25/12/22 07:30 p.m.
Introduction
Remanufacturing has vast potential
and is deemed the hopeful future of manufacturing. It would take to the
next few decades for manufacturing to transform and have remanufacturing be
a key aspect of production. Just looking at the automotive parts remanufacturing
industry, despite the COVID-19 pandemic, it approximately US$53.8 Billion in
2020, and it is projected to be growing at a CAGR of 8.7% from 2020 to
2027 (ReportLinker, 2022).
Based on the 2015 Remanufacturing Market Study, supported by the European
Union, the top drivers for incorporating remanufacturing include higher profit
margins, environmental responsibility, strategic advantage, and increasing
market share. On the other hand, the top obstacles include customer recognition,
volume/availability of used parts, quality of the parts, and high labour costs
(Parker et al, 2015).
With such an outlook as the backdrop, the EU is estimating that remanufacturing might be able to achieve a value of 70 billion
by 2030, with the creation of up to 65,000 jobs, and hiring up to 34,000 people.
Given the complex nature of
remanufacturing and what exactly it entails, for simplicity of the answer, I
will be utilising how the EU and Ellen Macarthur Foundation have defined it. To put
it simply, remanufacturing includes the process of dismantling,
restoring, replacing components, assembly, and testing. The quality of the
remanufactured product is expected to have the quality as the same manufactured
product. And generally, for refurbishing,
repairing, or reconditioning, there is minimum manufacturing effort required to
address the specified fault, and the subsequent warranty would be less than the
newly manufactured, and at times, the quality of the outcome might be less
optimum as compared to the original standards.
Based on the
interplay of the 3 attributes that affect the feasibility and the applicability
of remanufacturing: value, re-constructability, and evolution rate the sectors
with the highest potential include electrical and electronic equipment (EEE), automotive
and aerospace (Parker et
al, 2015). But this requires strong partnerships with OEMs of the individual industries, otherwise, it might erode the sanctity
of the remanufactured products with non-OEMs.
Impact
“By keeping components and their
embodied material in use for longer, large environmental benefits can be
realised; for example, the remanufacturing of automotive components yields some
88 % materials savings compared to using a new product, with an associated 53 %
decrease in CO2 emitted and 56 % lower energy requirement. Further,
remanufacturing can keep advanced materials, including those termed as critical
raw materials (materials with high economic value and supply risk), within the
economy.” (Parker et al, 2015).
The idea of self-sufficiency is
highlighted which is the core of the environmental benefits of remanufacturing.
Remanufacturing prioritises resource efficiency instead of constant extraction
of natural resources to continue processes and production, effectively creating or forcing the re-design of a closed-loop system.
Decision Making
To determine whether remanufacturing
is a viable option for the production site and processes, manufacturers will
probably have to consider the following:
- Market Sizing: Size
of the second-hand market for remanufactured components and parts (if there
is booming market in that space, there might be a strong business case for the
company to tap on the space)
- Alignment with Business:
- Business
models for product remanufacturing (selling high quality long-lasting products,
short-lived and durable products selling a service than products)
- Match
between remanufacturing service and company’s brand (to decide whether is it
worth the rebranding)
- The
product/service portfolio with re-manufacturing versus one without
re-manufacturing
- Value
of brand equity that has re-manufacturing versus one without re-manufacturing
- Operations Planning/Logistics:
- Production,
scheduling, and inventory planning
- Integration
of re-manufacturing in a global supply chain
- Environmental and Financial
Assessments:
- Determination
of recovery options.
- Environmental
and cost analyses of remanufacturing operations.
- The
applicability of remanufacturing to product design.
Furthermore, we can break down the decision analysis
factors into the following broad themes:
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Yes, remanufacture
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No, do not remanufacture
|
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Customers consider remanufactured products as an substitute
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High threat of cannabalization for new products
|
|
Market expansion and development – providing price-sensitive customers
with cheaper alternative to new parts and to compete in highly competitive
secondary
|
Environmental costs cannot be justified – energy consumption of older
products is not as efficient as compared to the newer products
|
|
Remanufacturing is a growing trend and is increasing in significance
|
Operational cost significantly outweighs the benefits of remanufacturing:
in terms of the types of inputs from the customers, making it difficult to
plan for production and resources
|
|
Brand protection and lock-in of customers (brand loyalty, especially if
there is a shift of business model from providing products to providing
services)
|
Remanufacturing cannot be retroffited in
|
|
External competitive pressure – many peers/competitors are
remanufacturing
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Lack of expertise within the region, time is required to build capacity:
variable assessment is required for re-manufacturing because the solution is
not really a one-size-fits-all, but more of a non-linear approach
|
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Value recovery for traded-in products
|
|
|
Knowledge collected from analyzing the returned/take-back products
provide high-level insights in how the products can be better
designed/produced to serve its customers
|
Ridiculous length and complexity of the remanufacturing process (design
for remanufacturing first, before adopting remanufacturing)
|
|
Remanufacturing is able to reduce costs for parts that make up the new
product
|
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Generic Cost Model
Cost of collection
network for used products
Cost of innovation
to improve remanufacturing processes (speed of technology & scientific
breakthroughs)
Cost of
remanufacturing with similar system efficiency
Decreased in
potential profit margins (choosing the purchase of remanufactured > new
products)
Cost of manpower,
expertise, and knowledge building
=
Cost savings from
original manufacturing
Potential revenue
from new markets created and tapped
Cost savings from
diversified sources
Cost savings from regulations
and compliance with requirements of extended producer responsibilities
Potential revenue
generated from the competitive advantage and ESG front
Servitization
as a Strategy for Remanufacturing
Remanufacturing can provide a product
that is “20% to 60% less expensive than” the same, brand-new product. Not
to mention, it has a reputation for a “cleaner production process” (Tondolo et
al, 2021). By taking a systems perspective, companies would be able to
add value by utilizing the remanufacturing process, which can be seen in the form of lowered prices and also value-added services, such as leasing, repairing, and refurbishment.
A research study in 2021 has shown
that servitization has the potential to increase augmented value and help shift/nudge the purchasing intentions of remanufactured products. The research study focuses
on remanufactured battery as a product and remanufactured battery as a service
and results have shown the following, which could easily be mapped to a
remanufactured product.
When the price of a remanufactured battery is higher, additional service is required. When
consumers believe that the remanufactured product has a better cost-benefit
value, additional services would not be required at all.
Companies,
when offering remanufactured batteries combined with services, consumers are
willing to pay a higher price.
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Perceived
Value
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Perceived
Risk
|
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Source of
competitive advantage and can be understood as a general assessment of the
usefulness of a product, reinforced by the fact that perceived value has a
positive effect on purchase intention in general.
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Purchase
of this type of product, and generates perceived risk because of the lack of
knowledge surrounding the processes that are employed during remanufacturing
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Automotive Parts Remanufacturing Market
The report predicts the global automotive parts remanufacturing market to
grow with a CAGR of 7.1% over the forecast period from 2020-2026 (Persistence
Market Research, 2022).
Drivers of the market include shortage of raw materials and following
high-low prices, growing shift towards more environmental-friendly products and
manufacturing within the industry. However, as it slowly becomes an industry
norm, the lack of recognition from consumers and unfavourable regulatory
policies hinder the growth of the remanufacturing industry. Such as changing
laws of safety requirements (i.e., seatbelts, airbags, crumple zones) these
safety feature has design restrictions (i.e., need to take up a certain minimum amount
of space, fit ting in a specific section of the car) (Investopedia, 2021).
Appealing cost savings and high-profit margins have positioned automotive
remanufacturers in a good light over the years. While maintaining the same
quality as newly manufactured, the remanufactured parts can cost approximately 50 to 75% of the original. Interestingly, on a component level, the
electrical and electronics of the automotive vehicle are topping the charts,
with replacements and switching of alternators and starters taking the bulk of
which. Engine and related components also take up a big pie portion of the
remanufacturing market, up to 30% (Persistence Market Research, 2022).
Case Study: Finnish Special Heavy Vehicles
A Finnish
manufacturer of special heavy vehicles is the spotlight case study of
the research article on remanufacturing by Ronkko, Ayati, and Majava (2021). Products
that are collected back will be assessed for their parts and will be separated
into the following categories: differential and planetary gear, transfer boxes
and axles, engines, and hydraulic components. The manufacturer has implemented 3
main recovery processes: refurbishing, remanufacturing, and recycling.
Reconditioning
Centre: “ready-made assemblies and packages” allow for quick repairing and
maintenance, resulting in a cost-cut of up to 15%. Remanufacturing
Centre: A core team of 5 people to take in the critical parts to remanufacture
and re-assemble the products. Operationally, the entire process is divided
according to the expertise and unique characterisations of the specialists. Recycling Centre: A
team of 3 people will be focused on breaking things down to “recover the
material values of components with insufficient quality level”.
The challenge the company faces is whether it should switch from centralisation to decentralisation of
refurbishing, remanufacturing, and recycling of the components and parts. The
following breaks down the difference between decentralisation or centralisation
of remanufacturing:
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Decentralisation of Remanufacturing: dispersing
among several geographic locations
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Centralisation
of Remanufacturing
|
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Pros
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Cons
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Pros
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Cons
|
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Emissions and logistics costs may be lower
Allow spare parts/repair kits to increase their
availability
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Economies of scale would not be achieved
Expertise would be required in every region
Not all components can be remanufactured or repaired
because it might not be economically feasible
|
Economies of scale can be achieved if the
remanufacturing processes are focused on the medium to high component inflows
(more common and standardised types)
Allow consolidation of data from all take-back
components to be studied for product redesign immediately on-site
|
Reverse logistics: custom fees, transportation
costs, delays
Lower or limited availability of components in other
sites
|
Faced with the abovementioned
dilemma, a survey was conducted to help aid in the decision making and the
following includes the key insights of the survey:
- For
the heavy vehicles industry, spare parts/replacement components should always
be in stock because nobody can predict machinery breakdown, but once they do
break down, repairs need to happen immediately or otherwise would translate to
profit loss.
- Available
repairing kitsets ought to be available to allow workers to repair the
components instead of sending them back to the manufacturer’s main factory in
Finland to be fixed. Apparently,
the types of issues faced by customers are different based on the regions and
countries. Hence, centralisation of the recovery activities might not produce
as much EOS as we think and those unique specialisations might be better in
certain regions than others.
- Remanufactured
parts are not favoured by some regions, however, generally, they are still options
because they might be more affordable than what is new – it is reported that
remanufactured parts are available on the market at a price of 30% lower than
the original.
“As shared in many research articles,
excessive generated emissions or excessive amounts of used energy in reverse
logistics or other circular economy processes may reduce the environmental
benefits of the circular economy systems. However, the value chain of
manufacturing itself generates significant emissions and requires the use of
energy in various phases; thus, it is easy to see why remanufacturing can be
perceived as a green solution despite having various challenges. Regarding
social aspects, decentralized remanufacturing increases local production and
material flows, which in turn can provide new job opportunities locally.”
Case Study: BORG Automotive Group
BORG Automotive is a European remanufacturing
company in the automotive industry and for them, the complete remanufacturing process
includes: “disassembly, thorough cleaning, an extensive inspection of all parts,
reconditioning and replacement, reassembly, and final testing” (BORG
Automotive, n.d.). On top of that, all the products are warranted for up to 2
years, which is almost as long as an original part. And as reported by BORG
Automotive Group, remanufacturing can salvage up to 96% of the raw materials
and reduce up to 40% of the total CO2-equivalent and lower up to 38% of total
energy consumed. 14 million tonnes of material are approximately saved. (BORG
Automotive, n.d.).
ReportLinker. (2022, October 18). Global Automotive Parts Remanufacturing Market to Reach $96.4 Billion by 2027.GlobeNewswire.https://www.globenewswire.com/news-release/2022/10/18/2536413/0/en/Global-Automotive-Parts-Remanufacturing-Market-to-Reach-96-4-Billion-by-2027.html#:~:text=Amid%20the%20COVID%2D19%20crisis,the%20analysis%20period%202020%2D2027.
Parker, D., Riley, K., Robinson, S., Symington, H., Tewson, J., Jansson, K., Ramkumar, S., & Peck, D. (2015, December 17). Remanufacturing Market Study. European Commission. https://ec.europa.eu/research/participants/documents/downloadPublic?documentIds=080166e5a4bc7898&appId=PPGMS
Tondolo, V.A.G., Paiva, E.L., Tondolo, R. da R. P., & Santos, J. B. (2021). Servitization as a Strategy for Remanufacturing: An Experimental Study. BAR, Brazilian Administration Review, 18(3), 1–26. https://doi.org/10.1590/1807-7692bar2021210004
Investopedia. (2021, October 19). What Regulations Affect the Automotive Sector? https://www.investopedia.com/ask/answers/042015/how-much-impact-does-government-regulation-have-automotive-sector.asp
Persistence Market Research. (2022, February 10). The global automotive parts remanufacturing market is estimated to grow at a value CAGR of 7.1% over 2018-2026, roughly equating US$ 91 Bn by the end of 2026 - Persistence Market Research. GlobeNewswire. https://www.globenewswire.com/news-release/2022/02/10/2383086/0/en/The-global-automotive-parts-remanufacturing-market-is-estimated-to-grow-at-a-value-CAGR-of-7-1-over-2018-2026-roughly-equating-US-91-Bn-by-the-end-of-2026-Persistence-Market-Resear.html
BORG Automotive. (n.d.). Remanufacturing Explained. https://www.borgautomotive.com/what-we-do/remanufacturing-explained/
Rönkkö, Ayati, S. M., & Majava, J. (2021). Remanufacturing in the Heavy Vehicle Industry—Case Study of a Finnish Machine Manufacturer. Sustainability (Basel, Switzerland), 13(19), 11120–. https://doi.org/10.3390/su131911120
