The modern supply chain is built on the premise of applied data and strategic performance measurement. As reported by Trimble, a well-thought-out strategy for tracking performance through reverse logistics KPIs allows organizations to reduce administrative costs, shorten cycle times, reduce TCO, increase customer service, and derive more value from returns management. Unfortunately, figuring out which KPIs should be tracked is a completely different story. The first step to any KPI creation is ensuring they follow the industry’s best practice of creating SMART figures. As further explained by Logistics Bureau, “supply chain and logistics KPIs need to be SMART—Specific, Measurable, Achievable, Relevant, and Time-phased—but […] don’t have too many. Also, ensure they “tie in with goals and objectives.” So, shippers should start by tracking these five fundamental reverse logistics KPIs for managing returns.
The Supply Chain Trends to Know in 2020
1. Rate of Return
Up to 30% of all e-commerce purchases are returned, but actual return rates vary widely and depend on the product, company, lifespan of the item, and customer preferences. Moreover, simply knowing the total rate of return is not enough to provide much insight. Instead, any rate of return should have drill-down capability to allow companies to understand why returns are increasing or changing and what needs to happen to bring returns under control.
2. The No Fault Found Rate
No fault found describes the incidence where a return occurs without any explanation. These returns have zero defects and can be immediately repurposed or resold. Resale of such items can go a long way to offset unnecessary returns expenses, primarily shipping for returns. Of course, it’s important to reduce the rate of no fault returns by ensuring customers know what they are buying, providing detailed information, and keeping everyone apprised of the return policy. Essentially, the no fault found rate reverse logistics KPIs also can help your team with refining marketing materials to reduce returns rates too.
3. Time That Passes Between Defect Detection to Correction
After diagnosing a problem with an item in need of repair or refurbishment, tracking the time between diagnosis and correction is another core reverse logistics KPI to track. Time is money, and it applies to figuring out what’s wrong with returned items as well. If staff spend too long trying to figure out what is wrong or why a customer returned an item, the total cost of returns management increases. As a result, shippers should focus on keeping this KPI as short as possible. Of course, collecting more information about why a customer initiated a return in the first place is the easiest way to avoid uncertainty and address the need immediately.
4. The Total Cost of Repair or Refurbishment
When an item requires repair or refurbishment, it will carry a higher cost of manufacturing than originally intended. However, the total cost of the repair should still be below the replacement value. When the figure begins to surpass full replacement value, the real problems begin to arise. In this case, it is time to liquidate or destroy the item in favor of cutting losses before they are too great.
This KPI has another implication. As total cost of repair increases across all returns, it indicates possible overlooked defects or issues that are giving customers a false sense of security and expectation for the product. In other words, a miscommunication and unrealistic expectation are created that cannot live up to reality in the transaction. So, the best option when this KPI begins to increase is to review the process for repair and identify defects now in the manufacturing cycle before they are sold to customers—eliminating the costs of sending an item back for repair after the sale.
5. Bounce Rate
The bounce rate describes the incidence of returns that occur more than once for a given item. This usually indicates either an undetected fault within the product, irreparable damage to a product, or the need for future investigation. In case of electronics or other appliances, it may also indicate possible issues that would necessitate a recall to avoid other issues with similar items down the line. As the bounce rate increases, risk increases to the company. So, by keeping track of the bounce rate, using technology to aggregate data and understand returns trends, companies can effectively determine which products might need to be eliminated from the SKU lineup too.
Know the Core Reverse Logistics KPIs to Kickstart Your Returns Management Strategy
There are countless reverse logistics KPIs that companies can track to manage performance and keep returns under control. Of course, each company can further add more reverse logistics KPIs to refine the list and better manage returns by exception. However, some opt to fully outsource the process and avoid the issue entirely, recapturing a percentage of the refunded cost in the form of payments from the third-party.