Some remanufacturing news

Generally, remanufacturing operations are organized under manufacturing, plant management etc. When a company announces a separate division fo remanufacturing, I believe they are taking a more systematic approach to managing this high-margin, high-growth, environmentally-friendly operation- and express their commitment. Well it happened before with CAT, and now John Deere is reorganizing its remanufacturing operations that has long been going on under the name Phoenix Reman Group. The new name will be Deere Reman – Edmonton. Please read more about Deere Reman here.

Another company, ArvinMeritor, announced that they acquired Mascot Trucks, a remanufacturer of truck parts with six facilities and logistics centers in NA. ArvinMeritor started remanufacturing in 1982 with its axle carrier remanufacturing operations. Now, they consider remanufacturing as a major growth opportunity. Carsten Reinhardt, president of ArvinMeritor's Commercial Vehicle Systems business said, "This expansion of our remanufacturing business makes sense for our customers and aligns with our business strategy to grow the aftermarket business."

Happy holidays and a peaceful 2008!

Small businesses can make a big impact

You always tend to think that big corporations has to keep up with environmental initiatives, and should do more to sustain environment than the small and medium sized enterprises. Well, in a way, that's correct, they are the ones, who should have the strictest compliance with regulations, and ambitious initiatives for environment, because their impact will simply be of a huge ordinance.

But... Think about this: 99% of all US companies are small business, says Jim Rise of Greener Computing. This makes more than 25 million small businesses, this time not individually but cumulatively having a huge impact on sustainability. The options to make-it-better are endless in their offices, from recycling paper and using "energy star" office equipment, to choosing OEMs that have end-of-use take back policies (for remanufacturing or recycling) for office equipment purchases.

This is a great article, read the full version "How Small-Office IT Can Make a Big Impact" here.

Cartridge remanufacturing and recycling saved $2 billion

Xerox has issued a new report on sustainability initiatives. Since 1991, sustainbility program helped Xerox divert 2 billion pounds of waste from landfills thorugh reuse and recycling.

Please read this report here.

Buying used equipment

I received this article on challenges of selling used equipment in the global arena. This article mainly talks of integrated circuit board fabrication and refurbishing, however many things in this article may be generalized to other industries.

For instance Mihin (whose speech is featured in this article , from BEST) puts the challenges of refurbishing equipment as "rebuilding OEM equipment to capabilities equal to OEM specifications; supplier response at factory location instead of single country location; providing capacity at a lower cost with recycled equipment; and project revenue to support local resources in country with fab(rication) locations." These also applies to many industries performing refurbishing activities abroad, nowadays China.

Then comes the advantages from customers-side. In Mihin's opinion "extending life of tools by refurbishing, lowering cost of ownership, local contact for warranty and maintenance..." Now, these are also valid benefits for many customers that use refurbished products, either they are consumer or business customers, though the benefits of using refurbished equipment is not limited to above.

Now, everybody in remanufacturing business and the academics in this field knows that neither the challenges nor the benefits can be squeezed into couple of sentences. The reason I started from this article is to make my point on a widely ignored component that presents challenges and in some cases benefits to the companies. I am talking about the behavioral part of buying used equipment. Although it is obvious that buying a used shoe and certified refurbished router/switcher is completely different, my thesis is attitude toward the first is generally at work when buying refurbished equipment of any kind. Does people really look at refurbished products as like new functioning products, or they see them as previously used, could-have-some-flaws type of products.

There is a lot to consumer behavior in remanufacturing/refurbishing but no research to date. But...keep coming back, there are news on this one soon.

Cycleon acquisition

Last year in a post I talked about Cycleon, a reverse logistics third party that arranges returns services through prepaid mailers and also track and store informations about returns. Recently Cycleon joined (or acquired by) Reverse Logistics GmbH. Reverse Logistics group acquired two other reverse logistics companies recently, increased its coverage in Europe remarkably. No financial information is disclosed, but I wonder what was 100% of Cycleon worth for a private equity firm?

Please read more about the acquisition here.

CAT in Dow Jones Sustainability Index

Although Dow Jones Sustainability Index is just 8 years-old, Caterpillar has already been recognized 7 consecutive times in this index. This index measures economic, social and environmental performance simultaneously and I believe it is one of the most realistic approaches in a rather problematic sustainability measurement debate. Please read more about this story here.

Golisano Institute of Sustainability

RIT announces the establishment of The Golisano Institute for Sustainability, thanks to the support from B. Thomas Golisano. RIT has an history of leadership in sustainability initatives and has a lot of projects going on in National Center for Remanufacturing and Resource Recovery. The Institute will be headed by Nabil Nasr.

Please read more about the announcement here.

Cartridge reuse and carbon emissions

Please take a look at a recent research looking at the impact of cartidge reuse on carbon emissions here.

PC Reuse in UK

Recycling and recovering end-of-use PCs seems to be the less-costly way to deal with the returned products after WEEE came into affect in UK recently. The other option could (should) be refurbishing and reusing the PCs, as Michael Dell pointed out. Every year 125M PCs complete their useful life for their users and enter into the waste stream.

Michael Dell proposes that these computers are as useful as the PCs in One Laptop per Child Project. So why directly recycle them when you can use them in a philanthropic cause like this project and be environmentally conscious too. A research by UN University in Tokyo shows that it is 20 times more energy efficient to reuse a PC- considering both the energy used to manufacture the PC and energy used to operate the PC. 75% of this energy consumption actually occur during the manufacturing of a PC. Moreover, these PCs has already have 3-4 more years of useful life- or value.

Cascaded re-use of products are not new- there are examples of cell phone re-use. Why recycle, (more of a cost-reducing activity) when you can re-use them by minimal refurbishing activities. If OEMs are not interested (some of them already refurbishing to re-sell), then philanthropic causes and not-for-profit organizations can play a key role in putting PC re-use in track, enabling cascaded use of these PCs for people in need. Computer Aid is a charity organization, they shipped 90K computers that are donated by UK companies to developing countries. If you can, please do support Computer Aid by being a donor for your organization to be an environmentally and socially responsible corporate citizen.

Please find more detailed information on reuse of PCs in the articles here and here.

E-waste realities

A recent article reveals the realities of complying with WEEE in Europe: Nancy Weil interviews with Kirstie McIntyre, HP's takeback compliance manager. There is more to complying with legislations: from designing the products to comply with them to collecting the end-of-life ones to deal with recycling issues. I don't even mention the issues on implications of e-waste on the population, on which I agree with Kirstie McIntyre.

Please read the article here for a different point-of-view to WEEE and compliance issues.

Rebirth of a product

Nabil Nasr, the director of National Center for Remanufacturing and Resource Recovery, defines remanufacturing as "the rebirth of a product." 100% agreement on this quote, also on his other ideas in a recent article published in TIME. This time, starting point of the article is Caterpillar's Shrewsbury plant in UK instead of Peoria plant in US. Please take a look at this article here. In a nutshell, this article reiterates the positive outlook for remanufacturing market -especially for automotive parts remanufacturing.

Cartridge remanufacturing revisited

Without delving into the controversial issues on OEM vs. third party cartridge remanufacturing, I would like to talk about this recent InfoTrends report.

We know that both OEMs and third party remanufacturers are trying to collect depleted printer supplies: manufacturers want to recycle the products to meet environmental goals and block competition for brand-new cartridges, and third party suppliers want to refill and resell the cartridges. Makes sense, right? But in reality they don't take actions in line with their objectives. This research reports that less than half of all printer cartridges are recycled or reused even once by offices in the U.K. and U.S. Moreover, it seems that even the remanufacturer companies do not recycle the unusable cartridges simply because they have little resale value.

Some other data: Only half of Europe's remanufactured laser cartridges and 30% of remanufactured inkjet cartridges are recycled, and US is a slow follower with 10% of lasers and almost no inkjets recycled. Remanufacturing of cartridges is claimed to be able to reduce the demand for new cartridges by about 20%. When it comes to competition between OEM vs. third party in collection, remanufacturers collect 70% more empty toner cartridges and 700% more empty inkjet cartridges than the original manufacturers do.

Good news: although these news are not very good, remanufacturers say "in fact they would like to do more recycling, but they lack recycling systems" !!!

10 Green Giants

Last April Fortune issued a feature on ten companies that "have gone beyond what the law requires to operate in an environmentally responsible way." These companies went the extra mile by reducing waste, recycling waste, designing environmentally friendly products, reducing their energy consumption etc...

Please read about these companies and what they do to be more environmentally responsible here. Here is another article that looks into one of ten green giants, HP, in depth.

Oce sustainability report

A lot of companies issue sustainability reports nowadays. Aside from their role in corporate citizenship, these reports are also a good source for recent remanufacturing data of the related companies. It is a good thing to see companies take initiatives for sustainability other than changing light bulbs, or constructing energy efficient buildings (although these things no doubt required). This was also on my mind when I watched "The Inconvenient Truth", and got extremely disappointed by the limited scope and lack of emphasis on the responsibilities of businesses. Writing letters to your representatives is not the only thing you can do, and it will never be. It is consumers, politicians (like Al Gore once was) and leaders in research/industry pressuring companies to take action in remanufacturing/reuse activities by convincing them that ecology can be sustained in a economical manner.

In addition to Cat's sustainability report I posted last week, please see recently issued sustainability report for Oce here.

Having a lot in my plate

My blogging may slow down a little bit these days. I have been working hard on a couple of research projects. I have a lot to share with you, however you might have to wait a little. If you are interested in learning about these research projects, or explore the ones you can join please e-mail me directly. One of these projects is going on now with OEMs that have remanufacturing operations - giving away a free consulting report at the end. Although comments and discussion medium I hoped to create still does not take off, I know from my sitemeter that a lot of OEMs and independent remanufacturer companies are checking out this blog regularly.

Meanwhile, let the CAT sustainability report here, and their "sustainability in action" video here keep you busy.

Green brands 2007

Would you like to learn which brands are green and how they line up? Here are the results of the 2007 ImagePower® Green Brands Survey, conducted by WPP's Landor Associates, Penn, Schoen & Berland (PSB) Associates and Cohn & Wolfe (C&W).

To see the results for US click here, for UK results click here.

Remanufactured engine and tranmission market

A Frost and Sullivan market research report sheds light on dominant market players in remanufactured engine and tranmission market in North America. have talked in my previous posts how remanufactured goods market is dominated by independent SMEs. This report presents hard data on the market. It seems that 87% of engine aftermarket and 88% of transmission aftermarket is controlled by minor and custom builders. Based on my recent contacts and observations among OEMs, they are getting increasingly interested in pursuing their own business in remanufacturing arena. This report suggests OEMs focus on reducing remanufacturing costs by improving production technologies.

Another interesting point from the report: EPA mandate on 100% core collection could distort this market highly dominated by independent manufacturers-automakers will ensure return of all cores and it may be harder for independent remnufacturers to acquire cores. Therefore under EPA mandate there is additional incentive for OEM remanufacturers to invest more in remanufacturing, because they will already have the cores to themselves. I cannot emphasize the role of thorough economic analyses and right organizational investments (see the series on decision making in this blog) enough when it comes to making money "again" from what you have made money and also becoming a sustainable business.

In 2000 when market was around $4 billion, Frost and Sullivan Research estimated engine aftermarket to reach $5 billion in 2007. The market reached $8.38 billion in earned revenues in 2006. This is an incredible growth rate, and it actually exceeded expectations. The same research estimates an $11.12 billion market by 2013. Yes, there could be a power shift from independent small builders to OEMs, however I believe there is more than enough thrust in the industry to keep this high growth rates going.

You can check this research here on Frost&Sullivan website.

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.

IBM reduces e-waste

Just after I blogged on Sun’s eco-responsibility efforts, a press release came from IBM. For the last few years, IT manufacturers seem to be taking real initiatives to deal with their end-of-life and end-of-use products.

IBM’s press release on last year's recycling and renewal efforts (recycling used for renewal, refurbish, reuse, and resale in the secondary market) reveals exciting numbers for remanufacturing industry and environment. IBM started its recycling efforts many years ago to deal with the products returning from lease contracts. These are end-of-use products most of the time still have value in them and therefore presents a source of revenue. Of course, then came the end-of-life computers, which cannot be used because either they are technologically obsolete or too worn-out to be used. Main concern in the second category was how to dispose them in an environmentally safe way and how to extract usable parts (if any) and materials, such as plastics, metals etc...

IBM deals with products in both categories, they refurbish, remanufacture, and resale or re-lease. Aside from IT equipment, IBM also refurbishes and resells medical diagnostics equipment such as MRI. Each week IBM Global Asset Recovery Services takes in more than 40,000 pieces of IT gear from clients worldwide. The equipment, which includes IBM and non-IBM servers, PCs, laptops, mainframes, is recycled or refurbished at 22 sites around the world. In 2006 alone, IBM had an overall 99.22% recovery rate and an incredibly low landfill rate of 0.78%. Since 1995, IBM has documented the collection and recovery of over 1.4 billion pounds of product and product waste worldwide and they achieved to divert 1.2 billion from landfills.

These numbers are very encouraging and exciting. Now we know that as long as they get products returned they deal with them properly, try to recover these products and materials for new uses and divert them from landfills as much as they can. But, what is the actual return rate among all products they sell? IBM collects a very significant amount of products, and they recover 99%, but one can’t help but wonder what percent of end-of-use and end-of-life IBM products they can get back. If you have any idea, data or information please share with us!

Please check IBM take-back practices here, and read the press release here.

Competitive advantage and remanufacturing

I have been working on some research projects on how to generate competitive advantage from remanufacturing activities. Reading the interview of David Douglas, VP of Eco-Responsibility at Sun Microsystems at TreeHugger took me back to the conception stages of my research.

At the beginning some people told me remanufacturing is never (and won’t be) seen as a “core business” or a part of business that can create competitive advantage for the firm. My ideas were totally on the contrary: first, if conveyed to consumers and media appropriately, it could generate “a green image,” which in the long run will pay off to the company hugely-first as a socially responsible corporate image and then translated into profits with the expansion of environmentally-conscious customer segment. Second, I believed, among other green initiatives such as recycling, remanufacturing will rise as the most revenue generating initiative. In a planet, where raw materials are increasingly expensive, energy sources are depleting and in turn getting really pricey, remanufacturing is not just a cost-generating, legislation-complying tactical decision for the companies, it is a long-term profit-generating strategy!

I disagreed with some colleagues, some professors, and even with some relatives, who knew about the topic and have professional experience. So, I needed to back up my ideas: I went to four prominent companies and interviewed executives responsible for remanufacturing. I can tell you lots of things about these interviews: but long story short, they all believed that remanufacturing can be a competitive advantage in different ways; a couple has already been competing with remanufactured products in their respective markets.

Now let’s hear David Douglas's opinion at Sun. He is not just talking about remanufacturing. He talks about all the initiatives Sun takes, such as remanufacturing, recycling, eco-responsibility designed products etc…

“TreeHugger: How can we balance the very real demands of the business world with goals such as sustainability, which are ultimately less about competition than getting the job done?

DD: I disagree with the premise of the question. Done right, sustainability can be a serious competitive advantage. If you look at business separate of sustainability, and sustainability separate of business, then try to put them back together it won't work in the long run.”
****
“We're attacking that on every front, including reducing hazardous chemicals, reducing the environmental impact of manufacturing the systems, and recovering, remanufacturing and recycling our products at the end of their useful life.”
****
“Eco-responsibility is about trying to do business in a way that's good for the environment and for the company's business at the same time. I often joke that 'eco' stands for both ecology and economy, since we're not trying to do either of them at the expense of the other.”
****
“My hope is that every year Sun's business and products have a lower environmental impact, and at the same time increasing efficiencies and environmentally friendly products and services are increasing Sun's competitive position in the market.“
****

My final notes: Sun Microsystems tries to achieve its sustainability goals by designing environmentally friendly products, processes and reducing the end-of-life impact of their products. They introduced their first eco-responsibility designed computer chip in 2005. 80% of their products enter remanufacturing, they recover all metal and plastics, and less than 5% reaches to landfills. Their products comply with RoHS directives in Europe. For full interview go to TreeHugger. For details on Sun’s product take-back, remanufacturing and reuse programs, please see this report.

Green Ford

A recent article features Ford's green efforts for global sustainability. One of their initiatives is to increase recyclability and remanufacturability of their vehicles. A good example on the remanufacturing's role in sustainability (setting aside its role in overall profitability).

From the article;
"Ford Escape and Focus Are Over 80 Percent Recyclable – Dismantlers and shredders process more than 94 percent of all salvaged vehicles. They collect parts and materials for reuse, remanufacturing and recycling. Usually, 75 percent of an automobile’s content is recycled – including steel, iron, aluminum, copper and other non-ferrous metals. The Ford Escape and Focus exceed the norm, being over 80 percent recyclable. "

For more on Ford's green initiatives, please read the full article here.

What do they do with returns?

Do you ever wonder what does manufacturer do with the product you returned? Well, the answer to this question -for consumer electronics industry- is reported in a study conducted by Reverse Logistics Executive Council. Unfortunately there is no information on the date of this project (probably before 2004), but I think numbers still makes sense and reflect more-or-less the reality in the industry.

According to this study conducted on 65 consumer electronics company, more than one-third of companies recycle their returned products. One-fourth goes with remanufacturing and then selling to 2nd markets. Since there is no information on the condition of returned products, it is unknown to us whether it is logical that one-third of these companies recycle their returned products. However, the rate of throw aways is striking: approximately one-fifth of companies just throw away returned consumer electronics products. That's a big percentage, can you imagine what kind of profit and environmental sustainability opportunities exist?

Centre for Remanufacturing

Please check out --http://www.remanufacturing.org.uk/-- the website for Centre for Remanufacturing. The center is part of Oakdene Hollins, a UK based consulting company. It is one of the most active portals I have seen recently and compiles numerous sources under one umbrella. You can find recent industry news-events, list of remanufacturers in Europe, published-unpublished research studies and reports. Also, you can browse to learn more about remanufacturing and the remanufacturing industry in UK.

Life with RoHS

In Europe, RoHS (Restictions of Hazardous Substances) and WEEE (Waste Electrical and Electronic Equipment) directives of EU force firms to review their way of doing business and affect their perceptions of remanufacturing activities because remanufacturing is a way to comply with these directives in a profitable manner. Please take a look at this article evaluating the past 9 months of RoHS and its effects on the firms. Then, read this: a comparison between China RoHS and EU RoHS.

Reverse logistics in pharma industry

Here's is something to talk about. Pharmaceutical returns management: a $2.5 billion dollars returns industry and there is an estimated reverse flow of $5 billion dollar worth of expired, recalled, damaged packaging, or wrongly delivered products. The planning of pharmaceutical returns management requires a multi-objective optimization approach: the pharmaceutical companies need to deal with liabilities arising from returns management (e.g. recalls), have to consider a cost minimizing reverse logistics network and have to act fast to avoid disruptions in the sales level. An additional complicating decision is choosing to what to do with returned products.

The increasing importance of reverse supply chain visibility is felt at the heart of pharma companies; the tracking of counterfeit and lost/stolen products in reverse stream is as important as it is in the forward supply chain. I have searched a bit and found out third party returns management firms currently dominate in the pharmaceutical returns industry. There are huge risks associated with returns management in pharmaceuticals and also, in general, these companies has very responsive and visible (early adopters of RFID) supply chains. It is possible for these companies to integrate into reverse logistics activities as an extension of their forward supply chain competences. It seems very interesting; I will be searching on this topic for a while too, meanwhile please tell me what you think.

Decision making in remanufacturing: The role of technological uncertainty

Here is the latest post of my series on the decision making in remanufacturing. The new readers can read the previous posts on the other variables here and here.

I have already started talking about uncertainty. I proposed that there are two types of uncertainty, and told you in detail about the volume uncertainty. Today, I disclose the second type of uncertainty: the technological uncertainty.

In some industries the technologies used to manufacture the new products are evolving faster than the technologies remanufacturing them. When the specification of a product changes very frequently or the product life cycles are very short, such as in cellular phones and computers, the technological uncertainty poses a problem for the remanufacturing. The inability to forecast accurately the new technical or design requirements in disassembly creates adaptation problems between departments or between the suppliers and the firm. The consequence will be high renegotiation and coordination costs. So, it could be a good alternative to vertically integrate into the remanufacturing activities to avoid the repeated coordination costs arising from the need for sequential decision-making.

But coordination costs are not the only peril of the high technological uncertainty. The rapid technological change increases the probability of obsolescence in technological investments on knowledge and routines. It may be a wise decision not to invest in any specific assets in the face of high technological obsolescence. The market mechanisms work better under high uncertainty: the suppliers that already have the technology or the scale to adapt the new technological assets can be readily available. Go ahead and partner with these companies and shift the risks to another party, who has the scale.

These variables -individually- are never powerful enough to guide the decisions about remanufacturing. It is the big picture, including these variables and others specific to the firm's industry, its product, and its organizational culture, that enables them to make the right decisions.

The series will continue with a new variable soon.

For Beginners in Remanufacturing

I started writing this blog assuming only people who are interested in remanufacturing will follow. It was intended to be a very targeted blog with a specific focus on remanufacturing among all other product recovery activities. However, in time "other" people (colleagues from other fields, and some friends), who have no idea about remanufacturing, started asking me questions: what, how, but why?

I never dedicated space to the definitions and alternative terms for remanufacturing. But for the enthusiastic mass who took interest in this field (thank you!) I want to add some documents from time to time to bring them up to speed. First one is an EPA update. Contains very much the beginner info: the definition, compare and contrast with recycling, practical examples from different industries. This is a ten year-old document, not academical nor theoretical, easy-to-read and glossy (WasteWise Update 1997), and very appropriate for beginners.

Dear beginners, to read more, please see WasteWise here.

More acquisition news

Recently, I am hearing more and more acquisition news in remanufacturing industry. For instance CAT Reman has acquired Progress Rail and very recently Franklin Power Products (FPP) and International Fuel Systems. Yesterday Detroit Diesel Remanufacturing Corp. (part of DaimlerChrysler Truck) announced they are acquiring DMR Electronics. The main motive (announced by DDR) in this deal is increasing electronics content in capital goods, and company's desire to collect this competence in-house.

Let's look at the acquisition history of CAT Reman closely. The recent acquisition by CAT Reman resulted in increasing competencies in diesel engine remanufacturing. It seems that the big companies in reman, instead of focusing on a core competence, try to expand their competence range as much as possible. The "core competence" notion was introduced by Pralahad and Hamel in 1990 (in HBR). The basic premise: core competencies are the source of competitive advantage. What is the core competency of CAT Reman, is it excelling in diesel remanufacturing, or improving and competing in remanufacturing of locomotives? Cat Reman's current strategy is diversified growth, developing core competencies on a range of products. However, given the core competencies and competitive advantage relation, in time one can expect moving on to core competence by creating spin-offs from some competencies, outsourcing some not-value-adding operations. I look at the merger and acquisition trend as a cycle, first buy-merge then, simplify, create spin-offs, independent business divisions, outsource, then start over again, buy-merge...

It is interesting to look at remanufacturing from a strategic management perspective, I think there should be more (academic and professional) work on extending the basic tenets of management theory to remanufacturing operations.

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.

Decision making in remanufacturing: The role of volume uncertainty

About a month ago, I began analyzing the decision making variables and the environment in remanufacturing industry. In a January post, I talked about the importance of strategic assets. Today, I will continue the series with uncertainty. I personally see two kinds of uncertainty in a remanufacturing environment. First and foremost is the volume uncertainty.

We can broadly define volume uncertainty in remanufacturing as the inability to predict the amount of cores returned from the market. While the degree of uncertainty depends on the industry (think about capital goods reman vs. consumer goods reman), in general several consequences may emerge in a high uncertainty environment:

Let's talk about an OEM outsourcing its remanufacturing. Uncertainty urges the OEM to continually update the contracts and causes soaring coordination and renegotiation costs. On the other hand, suppliers can experience high production costs and excess capacity, and OEM can experience stock-outs or excess inventory. I am not going to enumerate all alternatives, but look at this company; there is high uncertainty, coordination (and also operational)costs are high for both parties, both parties are in fact miserable! So in fact, OEM should have owned the product acquisition channel to coordinate return of products more effectively and decrease the costs. As the uncertainty increases the frequency of updating and renegotiating increases and firm seek other means for coordinating these activities in a cost-minimizing manner.

The volume uncertainty has complicating role in remanufacturing times, quality, quantity and material planning. However, don't forget that it is a controllabe decision variable. For instance, Xerox provides lease option to its customers to reduce the uncertainty in copier collection. Moreover, to further reduce uncertainty Xerox Europe provides return services for products they sell or lease and have an approximate return rate of 65%.

Soon, the role of technological uncertainty...

HP vs. Store Brands

An article published in Businessweek (by Steve Hamm) yesterday brings back the debate on cartridge remanufacturing to this blog again.

Mainly, article talks about HP's efforts to phase out store brand inkjet cartridges. There are many claims: HP offers more margin to big office supplies stores. Although Staples does not make a comment on this, they announced that they are going to phase out Staples brand HP replacements while they continue to sell Epson, Canon and Lexmark refills. Office Depot and Best Buy will continue to sell their store brand cartridges, for now...

Some time ago I heard that HP rejects the use of chips in their cartridges. But now, they use a more aggressive marketing strategy to virtually eliminate all alternatives to refill. Consumers are getting smarter, people look at total cost of ownership with printer and copier type of products. OK, they do not like the chips, but what if their long term sales decline because consumers prefer other cheap refill alternatives and buy rival products. I hope all these risks HP taking are calculated risks.

Please read the full article here.

Caterpillar again

Caterpillar recently acquired two more companies. The deal includes Franklin Power Products (FPP)and International Fuel Systems, which are subsidiaries of Remy International. Cat offered 150 million dollars in cash to close the deal. FPP is a leading remanufacturer of on-highway light- and medium-duty truck diesel engines and engine components. International Fuel Systems is a premium provider of remanufactured diesel engine components such as high pressure fuel pumps, fuel injectors and turbochargers.

With the acquistion of these two companies Cat Reman becomes the leading diesel engine remanufacturer in North America. The boss of Cat Reman, Steve Fisher marked the acquistion as follows:

"This acquisition represents an excellent strategic fit between Cat Reman and these two companies. It increases our overall product and service offering, and will provide a platform for future growth opportunities for Cat Reman"

Travel

I will be travelling in the next couple of weeks. I will continue blogging but less frequently...Please continue sharing your thoughts, by leaving comments or by sending e-mails.

Happy 2007!

Decision making in remanufacturing: The role of strategic assets

Companies, most of the time, consider the financial feasibility as the only decision variable for product recovery activities. You can't make me deny the role of financial feasibility, but there are other issues to consider when making decisions in remanufacturing domain.

To determine the right path for your remanufacturing activities, there is no universal rule. The decisions to engage in remanufacturing, and then the decision to outsuorce or internalize remanufacturing activities are definitely contingent upon the industry, the product, the environmental characteristics, and even the geographic position of operations: "remanufacturing" is perceived different in Europe and US. Although one cannot propose a rule of thumb, she can propose a framework to consider what factors are more important to consider under diverse circumstances. Therefore, I begin my attempts to portray decision making in remanufacturing. Please share your thoughts with me! Today, the first blog of the series feature the strategic assets in remanufacturing decisions.

I propose that two types of strategic assets that should be taken into account. First one is brand name: the accumulation of investment in reputation creates a brand name capital. When an OEM with high brand name capital, like Bosch, and decides to outsource remanufacturing, costs of controlling the contractor increases remarkably as both parties must maintain the reputation of a shared brand or OEM has to control the contractor very closely. The main consequence of companies with high brand capital is to internalize the product recovery to decrease control costs. A simple example is catridge remanufacturing: low level of quality in refilled cartridges can deteriorate brand-name OEMs reputation.

In my opinion, second important strategic asset is the proprietary technology (let's generally call it intellectual property-or IP) embedded in products and processes. There are particularly two consequences for remanufacturing when IP content is high. First, the need for highly skilled labor increases and second, the disassembly of product exposes flow of this proprietary information increasing the possibility hazards from contractual relationships: like IP leaks. Know-how pertaining to brand-specific production processes which arise during disassembly and remanufacturing processes is an important determinant in remanufacturing decision making. Consumer electronics remanufacturing, for instance, is prone to IP leaks.

I will talk about more variables in remanufacturing decision making in my next posts...