Peter Lusty, chief executive of Strategix, suggests ways to turn product returns to your advantage

It's a fact of life that some products ordered by your customers will be returned - and for a diversity of reasons. The important thing is to have the right systems in place to deal with them. Fast, efficient and customer-friendly returns management provides customer satisfaction, encourages customer loyalty and will increase repeat business; in contrast, badly managed customer returns can wreck relationships!

Returns can go through a variety of processes including testing, refurbishment, disposal, or returning to stock. Yet, many companies do not possess the infrastructure or processes to manage this effectively: they are focused entirely on products going out of the business and never think about the ones coming back in. In fact some companies don't even factor returns into their supply chain strategy. Today's reverse supply chains are often not automated and are characterised by poorly managed assets that sit in warehouses where losses are accepted or absorbed. Believe it or not, there are still organisations that manually enter any returns into a manuscript book which never make their way into the supply chain management system at all!

Returns will happen, there's no way around it so, if you can't eliminate them altogether, you can at least make them less costly. The way to reduce returns cost by at least 73 per cent, according to Gartner, is for companies to automate the returns process. However, the key thing when implementing a returns management solution is to ensure that whatever you do, you are able to do it quickly. A customer focused organisation sorts the problem out first and worries about the 'why' later. A good system will help your people process the return rapiidly, send it to the right place and ensure that you don't give your customer a credit or money back until you (the distributor) have got yours from your supplier.

As consumers become ever more - demanding, returns will increase. Distributors must go beyond improving basic returns processes and implement returns management systems that include three critical components: data collection, redistribution of goods, and effective reporting. First, companies must gather well-structured and consistent data on why the product was returned and its condition. This data will reveal trends in individual product categories and customer groups which can lead to root-cause changes to reduce or avoid certain types of returns. Spotting trends early in the returns management process through reporting and analysis of customer data is an essential part of helping businesses to lower the rate of returns.

Any distributor not paying attention to its returns process -- that is, how it manages, processes, transports, and stores returned goods -- is simply siphoning profits from the bottom line. Getting to the root-cause can often shed light on process inefficiencies - which suppliers consistently deliver poor quality product, for example, and even whether fraud is occurring within your own organisation or your customers are 'trying it on'. Returns fraud is at least as likely to be perpetrated by your customers as your staff.

For example: a customer could buy an item with a warranty from your organisation, but unbeknown to you, also buys 10 'grey' imports of the same make and model without warranties. If you don't have a clear system for tracking the product you sell, how can you know whether the item they returned was the one they bought from you or one of the "grey" imports? With paper entry systems, organisations can end up repairing or replacing product that was not even bought from them. Implementing a reliable returns management system can significantly contribute to improved inventory management, returns tracking and significantly reduce your overall costs.

If you are thinking of buying a returns management solution, ensure that you choose the right vendor. Any specialist supply chain solutions provider focused on distributors will understand the certification, tracking and repair process. A returns management system must enable genuine returns to be processed rapidly but in a commercially realistic way, and enable you to spot trends and patterns in returns and act appropriately. Ideally it will also, where relevant, allow you to link returns to your service management and workshop repairs operations. The vendor should understand this and the impact poor returns tracking can have on your sales analysis. Another key feature to ask them about is whether managers can oversee the returns workflow - when it comes to key customers, it is sometimes too important to be left to very junior warehouse or sales staff.

People often only talk about suppliers when they are unhappy - but when they are unhappy they talk about them a lot! That means one unhappy customer can be negatively influencing as many of your new business prospects as they come in contact with. We all accept that now and again equipment will be defective. However, how you handle the problem can make all the difference between customer retention and loss. One badly handled problem can spoil the whole relationship. It is therefore imperative that an effective returns management solution is in place - it is a critical part of not only your supply chain management strategy, but your customer relationship strategy too!"