Planning for Inventory Returns
- Plan for both “total” and “reusable” returns by product. Understand by category and product which returns can’t be resold, as products vary widely in their reusability rates.
- Include timing of returns in your weekly inventory planning. Create two curves: one, a weekly demand curve detailing expected order patterns and, two, a return curve, typically timed at two weeks to four weeks post customer order shipment. Together these curves will allow you to factor returns into your buying decisions, essentially as anticipated receipts in your inventory planning system.
- Adjust your target inventory levels to accommodate those timing differences. Profile all your products into two groups: those for which you aim to fulfill 100 percent of demand, buying extra inventory to cover demand while you wait for return, and those you’re willing to purchase below demand forecast and accept a degree of lost sales to avoid the resulting overstocks.
Yes, customer returns are unavoidable in retailing. But by understanding the underlying causes and better managing the areas you can control, it's possible to leverage returns to increase overall sales and profits, improve cash flow, and make more customers happy.
Joe is Vice President of Product Solutions at Software Paradigms International (SPI), an award-winning provider of technology solutions, including merchandise planning applications, mobile applications, eCommerce development and hosting and integration services, to retailers for more than 20 years.
Joe is a 34-year veteran of the retail industry with hands-on experience in marketing, merchandising, inventory management and business development at multichannel retail companies including Lands’ End, LifeSketch.com, Nordstrom.com and Duluth Trading Company. At SPI, Joe uses his experience to help customers and prospects understand how to improve sales and profits through applying industry best practices in merchandise planning and inventory management systems and processes.