Imagine this: A product hasn’t quite fit the bill. Your customer attempts to return it. But the replacement item is out of stock and the account credit is misapplied. The customer calls to find out what the heck is going on, but a clear answer is tough to find.
“Why,” wonders your newly suspicious customer, “is it such a frustrating experience to return this item, when it was so easy and efficient to order it?”
It’s not the question you want your hard-won customers asking themselves, is it? But it’s so easy to have it happen.
The bottom line is that reverse logistics is difficult. Each RMA requires a coordinated multi-departmental effort and impeccable service under acute deadline pressure just to walk a customer back from the point of frustration.
That’s why every return, warranty claim, or repair situation fundamentally has the opportunity to spiral into customer dissatisfaction. Preventing this from happening can have major positive impacts on profitability, though. A frequently-cited Harvard Business School study found that increasing customer retention rates by just 5% can actually increase profits from 25% to 95%.
Because of the inherent risks to customer satisfaction in return situations, strong RMA automation is a necessity for optimizing customer retention efforts for companies with even moderate order volumes in the distribution, online retail, and manufacturing industries.
Is your return materials authorization software up to the task?
Ask yourself the following 3 questions to see if you might be missing an opportunity to improve your customer retention and profitability with better RMA software functionality:
- Do you have the flexibility to support your preferred policies and processes?
- Does your RMA module integrate seamlessly with related ERP functions?
- Are you able to access the business intelligence data you need to make good decisions?
Let’s take a closer look at each question.
1. Does your RMA software provide the flexibility to support your preferred policies and procedures?
It wouldn’t make much sense for a distributor of perishable foods to have the same refund policy as an OEM electronics manufacturer. But it really doesn’t take that extreme a discrepancy in business models to generate substantial policy differences. Just take a look at the fine print on your receipts from various big-box retailers to see that even very similar businesses can have profoundly different refund policies.
The reality is that there is an enormous variety of possible combinations when it comes to setting up your company’s return or warranty policy. There’s ultimately an optimal path for you and it’s important that your software supports it.
When choosing software for your return materials authorization needs, some important areas to check for functional support include:
- Resolution flexibility. Not every return is a refund situation. In many cases, it makes more sense to replace, repair, or substitute the product. Further, not every refund is the same. Aside from decisions about full or partial refunds, determinations may need to be made about providing credit toward future purchase or cash reimbursement. Capable RMA software needs to support each relevant resolution option.
- Warranty management. For complex products or broad product portfolios, managing warranty policies typically involves extensive data management. Not only must software provide robust document management for policy information, the ability to track transactional data is also key to accurately establishing eligibility conditions on a case-by-case basis.
- Customer eligibility. It’s possible you might wish to have different refund policies for your top customers versus a first time buyer. Customer eligibility tiers can provide a means of creating flexible policies based on conditional business logic.
- Approvals management. Who can authorize a refund? Is the authorization process the same for every situation? Can you track approvals to the authorization decision-maker? Being able to flexibly specify approvals procedures and collect authorization data can help improve the accountability in your RMA processes.
- Restocking fees. Especially in situations where returns are made at the customer’s discretion and there is significant handling work involved, the option to add restocking fees can help optimize a refund policy.
- Freight reimbursement options. Who is responsible for shipping costs can be a thorny refund policy issue. Freight reimbursement options, including partial refunds, can strengthen your hand.
- Item management. What happens to returned goods? Are they returned to the original supplier, restocked, and scrapped? There are situations where each item outcome makes sense and adequate software should support processes for each alternative.
2. Does your RMA module integrate seamlessly with related ERP functions?
Whether it’s for a refund, replacement, or repair, RMA’s inevitably involve cross-departmental processing. System integration between your return materials authorization module and other ERP applications is critical for a few main reasons:
- Integration allows for real-time communication, which helps decrease RMA processing turn-around time. A recent study found that in 55% of customer defections, one of the attributable root causes was service issues “not being resolved in a timely fashion.”
- Software integration eliminates the need to waste employee time on fundamentally unproductive tasks related to manually re-entering data—providing a reduction in labor overhead.
- Avoiding re-entering data also helps ensure the minimization of manual errors at a sensitive point in the customer relationship when there is typically a thin margin for error.
A comprehensively integrated RMA module should connect with all of the following modules in order to support the tasks identified below:
- Sales orders. Updates of customer histories and generation of new billing documents.
- Work orders. Assignment and tracking of repair, replacement, or refurbishment tasks.
- Quality management. Tracking of root conditions for returns and repairs.
- Accounts payable. Issuance of customer refund checks.
- Accounts receivable. Updates of AR records for crediting customers with outstanding balances.
- Payroll/commissions. Commission and paycheck adjustments.
- Warehouse/inventory. Instructions for restocking, receiving, and shipping.
- Purchasing. Generation of PO’s for replacement products.
- CRM. RMA order status tracking for customer-facing sales personnel.
3. Does the RMA software provide you with the business intelligence you need?
As important as the automation benefits of properly integrated RMA software can be, improved decision-making based on better business intelligence is likely to be the most significant benefit.
Consider an example:
An online retailer of pet medicine studies their RMA data and finds an opportunity to improve on their rate of product returns. They utilize their RMA data to track a major root cause of the refunds to their warehouse operations. Many of the orders it turns out are being improperly prepared or shipped. Recognizing that most mistakes are based on human error, the company implements an automated storage and retrieval system. The net effect? An ounce of prevention is worth a pound of cure. The company manages to drop their return rate from 5% to 2.28%. (InternetRetailer.com)
In order to allow for similar improvement initiatives, reporting features in your RMA software should provide the raw data to answer the following process optimization and accountability questions:
- What’s our standard turn-around time?
- What’s our return rate?
- What’s the disposition of our RMA resolutions in terms of credits, replacements, repairs, etc.?
- What are the primary root causes of most RMA’s?
- What’s the true cost of each return, when all soft costs are considered?