Littlehampton Book Services

The Industry Standard Returns Process

What Is It and How Does It Work?

A briefing document on the Industry Standard Process

What Is It?

In 1998, KPMG were employed to review the Book Industry Supply Chain with the aim of identifying areas where cost could be removed. One of the areas their report focused on and which has subsequently been the focus of considerable effort is Returns. KPMG identified that there is significant waste within the traditional Returns process and that, by adoption of a standardised Returns process across the industry, some of that cost could be eliminated.

The resulting Process Specification has been some three years in the gestation and has now reached a point where it is sensible to adopt. LBS still believe that some elements of the standardised process as proposed by the Book Industry Supply Chain Committee (BISC) such as Centralised Destruction are not viable and, as a result, will not be adopting these areas. However, those areas where we believe that the costs can be reduced such as electronic pre-authorisation will be adopted.

How Does It Work?

The process diagram below is designed to demonstrate the basic process flow of the sections of the Process Specification that LBS has adopted.

Returns process diagram. Click image for larger view

In essence, the customer will, in the first instance, request authorisation for a Return from LBS rather than the Publisher or their Rep. The request will be submitted to LBS ideally in an electronic form using either EDI (there are now published BIC standards for the EDI messages required), spreadsheet (using a template available for free download from BIC) or formatted text file (produced using a freely available Windows program again downloadable from the BIC website). During the transitional period, it is expected that some smaller customers will not be able to submit electronically and facilities will be made available within the LBS systems for the manual entry of paper-based requests in the same way as the existing ARN system is used.

Regardless of the method of submission, the Return Request is then validated against a standard 'rule-book' to determine whether the Request will be accepted or not. The rules are detailed more below. If the response is a rejection, the customer receives a response message indicating why the Return is not acceptable. If the response is an acceptance, the customer is then advised

a) whether the books are required for restocking or not - books not required for restocking would normally be sent to the Central Destruction operation if it was implemented but, in LBS' case, the customer will still be asked to return them to LBS. An important point to note is that, if a Returns Request results in some Green Box stock (required for restocking) and some Red Box (not required for restocking), two separate ARN numbers will be provided to the customer and they will be required to send the books back in two separate boxes.

b) the quantity authorised for return - this may differ from the quantity requested dependant on the results of the rules

c) the value of credit that will be given.

Once the customer has packed the books that were authorised for return and has confirmed the quantities actually being returned, they are then required to provide a third message to LBS to confirm to us the actual quantities sent to us. Sending of this third message confirms that the customer accepts the credit valuation provided by LBS. Further software, again downloadable from the BIC website, will then allow the customer to produce the required number of bar-coded labels to be attached to the outside of the cartons to identify the consignments when they arrive at LBS.

Once the consignments arrive at LBS, they will be unpacked and scanned through and the systems at LBS will compare the contents of the box(es) to the original Returns Authorisation. Once the return has been fully processed, the credit will be automatically generated and sent to the customer by their normal method.

The Rule Book

Rule 1 - Age

The new Returns Process states that, as with the present systems, titles are not eligible for return until three months after Publication Date. However, whereas the current systems then typically close returns fifteen months after Publication Date, the new process extends that window to fifteen months after date of last despatch. This is seen as a more logical approach. Under the current arrangements, customers may be deterred from ordering titles that are approaching the fifteen month age because they will be unable to return that which they do not sell whereas under the new rules, they will be encouraged to take and stock a wider range.

Rule 2 - Firm Sales

As with the current systems, if a title is purchase on a Firm Sale basis, the new system tracks this and rejects any attempt to return such titles.

Rule 3 - Volume Control

The Vista system tracks how many copies of a title each customer has bought from LBS. If a customer attempts to return more copies, net of previous returns, than they purchased, the excess will be rejected. Note that this tracking is implemented at an organisation level, meaning that larger chains are allowed to buy through one branch and return from a different branch, providing that the return quantity does not exceed the purchase quantity for the whole chain.

Rule 4 - Value Cap

It is possible, under the new process, for a customer to agree a Returns Cap as a percentage of their sales value over the preceding 12 months. For example, it is possible to negotiate with Waterstones to cap their returns, by value, at 25% of their prior 12 months purchase value. Again, this cap is applied at organisation level.

Rule 5 - Credit Value Calculation

The value of the credit will be calculated based on the quantity weighted average of their purchases over the 12 months prior to date of last despatch to that customer. Again, this will be calculated at organisational level.

For example, if a customer has bought in the following (unlikely) pattern:

Sale 1 50 copies Pub Price £16.99 Discount 35% Line Val £552.00

Sale 2 30 copies Pub Price £15.99 Discount 37% Line Val £302.10

Sale 3 20 copies Pub Price £17.99 Discount 40% Line Val £215.80

This would give 100 copies purchase at a total value of £1069.90. Returns would therefore be credited at £10.70 Net Price (£1069.90 divided by 100 and rounded to two decimal places).

What Does This Process Mean For Me?

For a Publisher, this process means the following:

i) Reps are removed from the Returns Authorisation process. They are freed to spend more time presenting their books to the buyers and making more sales without needing to negotiate over returns first. Similarly, Publishers head office staff who get involved in the returns process at present, especially with regard to key accounts, will be freed to better service your customers.

ii) The rules for Returns acceptability are pre-set and known up front to all parties which should reduce the number of queries and disputes on whether titles are eligible for returns and the value of credits.

iii) Returns liabilities are known more quickly because of the electronic transmission of the requests.

iv) Additional new facilities are made available to control levels of returns. As shown above, it is possible to negotiate Customer-wide Returns Caps, limiting levels of Returns to a percentage of the previous 12 months sales. While it has always been possible to negotiate such Caps with customers, they need a great deal of manual intervention to manage them. These caps are now automatically monitored by the software and enforced as necessary.

v) Potential positive cashflow implications because of both reduction in debit notes and improved matching of returns credits to those debit notes that are raised.

For the Distributor, this process means the following:

i) over time, a reduction in the manpower required to manually enter Returns requests onto the systems as more and more customers migrate to electronic submission. This manpower can then be deployed more productively.

ii) Potential to reduce the number of claims and disputes over the value of credits as the credit value is known and agreed by the customer before the books are received.

iii) Simplification of the number of differing Returns policies that need to be implemented - everyone uses the same policy .