I am trying to come up with a best practice when we have a Transfer Order fulfilled, but have issues in transit (product damaged, etc.). As a result, the carrier returned the defective product to our warehouse. The Item Fulfillment has the entire quantity marked as shipped and the Item Receipt shows partially received. Is there an equivalent to a Return Authorization for Sales Orders for Transfer Orders?

What are you doing with the product once it's returned?

I would plan on receiving it back in to the original location and then do an inventory adjustment to make it a loss

I guess I only see two options utilizing native functionality..

1) Receive inventory at Location B
2) Record Inventory Transfer to Location A (not a transfer order - just a straight transfer)
3) Record Inventory Adjustment at Location A

or

1) Lower Fulfillment amount from Location A
2) Lower Transfer Order amount
3) Record Inventory Adjustment at Location A

OK. I figured it would be one of these options

You could always create a "custom transaction" as an intermediary, but that's a bunch of work for not much gain.

agreed