Reverse Logistics costs and RoHS again

A series of articles in IndustryWeek features reverse logistics. I have talked about reverse logistics in my previous posts. It is, in fact, transportation and logistics of returned products for disposal or value recovery purposes. Sometimes, the term is used also to include remanufacturing, which is indeed disassembly, test, and rebuild processes to bring the product into like-new condition, creating unnecessary confusion.

Whichever term is used, reverse logistics has a considerable impact on the bottomline of the firm. Consumer goods firms feels the pressure of returns more than capital goods companies. On average, reverse logistics operations, as David Blanchard reports based on an Aberdeen Group research report, cost about 100 billion a year in collection, transportation, and disposal of returned products, and lost sales. This makes up on average 3.8% of manufacturer’s profits and 9% of all sales on average. Among all these costs, it seems that companies are able to reclaim 64.8% of initial value of the returned products. How they can extract the value of these returned products are not specified in the article, but there are many ways: selling as-is in the secondary channels, remanufacturing and selling like-new etc… You can check this previous post on different policies used in electronics industry.

By the way, an article by Richard Kubin published in Electronics Supply&Manufacturing provide the readers with a comprehensive yet easy-to-read review of RoHS in different countries. Please read the full article here.

"Caterpillar effect" in getting the word out

Last week Caterpillar’s stock buyback plan for the next five years got extensive coverage in financial websites, personal and professional blogs. I won’t be diving into details, however this article states that company’s bullish outlook is mainly driven by its remanufacturing business. Over the years, CAT has done a lot to improve its business using remanufacturing as a competitive edge, and in my opinion, CAT was very successful in doing so. CAT invested in organizational, financial, market-oriented improvements in remanufacturing. They actively pursued collaborations and investments in overseas to expand their market, they formed a separate Reman Division, and they announced buyback of 7.5 billion stocks over the next five years. They evoked great interest in different media outlets, but CAT's all these efforts also had a very positive effect in getting the word out for “remanufacturing” in general. You can read the article here. Our closing remark is from David Fried, the editor of Buyback Letter:

“Now, we have a new suggestion for a single word that is going to transform the way business is done in the future: remanufacturing. And the world’s largest remanufacturer is Caterpillar ."

Decision making in remanufacturing: The role of product complexity

Do you know how complex are your products? I mean: do they have technical content, do they have complex component interfaces (recall radical vs. incremental innovations). Set aside frequent vs. rare technological changes, which are urged by technological uncertainty, look inside the engineering of your product. Let's say they are complex, how does this complexity could affect your remanufacturing activities?

High technical & engineering content, complex component interfaces* and high systemic architectures** make products complex. This is not the most exhaustive list of variables that defines how complex your products are, but these variables relates with remanufacturing most: from the perspectives of disassemly, test, IP and re-assembly. Complexity in products impact remanufacturing practices in many ways.

First, increasing complexity in the products requires more skilled labor and know-how to disassembly, and test. Therefore, the effects of learning-by-doing become higly important and dependency on labor arises (see the discussion on human asset in this post). Second, product complexity creates a variety of transaction costs, such as the coordination costs between design and disassembly, and testing and remanufacturing. Imagine all these recurring coordination happening between you and many suppliers in charge of remanufacturing your product. And I’m not even touching the issue of IP content in the product and risk of leaks.

Therefore if you are remanufacturing highly complex products, you may want to capture the benefits of your investment in the skills needed for remanufacturing and reduce the costs of coordinating development and production of complex designs by performing remanufacturing activities in-house or vice versa. However, also be cautious: do consider other variables, do consider firm-. industry-specific factors, do care about the big picture of your remanufacturing operations.

*the way components and subsystems connects and interacts with each other to form the product.

**systemic architecture means product is comprised of many subsystems and components.

Furniture Re-use Network

I learned about FRN through an anonymous comment left on the blog a while ago. FRN is a national organization operating in UK. They collect furniture and domestic appliances, then remanufacture and pass them to people in need. While doing so they also achieve to divert a significant portion of electrical appliances form landfills helping UK's efforts to comply with WEEE.

In US, charity part generally works at the collection stage. Many 3rd party companies pay for collection of, for instance, used cell phones in bulk. This leads schools, churches and similar organizations to campaign for collection to build up funds. FRN, on the other hand, has an end-to-end perspective in combining poverty reduction, environmental activities, legislation compliance and extracting the value from used products through remanufacturing and re-use. A comprehensive business model, which I am not aware of in any organization in the US.

I think their business model is worth seeing, please check FRN website here.

Cat Reman in Fortune

"meeting the needs of the present without compromising the ability of future generations to meet their needs."

This is how Caterpillar defines sustainable development. I believe Caterpillar contributes to sustainable development of capital goods industry with their various efforts within the Cat Remanufacturing unit. Marc Gunther of Fortune features Cat Reman and its role in Caterpillar’s green initiatives in an article published last week.

By the way, it is reported that Cat Reman hit a 67% growth rate between 2001 and 2007. It has acquired many companies during this period, and you can read about some of these acquisitions in my previous posts. Just recently Cat finalized its five-year acquisition of Eurenov, a France based remanufacturing company. Cat Reman now operates in 15 locations and employs 2000 people, reports Marc Gunther.

Read the full article here.

Read more about Eurenov acquisition here.