|Tracking replacement orders/shipping errors|
| 12:19 am on Mar 16, 2013 (gmt 0)|
I realize mistakes happen and the wrong items are shipped.
Do you currently track this?
Today, we have the concept of a "replacement order" but it this can be for orders that needed to be shipped again because of errors or because the product was defective.
| 9:36 pm on Mar 17, 2013 (gmt 0)|
Yes of course you need to track any short shipments, wrong items shipped and/or defective product returns.
It would be part of providing good customer service to be on top of these.
On the occasion this happened for me, I had a copy of the original order, notes of what the problem was, what had been done or in the process of being done to correct the problem on my desk to remind me to keep on top of it. Also gave the customer progress reports and when the correction was complete.
| 10:45 pm on Mar 17, 2013 (gmt 0)|
I meant for reporting purposes. We are on top of replacing defective items and errors during the shipping process.
| 11:26 pm on Mar 17, 2013 (gmt 0)|
No I didn't. I just remembered which supplier messed up frequently.
One manufacturing place I worked we did mark the replacement paperwork appropriately so the shop and accounting new what to do with the order and that it was rush/no charge.
You didn't say how big of an operation you are.
If this is a big issue, then yes I would keep track of it before it ruins your business.
| 11:38 pm on Mar 17, 2013 (gmt 0)|
We ship out 2500 - 3000 packages per month.
Its not a big issue and won't ruin our business but it does happen.
I like to have better idea of the number of replacement orders we send our due to error each month so we can monitor it and improve.
Same thing with defective products so if it becomes a bigger issue I can address our factory.
| 7:33 pm on Mar 18, 2013 (gmt 0)|
I like my Cost of Goods Sold (COGS) account to be clean - ie actual product sales only. So I have separate general ledger accounts (in QuickBooks: Accounts) for anything that's COGS related, but not to an actual product sale. I group them under Heading categories for Shipping Expenses, Processing Expenses, and Product Expenses:
Shipping - Freight Out
Shipping - PC Postage
Shipping - Problems - Inventory
Shipping - Problems - Refunds
Shipping - Problems - Shipping
Shipping - Supplies
Shipping and Delivery Income
Processing - Problems - Inventory
Processing - Problems - Refunds
Processing - Problems - Shipping
Product - Problems - Inventory
Product - Problems - Refunds
Product - Problems - Shipping
Product - Freight In
Product - Inventory Adj
Product - Printing
These accounts allow me to put the blame in the right place. If the post office messed up, it's 'Shipping - Problems -___'. If I messed up packing the order, it's 'Processing - Problems -___'. If the product was defective, it's 'Product - Problems -___'.
'___- Inventory' is for the cost of the replacement items shipped out. '___- Shipping' is for the shipping cost to ship the replacement. '___- Refunds' is for when the customer chooses refund instead of replacement.
(I include Refunds and actual shipping receipts (Shipping and Delivery Income) with COGS - because I like to see them netted out against the other shipping expenses, to see if I cover. Most companies have Refunds and 'Shipping and Delivery Income' included with Sales (Sales and Returns) instead. And a lot of companies put Shipping Expenses in the Selling Expenses section of their Income Statement. I include them with COGS instead.)
Whenever I ship a replacement, I process it like a normal order, with zero for the sale amount. Of course, that hits COGS with the cost of the inventory shipped. That's no good, so I enter two inventory adjustments (in QB: Adjust Quantity/Value On Hand) to correct:
If it was 10 widgets replaced: First receive in 10 widgets to reverse the first transaction, posting to account: 'Cost of Goods Sold' (or whatever account you use for COGS). Then reduce inventory by 10 widgets, posting to account: 'Shipping - Problems - Inventory', 'Processing - Problems - Inventory', or 'Product - Problems - Inventory'. This expenses the inventory to the correct Problems account. QB allows you to attach a customer to the trx, so I do that. That allows you to go to that customer's record and see how much extra they cost you.
When printing the replacement's shipping label, I add a note for that shipment - either 'shipping problems', 'processing problems', or 'product problems'. That way, when I'm doing my accounting, I see the note and charge it to either: 'Shipping - Problems - Shipping', 'Processing - Problems - Shipping', or 'Product - Problems - Shipping'. I also attach the customer to the trx there in QB.
I'm small (just me). So it's no problem to do the two inventory adjustments. In your case, you could add a special note on replacement orders. So the order processor would then perform the two inventory adjustments, at time of shipping. Or you could do it later. If you don't like that, you could instead create special inventory Items for items that are replacements - specifying the '___- Problems - Inventory' accounts for those inventory Items (instead of COGS). Then there would be no extra work on the part of the processor. But that's too messy for me. I would rather do the two inventory adjustments.
By doing this, you keep replacement costs out of COGS. Plus you have general ledger accounts that keep track of the problem shipments and who's responsible for the problems - which you can run a detail report on if you want. If you really wanted to, in QB you could add notes in the Memo fields, things like 'Bob miscounted'. These notes would appear in reports. Or if you needed to break down the 'Processing - Problems -___' accounts into vendors (for instance), you could assign each vendor a Class (in QB). Then when posting the replacements, you could select that vendor's Class - and run reports later on each Class.
Actually, now that I mention Classes, you could use that method to track problems instead (instead of inventory adjustments above). Each problem type gets a Class (that you can run reports on). Then when the processor processes the replacement, he/she selects the appropriate class (in QB). The only problem with that method is that your COGS number is mucked with the replacement stuff. Most people don't care about that - and if you needed to, you could manually back out the replacements, based on the Class reports.
Dang this just got longer and longer as I typed it. Sorry about that!
| 7:04 pm on Mar 19, 2013 (gmt 0)|
What Order Management software are you using?
I think the way Marko described would work in absence of full-fledged order management software but I think it'd be a lot of work without a full time accountant (in QB I think a lot of people sales in daily batches so you'd have to narrow it down to the per-order level to really get it to work well).
Our order management software has an option to create returns/exchange and specify the reason. You can then run a report on this. It's a small enough problem for us though that I've never really used this feature but like you, I'm starting to think it's a good idea to start implementing some sort of tracking.
| 11:00 pm on Mar 19, 2013 (gmt 0)|
Thanks for the detailed response.
I will need to re-read this to digest :)
| 3:44 am on Mar 22, 2013 (gmt 0)|
|I think the way Marko described would work in absence of full-fledged order management software but I think it'd be a lot of work without a full time accountant (in QB I think a lot of people sales in daily batches so you'd have to narrow it down to the per-order level to really get it to work well). |
Yeah, I was thinking that too when I got to the end of what I was typing. That's what made me start to think that Classes would be alot easier if returns are processed manually - it's just one field that has to be selected. Any order managament or accounting software should have some version of Classes - just something you can flag, to report on later. If the order management software lets you batch returns with regular orders, then like you mentioned, you're covered by that reporting automatically.
Then if you wanted to see returns as a separate line item on your Income Statement, you would just print that report once a month or quarter to give to the person who does your bookkeeping.