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In Managing Your Warehouse, Don’t Forget to Account for Returns

by Tim Garcia, Founder and CEO , Apptricity

Reverse Logistics Magazine, Edition 57

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In my day-to-day work helping enterprises configure their warehouses for maximum command visibility, the talk often centers on moving products to customers, and rightly so. Revenue follows sales volume.

But it has become more important that organizations pay equal attention to the flow of products coming back. Especially with the growing popularity of sight-unseen online sales, more people end up sending their purchases back.

The retail industry estimates that nearly 10 percent of all goods purchased – about $264 billion worth of merchandise – end up coming back. Think about that for a moment: 10 percent of revenues – a good profit margin for many companies – just sitting there in limbo while you position it for resale or return to a vendor.

Beyond the big challenge of detecting return fraud – the National Retail Federation estimates 4.6 percent of all holiday returns involve stolen or already-used items – the main issue with returns is how to deal with goods quickly and keep them from disrupting forward-moving warehouse operations.

In a warehouse unequipped with proper, real-time automation and tracking, returns can cause all sorts of expensive problems. Just a few examples:

• A lack of tracking data on defective merchandise make it difficult or impossible to charge back a vendor, forcing enterprises to suffer the loss – or at least to carry the loss for longer than they should.
• Poor warehouse integration slows down the process of restocking and shipping saleable merchandise. Customers might be told an item is “out of stock” when in fact it languishes on the return dock.
• Logging and tracking merchandise returns becomes a slow, labor- and paper-intensive process. Manual processes also are error-prone processes, so mistakes are often introduced into inventory management.
• The sluggish process for documenting and moving returns back to vendors or into retail circulation results in a waste of precious warehouse real estate.

If the industry estimates are on target and 10 percent of merchandise is returned, you see how quickly a seemingly small return problem can become a warehouse train wreck.

Just as with moving products forward in a supply chain, the warehouse represents a mission-critical link in reverse logistics. In both cases, the same, simple goal applies: To maintain a structured, error-free environment at the lowest cost possible.

Getting it right comes down to finding efficiencies at every turn and beating the competition in every facet of the game, from improved collaboration and cooperation with supply chain partners for greater dexterity to achieving greater speed in moving products back to the showroom or the vendor of origin.

A properly automated warehouse becomes not only a supply chain weigh station for goods, but also a catapult that takes your business to the next level. By increasing the visibility of your merchandise and its whereabouts, improving your layout, eliminating redundant processes and optimizing the put-away/vendor return process, the warehouse can transformed from bottleneck to accelerator.

All of the challenges posed by customer returns can be eliminated – or at least greatly mitigated – by employing well-designed, well-implemented automated systems that are easy to use and deliver the command visibility companies need to be truly agile.

Don’t Lose Sight of Returns as Available Inventory
If your warehouse has no automated system, then you’re flying blind from the start. All you can do is guess on what you really have in stock at any moment in time, and you’ll be a loser whether you guess high or low.

If you guess high and end up with an unexpected shortage, orders go unfulfilled and you lose customers – and profits. Often, by the time you realize you’re short on an item, you’ve lost the ability to order it, and the losses continue to mount.

If you guess low, you risk ending up with excess, obsolete or spoiled inventory. That triggers a series of unhappy events: Excess inventory takes up valuable warehouse space, which drives up operating costs related to housing and managing extra materials. Ultimately, you end up taking a loss on materials you shouldn’t have acquired to begin with, all because you lacked visibility.

It’s important that returns not be lost from the overall inventory picture. Remember, excluding defective merchandise, it represents a significant percentage of what you have on-hand and available to customers. Modern automation that incorporates the availability of saleable returns takes the guesswork out of inventory.

Through the use of RFID tagging or with long-range barcode scanners, companies can expedite the return of items to circulation and gain real-time, dynamic intelligence on what inventory is available, 24/7.

Both inbound and outbound inventory is fully serialized, with information accessible on desktop or mobile devices anywhere in the world. You can receive alerts when stock reaches critical levels, and systems can even pro-actively order more when you’re low. Throughout the organization, employees will have relevant, state-of-the-art data available on any digital platform.

Where’s the Inventory?
A big source of warehouse problems is a lack of oversight into the physical location of items, which can increase your costs and slow down operations. Without a single, integrated view of where every item should reside, workers have no choice but to guess. They’ll take longer to put items away or find items that need to be shipped. That slows loading, creates backups on the returns dock and even affects dock-door scheduling.

Automated systems can render graphical maps that pinpoint exactly where items reside at all times. A similar chain of cascading benefits result: Workers save time, which means inventories are more accurate and up-to-date. Orders (or vendor payments) are fulfilled faster. Less returned inventory exists on the books in a state of limbo. Each warehouse worker also gets more efficient, which creates labor savings.

In addition to greater efficiency, automated systems can even help improve warehouse layout, potentially allowing your business to reduce the amount of space it needs to operate profitably.

Automated warehouse management can analyze current and projected data, including shipping, receiving and inventory levels, to design a layout scheme that helps you achieve maximum efficiency and best use of available space. The right plan will take into account your process flow, the type and style of racking equipment you use and the equipment you use to move stock around. In some cases, you might also need to account for compliance requirements, such as the need to provide safe, secure and environmentally sound conditions for some stock.

The Quickest Path from Point A to Point B
Picking – and by extension put-away – is one of the most labor-intensive activities in any warehouse, with costs by some estimates exceeding 50 percent of total operating expenses. For warehouses that still have manual processes in place, there tends to be no common route taken to put away items or pick them for shipment, which adds unnecessary time and cost to the process.

Once you have an optimized warehouse layout, an automated system can help speed picking by determining common routes that will save time. And with system-directed pick/put-away, the routing is easily automated, reducing wear and tear on both your equipment and your labor force.

The other big benefit is to reduce the number of “touches” needed to fulfill each order. In warehouses still using manual processes, it’s common for workers to pass a pick ticket or other documentation through multiple hands. The picker will pass it to the checker, who will pass it to the stager, who will pass it to the loader, and so on.

The same low-touch principal should apply to returns. Automation can help minimize the time and touches required to document and process a returned item to determine if it is saleable and, if not, whether and how it should be sent back to the vendor for chargeback.

The barcode and RFID technology found in today’s automated warehouse systems eliminates that redundancy. In effect, each item – whether headed to the customer or back to the vendor – checks itself in at every stage of the process, seamlessly and with little to no human assistance. All the while, warehouse managers have real-time visibility of the precise state of all inventory.

If it is well designed and effectively integrated, a warehouse management solution should make it possible for you to manage your facility with greater precision than ever before – without paper-shuffling or blind spots. The warehouse manager should be elevated to all-knowing commander of an engine that drives your business.

Tim Garcia is the founder and CEO of Apptricity, a leading provider of applications and services to automate advanced logistics, supply chain and workforce management.
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