Product Returns and ERP Distribution Software

Distribution in manufacturing brings a deeper understanding to the concept of integrated software. By and large, the programs and systems that made distribution work in a legacy world were neither integrated nor interfaced with anything else but the bare necessities to show an order status or report costs incurred. All other applications were specific to the distribution area.

When you blueprint ERP for manufacturing distribution, you will spend most of your mental energy on explaining what occurs when things go normally. Product enters the distribution warehouse, is located in a storage location, is later retrieved in its entirety from a storage location, moved to a shipment consolidation area, loaded on a truck, and shipped. When you actually operate ERP for manufacturing distribution – after go-live - most of your mental energy will be spent trying to create processes or find adequate fixes for things that don’t go normally. This is when you realize that you did not understand the need for an integrated approach.

ERP = Integration

Think about product returns, as an example. In legacy, distribution could just unload a product return, manually add it back to sales goods inventory, and it was ready for resale. With ERP, a product return transaction affects not only warehouse and inventory management, but also involves quality, finance, and security functions, as well. Quality management in ERP will likely require that someone inspect, count, and approve receipt of a product return. Segregation of duties issues being what they are, that same person should not likely have authorization to receive the goods back into the plant. That invites the organizational question of who can receive a return, and how do they know to receive it. Once it is received, where is it received? Is it relocated into a sales good bin and ready for resale, or does it have to go back to the production floor for inspection?

Taking a return – or any other warehouse item – back into production invites a whole new set of questions. Is the return WIP inventory, in which case a work order needs to be opened against it? If so, then does supply chain also have a role? If it is returned to WIP, how is it valued? If it is not returned to WIP, what is its inventory status? This notion of warehouse movement back to production is not limited to returns. What if a latent quality defect is discovered? Is your ERP system configured to handle large-scale movement and accounting in the reverse direction?

The lesson to be learned is that even though the things that go wrong in distribution are a small minority, and didn’t take much time in legacy, the same small minority takes an enormous amount of time when done incorrectly in ERP distribution systems, and can become overwhelming if you start compounding errors. The time invested to ensure that workable processes are in place for all known possibilities will provide an exponential payback.