What Is Return to Vendor? RTV Meaning & Process

Return to vendor (RTV) is the process by which companies return purchased goods to suppliers.

A high volume of returns adds extra costs and negatively affects your productivity. Couple that with an inefficient RTV process, and soon you’ll be looking at thin profit margins and an opaque supply chain.

When I was an inventory manager, managing returns was an integral part of my job.

But it wasn’t until I launched my ecommerce store in 2022 that I learned the real danger of an inadequate RTV process. The costs of returning items weren’t accounted for in my budget, and I was forced to increase my prices to cover the loss—which resulted in fewer sales for high-value goods.

In this article, I’ll explain what RTV means as it relates to a healthy supply chain and walk you through the various steps that comprise an effective return-to-vendor process.

Return to Vendor (RTV) meaning

There are several scenarios where an RTV may be required:

Return to vendor is an important part of the reverse logistics process. Without an optimized RTV process in place, the associated costs of managing returns can hurt your bottom line.

After implementing an effective return-to-vendor process in my business, I managed to prevent a lot of unnecessary headaches. It also made my supplier relationships stronger, as we now have a shared understanding of quality expectations and return timeframes.

Understanding the RTV process

The RTV process is triggered when an item has been identified as needing to be returned.

This process is made up of four main steps:

Let’s quickly cover what’s involved at each step.

To initiate the return to vendor process, the buyer contacts the supplier about the issue (unless an automated RTV agreement is in place where communication isn’t required).

At this stage, the vendor may choose to approve or reject the return before it is sent.

In some cases, a return authorization—also known as a return merchandise authorization (RMA)—may be generated by the supplier. This is a document that allows the buyer to provide details about the reason for the return and assign a number to the return case.

Goods are then packed by the buyer and returned to the vendor. Depending on the supplier agreement in place, a return shipping label may be provided by the vendor so the buyer does not have to cover the costs of shipping returns.

If an RMA exists, this document is often affixed to the package before it’s shipped to the vendor.

When I was an inventory manager for Pacific Yacht Systems, a boat electronics distributor based in Canada, RMAs were assigned case numbers. Rather than print an RMA document and attach it to each shipment, I only needed to write the RMA number on the outside of the package. 

The vendor’s receiving department could then cross-reference the RMA number in their system to quickly determine which case it was related to.

Once the vendor receives the return, they will assess the goods and decide if they meet the criteria detailed in their returns policy.

If a vendor’s policy states, for example, that unwanted and non-defective goods must be returned in their original packaging, then the assessment will involve confirming the return has arrived as it was originally delivered.

After assessing the return, the vendor will decide on an appropriate resolution and communicate it to the buyer. 

Common resolutions include issuing a refund, a replacement, or vendor credit. In the case of goods under warranty, the resolution may be to repair the item and ship it back to the buyer.

When the return is fully resolved, the vendor and the buyer will close the case.

Why a good RTV process is essential in supply chain management

The efficiency of your return-to-vendor process contributes to the effectiveness of your supply chain operations. Additional costs like restocking and shipping fees can dig at your profit margins. While poor returns management on the supplier side leads to lower customer satisfaction.

A recent survey by returns management software provider, Loop, highlights a rise in returns fraud in the global retail industry—with 90% of affected retailers reporting a “significant increase” in fraud. This trend emphasizes the importance of having an efficient, well-documented RTV process in place.

5 benefits of improving your RTV process:

Let’s dive a little deeper into these benefits.

An effective RTV process keeps all parties happy, meaning the buyer is less likely to look for a replacement vendor and the vendor can manage returns quickly and effectively.

Return to vendor enables retailers and wholesalers to return overstocked items, freeing up space in the warehouse for high-demand goods and allowing them to respond quickly to demand changes.

A good RTV process ensures customers receive high-quality products and allows the buying business to maintain optimal stock levels for items in high demand. This enhances brand trust and can encourage repeat purchases.

The RTV reporting process acts as a feedback loop for suppliers, allowing them to monitor and improve product quality while enforcing supplier accountability.

As research company McKinsey & Company puts it:

Freeing up inventory space with a return-to-vendor process that accepts returns for slow-moving items means fewer holding costs at the product level.

Similarly, a good RTV system supports cost-effective shipping of returns, minimizing financial losses and bolstering your profit margins.

RTV costs and considerations

To accurately measure profitability and make the right decisions around pricing, marketing, and offerings you must understand all of the costs associated with selling goods.

RTVs can add costs to your operations that may be unaccounted for in your financial projections, resulting in lower margins than anticipated. They should, therefore, be considered early on.

Common types of RTV costs include:

It pays to track and analyze your RTV costs so that you can build more accurate forecasts.

Read more: What are Green Returns & Why Do They Matter

RTV processes: How to manage your returns

RTV processes are the workflows that define how you manage vendor returns. By optimizing each step in the return-to-vendor process, you can establish a more cost-effective returns management system.

Let’s look at the most common RTV processes and how they work.

When an item is identified as needing to be returned, it should be separated from the rest of your stock to initiate the RTV. A quality check may be required, and the reason for the return should be communicated to the supplier.

Several pieces of documentation may be needed, including:

To facilitate streamlined returns management, establish a system for return authorization with your vendors. This process usually involves vendor approval, assigning an RMA number, and creating a digital record for the return.

Ensure any critical information is relayed through the RMA, including product details, the reason for the return, and the quantity of returning merchandise.

If applicable, request a return shipping label from the vendor before shipping the item.

Some supplier contracts may outline specific requirements to qualify goods for free shipping. For example, a vendor may provide return shipping labels for items that are damaged, incorrect, or defective, but require the buyer to cover shipping costs for any overstocked or unwanted goods.

Once returns have been packed and labeled, organize a carrier to deliver the goods back to the seller. To ensure effective tracking of RTV shipments:

A critical step in the return-to-vendor process is the updating of inventory records as item statuses change.

When an item is set aside to be returned, update your stock levels by subtracting the relevant quantity from your stock-on-hand value. You’ll also need to update any internal RTV documentation to reflect where goods sit within the returns process (in stock, in transit, or with the supplier).

This part of the RTV process is important because inaccurate inventory records can lead to stockouts and affect the accuracy of your financial reporting.

This is the stage where goods are assessed by the vendor and an outcome is determined based on the assessment.

Depending on this outcome, resolution processing may also include:

Once an RTV has been resolved, any critical information about the return should be recorded to better understand your supply chain and identify inefficiencies in the RTV process.

To improve how returns are managed and reduce the costs to your business, implement a system for reporting on RTVs.

Monitor how regularly goods need to be returned and look for trends that can inform areas of improvement in your RTV processes. Provide regular feedback to your vendors to improve supply chain transparency and reduce the total number of returns.

For the best results, allocate a specific time of the week or month to analyze RTV data.

Optimizing RTV: 5 strategies for improving your vendor returns process

Improving your vendor return process opens the door to vital risk mitigation and cost reduction.

In business, nothing is ever fixed. What works best today might not meet tomorrow’s standards—just think of how the digital revolution has changed and shaped customer communications over the years. 

To ensure your returns management system is always up to today’s standards, establish a system of continuous monitoring and improvement of RTV processes.

Let’s take a look at some strategies you can use to improve your RTV processes.

Agree on clear policies for managing the return-to-vendor process with your vendors to ensure a seamless returns process. Your RTV policies should dictate:

If you’re regularly returning slow-moving or overstocked items, it can be beneficial to consolidate non-urgent returns to save on shipping costs.

Calculate the cost savings of opting for bulk shipments of returns over sending them individually. Subtract any additional fees, such as extra holding costs, to find the optimal volume of returns per shipment.

It’s important to note that consolidating RTVs isn’t always the right approach. If goods are under warranty, for example, they may need to be sent back immediately to ensure they arrive before the warranty period expires.

You can achieve greater levels of RTV efficiency by using automated systems for managing various steps in the returns process.

Some examples include:

• Inventory management software.
  Update and check inventory levels in real time with minimal manual data entry while improving operational efficiency.
• Reverse logistics software.
  Automatically generate RMA numbers, track defective items, and maintain records of returns.
• Warehouse management systems.
  Optimize warehouse space and streamline quality checking and restocking processes.
• Business intelligence and reporting tools.
  Track returns metrics and RTV costs over time to identify trends and areas for improvement.

When investing in automated systems, consider the costs and time savings to determine if implementing a new tool will provide a positive return on investment.

The earlier you can identify goods that need to be returned, the lower your risk of reselling defective or broken products. An effective quality control process at the receiving stage helps prevent bad products from entering the sales or production pipeline.

Ensure clear, documented quality standards for every item are communicated to your suppliers.

Develop standard operating procedures (SOPs) for inspecting and approving goods as they arrive. This may involve a visual inspection, randomized sampling, and other product-specific measures.

Digital tools, such as barcode scanners and RFID tags, can help you verify products and quantities faster and more accurately to spot order mistakes as soon as they arrive.

Reverse logistics—the process of moving goods backward through the supply chain—governs how efficiently RTVs are managed.

Here are three simple ways to optimize your reverse logistics process:

1. Improve product traceability.
   Use methods like barcodes, RFID tags, serial numbers, and lot numbers to enhance the visibility of goods in the supply chain.
2. Leverage returns data for decision-making.
   Analyze trends in your return process to identify frequently returned items and suppliers with potential quality control issues.
3. Partner with a third-party logistics provider (3PL).
   If managing returns proves challenging, consider outsourcing reverse logistics to experts with dedicated infrastructure and experience.

Above anything else, the most effective strategy I’ve found for ensuring an efficient reverse logistics process is actually having a process in place. 

Ensure there are detailed steps for managing all types of returns and that they’re clearly communicated to your team. Better yet, have them written down and accessible in a best-practice SOP document.

Streamline your RTV processes with Red Stag Fulfillment

Managing returns can be a lot of work. Whether we’re talking about customers returning goods to you or you returning goods to your suppliers, a good RTV process requires serious time and effort.

Red Stag Fulfillment helps businesses like yours streamline RTVs and establish a thorough quality control process that minimizes the risk of bad products hitting the shelves.

Speak to one of our local experts today to learn more about partnering with Red Stag Fulfillment.