Reverse logistics is one of the most difficult parts of a business for many retail companies. On the one hand, offering the ability to return items can significantly increase customer satisfaction and the chances that someone will shop with you. On the other hand, it can be a drain on your profits to constantly have to accept old inventory and try to decide what to do with it.
For the software side of this topic, see returns management system.
The right reverse logistics software lets you keep customers satisfied without giving up profit. The hard part is convincing your C-suite that it is a good investment. Here is how to show them the value.
1: Show the Business Impact
Reverse logistics is more than just accepting returns, and for many businesses it has an impact in several operational areas. If you’re trying to convince your CIO or COO that they should invest in reverse logistics software, show them how many departments are in the reverse logistics chain:
- Customer care
- Marketing
- Shipping & receiving
- Warranties & repairs
- Inventory management
- Restocking
- Warehousing
- Recycling & disposal
2: Track and Analyze KPIs Around Reverse Logistics
Another way to show the value of a reverse logistics platform is to track data on your current returns process. With the data you can define the inefficiencies, which makes the case for software to track and manage it all. Measure things like:
- Returned goods as a percent of total sales
- Year-over-year growth in returns or warranty claims
- Percentage of fraudulent returns
- Time from return initiation until final disposition
- Percent of returned items that are resold (at original price or at a discount)
3: Discuss the True Costs of Poor Reverse Logistics
One of the most obvious costs of a poorly managed reverse logistics process is the inability to get items back on the shelf for resale quickly. The longer it takes you to get a sellable item back online or on store shelves, the more likely you will have to discount the price or will not be able to sell it. But there are other costs, including:
- Warehouse and storage space for returned items that are collected and never leave the warehouse again (for resale, recycling, etc.)
- Lost profit due to discounting items that could have been resold if the returns were done sooner
- Recycling or disposal costs
- Excess staffing to handle returns processes that could be automated
- Lack of tracking and data analysis capabilities to identify frequently returned items or common reasons for returns that you could address earlier in the supply chain to avoid the return entirely
Which reverse logistics reports does a CFO need?
1: Sales and return volume by product
One of the key metrics that all CFOs should be tracking in terms of reverse logistics is the most basic: which products are being returned, and in what volume? Knowing these metrics can help you identify the costliest products so you can work with others throughout your organization to:
- Remove low-performing or high-return products
- Identify better strategies for marketing and sales to reduce returns
- Renegotiate manufacturer or vendor contracts to return defective or low-quality items and avoid taking a total loss
2: Disposition cycle times
The longer a product remains in your inventory, the more its value declines. Many companies understand this in terms of the forward logistics process and create inventory rules to ensure that items are appropriately moved off the shelves to avoid becoming obsolete. Slow-moving inventory is eventually discounted to get it out of your warehouse or store, since you know that holding onto it only costs money as the value goes down. Reverse logistics is no different. Shortening the time you keep returned items in your system, reducing unnecessary touches, and speeding up its disposition (either as a clearance sale item, return to vendor, or disposal) can help you minimize reverse logistics costs. Identifying average disposition time on returned items can help you locate inefficiencies and get these items out of your system sooner.
3: Other product disposition metrics
There are several items to measure in terms of product disposition, including:
- Percent of products reclaimed and resold
- Percent of costs recovered in resale
- Volume of products that can be recycled
- Products that must be disposed in landfills or other waste facilities
- Per-item handling costs on returns
4: Freight and shipping costs
Returns are a normal part of doing business, so you need to know how much it costs you to ship items out to your customers, and also to have them shipped back. Offering free or discounted returns shipping can help boost sales, as multiple studies show that free returns can lead to higher consumer confidence and more willingness to buy, but they come at a cost to your bottom line. For companies offering free or discounted returns, tracking those costs is essential.
Request a Demo
If you still need help convincing your C-suite that it’s time to invest in reverse logistics software, contact ReverseLogix to schedule a demo and let us show them.
Choosing a returns management system
Five factors that decide whether a returns platform works in practice.
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