Remanufacturing - Yes or No?

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:

1. 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)
2. 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
3. Operations Planning/Logistics: 
• Production, scheduling, and inventory planning
• Integration of re-manufacturing in a global supply chain
4. 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:

Yes, remanufacture	No, do not remanufacture
Customers consider remanufactured products as an substitute	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	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
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

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.

Perceived Value	Perceived Risk
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.	Purchase of this type of product, and generates perceived risk because of the lack of knowledge surrounding the processes that are employed during remanufacturing

 

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 [HLL1] 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:

Decentralisation of Remanufacturing: dispersing among several geographic locations		Centralisation of Remanufacturing
Pros	Cons	Pros	Cons
Emissions and logistics costs may be lower   Allow spare parts/repair kits to increase their availability	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:

1. 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.
2. 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.
3. 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.).

It is clear that a manufacturing company cannot neglect the potential of remanufacturing. The wave for remanufacturing has always been there and now it is time for companies to start riding it.

References

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