Reverse logistics isn’t a simple process, but for companies that are selling products to customers it’s an essential part of your business. Like any business process, it’s critical that you take the time to track and analyze specific metrics around reverse logistics so you can improve the process and reduce costs. Whether you are already tracking them in some way or not, here are some key ones you need to be keeping an eye on in your business.
Measure the Financial Impact of Reverse Logistics
Beyond just the total cost of returns—which is an important metric—there are other things you should be tracking to identify the root cause of returns, disposition methods, and more. You can get this information from:
- Cycle time: how long does it take for an item to get through the reverse logistics process to its final disposition destination? Track this metric separately for items that can be resold, returned to vendor, recycled, or thrown away so you can figure out how long each one takes. The shorter you can get product from return to disposition, the less it costs your business.
- Total product reclaimed and resold: reselling items that are returned, even if it’s done at a discount, offers an opportunity to make some money and recoup some or all of the COGS. To get a sense of how much of your product can be resold, track this metric.
- Value from resale: in addition to the metric above, also track the value of the products that you can resell. Determine if you are making back at least your costs, plus any added profit.
- Per-item handling costs: every time someone touches a product in your returns process there is a cost. It’s important to calculate exactly what that cost is, broken down as much as possible into departments or other metrics, so you can identify areas where you can reduce costs whenever possible.
- Total product costs: you are likely already tracking the cost of goods sold, but in order to get a true sense of the cost to your business you need to have a “total cost of ownership” metric that includes COGS, initial shipping, returns processing, return shipping, and disposition costs minus any money you can get for resale or disposal (such as RTV).
- Waste, energy, and recycling metrics: if your company is looking at sustainability efforts, tracking these three metrics is essential. Identify how much of your product can be recycled, how much is sent to landfills or incinerated, how far each product must travel in the returns process, and how much energy is consumed in returns.
Knowing this information can help you improve your product offerings, create better online listings, choose higher quality vendors (if you experience a high volume of returns for errors), or improve the returns process.