It’s no secret that inflation has been very much alive in the wood products industry of late. Over the past few years, prices have escalated far more than we have ever seen. Just a short time ago, owners and managers could perhaps justify not overreacting to how much time and money it is costing them to process returned material, but with the kinds of increases dealers have all lived through I believe it’s time to revisit return policies and procedures.
Better management of just about anything begins with doing a better job of measuring, so you will not be guessing the size of the problem. I suggest assigning your operations manager or yard foreman to scrutinize your current systems and procedures.
Holding returns from 2-2.5% of sales is about as good as it gets, so zero in on returns as a percentage of sales for a few months. As far as best practices go, here are a few suggestions our most successful clients have found effective:
Visual verification. Encourage your salespeople to visually verify the accuracy of the quantities they punch into the company’s computer system. Visual verification is not only a good habit, but also its effectiveness is a proven fact.
Read orders back to the customer. When you finish taking an order, read the order back to the customer and ask the customer to confirm the accuracy of what you recorded.
As a safeguard, staple handwritten orders to the computer-generated copy. Ask an attentive-to-detail member of the administrative staff to proof each.
Check each order for obvious omissions. In the salesperson’s haste, it’s easy to overlook items like sill insulation or thresholds when writing up an order. I’ve observed dealers significantly reduce errors and omissions as well as trips to the job by asking another salesperson to scrutinize orders for obvious omissions.
Identify repeat offenders in sales. Each month breakout all returns by salesperson. You will usually find that one or two of your salespeople are accounting for a disproportionate percentage of the returns. For example, some salespeople have a tendency to “throw material at jobs” rather than taking the time to do a quality takeoff. Counsel with these habitual offenders and help them figure out what they could do differently to reduce the number of returns they are responsible for.
Repeat the process with customers. A handful of customers will usually account for more than their share of returns. If you can identify the culprits, you are in a position to sit down with them and brainstorm a solution.
Consider penalizing salespeople who make mistakes. In an attempt to reduce returns, several dealers subtract, for example, the full value of special-order returns from their salespeople’s commissions until they’re either returned to the vendor for credit or sold to another customer.
Seriously consider moving responsibility for purchasing and pricing special order material from the salespeople to purchasing. This is controversial because most dealers believe in allowing salespeople to sell, purchase, and price special orders. However, dealers who have turned over all purchasing and pricing to purchasing personnel report fewer mistakes and significantly higher gross margins.
Specify a knowledgeable leader in your company to make the judgment as to whether a return is eligible for full credit. Do not allow just anyone to make this decision. Assign responsibility to another responsible operations person to promptly restock resalable material or take it to the “bone pile.”
Reducing the cost of mishandling returned merchandise is the same as putting pre-tax dollars on the bottom line.
Bill Lee is a respected sales and business consultant in the LBM industry. For more information, contact Bill at email@example.com