RL Magazine
Edition 43
Returning Thoughts: Using Reverse Logistics Metrics to Improve Operations
by Paul Rupnow

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Developing Reverse Logistics metrics to manage and improve your Reverse Logistics operations is an essential strategy for both Original Equipment Manufacturers (“OEM”) and for third party Reverse Logistics service providers (“3PSP”). Developing a framework to define and monitor your Reverse Logistics metrics will help you measure and monitor your operations and should result in significant improvements, cost savings and higher value recovery on your returned items.

Reverse Logistics Key Performance Indicators (“KPI”s) can be used to monitor performance and benchmark performance improvements. Develop KPIs by analyzing the key operational areas of your Reverse Logistics, such as: Customer Satisfaction, Financial Performance, Manufacturing (e.g. Returns Processing and Refurbishment), Transportation and Warehousing.

A Sample Reverse Logistics Performance Management Framework

Reverse Logistics Key Performance Indicators (KPIs)

Within each operational area, key performance indicators can be established. Some sample indicators are outlined below as a starting point to develop an outline specific to your requirements. In addition you may want to include the indicators outlined with your customers in your Service Level Agreements (SLA’s):

Financial Performance

  1. Recovery Rate on Returned Assets
  2. Processing Cost Per Return
  3. Repair Cost per Return
  4. Credits issued for Returns
  5. Warranty Rate
  6. Warranty Allowance
  7. Warranty Expense
  8. Year over Year change in Warranty Expense
Customer Satisfaction
  1. Return Rate (Defect and Non-Defect/No Problem Found)
  2. Order Fill Rate on RMAs
  3. Transit Time
  4. Backorder on RMAs
  5. Customer Order Promised Cycle Time
  6. Time to Process Credit
  7. Time to Process a Warranty Claim
  1. Inbound Freight cost per unit shipped
  2. Outbound Freight cost per unit shipped
  3. On Time Pickups
  4. On Time Deliveries
  1. Number of Inventory Turns (Unprocessed, Refurbished Goods, Work In Process, Goods Awaiting Parts)
  2. Replacement Inventory Months of Supply
  3. Parts Inventory Months of Supply
  1. Manufacturing Cycle Time (Receipt to Refurbishment)
  2. Defect Rate
  3. Scrap Rate
  4. No Trouble Found Rate
  5. Value recovered per returned item

Use these examples to develop your metrics and use a framework like the one outlined above to build your data tools for Reverse Logistics success. Monitor them daily, weekly or monthly as required. Compare your metrics with others in the Reverse Logistics industry.

Good Luck!

Paul Rupnow

Paul Rupnow - Director, Reverse Logistics Systems, Andlor Logistics Systems Inc.
(604) 687-1130

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