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Real Issues: Excessive jobsite returns

Until builders somehow manage to order the exact material quantities for their projects, a certain amount of jobsite returns will be a reality for LBM suppliers. But what to do when jobsite returns become excessive, and builders find it easier to switch suppliers than control their ordering? That question, from a Texas dealers, is at the heart of this month’s Real Issues survey about …

Excessive Jobsite Returns

We posed the question to readers who have opted in to receive our emails (let us know at operations@lbmjournal.com if you’d like to be on the list). More than 175 readers took the brief, three question survey to help us and our Texas dealer learn more about how the industry deals with excessive jobsite returns. More than 60% of respondents indicated that excessive material returns are an issue at their company. However, when we view responses from readers at full-line lumberyard and specialty dealers exclusively, the number jumps to 70%.

Next, we asked readers to advise, in their own words, the dealer who wrote in asking for jobsite returns recommendations. How would you respond to this dealer:

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“Our biggest issue is credits coming back from the jobsites. Our builders today allow subcontractors to order the products they need, and the subs seem to order heavy, so they don’t have to worry about being without material. This leaves us going to the jobsite to pick up a massive amount of returned material without charging a restocking fee. We aim to have our credits be less than 2% of our revenue, but we’re averaging around 4.5%. With labor shortages being what they are, builders find it easier to switch lumberyards rather than lose a sub. This makes it very challenging to service our growing market due to the time it takes to pick up and restock larger returns. How do other LBM dealers manage this problem?”

RESPONSES FROM LUMBERYARDS, FULL-LINE BUILDING MATERIAL DEALERS, SPECIALTY DEALERS, AND DISTRIBUTORS:

“Sometimes we can get them to take it to the next job.”

“We monitor it, and if we have a consistent problem, we address the issue with the customer’s salesperson. We would look at shrinking the orders placed.”

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“We need to have metrics to share with our customers. The customers who are partners will change. The ones who are not willing to change will continue to abuse the relationships…if we let them.”

“I think the best way to handle this is to educate your customer as to how returns affect you as a material supplier, and then be more involved in their project by providing take offs and sharing product knowledge. Not only does this reduce returns, but it demonstrates an investment in your customer’s project which builds your relationship.”

“Sadly, we can only make suggestions to our customers in the beginning and make sure they understand where the responsibility lies. When push comes to shove, they disregard everything and threaten to take their business elsewhere. They’re in the driver’s seat. If we play hardball, we lose.”

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“We charge a 10% restock fee. This allows us to help keep credits closer to the 2% level. This additional cost has to be passed along as it is near impossible to trust that it will be covered in the margin of the sale.”

“We charge a restocking fee, and we do not go to jobsites to clean up. Any return products must be stacked and free of debris to pick up. We use cameras and take pictures to use for any disputes.”

“We charge a 20% restocking fee when it’s excessive.”

“We enforce a 20% restock fee, and we know it costs us business. However, without it the contractor could care less about how much material is returned… not to mention how it is stored on site.”

“We all have this problem. Here, we are very selective on crediting only what is in excellent shape and could be sold to our next best customer. And we have improved our material estimating process, which our builders really value. Our message the last two years is to let us calculate it so there is no credit or risk of loss to builder, and they see the value.”

“Drop the quantities that are ordered by about 20% on each order, and absolutely no returns on special orders. This has helped us a lot, but our salespeople are getting by the jobsites more often to see if the sub needs a full bundle of studs he just ordered or if a half bundle will finish him up on a job.”

“Sure, you can return it. We will charge a 15% restock fee, or you can bring it back for free. Don’t fool yourself…you really are not making any money on this customer. If he leaves, you can better serve someone else who deserves it!”

“You are correct. A good standard would be 2% to 3% of revenue (special orders and mistakes included). I would suggest starting with a handling charge passed back to the customer to mitigate some of the sweat equity involved in the credit returns. (You can always white list some of your best customers to keep them exempt). Additionally, making sure the road salesperson is held accountable for these credits. Having them participate in some degree in this handling charge will go a long way in keeping the size of the credits in check. (I’m assuming your customers are not ordering material in a vacuum, right?)”

“It cannot be managed. I’ve been in this business for 35 years and it never changes, no matter what policy or procedure is introduced. Just pick the stuff up, credit what can be resold, and move on.”

“We have tried a variety of ways to help manage this problem. We have held the return lumber per customer and sold it off or auctioned it off and the gave a credit to the customer for the amount it sold for. Most of our contractors are just wanting their jobsite cleaned up. If the lumber we pick up is resalable, we will give credit, but what lumber is twisted, dark, or has nails in it we will just not credit that.”

“We try to start with a better take-off materials estimate. We try to avoid the overages with a time-tested estimate program, and builders start to trust the system.”

“We face the same challenges but with a larger percentage, sometimes reaching 7% of sales. We are considering implementing a monetary penalty against the salesperson of record. My belief is that the salesperson should feel the pain just as the entity does. I also believe in rewarding the salesperson when returns are less than 2.5 % of sales. Returns are a constant challenge and I know they will not go away. Closer attention given by the salesperson and proven turnaround of deliveries will build trust between everyone. Another piece of this process is to consider paying an incentive to the driver for facilitating the return and an incentive to a yard/warehouse team for restocking the products so that materials are sellable again. We currently pay $25 to the driver and $20 to the warehouse worker to sort and restock the items returned.”

“We hold the salespeople accountable if there are excessive returns. We ask for pictures prior to pick up and charge 20% return charge to most and 10% for higher volume customers. There is a real cost that is difficult to absorb most of the time. Most folks don’t abuse returns, but with prices so high they can’t afford not to return excess.”

“We schedule a meeting with the ‘offenders’ to address the issue. We lay out the facts of our costs, our similar labor issues, and ask if we can work together to find a solution. Most go away with a better understanding and things improve.”

“We suck it up and pick up the material as requested.”

“We work with our builders and go over their specific needs. With the help of the sales team working closely with the builders, we identify the subs that are poor performing. When you show the customer their bottom line on one sub versus another, the picture becomes clear that certain subs are eating up their profit. This can be a slow road, but ultimately builds trust and confidence with builders, which is a win for us and them.”

“This has been one of our fastest growing challenges since the housing market exploded. We have had several discussions about charging 5% restock per item or charging a credit fee that is a percentage based on the total of the credit.”

“We have found that this can be a very important criteria for some builders in selecting a supplier. For those who consistently have high returns we make an effort to quote prices to cover the expected returns. This is easier said than done.”

“Communication between the sales team and customers should be first step. Secondly, start charging a restocking and/or jobsite pickup fee. There will be some builders who will push back and others that will understand the loss of revenue and start to manage the returns or pay the fees. Get what you can from who you can.”

“Have a conversation with your builders.”

“We don’t charge restock fees to regular builder accounts, but we do charge them on cash sale customers. We’re considering charging salesperson 2x their commission amount for the returns on contractor sales.”

“First, we try to educate the customer about the problems large returns cause us. Having to send drivers back out to a job, yard staff having to put stock back in inventory, etc. We deliver most of the time that day, or at least within 24 hours of order, so if subs plan correctly, there should be little or no wait time. If they persist, then a stocking fee will have to be applied.”

“This problem has gotten worse over time. We charge a 10% restock fee on material we pick up on our trucks. We do not charge a restock fee if a customer returns material on their truck, but this has not slowed down the massive returns.”

“We will sometimes under-ship any suspected over-orders from our builder’s subs. We’re also considering a restock fee for those who are constant offenders.”

“It is a huge problem, and we are working on the same issue. I think the best approach is to have a conversation with the builder and explain why excessive material on the jobsite is bad for everyone. It can be damaged or stolen, both of which result in no credit for the builder. The best solution is to work with the builder to develop accurate take-offs and to package the loads in a manner that work for the sub-contractor. It may mean getting the sub to ‘bless’ the take-off and material loads to get to an effective solution. The builder will have to help with cooperation from the sub-contractor.”

“We have a high restocking fee or no return policy.”

“We have tried to work closely with our builders to remind them that over-ordering creates many problems, from returns creating more work for us, not to be able to get to other jobs promptly, to causing shortages on materials due to the market conditions we’re faced with as suppliers. This is almost a double-edged sword at this time, and is very hard to manage keeping builders buying but not affecting the business and bottom line.”

“Grin and bear it. The big boxes have ruined returns for everyone. You can figure out which customers are responsible for the higher rate of returns and reduce their orders on certain items that you notice are the most commonly returned. For instance, we had a siding sub who ordered 20% extra on PVC trim. We reduced the order by 20% and had our outside sales rep visit the job and assess the situation after a couple of days. Usually, we’d need to send a few extra pieces. It takes a lot of effort but truly mitigates returns and damage.”

“For builders who do not utilize our takeoff and design services, we make them aware of the restock fee we have in place.”

“Have a talk with the builder and explain that it is not only costing the supplier money, but it is costing the builder a good bit as well.”

“We have never had a consistent process but have implemented a 10% return charge for all customers.”

“If you go to the jobsite with material several times before it is completed have your drivers ask each time if there is anything that needs to be brought back. This cuts down the huge one-time return.”

“On excessive return customers we charge a restocking fee, and we will use the returned materials to ship on additional jobs for the same contractor.”

“Reduce the order quantities before shipment if it is a constant problem.”

“Sales and management need to work with the builder and come up with a reasonable solution. Also work with the framer and maybe help do take-offs the way the framer frames each job.”

“We have the same issue and feel forced to comply due to losing customers. It has gotten to the point where I feel like we are doing jobsite cleanup instead of returns. I would like to create a policy that everyone could agree on and would be fair for every party.”

“We do most of the material lists and we factor 10% in for waste. One option would be to talk with the sub-contractor and mention that it seems returns are an issue on every job and suggest looking over the lists together to try and cut down on returned goods.”

“Right now, that is part of the business. Once one starts charging a restocking fee, others can do the same. Or you could start charging a pick up fee (same as delivery fee).”

“We charge a 10% restocking fee of anything over 2%.”

“Invest in estimating software or find an outside partner to provide estimation services. Then incentivize your sales reps and customers to use those estimating services. Track trips to jobs and returns and hold your reps and estimators accountable for driving this metric, that they should rightfully own, down to acceptable levels.”

“We let them know of the restock fees they will have to pay on excessive returns and demand the material be in resalable condition or no credits will be issued.”

“We have a full-time person managing returns. For special order items we only give credit for items our suppliers give us credit for. We do our own estimating and ship accordingly.”

“We have authorized signers on the account and will only take back saleable items, and no special orders.”

RESPONSES FROM WHOLESALE DISTRIBUTORS, MANUFACTURERS, AND SERVICE PROVIDERS:

“It’s really very simple. Stay on top of timely deliveries and you won’t have to worry about contractors ordering heavy to keep their people working. For far too long LBM dealers tried to have their cake and eat it too. Invest in timely deliveries and watch your bottom line grow!”

“I am wholesaler and 90% of the time we get a 25% restock fee and 35% if over 60 days.”

“We have been charging a 15% restock on anything in original packaging and resalable within 30 days of purchase and 25% or more within 90 days. After that, no discussion. And we never accept returns on anything special ordered or altered. Our customers understand that returns are costly, and we have helped them school their customers on the expense involved.”

“In my past 30+ years of experience where I was managing LBM dealer yards, credits were dealt with in this fashion: 1) We will pick up the material. 2) We will give you credit ONLY if it’s in the same condition as when delivered. 3) We will charge a minimal restock fee. 4) We can waive the restock fee, but pricing will reflect that. 5) Don’t agree? We are grateful to have done business together, and we hoped we could be profit partners together. But if you can’t play on that type of team, you’ll have to leave our league!”

“You have to incentivize accuracy. An overabundance of product at the site inevitably leads to less efficient utilization of those products, more waste, and often shrinkage from damage and theft. As a dealer, you need to provide a service model that delivers stock items in the quality and quantity needed for stage of production or each day of production. It needs to be a complete solution that addresses delivering materials quickly the same day when estimates are found to be inaccurate, or mistakes are made. At the end of the project, the lower the return rate is beyond some established threshold, the contractor and/or subs can earn a rebate.”

“Subs order heavy when they have the opportunity for two reasons. Lost time due to material shortages often costs more than the cost of returning the extra material. The other reason is that they just don’t know what they need. The first reason is one that material suppliers should be sensitive to. The second reason is one where material suppliers have the opportunity to add value on site and also take an active role in controlling the material that goes out to the site by offering to do take offs and visiting the site more often to see what operations are coming up and what is needed next.”

“One way we have found to help dealers is to resell the product so they are not losing on the restocking fee to return material. Any time another inquiry comes in for the material they want to return, we alert them so they can resell it.”

“We have some product lines that are labeled non-returnable, and that is noted on our price sheets and all confirming orders. On items that can be returned, we charge a 20% restocking fee.”

“Is the sub over-ordering or picking through material? Is the material handled with care or dumped in mud and exposed to elements? Charge a pick-up fee (selectively waive for top-tier/ profitable clients). No credit for material no longer in condition to be sent out to another jobsite.”

 

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