Across returns supply chains—a core component of reverse logistics—the need to improve performance has never been higher. Companies across the globe have taken note of the value of big data analytics in logistics and how tracking key performance indicators (KPIs) and core metrics can dramatically affect supply chain performance.
As explained by Performance Magazine, improvement measurement with reverse logistics metrics naturally offer big benefits to the supply chain, further shown in this graphic:
Shippers that wish to increase the recovery value in reverse logistics should start tracking these sustainability-indicative reverse logistics metrics now.
The volume and value of products resold, reused, or recycled is one of the top reverse logistics metrics to track. It is a percentage created by dividing the volume of resold products by the volume of total products sold. Additionally, using this metric to create a financial value percentage, companies can see whether reverse logistics improvements are contributing to higher company profitability. Meanwhile, it incentivizes the organization to implement and maintain sustainable reverse supply chain practices too.
Any strategy for measuring performance of reverse logistics must include a strong focus on the ability to reclaim and reuse materials. The percentage of materials recycled is only one of the possible reverse logistics metrics that indicate how sustainable supply chain truly is. Its calculation is also relatively simple; it is derived by dividing the volume of recycled materials by the total volume of materials received for reuse, reclamation, or destruction. As this metric increases, a supply chain achieves a higher level of sustainability.
While tracking recycled materials, it is important to also track the waste costs associated with disposal of components or items. This is especially true for electronics and items which fall under certain disposal guidelines, particularly those involving precious metals and potentially hazardous waste. Remember that the goal of all reverse logistics metrics is to increase efficiency and lower costs. Since added waste represents both a cost to the company for disposal and an environmental cost, tracking the waste costs can go a long way in building social responsibility and sustainability within the supply chain.
Identifying the total costs recovered through recycling, reuse, repair, and refurbishment within the lineup of reverse logistics metrics allows organizations to isolate possible barriers to recovery and create a more sustainable supply chain. The percentage of costs recovered carries added weight in reducing total losses associated with product recalls or items that did not sell by the appropriate date. Obviously, some items involving perishable foods may not be able to generate a recovery. However, electronics is another area of focus in reverse logistics that quickly loses shelf life. In these cases, companies may be able to recoup initial costs of purchasing products from manufacturers by liquidation efforts, recycling, and use of component parts in future electronics.
The total energy cost for handling returns might not seem like a large contributor to reverse logistics spend. However, reverse logistics metrics focus on uncovering the smallest of opportunities for improvement. Since energy costs are generally responsible for the next largest cost to the supply chain beyond traditional logistics costs, the total energy costs for handling returns must be tracked. Of course, it can be difficult to isolate the exact energy cost for each product. As a result, this metric is better monitored by having a set benchmark rate of energy use and attempting to keep the tracked energy level within a desirable range. Furthermore, the total energy costs should also include fuel surcharges, investments into hybrid tracks, use of renewable energy resources, and more. The opportunities to refine this metric are limitless.
Reverse logistics metrics help supply chain leaders understand the pros and cons of managing the reverse flow of products and how those materials are applied to recapture revenue and avoid excess waste. Shippers should start tracking the full set of reverse logistics metrics and the KPIs listed here today.
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