The returns supply chain remains difficult to manage. In the age of e-commerce, that complexity only continues to grow. According to Jeff Ladner via Supply & Demand Chain Executive, the maintenance, repair, and operations materials costs comprise up to 15% of total operating costs. And the costs of poor asset information management can surpass 1.5% of sales revenues. As a result, more companies are looking to avoid the problem entirely, but that path is not always clear. In fact, let’s take a closer look at how tracking a few key metrics can make or break reverse freight management strategies and what reverse logistics companies can do about it.
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Failure to Track Reverse Logistics Companies Performance Data Leaves Money on the Table
Working with reverse logistics companies has become rather commonplace. It’s an opportunity to eliminate the full hassle of managing reverse logistics. However, every company with a brick-and-mortar location will inevitably incur in-person returns. Failure to manage these returns will contribute to higher reverse logistics costs, and even still, failure to manage the performance of reverse logistics partners will further lead to problems. As explained by Ladner:
“The one thing that these functional areas share is the MRO materials master and underlying data that keep company assets running smoothly. By neglecting inefficiencies in the MRO supply chain, business processes and foundational data, companies are compromising performance metrics. The most effective approach to MRO supply chain management includes promoting the global integration of structured master data and the metrics driving performance improvement.”
In-House Returns Still Require In-House Equipment
At the same time, the smaller companies that cannot devote the countless resources to manage returns and manage MRO will find themselves facing higher costs and lost opportunities for improvement. It’s not even solely small companies. National companies with limited experience in managing scalable logistics may be reliant on outdated processes, such as inefficiencies in sourcing food snack product shipping. While existing processes may work for the interim, the face-paced growth of e-commerce is turning the industry upside-down. As a result, more companies need to start thinking about whether to keep with the current reverse logistics strategy or outsource to reverse logistics companies.
Key Equipment Metrics to Track to Reduce Returns Management Costs
Part of the challenge in overcoming the high costs of reverse logistics lies in the volume of data created. Reverse logistics create just as much data as outbound logistics, and in some cases, this data may be even more invaluable as it could literally save lives.
For example, reverse logistics management and protocols are key to recall management too, which is a key aspect of a successful food logistics strategy. The right approach to managing reverse logistics companies must leverage these key metrics:
- Total maintenance costs. Total maintenance costs include tracking all costs to repair, upgrade, or otherwise manage a single piece of equipment, such as a forklift, dock door, or robot.
- Repair parts inventory value. It’s also important to track the total value of repair parts inventory for both repairing in-house equipment and repairing returns as well.
- Unplanned downtime total and percentage. When an asset goes down, it can disrupt entire warehouse operations. Know the total and percentage downtime values for all assets.
- Time to resolve machine disruptions. Managers should also track the time to resolution for machine downtime, helping companies track how quickly problems are corrected.
- Asset life ratio. The asset life ratio is a measure of the age and remaining useful life of an asset. As the value moves closer to 100%, the need for replacement increases.
- Overall asset utilization. As asset utilization decreases, it alludes to assets that do not earn their keep. While some assets should exist as reserve, the organization must focus on never having 100% utilization. In this case, there is little margin for error to handle a disruption or unplanned downtime.
Remember that the value created through recapture of returns is limited by the ability to keep returns process costs under control. If an organization is managing reverse logistics in-house or with manual processes, risk increases.Listen to “A Primer on Effective Freight Claims Management” on Spreaker.
Start Tracking Performance of Internal and External Reverse Logistics Companies Now
The volume of returns continues to grow, and as a result, the risk for higher asset utilization rates and lost opportunities to handle demand will increase. Supply chain leaders need to start working now to implement the right equipment and MRO metrics to monitor and manage MRO of reverse logistics. As distribution operations expand, the path to success in reverse logistics lies in having a scalable partner with a proven record of building successful logistics capabilities for businesses of all sizes.