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Wednesday, 03 April 2013

Revolutionize Product Returns

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product-returns-management-profitSix Steps to Setting a Foundation for Improved Profits

If you could reduce your returns by 25 percent, what kind of impact would it have on your bottom line? After creating a foundation for managing returns, companies such as Philips, AT&T, Best Buy, Hoover, and P&G have reduced returns by more than $100 million. Whether your company has the potential for that kind of savings or not, the impact can be significant. A streamlined product returns management plan saves money, increases productivity and profitability, and improves customer relations.

While companies tend to have numerous meetings about sales, 90 percent of companies talk about how to handle product returns rather than hold a meeting to find and correct the root causes of returns. Why do so many leaders miss the opportunity to manage and reduce product returns? Most of them lack two essentials:

  1. The right mindset—They think little can be done and that returns are just a cost of doing business.
  2. A comprehensive strategy to address returns—They feel overwhelmed at the idea of tackling such a messy and time-consuming aspect of their financial blueprint.

We’ve designed six steps to help develop a strategy for an effective organization-wide product returns management plan.

1. Understand the 20 Percent

Unlike sales or marketing, most companies don’t have any plans or goals regarding returns. This is crazy when you consider the impact even a 20 percent reduction in returns can have on your company. Take a moment and calculate what a 20 percent reduction in product returns would mean in dollars. If returns didn’t get your attention before, they will now.

2. Get Behind the Policies

Not only are leaders not planning for returns, 70 percent of the employees we spoke to admitted they had never studied or asked for the supporting data that informed their company’s return policy.

You can bet if people aren’t challenging policies, they’re also failing to update them. The average retailer hasn’t updated or rewritten returns policies in three years. The average manufacturer hasn’t updated or revised them in five years. How much has your business changed in just one year, let alone five?

Read all of your product return policies. Next, find the authors. Sixty percent of the companies we asked had no idea who wrote their policies. If you can’t identify who wrote them, you’re going to have a difficult time challenging and changing them.

3. Challenge the Policies

Once you’ve read through your returns policies, develop a list of provocative questions, such as:

  • Do you have different policies and procedures for different types of retailers and customers?
  • Why or why not?
  • Do they make sense in terms of logistics and expenditures?
  • Have you challenged your team to come up with two or three more innovative and effective ways to handle these retailers and customers?

By challenging your policies and encouraging key players within your company to do the same, you can find and change inconsistencies and protocols that are not working for the company.

4. Determine Which Reports Show Product Returns

Most companies fail to fully understand how great an impact product returns have on their bottom line simply because they’ve never looked at the data. Returns are typically not tracked with the same level of intensity as sales. Why not? A return is nothing more than a sale in reverse. It represents an unsatisfied customer. Pull all reports that show sales and returns. See any opportunity to create awareness?

Many executives are operating with the false assumption that they only need to look at net sales, as it is inclusive of returns. Net sales alone will not reflect the problems that exist in a company to the same degree that returns reports can, such as internal theft, shrink, lower margins, delivery and warehouse issues, repair service issues, and logistics. Reach out to all departments for returns data, including product design and development, store operations, all services, training and the sales organization. Analyze the numbers by looking at three years of data. Look for the domino effect across the business, and raise the level of awareness about one area’s impact on another.

5. Develop a Product Returns Reporting System Using Four Essentials

As you’ll likely discover, your company probably doesn’t have an effective returns reporting system. Don’t worry. You’re not alone. These four simple guidelines will help you establish a useful reporting system:

  • Include returns on every report that lists sales.
  • Be consistent in your reporting, be it daily, weekly, or monthly.
  • Ensure that your report reaches all levels of the organization.
  • Simplify the report so even the newest employee can read and understand it.

6. Reflect Changes in Job Descriptions and Compensation

Multiple positions within your company are aware that sales have a big impact on their own bottom lines. When sales go up, so do bonuses and compensation. What about returns? How many employees make the connection between returns and their bonuses?

In order to reinforce the importance of your new product returns management plan, we strongly recommend:

  1. Including returns as an element in your compensation packages.
  2. Including returns management in job descriptions.

After all, how will employees understand their role in the returns process if it’s not addressed in their compensation and job descriptions?

When returns are reduced, companies see a increase in profit, productivity, and even camaraderie. Departments will begin to work together in new and effective ways to better take care of their customers. These six basic steps will change your company’s outlook on returns, ultimately improving the most important measurable of all: customer satisfaction. 

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Bill Stuart

Bill Stuart is CEO of Stuart & Associates, a retail consulting firm specializing in Sales and Margin Growth Programs and Returns Reduction Programs.

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