Remanufacturing Demystified: Redesigning Business for a More Profitable Future
Remanufacturing is becoming increasingly popular among World Class Companies (WCCs) as they adapt to an extended business model to realise the business benefits of its adoption.
At a Motors and Equipment Remanufacturers Association (MERA) conference in October 2013, Cummins, a global leader in engines and related technologies,presented a series of facts related to its global business of power generation.
With 46,000 employees spread over 190 countries and sales of $17.3 billion, Cummins disclosed that its remanufacturing initiative had 3,000 employees in nine global facilities, contributing $1 billion to sales. The numbers demonstrate the tremendous business investment Cummins is placing on remanufacturing.
Cummins is not alone. Automotive giant Renault has also expressed its growing faith in remanufacturing, as has construction vehicle and machinery supplier, Caterpillar to name a few.
Besides environmental benefits, WCCs are increasingly driven by the business benefits of its adoption. Adopting remanufacturing has shown to:
· Maximise value of materials in end-of-life products and improve profitability
· Reduce energy bills related to components that have already been manufactured and need only reconditioning to specifications
· Reduce the use of expensive virgin materials, thereby offering more competitive pricing to customers
· Reduce business risk by minimising exposure to volatile costs of raw materials
· Create new business models that are aligned with emerging consumer trends
· Reduce warranty costs and improve aftermarket product offerings
Remanufacturing in many ways is similar to classic manufacturing. But some of the “building blocks” are unique to remanufacturing.
Implementing a “reman” strategy
The foundational element for ‘reman’ is building a strategic plan and integrating it with the larger enterprise strategy for new products.
One of the first exercises is to conduct a market analysis to select suitable products for remanufacturing and identify the core components of high value.
Once completed, a broad financial model that captures the cost benefit analysis including the reman processing cost of the components needs to be identified for remanufacturing. This should include reverse logistics costs and the core exchange/broker costs, as well as confronting operational challenges.
Getting over the first hurdle
Conventional OEMs are ill-equipped to manage the many business and operational challenges of reman, simply because their traditional strategy has focussed on procurement, supply chain, manufacturing and sales. End-of-life disposal is usually left to third parties.
Also, for a successful adoption, OEMs must get over the fear of ‘cannibalising’ their own products, and develop strong competencies in the reverse supply chain of core components.
On the operational side, companies face the initial hurdle of accurately estimating the availability and quantities of cores that can be retrieved and the lack of product designed for remanufacturing.
Core availability issues are best addressed by building the incentive programmes through channel partners; while tackling the lack of product designed for remanufacturing through the use of traditional PUGH matrix, a criteria based decision making tool.
A reverse logistics programme is essential to any reman strategy, but unfortunately this is an area where many OEMs have difficulty.
For remanufacturing, two supply chain streams are required; one for new parts and other for used. Control of a reverse logistics network can be done in three different ways: directly by the OEM; through handpicked dealers/distributors; or by third party logistics, if the forward and reverse logistics can be delinked.
Even with a successful reverse logistics network in place, remanufacturers struggle to accurately forecast demand and match the data with the flow of actual returns.
Furthermore, the return yields are unpredictable due to the variability in the quality of the cores. Finally, it is imperative for manufacturers to match warranties similar to new products for market acceptance.
Many companies overcome some of these challenges through analytics for asset recovery programmes to gain early insight in order to match supply and demand.
Also, a successful reman strategy relies upon IT and analytics support in order to build information and operation systems essential to the creation of a successful and effective ecosystem.
The opportunity now and in the future
Remanufacturing is becoming more and more important to today’s manufacturers as it allows them to take advantage of a large pool of untapped revenue and growth.
For many traditional OEMs there are a number of challenges that need to be addressed before a reman programme can be undertaken.
By addressing the two main challenges of implementing a reverse logistics network, as well as designing the products for multiple product life cycles, OEMs will have a leap start in the reman journey.
Remanufacturing has never been more important as demand for raw materials increase with decreasing availability.
Companies that successfully implement a remanufacturing strategy will be the ones who sustain growth and success in the circular economy era to come.
IMF: Variants Can Still Hurt Manufacturing Recovery
After a year of on-and-off manufacturing in the US, UK, and the eurozone, demand for goods surged early last week. Factories set growth records in April and May, suppliers started to recover, and US crude hit its highest price point since pre-COVID. As vaccination efforts immunise much of the US and UK populations, manufacturers are now able to fully ramp up their supply chains. In fact, GDP growth could approach double-digits by 2022.
Now, the ISM productivity measure has surpassed the 50-point mark that separates industry expansion from contraction. Since U.S. president Biden passed his US$1.9tn stimulus package and the UK purchasing managers index (PMI) increased to 65.6, both sides of the Atlantic are facing a much-welcomed manufacturing recovery.
Lingering Concerns Over COVID
Even as Spain, France, Italy, and Germany race to catch up, and mining companies pushed the FTSE 100 index of list shares to a monthly high of 7,129, some say that UK and US markets still suffer from a lack of confidence in raw material supplies. Yes, the Dow Jones has made up its 19,173-point crash of March 2020, and MSCI’s global stock index is at an all-time high.
Yet manufacturers around the world realise that these wins will be short-lived until pandemic supply chain bottlenecks are solved. If we keep the status quo, consumers will pay the price. In April, inflation in Germany reached 2.4%, and across the EU’s 19 member countries, overall prices have increased at an unusual pace. Some ask: Is this true recovery?
IMF: Current Boom Could Falter
Even as Elon Musk tweeted about chip shortages forcing Tesla to raise its prices, UK mining demand skyrocketed; housing markets lifted; and the pound sterling gained value. The International Monetary Fund (IMF), however, cautioned that manufacturing recovery won’t last long if COVID mutates into forms our vaccinations can’t touch. Kristalina Georgieva, Washington’s IMF director, noted that fewer than 1% of African citizens have been vaccinated: “Worldwide access to vaccines offers the best hope for stopping the coronavirus pandemic, saving lives, and securing a broad-based economic recovery”.
Across the globe, manufacturing companies are keeping a watchful eye on new developments in the spread of COVID. Though US FDA officials don’t think we’ll have to “start at square one” with new vaccines, the March 2021 World Economic Outlook states that “high uncertainty” surrounds the projected 6% global growth. Continued manufacturing success will in large part depend on “the path of the pandemic, the effectiveness of policy support, and the evolution of financial conditions”.
Mathias Cormann, secretary-general of the Organisation for Economic Co-Operation and Development (OECD) concurred—without global immunisation, the estimated economic boom expected by 2025 could go kaput. “We need to...pursue an all-out effort to reach the entire world population”, Australia’s finance minister added. US$50bn to end COVID across the world, they imply, is a small investment to restart our economies.