the spring when the buyers place their orders. Before I go on, I realize that Walmart was tough to deal with and overly demanding in many cases. However, as the head of all reverse logistics for Genco, the largest third processor of returns in the world, I saw the same behavior even for smaller, seemingly nicer retailers.

There are number of things a manufacturer can do to avoid taking a customer service hit resulting from how they deal with returns. Regardless of the retailer, manufacturers can set themselves up to actually improve their standing in the eyes of their retail customer, as opposed to becoming the target for ridicule and revenge come deal making time in the spring.

The biggest mistake that many manufacturers make is to shut down their factories and returns operations in January or February for maintenance and retooling. The impact of this on the retailer is huge. The reverse logistics pipeline gets backed up and that usually means damage rates go up, accuracy goes down, and tempers start to rise. If you must shut the factory down, fine, just don’t shut off the flow of returns during the most important time of the year.

Another area of consternation is around what “cost” to use when processing returns. This is perhaps the biggest area of debate between the retailers and manufacturers. To exacerbate the situation, arguments over cost usually land on the buyers desk, in spring, just when he is getting ready to negotiate the next year’s deals. Great timing.

To avoid this, the manufacturer should proactively address what cost basis will be used for returns, when they negotiate the terms of sales in the first place. Along with the cost basis for returns, manufacturers should ensure that the following impact items are clearly defined and agreed to:

• Consolidation fees if the retailer uses a return center
• Freight charges from movement of returns
• Product condition and packaging requirements
• Model or serial number ranges that are acceptable, if appropriate
• Restrictions on throwing the product away or selling it on the secondary market

Keep in mind that the above points of clarification and resulting financial terms will vary depending on if the item returned has been sold to a customer and returned or it is a guaranteed sale item.

Manufacturers should view returns as an opportunity to differentiate themselves to their customers.  “Easy to do business with”, does not mean “make bad business decisions”, or “negotiate a bad deal.”  If your sales person can engage the buyer upfront with a proactive approach to deal with the realities of selling products and dealing with returns, the overall relations benefits.