Inefficient returns can hit your bottom line hard, even if your return rates are low. And only the cold, hard data will show you where things are going wrong.
We wrote this article covering the 4 major B2B returns metrics that are draining your P&L, so if you haven’t read that yet, it’s a good place to start to quantify the real financial impacts.
Once you understand those big-picture metrics, you can dig into these granular KPIs that help you spot the issues and fix them directly.
Most returns problems, from lost vendor credits to shipping to the wrong items, come down to process issues—rather than people issues.
Build better processes, and you’ll save on labor costs, reduce AR disputes, improve customer satisfaction, and recover more vendor credits, faster.
Of course, you’ve got to measure it to manage it, and that’s where these 7 KPIs come in. They’ll help you understand root causes and make a plan to fix things.
KPI #1: Return Processing Time (at Every Stage)
What it tells you: How long it takes to process a return at each stage, across the different departments and organizations.
Do returns get hung up in your Finance department? Warehousing? Vendor approvals? Somewhere else?
Why it matters: B2B returns span many departments, and it’s hard to identify who comes next in the chain of custody.
Approvals don’t always move in one direction either. Finance might kick it back to the CSR to get a serial number from the customer, and the customer could sit on it for weeks.
Without chain of custody visibility, you end up with:
- AR disputes when you can’t credit customers fast enough
- Profit losses when you pay more in customer credits than you get back in vendor credits
- Cash Flow problems when you credit the customer while the vendor waits to credit you
- Extra labor costs caused by inefficiency and rework
How to act: Once you know what’s happening at each stage of the process, you can drill down even deeper.
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For example, you can filter approval time by vendor, and figure out what’s slowing things down for your worst offenders. Are they slow to reply to your emails? Does your team struggle to get them the information they need?
Of course, that’s just one example. You can filter the data in all sorts of ways (such as approval time by customer), performing root cause analysis at every level.
KPI #2: Returns by (Detailed) Reason Code
What it tells you: ERPs list general reason codes, but they don’t go very deep. For example, an “Ordered Wrong Product” won’t tell you if your team shipped the wrong product, if the customer chose the wrong product, or if the product description was off.
Why it matters: A detailed reason code tells an important story. First, it tells your team how they should handle each return, such as rushing to replace a mission-critical component that the customer needs to run their business.
Second, it tells you a great deal about your operations and what to improve (shipping errors, defective products, etc.). You can also cross-reference reason codes with vendors, products, pickers, takers, etc.
How to act: Stop relying on your ERP for case management. Use a case management solution with full ERP integration instead, where you can build out those detailed reason codes that go several layers deep.
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KPI #3: Return Rates by Customer
What it tells you: Moving beyond the total volume of returns, you can see the percentage of orders returned, the ratio of revenue to customer credits, and more.
Why it matters: This KPI gives you a clear look at who your best (and worst) customers are. You can then rethink and renegotiate any relationships where it makes sense.
How to act: Identify customer relationships that are eating into your bottom line, and cross reference return rates with other factors, such as returns by product line.
KPI #4: Product Line Return Rates
What it tells you: This KPI helps you identify products with high return rates, which you can filter based on other factors, such as return reason codes, pickers, stock vs. non-stock returns, etc.
Why it matters: When you cross reference product line return rates with reason codes, for example, you can see whether the issue is related to product defects, an internal process (such as storing similar products right next to each other), or something else.
How to act: Use this information to shape your strategy and processes, such as selling products with lower defect rates or placing similar products on different shelves.
KPI #5: Return Rates by Vendor
What it tells you: Vendor return rate data includes the percentage of items returned by specific vendors, dollar amounts credited by vendors, and more.
Why it matters: Vendor data allows you to see which vendors have the highest return rates, which owe you outstanding vendor credits, and which give you vendor allowances that make up for the customer credits you’ve issued.
How to act: Decide which vendors are costing you more to work with and rethink your strategy and policies. Review any vendor return allowances as well, making sure you’re not losing money by paying more in customer credits.
KPI #6: Return Rate by Picker
What it tells you: Return rates associated with specific pickers in your warehouse.
Why it matters: Some warehouse employees will have higher return rates than others. If any of them are excessive, you’ll want to dig deeper and find the root causes.
How to act: Do some of your fastest pickers have the highest return rates? If so, you can coach them to move slower. Are some pickers overworked? Do others need extra training? When you’ve got the right data, you can help them improve.
KPI #7: Return Rate by Order Taker
What it tells you: Return rates by individual order takers, as well as return rates by automation software.
Why it matters: As with pickers, order takers may require extra training and guidance.
How to act: Investigate and find the root causes. Are some order takers allowing customers to over-buy products and ship back the ones they don’t use? Is your software outperforming human order takers? Once you have that information, you can build the right processes.
Do You Need Processes in Place Before Automating Things?
Conventional wisdom says you can’t automate a broken process, but B2B returns really are different, because you’ve got so many moving parts.
You can only get that data—the data that guides your process planning—by implementing the technology and the processes simultaneously. You’ll learn as you go, changing the processes over time as you get more data.
Now, what’s the right tech? You need case management software with full ERP integration to track the relevant data. We talk more about that here.
These 7 KPIs will show you where you’re struggling, both internally and externally.
You’ll spot inefficiencies and oversights within your business, along with customer and vendor issues. That visibility lets you build data-driven processes that will improve your bottom line.
Get the Data You Need with Continuum
Continuum doesn’t just help you manage returns—it lets you access the data you need to optimize your processes, fix your issues, and boost your profit margins.
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