Reverse Logistics is an absolute must for any business that has a returns policy. If you want the most cost-effective returns process, then you need to have key performance indicators (KPIs) in place to measure your Reverse Logistics. With the data, you obtain you can better monitor your returned items and take the necessary action to mitigate losses and get the highest value from the items.
The KPIs required for Reverse Logistics will vary slightly from one industry to another, but some indicators remain standard across the board. Developing and implementing KPIs will significantly help in improving overall operations and cost savings on the returns process. Each area of operations will have its own KPI and it is by examining every area of operations that the KPIs are developed.
The KPI:s for Reverse Logistics
Here are some of the main KPIs that most industries can use to monitor the returns process:
Percentage of returned or exchanged items/percentage of bought items: An estimated 30% of all products bought online are returned. This percentage will change from one company to another and between different products and having a metric in place to measure it is important.
The cost per return or exchange: Several costs are involved in the returns process including the reverse pick up and delivery, inspection and sorting, refund and so on. A clear indicator is required to know just how much is spent per returned or exchanged item. In the case of exchanged items, the additional shipping costs also have to be considered.
The no fault found rate: The no fault found rate is the percentage of return items that have no defects. These items are easier to put back in the system and sell as unboxed or like-new items. Resale of the items can help to defray costs to some extent. Surveys have found that almost half of all returned products can be resold. However, these stats are also subject to the item being returned and each company needs to measure their own no fault found and resale rate.
Time is taken for defect detection to correction: Time is money and the longer it takes for a defect detection to correction to take place, the greater the losses. To be able to fully understand where costs can be saved the defect detection to correction rate needs to be monitored and efforts made to keep this time period as short as possible.
The total cost of repair/refurbishment: Another KPI that needs to be in place is the cost of each repair or refurbishment of returned products. If these costs are high, then there will be losses in the long run. Keeping track of the costs is the first step to finding methods of reducing the overall repair and refurbishment costs.
Bounce rate: The bounce rate is the percentage of items that are returned a second time. This KPI could indicate a need to reassess the product and do what is necessary to prevent a high bounce rate.
Scrap rate: The scrap rate is the percentage of returned products that have to be disposed of or used as scrap. The higher the scrap rate, the greater the cost to the company. As far as possible companies need to try and keep the scrap rate as low as possible.
Turn-around time from customer request to resolution: The whole purpose of a returns process is to improve the customer experience so that they come back time and again. 92% of customers will buy from an e-commerce site again if they can avail of hassle-free returns experience. A big component of a hassle-free return is a quick turn-around time (TAT). By having a KPI to monitor TAT and keeping customers satisfied, the repeat business could play a big role in balancing out the costs of the returns.
The KPIs mentioned here for Reverse Logistics can be assisted by new technologies and logistics solutions that can help collect and analyze data. With the results, the maximum value from returned products can be obtained.