Managing Customer Returns and RMAs Using Microsoft Dynamics AX

  • Written By: Scott Hamilton
  • Published On: March 6 2009



Microsoft Dynamics AX provides simple, straightforward solution approaches for managing customer returns and returned material authorization (RMAs). In particular, Dynamics AX employs the standard functionality for sales orders to support most RMA variations, thereby making it easier to implement for users already familiar with sales order processing. This second part of a two-part article explains how Dynamics AX supports variations in RMA processing. It contains some of the information in Dr. Hamilton’s new book Managing Your Supply Chain Using Microsoft Dynamics AX 2009.

An RMA provides the starting point for managing a customer return, as well as its replacement or repair, and its related accounting transactions. Each RMA is given a unique identifier by Dynamics AX and consists of a header and line items. The header indicates the customer and an optional reason code for the customer return. Each line item indicates the item, quantity, ship-to location, and expected receipt date for a customer return; it also indicates the credit amount and cost of the item. The line item information can be copied from a previously invoiced sales order, thereby copying the item’s original sales price and cost.

RMA processing builds on sales order functionality. Each RMA has an associated sales order (termed the returned order) for handling returns, and an optional second sales order (termed the replacement order) for handling replacements. Both sales orders have the same order number (but a different order type) which Dynamics AX links to the originating RMA number.

  • Returned Order. Every RMA has an associated sales order (with a sales order type of returned order) to only handle the arrival, receipt, and credit note for the returned item. Creation of an RMA automatically generates the associated returned order, which represents a mirror image of the RMA. Changes to the RMA information automatically changes information the returned order; you cannot directly maintain data on the returned order.

  • Replacement Order. An RMA can have a second associated sales order (with a sales order type of sales order) when a replacement must be shipped to the customer. This replacement order can be created immediately to support the immediate shipment of a replacement, or after the received material (for an RMA line item) has gone through arrival/inspection and receipt.

    This replacement order has all the functionality associated with normal sales orders. For example, you can configure a custom product as the replacement item; create a production order to repair a returned item; create a direct delivery purchase order for sending the replacement from a vendor; identify the replacement components of a manufactured item; and identify supplemental items that should be included with the replacement item.

Further explanation will employ the terms returned order and replacement order for these two sales orders associated with an RMA.

The major variations in RMA processing reflect the use of a replacement order, since you can handle an RMA without replacement, with immediate replacement, or with replacement based on disposition of the returned item. Additional variations reflect the disposition assigned to an RMA line item, such as credit, scrap, or return to customer. Figure 1 displays these three major RMA variations and the basic steps applicable to each variation.

DR Scott Hamilton
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With two of the major RMA variations (with immediate replacement and without replacement), each RMA can be assigned a disposition of credit only, credit, scrap, or return. Figure 1 displays these four applicable dispositions within a single box. The significance of each disposition is described below.

  • Credit Only. A Credit Only disposition indicates there will be no customer return for the RMA line item. This disposition can only be assigned prior to recording any return activity. You post a credit note for the RMA line item using the associated returned order.

  • Credit. The Credit disposition indicates the customer return will be placed in inventory and credited. You assign the disposition as part of recording arrival; it can be reassigned during an optional inspection step. You receive the customer return against the associated returned order, and subsequently post the credit note.

  • Scrap. The Scrap disposition indicates the customer return will be scrapped and credited. You assign the disposition as part of recording arrival; it can be reassigned during an optional inspection step. You receive the customer return against the associated returned order, and subsequently post the credit note.

  • Return. The Return disposition indicates the customer return will be placed in inventory, and then sent back to the vendor regardless of condition. You assign the disposition as part of recording arrival; it can be reassigned during an optional inspection step. After completing the arrival (or inspection) step, Dynamics AX automatically creates an extra line item on the RMA and the associated returned order, which will be used to send the item back to the customer. You receive the customer return against the associated returned order. And you can then post the credit note for the returned item, and post the shipment and invoice for sending the item back to the customer. The credit note and invoice can be handled separately or in the same document.

As the third major variation, an RMA can have delayed generation of a replacement order based on the disposition of a returned item. Figure 1 displays these two additional dispositions within a single box. The two dispositions involving replacement have the same basic steps, as illustrated in Figure 1 and explained below.

  • Replace and Scrap. The Replace and Scrap disposition indicates the customer return will be scrapped and credited, and a replacement order will be automatically created by the receipt transaction. You assign the disposition as part of recording arrival; it can be reassigned during an optional inspection step. You identify the replacement item for the RMA line item after completing arrival/inspection. And then you can then receive the customer return against the associated returned order; the receipt automatically generates the replacement order for the specified replacement item. You can then ship and invoice the replacement item. In addition, you post the credit note for the returned order.

  • Replace and Credit. The Replace and Credit disposition involves the same steps as a Replace and Scrap; the only difference is that the customer return will be placed into stock.

The basic steps may change slightly when you reassign a disposition code during the optional inspection step. For example, a scrap disposition on the arrival journal may be changed to a credit disposition (with no change in steps) or to a replace and scrap disposition (which requires additional steps). The inspection step also supports the recording of test results against predefined tests. The status of an RMA and its line items are updated automatically as you perform the basic steps. An RMA line item status, for example, initially has an awaiting status that changes to registered, quarantine, and received based on actual steps taken for the returned item.

Return patterns can be analyzed using several predefined reports and their report parameters. For example, the return volume report provides a frequency count of RMA reason codes, or of RMA line item disposition codes, in monthly increments over a specified time interval. The statistics ranking report created by Dynamics AX provides a ranking of customers or items based on frequency counts of RMAs over a specified time period. The return cycle time report calculates the elapsed days for handling RMAs (with a breakdown by reason code) or RMA line items (with a breakdown by disposition code) over a specified time interval.

Variations in RMA processing may stem from other issues, such as service agreements and intercompany trading (where customers and vendors represent sister companies).

  • Intercompany customer for an RMA returned item. Creation of the RMA (and its associated sales order for the returned item) will automatically create an intercompany purchase order within the database for the sister company. A second intercompany purchase order is also generated when you create a replacement order for the RMA.

  • Intercompany vendor for direct delivery of an RMA replacement item. A replacement order line item can involve a purchase from a vendor that represents a sister company, such as a direct delivery purchase order for sending the replacement item to the customer. Creation of the purchase order automatically creates an intercompany sales order within the database for the sister company.

  • Service agreements. Dynamics AX supports service agreements and service orders for maintaining and repairing items. The items being serviced may be at the customer site, or they may be returned to a repair facility.

The objective of this two-part article was to review the variations in customer returns and RMA processing, and summarize how Dynamics AX supports these variations. Each step in the RMA process typically involves variations, and the compounding effect of these variations in a multistep process can quickly lead to extremely complex business processes and ERP system functionality. Identifying RMA variations in a given company provides a starting point for determining what needs to be simplified and what needs to be modeled in an ERP system.

A key issue is whether standard ERP functionality can be simple, yet robust enough to handle common variations. A related issue is whether the simple model can be easily customized to handle unique variations. The solution approach embedded in Dynamics AX employs standard sales order functionality that can model most RMA variations. The customization capabilities can be used to support unique variations.

About the Author

Scott Hamilton consults and teaches globally on SCM and ERP issues. He authored Maximizing Your ERP System and previous books on Dynamics AX and NAV. Scott has won the rarely given Microsoft MVP Award for Dynamics AX, and Microsoft’s Excellence in Innovation Award. He can be reached at ScottHamiltonPhD@aol.com.

 
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