Green SCM and remanufacturing

In this blog, I talked about remanufacturing from a profit perspective, but never cleared the role of remanufacturing in supply chain context. This post will be about remanufacturing’s place in a more broader scope, in green supply chain management. I believe it will be helpful for the readers of this blog, if I cleared the function of remanufacturing in a green supply chain.

Green supply chains first emerged beacuse of sustainability concerns. It was not the “profit” view at the beginning, on the contrary, it was the pressure from environmental groups, the urge to keep up with the trend for building social capital and express corporate social responsibility- but the most important driver was the government legislations and regulations. When you search the web, you most probably find lots of articles on waste reduction by recycling or reducing packaging, energy conservation, etc... However, the real deal in green supply chains began when “reuse” came into the scene. In time, cost view transformed into profit view, but how?

Companies learned reuse of raw materials extracted from end-of-life products or they saw the potantial in reselling returned (in good condition) or defective products by remanufacturing, refurbishing or reconditioning them. Honestly, reuse was not the newest or the most innovative idea in business. The leasing businesses, which deal with life cycle management as a part of their core business did it for decades. However, for instance, companies in consumer goods industry seemed to stay precautious about reuse until recently.

Now, remanufacturing is a part of the bigger effort for keeping the supply chains green. As a process the term “remanufacture” refers to restoring a used product (or a component) to acceptable condition for resale. In a green supply chain context, remanufacturing is a production strategy whose goal is to recover the residual value of unused products. It has more value than recycling because it is not just about recreating a portion of raw materials, although it can do so. It can contribute to the bottom line of the supply chain by (1) keeping it green in a profitable way, (2) providing manufacturing and after sales services with parts extracted from non-usable products, (3) enabling company to gain from end-of-life products, which otherwise end up in disposal or recycling while it still has value in it (4) giving the company the opportunity to resell (and make profits from) the returned (good or defective) products.

Finally, remanufacturing in numbers. Mostly small and medium sized remanufacturing businesses have estimated sales of $53 billion per year and a remanufactured product can cost consumers 50 to 75 percent less than a new product (National Center for Remanufacturing and Resource Recovery, 2006). Besides remanufacturing industry’s remarkable economic consequences, it also has tremendous impact on energy conservation. Annual energy savings resulting from remanufacturing activities worldwide is 120 trillion Btu's, which equals the electricity generated by eight nuclear power plants.

Please check Best Practices in Green Supply Chain presentation by Taylor Wilkerson of LMI, and see how many places you can put reuse activities, especially remanufacturing.