Using Barcodes to Manage Inventory Returns

This series is commissioned by UPS.

In the 1990s we owned an art gallery.  One of the challenges was managing inventory.  It was a particular challenge around the Holidays, when certain items in our stock moved fast — mainly the smaller, gift-priced items of $100 or less.

Our process for tracking and managing inventory consisted of handwritten lists of what we thought we had in stock.  I say “what we thought we had in stock” because the lists tended to get lost.  Invariably what we had in stock never quite ended up matching what was still on our inventory list.

Barcodes on inventory

You see, one problem was that when things got busy and someone asked for an item, we’d run to the storeroom in the back, root around, find whatever the customer wanted, and bring out and sell it.  Being in a hurry to serve the customer, we frequently forgot to cross it off the list of remaining unsold inventory.  So our records of what was left in stock were hit or miss.

Even worse, with paper lists we had very little ability to analyze our inventory usage patterns.  That made it difficult to forecast our future inventory needs…  and avoid either running out or ordering more than we could sell.  We simply didn’t have the data to make those kinds of judgments.  Instead we relied on  guesstimates and memory, or occasionally going through the laborious process of looking through individual stock invoices and bills of sale of  whatever we bought the year before, trying to decipher abbreviated descriptions and unintelligible stock numbers.

On top of that, things got more complicated with returns.  When we got returns we had little to check them against. Returned items truly fell into a black hole.

Well, what can I say, except that we were a startup.  That was our first foray into retail.  So maybe we can be excused partially for not having a point-of-sale (POS) and inventory system that could help us manage inventory.  But a lot of small businesses are in a similar boat working from paper and pen, or maybe Excel spreadsheet systems. According to the report “Taking Stock of Your Inventory” (PDF) by Wasp Barcode, 30% of small businesses are just like we were, using pen and paper.  Even more astonishing, 23% of small businesses use NO inventory tracking system at all.

Returns were only a small part of our inventory management issues, simply because we were, well … small.  But returns in any business can erode your bottom line if you don’t manage them well — and in some businesses returns are a major cost issue.  According to a whitepaper (PDF) by the Reverse Logistics Association:

Reverse logistics represents one of the largest and most overlooked opportunities to help return profits to a company. However, very few companies are doing a good job in addressing this issue. Analysts warn that unless companies put systems and processes in place to recoup a significant portion of that cost, returns will have a dramatic impact on profitability.  Leading experts advocate that most companies are overlooking their reverse logistics supply chain and are missing opportunities to improve margins as well as customer satisfaction and loyalty. This may be due to the fact that companies are missing the big picture when it comes to managing returns.

That is where technology systems, including barcodes, come in.  The Reverse Logistics Association whitepaper goes on to point out best practices relating to using barcodes to manage returns:

Returned product should come back with bar codes that can be scanned to minimize handling. In addition, some companies are turning to innovative transportation methods to help speed the receipt of goods.  One method companies are starting to explore is to consolidate repairs coming back into larger shipments. Companies can reduce transportation costs by coordinating returns shipments with larger shipments.

Once companies have a returned product in their possession, the item can spend days, weeks, even months on a shelf waiting to be evaluated because this process is often done on a case-by-case basis. The testing, sorting, and grading of returned products are labor-intensive and time consuming tasks. The process can be streamlined if a company subjects the returns to quality standards and uses sensors, bar codes, and other technologies to automate tracking and testing.

Even if you use some kind of inventory tracking system along with barcodes to manage your outbound supply chain, the returns process may necessitate special requirements.  Per this report on reverse logistics (PDF):

Companies often mistakenly believe that outbound operations can also handle returns by running everything in reverse. However, reverse operations must manage a number of unique functions that are not included in outbound operations, e.g., collection of outdated, unwanted or damaged products as well as packaging. It is also the case that the more complex the product, the higher the percentage of returns due to several factors including more variables that can go wrong, greater numbers of unqualified operators, and often regulated end-of-life disposition.

In other words, your entire returns process must be evaluated and requirements taken into account when you set up a barcode system, if you expect it to address returns.

So if barcodes aligned with POS systems and/or inventory management systems make a cost-effective solution to help save money from returns, then what do you need for a system?  Per the report “Taking Stock of Your Inventory,” a barcode system is straightforward:

Using barcodes, inventory control software tracks by an item number. While this is generally a number you create for an inventory item, it also can be the item’s existing product or UPC number. The software also can track inventory items by serial number, lot number, date code, and pallet. Items can be monitored on a PC or mobile device. * * *  Inventory solutions should empower your business to be proactive, current and accurate.

Generally speaking you will need some kind of software to manage the inventory; barcode design and labeling software; printers capable of printing barcode labels; and  scanners to scan barcodes on returns. For more on what is required, along with helpful resources, see:  Guide to Using Barcodes in Your Business.

Bottom line: many businesses, from retail to manufacturing, can benefit from barcode systems to manage inventory.  To handle returns and avoid margin erosion due to the cost of returns, make sure your barcode system is designed specifically to help manage returns. A business analyst or similar person can evaluate your internal processes to make sure that the returns process is mapped out and addressed in any technology implementation.


Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

4 Reactions
  1. Andy @ FirstFound

    Yet more proof for adding as much tracking and analytics technology as you can to your supply chain!

    Great post

  2. As an experienced purchaser and a guy interested in logistics and supply chain management, I have to read these different whitepapers. Does UPS have a special section on this topic?