Retail professionals looking at reverse logistics metrics

Reverse Logistics: 5 Numbers You Should Track

Is your company maximizing the potential of its returns data? Managing returns isn’t a top five priority for 33% of retailers, according to a study from McKinsey & Co., and 25% of retailers that do track reverse logistics metrics don’t do so efficiently. These industry-wide mistakes cost retailers billions annually.

Reverse logistics metrics give retailers the data they need to quantify returns and disposition processes. Tracking five key metrics—return volume, percent of costs, condition of returned products, financial value, and errors—can help retailers identify missed opportunities and areas for improvement.

What is return volume?

Think of product volume as the number of units returned by your customers and then:

  • Resold 
  • Reused 
  • Recycled
  • Refurbished

As a metric, return volume allows you to understand where you’re losing money, how you’re salvaging some revenue (via resale), and flag these issues (product performance, durability, material quality, detail page inaccuracies, etc.) that are leading to higher return rates. 

Why return volume matters

As ecommerce continues to garner more of the total retail market, return volume is also increasing. Customers returned 16.6% of the total merchandise purchased in 2021, a 56% jump from the average return rate of 10.6% in 2020. Comparing your company’s return volume against the industry average can help you determine if your reverse logistics process is working.

Return volume checklist

  • Review product descriptions and imagery for accuracy
  • Add incentives for faster returns and customer loyalty to your return policy
  • Evaluate the feasibility of adding more 3PL logistics checkpoints for faster processing

What is the percent of supply chain cost?

  1. Do you know the cost of reselling, refurbishing, reusing, and recycling your products?
  1. And do you know your supply chain cost?

If you do, divide “A” by “B” to arrive at your percent of supply chain cost. 

Reverse logistics as part of the supply chain—a diagram

Why percent of supply chain cost matters in reverse logistics 

Understanding the costs associated with resale/refurbish/reuse/recycle can help you measure the cost-effectiveness of each possible action. For example, if refurbishing an item for resale yields lower margins than redirecting the item to an outlet store, you can increase your profits by skipping refurbishment. 

Percent of supply chain cost checklist

  • Determine the percentage each return disposition costs relevant to the total cost of returns 
  • Calculate the percent of expenses to be recovered by item

What is return condition?

Put plainly, it’s the condition of a returned product, as well as the process of evaluating that product’s condition. Products returned in good condition are immediately ready for resale while those that aren’t generally incur some level of refurbishment cost. 

Shattered iPhone representing mistake cost in reverse logistics

Why return condition matters in reverse logistics 

Retailers aren’t stuck with just one post-purchase path for merchandise. Intelligent dispositioning allows retailers to create different rules for different categories of product returns, even redirecting items to alternative sales channels. 

Keep in mind that some categories of products—regardless of value—fare better in the shipping process. (For example, flat screen TVs are prone to breakage in shipping.) Tracking return condition data helps retailers make long-term decisions about the most profitable channel for a category of products.

Return condition checklist

  • Examine the percentage of items sent to each sales channel, and whether the retailer is making a profit
  • Segment categories of products when evaluating return condition
  • Assign a value for the return condition, like a 1 to 5 scale, to determine condition scores for each category
  • Create intelligent dispositioning rules according to product categories to recapture more of the value of your returns

What is economic value?

In reverse logistics, every action taken or not taken has economic value. That value can be positive or it can be negative, it all depends. For example, recycling returned products might incur short-term costs that hurt economic value. But the costs of investing in sustainability might be offset by positive PR for investing in sustainability, which leads to lower CAC, increased LTV, etc., boosting economic value. 

Why economic value matters in reverse logistics 

Simply stated, you can’t maximize profitability if you don’t mitigate waste, and you can’t mitigate waste if you don’t understand the fiscal impact of every reverse logistics decision you make. 

Economic value checklist

  • Identify each step of your return process costs—don’t forget recycling or disposal for unsold returns
  • Explore alternatives that yield higher profits. For example, create rules that trigger a  keep-the-item option for items that cannot recover return shipping and processing costs. 

What is mistake cost?

Manufacturing defects, inaccurate product listings, poor packaging, and delivery problems—these are some of the items that comprise mistake cost. Using mistake cost, you can track the costly errors made by manufacturers, retailers, 3PLs, and couriers makes that lead to product returns. 

Broken nails representing mistake cost in production

Why mistake cost matters in reverse logistics 

Retailers can’t correct their most frequent errors if they don’t know what those errors are. Tracking delivery variances and detailed reasons for returns helps retailers adapt to customer feedback, minimize returns, and maximize customer satisfaction.

Mistake cost checklist

  • Solicit detailed reasons for every return, including options like, “Item not as described,” “Not satisfied with quality,” “Item arrived damaged,” and “Item arrived late”
  • Calculate the percentage of returns associated with each “error” reason
  • Considering updating descriptions, or evaluating contracts with vendors that have recurring errors

In closing…

While 83% of retailers agree that returns are a concern for profitability, only 66% have a strategy to improve the economics of returns. 

Narvar’s expertise in ecommerce, supply chain management, customer care, and machine learning, gives retailers the intelligent data they need to recover more value from returns. Schedule a demo today to learn how Narvar can help you make the most of your reverse logistics data.

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