Point of no return: Arnold Lumber has found that clearly communicated special order return policies and a partnership approach result in a more profitable business with custom home builders

Prosales, July, 2005 by Joe Bousquin

When Arnold Lumber Co. realized that special order returns from custom home builders were eating into profits, the West Kiniston, R.I.--based pro dealer decided to tackle the issue head-on. The three-unit, $63 million operation instituted new safeguards and worked with its 84 percent custom home builder base to turn the problem around.

Like many pro dealers, Arnold Lumber did not always have a cut-and-dried understanding with its custom home building customers in terms of the costs and service issues involved in special order returns, which can mount quickly with the slightest imprecision in jobsite measurements for custom window packages and other special orders. "At one point, we had about a third of our special orders coming back to bite us," says company controller Paul Nadeau. "Now, we've minimized the errors in terms of overall dollar cost."

How'd they do it? By implementing new procedures for all special order placements and aggressively communicating these policies with customers. The first step came in the form of a letter sent out to customers in 2002 notifying them of a more stringent special order return policy at the company, including enforcement of 30-day invoicing, whether special order items had been picked up or not. Also, decisions for giving credit on special order returns over $500 would automatically be kicked upstairs to senior management. Other measures included taking a 50 percent deposit from walk-in customers without accounts and sending salespeople to jobsites to double-check contractors' measurements for accuracy.

The second step unfolded with a new customer "sign-off" requirement that Arnold started issuing for all special order requests. On a sheet clearly labeled "Special Order Sign-Off," customers need to confirm all specs, agree to Arnold's terms, and acknowledge that special orders are noncancelable and non-returnable, although Arnold still works with valued contractors on a case-by-case basis to accept some returns for a restocking fee ranging from 15 to 40 percent.

"We try to make it as black-and-white as we can, but you still have to play it on a case-by-case basis," says Arnold inside sales manager Denise Gabrielle. "'You have to evaluate the process overall, and ask, 'Is this a regular, ongoing problem with this customer?' If so, we'll play hardball with them. On the other hand, if it rarely happens and they made an honest mistake that's really going to hurt them, we try to credit their account as much as we can."

That give-and-take attitude rings true with Jeffrey Redmon, vice president of Redmon & Turnquist Construction, a West Greenwich, R.I.--based custom home builder and an Arnold customer for the past 12 years. "If we have a problem on a special order, they take care of anything that's not blatantly our fault," says Redmon. "But if it is our fault, we'll be the first to admit it."

Because returns cost Redmon money in terms of work delays, he likes Arnold's new policy of double-checking his measurements when he makes a special order. That was the case on a recent custom build, when an Arnold salesman came on site to size-up the space for some special order oak newel posts and balusters. "You try to keep mistakes to a minimum by having everybody look at it," says Redmon. "That way, there's less chance of a problem in the end."

Through the program, the company has had greater success communicating to custom contractors that special orders cannot simply be returned to manufacturer vendors, and customers now know up front that they'll have to bear some responsibility in the event a special order goes bad. "I wouldn't say our customers were unsympathetic to the problem before, but I think they assumed we were getting our money back on returns," Nadeau says. "It was one of those things where if we weren't complaining about it, neither were they."

The effort has resulted in a 45 to 55 percent reduction in special order return costs at the firm in the past three years, according to Nadeau. "We've gotten it to a much more manageable amount," he says. Even better, Arnold's program has reduced the number of special order returns overall even as business expanded and total special orders from custom home builders went up.

For Arnold Lumber, combating special order returns comes down to being direct with customers and bringing them on board as partners in the process. "I think it actually fortified our relationships with customers by saying, 'This is a special order, and neither of us is going to get our full dollar value back if we need to return it,'" Nadeau says. "It lets our customers know that together we can do better at controlling the cost of doing business." --Joe Bousquin is a Newcastle, Calif.--based freelance journalist.