EXAMINING REMANUFACTURING
IN SUPPLY CHAIN AND
OPERATIONS MANAGEMENT
APICS INSIGHTS AND INNOVATIONS
FOUNDATION
Research shows that remanufacturing is growing in maturity
in many industries and organizations, and skilled professionals
are essential to that development. APICS conducted a survey
of supply chain and operations management practitioners in
response to a growing interest in remanufacturing and
requests for more in-depth research. In 2013, APICS invited
approximately 18,000 practitioners to participate in the survey.
APICS Research Reports are based on practitioner surveys
that explore trending topics in supply chain and operations
management. They include survey results, analysis,
tips, and best practices to keep you and your organization
informed of insights and innovations in supply chain
and operations management.
This report was developed by the APICS Foundation, the
research arm of APICS. The APICS Foundation advances
supply chain and operations management and innovation
through research, publications, education and talent
development. Organizations and academic programs gain
access to the information they need to contribute to the
success of supply chains and meet enterprise goals through
the foundation’s exceptional network and resources.
ABOUT THIS REPORT
APICS INSIGHTS AND INNOVATIONS
TABLE OF CONTENTS
Executive Summary 5
Key Findings 6
Respondent Profile 11
APICS POINT OF VIEW:
SUPPLY CHAIN REMANUFACTURING
Discovering Remanufacturing
Opportunity in Your Supply Chain 18
An examination of remanufacturing as an
area of growth opportunity for supply chain
and operations management professionals
and organizations.
Glossary and Additional Resources 49
APICS Research 55
Perspectives from APICS Magazine 33
Reverse Logistics at Rolls-Royce 34
Remanufacturing for a more
sustainable supply chain
An excerpt from the APICS magazine
Interview with Peter H. Clonts, CPIM,
and James W. (Jim) Tilton, CPIM
A focus on reverse supply chain and green
supply chain issues of the extensive jet engine
remanufacturing operation of Rolls-Royce.
The Road to Zero Impact 42
Green efforts go hand in hand
with continuous improvement and
cost reduction
An excerpt from the APICS magazine article
wrien by Ron Crabtree, CIRM, CSCP
Organizations have discovered new and
innovative ways to reduce the environmental
impacts of their operations.
Gold-Medal Reverse Logistics 46
Achieve a winning supply chain program
An excerpt from the APICS magazine article wrien
by Dave Turbide, CFPIM, CIRM, CSCP, CMfgE
A company’s introduction to reverse logistics
typically is based on the return of reusable
shipping containers or pallets, product returns
handling, or recycling or reprocessing of
production scrap and offal materials.
EXAMINING REMANUFACTURING IN
SUPPLY CHAIN AND OPERATIONS MANAGEMENT
APICS INSIGHTS AND INNOVATIONS
Remanufacturing:
The APICS Dictionary, 14th edition, defines
remanufacturing as an industrial process
in which worn-out products are restored to
like-new condition. In contrast, a repaired
product normally retains its identity, and only
those parts that have failed or are badly
worn are replaced or serviced.
4
RESEARCH REPORT
EXAMINING REMANUFACTURING
IN SUPPLY CHAIN AND
OPERATIONS MANAGEMENT
EXECUTIVE SUMMARY
Remanufactured goods are an opportunity in price-sensitive markets and the
growing field of emerging economies. Technology is making designed-for-
remanufacturing product development easier and more cost effective than in
the past. Many expect these trends to continue in the long-term. Organizations
are increasingly seeking greater value from supply chains. Investments already
made for reverse supply chain capability, such as recycling or regulatory
compliance, mean remanufacturing has even more opportunity to leverage
existing supply chain partnerships and infrastructures.
Global Acceptance
In the past, remanufacturing was typically limited to supporting business-to-
consumer (B2C) warranty, customer returns, and business to business (B2B)
return of capital-intensive “core” products (such as engines and industrial
goods) to long-term service, within a domestic or regional marketplace. While
these applications remain, new reasons for entering the remanufacturing market
are growing. Remanufacturing and reverse supply chains are essential for:
n
New market development
n
Customer service
n
Value-chain development
n
Sustainability
n
Research and development.
Career Development for Supply Chain Professionals
Becoming experienced and skilled in remanufacturing helps make the careers
of supply chain and operations management professionals more versatile.
Remanufacturing requires new skills in forecasting, planning, inventory
management, and many other supply chain practices. With these skills,
a professional can beer identify potential for opportunity and innovation
in traditional forward supply chains and reverse supply chains.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 5
6
KEY FINDINGS
Remanufacturing adds complexity to supply chains. A reverse supply chain,
where the customer becomes the supplier, presents complexities not found
in traditional supply chains. Approximately 59 percent of survey respondents
stated that reverse supply chains add complexity to their organizations.
However, practitioners expect growing demand for remanufactured goods,
so understanding and training for remanufacturing is becoming a necessity.
Improving Visibility and Integration
Organizations may not be gaining all the value they can from their
remanufacturing operations because of low visibility compared to the rest
of the organization.
More than 35 percent of respondents stated
that remanufacturing is a key method of
complying with sustainability policies, goals,
and requirements.
Only 14 percent of survey respondents stated that
remanufacturing was part of their R&D process.
Approximately 48 percent of respondents stated
that remanufacturing was somewhere between
less than moderately visible and not visible at all.
Remanufacturing directly serves the growth of the reverse supply chain,
sustainability and value-chain, and research and development. In addition,
it serves more traditional functions including warranty, maintenance repair,
and overhaul (MRO), and customer request. Combined, remanufacturing
increasingly supports high-priority goals, competitive practices, and critical
customer service functions.
>
35%
14%
≈48%
APICS INSIGHTS AND INNOVATIONS
RESEARCH REPORT
Challenges in Forecasting and Opportunities with IT
It’s difficult to forecast the condition of many used products returning to the
remanufacturing process. More than 32 percent of respondents reported that
their information technology (IT) systems were poor at forecasting anticipated
demand. This is not surprising. Relying on the customer as your supplier oen
means enduring greater variability in supply quantity and quality. This makes
forecasting more difficult compared to forecasting supply from traditional new
suppliers. Remanufacturing operations must address continually varying
component conditions. Others reported issues with enterprise resources
planning (ERP) systems support.
Technology is creating many options in designed-for remanufacturing, and
many other designed-for aributes, such as designed-for six sigma or
designed-for assembly. Product design in component materials, assembly
options, and product tracking are improving. Past challenges related to
inefficient core parts, or difficult to remanufacture parts, are addressed in
the design phase and create new value chain opportunity.
IT Solution Assessments
Respondents were asked to rate remanufacturing-related IT solutions used by
their organizations.
Poor Fair Good Excellent Don’t know
Anticipated demand forecasting 32% 27% 28% 7% 6%
Incoming or outgoing product core
credits and charges
15% 26% 34% 16% 9%
Multiple product or
component versions
17% 27% 35% 13% 8%
Inventory 14% 26% 35% 20% 5%
Data integration with other
departments and systems
22% 26% 37% 9% 6%
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 7
8
Advancing Remanufacturing Skills
Remanufacturing skills are generally transferable to traditional “forward”
supply chain and operations management practices.
n
Staff and professionals can cross-train and transfer between forward
supply chain and or remanufacturing.
n
Survey results show that specific remanufacturing skills such as sales
and operations planning (S&OP), inventory management, scheduling, and
planning are highly transferable to new product manufacturing.
n
More than 50 percent of survey respondents agreed that most supply
chain and operations management professionals need familiarity with the
topic of remanufacturing.
n
The improvement of legal and trade recognition of remanufactured goods,
designed-for-remanufacturing technologies, trends of sustainability, and
value-chain will help remanufacturing uncover new opportunities for supply
chain professionals.
n
Practitioners expect growing demand for remanufactured goods.
n
Meeting increasing demand for remanufactured goods requires strategic-
level consideration of both new and remanufactured product production.
APICS INSIGHTS AND INNOVATIONS
Skill Set Transferability
Respondents were asked to assess the transferability of the following
remanufacturing skills to new product manufacturing.
1 2 3 4 5 6 7 8 9 10
Not at all Moderate Very
Planning 3% 5% 2% 5% 16% 4% 14% 17% 12% 22%
Procurement 2% 2% 4% 5% 14% 5% 13% 17% 14% 24%
Scheduling 2% 4% 7% 3% 10% 8% 13% 22% 11% 20%
Production 2% 2% 5% 6% 14% 11% 11% 19% 11% 19%
Customer
service
2% 4% 4% 2% 10% 7% 11% 18% 14% 28%
S&OP 5% 8% 3% 4% 12% 6% 11% 16% 16% 19%
Inventory 2% 6% 4% 6% 13% 6% 8% 17% 14% 24%
RESEARCH REPORT
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 9
How would you answer the survey questions for
your organization?
Comparing your results with those of our
respondents may be useful in assessing the
strengths and weaknesses of your
organization’s current remanufacturing operation.
Is your organization considering the addition
of a remanufacturing operation?
Consider using these survey responses as
guidelines to maximize benefits and reduce
shortcomings while planning.
Remanufacturing vs Refurbishing
Only 32 percent of respondents
stated that most or all of their
management could distinguish
between remanufacturing
(meaning restore to as good-as-new
condition) and refurbishing (meaning
restore to a serviceable condition).
Questions for Discussion
Use these questions to help assess the role played by remanufacturing in
your organization:
RESPONDENT PROFILE
The majority of respondents surveyed had professional experience in
remanufacturing and about a fih had worked a decade or more in the area.
Approximately 35 percent of respondents
indicated that their organizations’ production
facilities currently use remanufactured equipment.
More than 25 percent of respondents indicated
that most or all of their competitors offer
remanufactured products similar to those
produced by their organizations.
More than half of the respondents surveyed
have spent more than 12 years in supply chain
or operations management positions.
Approximately a third of the respondents
were from the manufacturing industry, followed
by the healthcare and pharmaceutical,
telecommunications, food and beverage, and
automotive industries.
Remanufacturing Experience
Respondents were asked whether or not they have professional
remanufacturing experience in supply chain or operations management.
10
56%
Yes
40%
No
4%
I Don’t Know
APICS INSIGHTS AND INNOVATIONS
≈35%
>
25%
>
50%
≈33%
RESEARCH REPORT
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 11
Necessity of Remanufacturing Knowledge
Respondents were asked to indicate their level of agreement with the following
statement: “Most supply chain and operations management professionals
need at least some familiarity with the topic of remanufacturing.”
Extent of Remanufacturing Experience
Respondents were asked to indicate the amount of experience they have with
producing remanufactured products.
20%
1 to 3 years
19%
3 to 5 years
14%
Less than 1 year
10%
8 to 12 years
17%
5 to 8 years
20%
More than 12 years
1 2 3 4 5 6 7 8 9 10
Strongly
Disagree
Neither
Agree nor
Disagree
Strongly
Agree
1% 2% 2% 1% 8% 10% 20% 21% 12% 23%
Customer-to-Supplier Transition
Respondents were asked to identify the reason(s) a customer might eventually
become a supplier to their remanufacturing operations.
Remanufacturing is our process for taking
in customer returns, and providing warranty
replacement products to the customer.
Customers demand or expect the option of
remanufactured products. Remanufacturing is a
competitive requirement to serve our market.
Remanufacturing is a key method of complying with
sustainability policies, goals, and requirements.
A high-cost product eventually requires more
maintenance or repair than a customer’s own
maintenance-repair-overhaul (MRO) process
can handle. These customers prefer to sell back
their old product and purchase an identical
remanufactured product.
Specific price-sensitive markets see value in
remanufactured items; while these markets
cannot be easily reached by your customer,
they can be reached by your organization.
Remanufacturing is part of my organization’s
research and development (R&D) process.
We remanufacture products in order to gather
information on actual customer usage and
wear paerns.
12
54%
39%
35%
23%
22%
13%
APICS INSIGHTS AND INNOVATIONS
RESEARCH REPORT
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 13
Visibility
Respondents were asked to assess the level of remanufacturing visibility in
their organizations.
Remanufacturing Versus Refurbishing
Respondents were asked if their organizations’ management is generally able
to distinguish between the terms “remanufacturing”(restoring to ‘as good
as new condition’) and “refurbishing”(restoring to ‘a serviceable condition’).
Sustainability Policy Inclusion
Respondents were asked whether or not remanufacturing is considered to be
a formal component of their organizations’ sustainability policies.
1 2 3 4 5 6 7 8 9 10
Very
Visible
Moderately
Visible
Not at
All Visible
1% 2% 2% 1% 8% 10% 20% 21% 12% 23%
41%
Yes
30%
No
18%
Not yet, we are
working on it
11%
Not sure
41%
Some could,
some could not
32%
Yes
21%
No
6%
I don’t know
Organizational Benefits
Respondents were asked to select the way(s) in which remanufacturing
benefits their organizations.
Organizational Challenges
Respondents were asked to select the challenge(s) posed by remanufacturing
to their organizations.
Customer satisfaction
Enhances product and organization
value chain
Reduced production costs in relation
to new manufacturing
Sustainability
Further develops business unit or
supply chain strategy
Additional complexity of reverse
supply chains
Internal management and resource
competition with new production
Potential to cannibalize new
product sales
Fewer customers accepting
remanufactured products
Limited sales and
distribution channels
New market development
14 APICS INSIGHTS AND INNOVATIONS
RESEARCH REPORT
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 15
Competition
Respondents were asked to indicate how many of their competitors offer
remanufactured products similar to those produced by their organizations.
Long-term Forecasting
Respondents were asked which statement best reflects long-term forecasts of
customer demand for remanufactured products in their respective markets.
Demand will grow at moderate rates as
existing customers continue to see value in
remanufactured products.
Demand forecasts are too difficult to develop
at this time.
Demand will grow at substantial rates as increasing
numbers of new customers will find greater value, lower
cost, or additional flexibility in remanufactured goods.
Demand for remanufactured goods will fall as
customers seek to buy new products and new
designs due to high rates of technological change.
28%
I don’t know
22%
A few
18%
Some
20%
Most
6%
All
6%
None
28%
24%
20%
15%
Customer or Market-based Perceptions
Respondents were asked to select the customer or market-based perception(s)
of remanufacturing they have encountered.
Even if the quality is the same, remanufactured
goods have lower resale value than newly
manufactured goods.
Remanufacturing is a fancy term used to resell
used products.
No manufacturer really wants remanufactured
products to succeed because they hurt new
product sales.
Remanufactured products have poor warranty or
aer-sales service.
Since remanufactured goods are lacking in national
and global standards, product quality and performance
are too variable to trust.
Remanufactured Equipment in Production Facilities
Respondents were asked whether or not their organizations currently use
remanufactured equipment in their production facilities.
16
71%
37%
24%
22%
19%
43%
No
34%
Yes
23%
I Don’t Know
APICS INSIGHTS AND INNOVATIONS
RESEARCH REPORT
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 17
Advantages
Respondents were asked to select the advantage(s) they associate with
remanufacturing, based on their experiences.
Drawbacks
Respondents were asked to select the drawback(s) they associate with
remanufacturing, based on their experiences.
Sustainability
Additional complexity of reverse
supply chains
Potential for new markets and
price points
Fewer customers trust
remanufactured products
Value-chain enhancement
Potential to cannibalize
new product sales
Greater customer loyalty
Internal management and resource
competition with new production
DISCOVERING
REMANUFACTURING
OPPORTUNITY
IN YOUR SUPPLY CHAIN
An examination of remanufacturing as an area of
growing opportunity for supply chain and operations
management professionals and organizations.
18
APICS POINT OF VIEW
APICS INSIGHTS AND INNOVATIONS
DESIGNED FOR REMANUFACTURING
Traditional supply chains are taking more notice of remanufacturing. New
products that are designed for remanufacturing are becoming more common
as buyers, sellers, and a variety of supply chain and operations management
trends create demand for new choices and value.
APICS research has analyzed the data presented in the first part of this report
to provide insights that will help you:
n
Discover an overview of remanufacturing practices and issues for supply
chain and operations management professionals.
n
Understand how remanufacturing is evolving on a global scale.
n
Use knowledge of remanufacturing to advance best practices at
your organization.
Remanufacturing serves a broad array of strategic interests, helps open new
markets, and creates additional value. Yet remanufacturing still lacks visibility
in many areas. Remanufacturing complexities and challenges are not well
understood outside of the remanufacturing industry. This report seeks to
increase knowledge and provide information about the topic as it specifically
relates to supply chain and operations management professions.
Relationships in Remanufacturing
Remanufacturing is integral to many aspects of production and
manufacturing, including operations management, the reverse supply
chain, and the value chain.
The Reverse Supply Chain
Reverse supply chains typically include all activities, organizations, and
information that facilitate the flow of used products from the customer back to
the producer. This is the reverse of the usual flow of products from producer
to consumer. Reasons for operating a reverse supply chain may come from
environmental or disposal regulation, product recall requirements, or the
desire to achieve additional value or profit. Remanufacturing is a specific
example of reverse supply chain activity. Remanufacturing returns a customer’s
used product to as good-as-new condition. However, not all reverse supply chain
activity returns used products to a good-as-new condition. For example, reverse
supply chains may operate to stockpile, recondition, or recycle used products.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT
Remanufacturing: A History
Modern remanufacturing dates
back to back to World War II, when
automobile part rebuilding began
to transition away from repair shop
benches and moved toward becoming
its own remanufacturing industrial
process. Today, remanufacturing is no
longer an industrial or professional
niche. According to a report by the
Office of the United States Trade
Representative, “remanufacturing
accounts for 90 percent of the
market for certain replacement auto
parts in the United States. Overall
it is responsible for creating roughly
680,000 jobs.”
19
Remanufacturing and Operations Management
Achieving profitably in remanufacturing, in part, relies on operations
management. Remanufacturing operations seek to maximize flow and yield,
despite constant variation. Below is an outline of typical operational steps:
Qualification: Aer acquisition, a product undergoes an initial examination to
confirm it is suitable for remanufacturing. The product, or the core of the
product, must be free from unusual wear, damage, or missing components
that would otherwise disqualify it. This step may also capture precise data
about the condition or state of the product in order to document, plan, or refine
future remanufacturing production schedules and component inventory levels.
Disassembly: Disassembly seeks to balance speed and productivity while
preserving as much product or component value as possible. Where possible,
disassembly reverses original new product assembly steps. In other cases,
where a product was not designed for remanufacturing, disassembly may
create damage. (While this damage will be restored in later steps, it can be
costly to the remanufacturing business.) The depth of disassembly is
governed by determining what is needed to ensure the remanufactured
product meets new product specifications and capabilities.
Component inspection and decontamination: This step evaluates and
identifies components for further processing. This step may discard some
components while retaining others. Retained modules and components
typically undergo recovery cleaning or decontamination to remove the by
products of use, wear, or aging.
Component restoration or replacement: Components discarded in the previous
step are replaced from remanufacturing component inventories. Remaining
components are restored to like-new condition. This step, as with the previous
step, may require special skill in order to consistently recognize and perform
necessary work needed to reach a like-new condition. Given all the variation
possible, these tasks may require substantial experience, training, or qualification.
Reassembly: In a postponement model, final reassembly may await a specific
customer order. In a remanufacturing inventory-pool model, final reassembly
proceeds when inventory levels call for additional remanufactured stock.
An inventory pool ensures that a remanufactured product immediately ships
upon receipt of a used product. Reassembly may also involve steps
where remanufactured goods are required by law to be labeled, documented,
or tracked
20 APICS INSIGHTS AND INNOVATIONS
APICS POINT OF VIEW
Remanufacturing oen serves business-
to-consumer (B2C) models where returns
and warranty claims create supply and
demand for remanufactured products.
Other common business models are
business-to-business (B2B), end-of-life
maintenance and trade-in service.
Testing and quality assurance: Products undergo quality assessment to
ensure each objectively meets the standards of newly manufactured products.
this may involve testing every product to satisfy regulatory or marketing claims.
This step may also document specific quality assurance data as required by
the customers, regulators, or industry practice.
Value Chain: Swapping Traditional Buyer and Supplier Roles
Remanufacturing relies on a supply chain of original product buyers to become
suppliers to a remanufacturing process. This reversal creates and preserves
value for three parties:
Eventually, a remanufactured product will be refurbished, recycled, or scrapped
when remanufacturing is no longer profitable. This may occur even if a
remanufactured unit remains physically capable of serving its purpose in its
market. Part of the reason for this is the difficulty of global trade for many
remanufactured products.
In many nations, remanufacturing is active in the areas of:
n
Transportation equipment
n
Computer or telecommunications devices
n
Medical devices
n
Audio or visual instruments
n
Commercial and industrial equipment (particularly in agriculture, mining,
construction, printing-copying, utilities, heating and air conditioning, baking,
vending, and musical instruments).
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 21
OWNER
The owner of a worn
product sees value when a
remanufacturer offers an
acquisition price higher than
the product’s scrap value.
REMANUFACTURER
The remanufacturer sees value
in acquiring a worn product
at a price that does not include
much of the energy, labor,
material and design expense
originally expended to create
the product when new.
FUTURE BUYER
The future buyer of the
remanufactured product sees
value in acquiring a product
as good as new but at a lower
price than new production. The
remanufacturing marketplace
helps to establish competitive,
ongoing value to all parties.
However, current trends are changing because remanufacturing is well suited
to products, industries, and market trade where products have
n
Durable, long life spans
n
High cost or complexity when new, which helps create value
for remanufacturing
n
Market and regulatory recognition or approval of remanufactured products
n
Predictable wear or usage paerns
n
Standardized designs even over multiple product versions or generations.
B2C Remanufacturing
Most business-to-consumer business models routinely see the customer
becoming a product supplier due to product returns and warranty claims. Even
goods free of functional defects may hold “subjective defects” (the product
was returned because the customer didn’t want it versus it was returned for
actual defects). Remanufacturing seeks to conserve and recover value from
returned products.
Consumer products designed for remanufacturing need to balance cost, quality,
durability, and volume. For example, higher quality and durability tend to increase
new product price and reduce new product demand and production volume.
However, this outcome may increase demand and volume for remanufactured
products. Ultimately, the combination of cost, quality, durability, and volume
must result in predictable supply to the remanufacturing operation.
This may be challenging because not every customer will purchase
remanufactured goods. Remanufactured products may not create a green
or sustainable perception to the customer due to lack of awareness of
remanufacturing. Customer demand may come from a subset of consumers
who value equivalent capability at a lower price than new products.
B2B Remanufacturing
While subjective defects may be less common in the business-to-business
arena, warranty service, balancing cost, quality, durability, and sales volume
remain important. Repurchase agreements may exist in sales contracts, which
set specific dates or fixed hours of use before a product becomes available
to remanufacturing.
22
Remanufactured Product
The Remanufacturing Institute classifies
a product as remanufactured if
n
Its primary components come from
a used product (sometimes called
a core).
n
The used product is dismantled to
the extent necessary to determine
the condition of its components.
The used product’s components are
thoroughly cleaned and made free
of rust and corrosion.
n
All missing, defective, broken or
substantially worn parts are either
restored to sound, functionally
good condition, or they are replaced
with new, remanufactured, or sound,
functionally good used parts.
n
To put the product in sound
working condition, tasks such as
machining, rewinding, refinishing
or other operations are performed
as necessary.
n
The product is reassembled and a
determination is made that it will
operate like a similar new product.
APICS INSIGHTS AND INNOVATIONS
APICS POINT OF VIEW
In addition, a company may influence remanufacturing supply and demand
based on:
n
Repurchase or exchange promotions
n
Special financing or financial risk sharing
n
Differing levels of customer support.
End-to-end supply chain strategy and/or goals may also influence specific
customer relationships, particularly those who seek product suppliers that
provide sustainable reuse capability.
Trends Driving Remanufacturing
Outside traditional remanufacturing domains, swapping the roles of buyer
and supplier to create value is unfamiliar. Buyers and markets operate in terms
of resale value or salvage value rather than remanufacturing value; this view is
changing due to the following trends that increasingly support remanufacturing:
n
Maximizing value in each area of supply chain and operations management
n
Improving risk management practices through reverse supply chain capability
n
Growing legal and regulatory clarifications and support, economically and
through sustainable and responsible legislation
n
Increasing demand for greater value and choice from customers and markets
n
Advancing sustainability and responsible business practices
n
Developing product value stewardship across the triple boom line of people,
planet, and profit through the reuse of resources
n
Finding more value from every supply chain function—particularly where
remanufacturing offers greater value than refurbishment and/or recycling.
Businesses will see remanufacturing opportunities, particularly where:
n
Industries recognize product value not just for product materials but for
their inherent design, intellectual property, or regulatory approved status
n
Markets accept and trust the “as-good-as-new” concept
n
Good customer service and support ensure remanufactured products
become solutions, not just price-sensitive commodity items.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 23
TREND: Closed Loop Supply Chains
Closed-loop supply chains work by
taking back products from customers
and recovering added value by
reusing the entire product, or some
of its modules, components, and
parts. Remanufacturing supply chain
management establishes a closed
loop not only by physical reacquisition
of products, but also by managing
the risk, opportunity, and value of the
customer as an eventual supplier.
The tactics of managing supply and
demand, inventory management,
and channel and logistics functions
vary substantially from traditional
forward supply chains. Closed-loop
supply chains help develop greater
capability to advance value-chains,
sustainability, and innovative
procurement practices.
MANAGING CHALLENGES
Remanufacturing introduces a number of challenges to the environment,
including the additional complexity of reverse supply chains; balancing
customer-as-supplier; reputation management; and regulatory issues.
Complexity in Supply and Demand
24
CHALLENGES
n
As with new production, profitable supply chain and operations
management depends on effective forecasting, careful inventory
management, and consistent rebalancing of supply and demand.
However, remanufacturing introduces variations in both supply
and demand that are unfamiliar to new production.
n
Remanufacturing in supply chains is oen challenged by suppliers
that do not deliver consistent quality or supply. Products entering the
remanufacturing supply flow may be in poor condition and unsuitable
for remanufacturing. In addition, the supply of returned products may
decline if other buyers compete for the same supply.
n
Demand for remanufactured products decreases if new product
prices fall close to remanufactured pricing. This is where
remanufacturing must remain as effective in reducing costs and
increasing productivity as new production.
RECOMMENDATIONS
n
Sales and marketing should work to effectively position the value
of both new and remanufactured products to all customers.
n
Because profitably in remanufacturing relies on operations
management, operations should seek opportunities to maximize
flow and yield, despite constant variation.
APICS INSIGHTS AND INNOVATIONS
APICS POINT OF VIEW
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 25
Complexity in Supply and Demand
CHALLENGES
n
Supply and demand forecasting based on historical averages
produces routine high-level results. However, day-to-day variation
can be substantial, particularly in terms of supply.
n
As the new product buyer plays the roles of buyer and supplier over
time, the buyer must see reliable and predictable value in serving
both roles. For example, changing from buyer to supplier may happen
when anticipated ownership, repair, and maintenance costs are
easy to determine.
RECOMMENDATIONS
n
Where possible, a remanufacturing business model should seek
to create predictable supply and demand by remaining sensitive
to the buyer, and the needs which remanufacturing serves.
n
A remanufacturer can help provide guidance to new product life
span and life cycle costs in order to help maximize the new product
owner return on investment that supports remanufacturing. A new
product buyer gains the benefit of an outline for ownership expense
and potential repurchase future payment for selling the product to
the remanufacturer.
n
Seing clear expectations with new product buyers can help
establish supply and demand forecasting based on actual customer
use and need.
n
Maintain alignment with new production and marketing to help
create early new and remanufactured product awareness, and
updated forecasts and plans. Every sale to a new product customer
becomes a potential future supplier. New product sales forces
may provide insight into demand from other buyers who cannot
afford new product pricing.
Additional supply and demand factors
may include:
n
Financial and tax requirements such
as accelerated depreciation
n
Strategic plans and goals of the
organization change
n
Products once owned and operated
by the organization disappear
because of outsourcing or business
refocusing efforts.
n
New product trade-in pricing
and promotion.
26
Reputation and Perception
Organizations can help manage public perception, branding, and marketing
of “used” products by making available certified remanufactured units that
meet new product standards. These products enhance the reputation of
the manufacturer by creating instant choice in the market for good-as-new
products, in contrast to used products of unknown quality from unknown
sellers. Remanufactured units frequently offer new warranty and service
options, which creates greater flexibility for the buyer in terms of ownership
risk reduction.
If the original manufacturer engages in remanufacturing, the market may
expect the manufacturer to provide warranty or aer-sales service comparable
to newly produced products. As an original manufacturer begins remanufacturing
in a new market, buyers begin to see remanufactured goods as legitimate
alternatives to new production. This may stimulate remanufacturing supply
chain businesses.
Positioning
The new product manufacturer’s marketing and branding will need to position
and differentiate both its competitors, as well as its own remanufactured
products. The original manufacturer can stress the advantages of greater
research and development, design, pricing, service, and support for both
new and remanufactured products. Marketing may create incentives to create
a customer relationship that includes both new and remanufactured purchases.
For example, the manufacturer may ensure that all components, whether new
or remanufactured, are guaranteed to be genuine and manufacturer approved
for the highest quality at the best price.
Sales and marketing may need to overcome perceptions about quality,
durability, or reliability of remanufactured products. Doubts may exist about the
manufacturer’s actual commitment to customer service for remanufactured
goods. There may also be the perception that a customer relationship based
on remanufactured goods is of lower priority compared to new product
customers. Messaging that emphasizes standards and trust for remanufactured
products being equal to that of new products, as well as offering greater value,
may be important to both markets.
APICS INSIGHTS AND INNOVATIONS
APICS POINT OF VIEW
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 27
New Product Sales
Internal management or supply chain channel partners may hold concerns
about remanufacturing and new product cannibalism, loss of focus, or
uncertainty in brand reputation. Supply chain partners may have specific local
or market knowledge that can help or hinder the introduction of remanufactured
goods. Their formal and informal acceptance, or lack of acceptance, can influence
both supply and demand. Early communication, relationship building, and
opportunity to share in value help overcome these concerns. Marketing research,
staff training, and coordinated strategy support this effort.
Regulatory Environment
Remanufacturing is a relatively recent phenomenon in many nations. Maturity
is developing, but laws permiing trade and resale in other markets may not be
clear. Laws may view remanufacturing as a threat to new product manufacturing
and employment. Current regulation and taxation may fail to distinguish between
remanufacturing and repair or refurbishment. Establishing a remanufacturing
operation may introduce additional penalties or capital restrictions when
compared to new production. This may entail:
n
Taxable valuation of remanufactured goods, including depreciation rates,
scrap value, value or added taxation rates
n
Intellectual property and antitrust maers
n
Sustainable regulation
n
Industry protection and incentives.
Many nations do not recognize remanufacturing as an industry. Therefore, few
national-level statistics are available, making competitive analysis and market
development studies difficult.
Lack of Recognition
Some nations forbid labeling remanufactured goods as new goods but also
do not recognize remanufactured goods—this may reduce the perceived value
for remanufactured products, even if they are as good as new and available
at a lower price. Some nations ban the import or export of “second-hand” goods,
whose definition may encompass remanufactured goods. Alternatively, the
trade of remanufactured goods may be tolerated only due to uncertainty in
interpretation of regulatory requirements in some cases.
28
Despite these challenges, awareness, visibility, and recognition are improving:
n
Sustainability regulations that promote the reduce, reuse, and recycle
model increasingly recognize remanufacturing as a business standard
supporting sustainable practices.
n
Free trade accords can improve business opportunity by eliminating tariffs,
quotas, or permits in trade of all kinds, including remanufactured goods.
n
Remanufacturing offers re-skilling and business development opportunity.
This aracts entrepreneurs who can identify value and profit potential.
n
International trade-level talks in recent years have begun to
cover remanufacturing.
As with other supply chain planning, substantial due diligence should accompany
any consideration of establishing formal remanufacturing activity or trade with
other nations.
OPPORTUNITIES AND BENEFITS
Remanufacturing brings a broad spectrum of potential to organizations,
particularly those that produce both new and remanufactured products.
These examples demonstrate core elements of value and strategy that
remanufacturing is uniquely able to provide:
Big Data
As used products return and enter the remanufacturing process, a
remanufacturer can gather data about the unit’s actual use and performance.
This information combined with information about the original buyer and
buyer expectations, creates objective data to improve new product development,
marketing, and customer relationships. In addition, this information may help
reduce warranty claims in future products, improve return forecasts, or lower
new market development costs. Marketing may gain a wealth of objective
data in operations, finance, and sustainability cost savings. As this information
flows to the market and customer community, the remanufacturer and new
product manufacturer can demonstrate widespread innovation, responsiveness,
and thought leadership in business practices. This may serve general
reputation and public relations in areas outside the remanufactured products
market. Sophisticated data capture and knowledge management systems
may be necessary to leverage all of the data. (For more information on big data,
access the APICS Big Data Folio.)
APICS INSIGHTS AND INNOVATIONS
APICS POINT OF VIEW
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 29
Demand Management
With design knowledge, and knowledge of new designs and their advantages,
the manufacturer of both new and remanufactured products can anticipate
and forecast when the original purchaser will want to sell units back for
remanufacturing. This information assists new product forecasting and new
product launches. New product launches may also trigger future remanufactured
product launches. This helps plan a coordinated long-term product life cycle
that maximizes return on investment in new product design.
Sales and Marketing
Remanufacturing creates opportunities for relationships, new markets, and
greater price-point flexibility. In rapidly developing new markets, a remanufactured
unit can establish an early brand and customer relationship. Over time, that
relationship can grow into loyal brand preference and additional purchases as
economic development occurs in the market. This can help build demand
for new manufacturing and access to adjacent new markets not yet served by
the organization.
Risk Management
Remanufacturing serves the practice of risk management in many ways:
Reducing economic risk
An organization can aract and engage wider audiences for its products and
brands. These audiences become loyal customers to the brand and over time
become interested in new and remanufactured products.
Direct product safety and performance evaluation
Remanufacturing allows an organization direct access to paerns reflected by
customers. Evaluating the performance of a product’s safety and features is
no longer theoretical. Research and development can improve future products
based on real-world customer use.
Product family life cycle
Development of new products is usually expensive and risky. A new product
may have a limited life cycle in the marketplace to recover its development
and marketing costs. Remanufacturing helps create a long-term opportunity,
lengthening the traditional new product life cycle and creating opportunity
for ongoing revenue. With anticipated revenue from remanufacturing, an
organization faces fewer financial risks than from relying on new product
sales alone.
30
Access to essential, but expensive or scarce parts
Products that contain scarce or expensive components, difficult to manufacture
parts, or highly regulated elements oen face procurement uncertainty.
For example, a rare metal alloy essential for production may only have a few
suppliers or an unstable global market price. Remanufacturing allows a past
customer to become the supplier of these scarce components, which reduces
procurement risk.
Rapid ability to recover from defects
If a new product family ships with hidden defects, remanufacturing capability
offers a ready channel to take back and repair these products, shielding both
the customer and the company from full loss and liability that such defects
might have caused.
Recommendations: Aligning New Manufacturing and Remanufacturing
Remanufacturing seeks to increase an organization’s market share and
increase its reputation for choice and quality. However, remanufacturing risks
reducing new manufacturing supply and demand. Remanufactured goods may
cannibalize new manufacturing demand. Depending on how remanufacturing
is implemented, remanufacturing may compete for capital, skill, and overall
management. This risks creating silos of separate manufacturing and
remanufacturing business units. In addition, distribution and sales channels
may be threatened.
Remanufacturing relies on the success of new manufacturing for products to
remanufacture. New manufacturing relies on remanufacturing to create new
markets and price points, and the fulfillment of strategic goals, such as increasing
value-chain and sustainability performance.
Ideally, value begins with research and development and product design,
which serve both new and remanufacturing needs. This creates the concept
of a shared product value stewardship business model. In terms of value,
sustainability, and strategy, products continually retain and offer value to all
supply chain participants.
APICS INSIGHTS AND INNOVATIONS
APICS POINT OF VIEW
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 31
To satisfy the downstream sales channel, a business model might include one
or more of the following:
n
Products remanufactured by the company will be sold exclusively through
the organization’s existing authorized parts and distribution network.
n
The company offers its channel partners a variety of innovative product
trade-in incentives, ensuring that the large majority of its parts are returned
by its suppliers to the remanufacturing operation. This creates value for
new manufacturing by increasing trade-in demand for new products, as well
as providing remanufacturing supply.
To ensure optimal risk-reward balancing among distribution and channel
partners, the business model might include:
n
An inventory repurchase agreement for unsold remanufactured parts
n
A credit or deposit for returned used parts to ensure partners return used
parts for remanufacture
n
Targeted marketing depending on the region, market, or opportunity.
To overcome potential conflicts, supply chains and planned product life cycles
should follow a business strategy that leverages and aligns the benefits of new
production and remanufacturing.
CONCLUSION
Supply chain and operations management practitioners are central to the
success of remanufacturing. Their positions connect the tactics, strategies and
stakeholders necessary for remanufacturing to function successfully. It’s
important for organizations to envision a future where remanufacturing is a
standard process for every manufacturing organization.
n
No longer a niche: remanufacturing has become mainstream supply
chain practice
n
New opportunities: remanufacturing is trade legal technology
n
Benefits for strategic execution: value chain, sustainability, new markets
n
Demand is expected to grow: potential competitive advantages
32 APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES
FROM APICS MAGAZINE
APICSmagazine is an award-winning publication featuring
innovative ideas and real-world strategies for inventory,
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transportation and logistics; and more. Visit apics.org/magazine
to view current and archived issues and to learn more about
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REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 33
34
PERSPECTIVES FROM APICS MAGAZINE
REVERSE LOGISTICS
AT ROLLS-ROYCE
Remanufacturing for a more sustainable supply chain
Rolls-Royce has an extensive jet engine remanufacturing
operation. This article provides an organizational perspective
on making a used product as good as new—the definition
of remanufacturing.
From the APICS Interview with:
Peter H. Clonts, CPIM
Master Scheduler
Rolls-Royce Global
Repair Services:
Americas
James W. (Jim) Tilton, CPIM
Logistics Manager
Rolls-Royce Global
Repair Services:
Americas
APICS INSIGHTS AND INNOVATIONS
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 35
36
Editor’s note: Peter H. Clonts, CPIM, and James W. (Jim) Tilton, CPIM, recently
presented the educational session “The Supply Chain in Reverse—Component
Remanufacturing at Rolls-Royce” at APICS 2013 in Orlando, Florida, USA. Here,
APICS magazine managing editor Elizabeth Rennie speaks with them to learn
more about their company’s reverse logistics and sustainability practices.
Rennie: Logistics professionals have dedicated a great deal of time to squeezing
margins, managing rising transportation costs, and mitigating risk and shiing
demand paerns. Now, they also are responsible for helping to create more
sustainable supply networks. With this growing focus on sustainability, what are
the new important roles of today’s logistics professionals?
Clonts: I can’t really say there are new roles, per se, but the same old roles are
having to shi or expand focus. The logistics manager, master scheduler,
material requirements planner, warehouse manager, forecaster, and planner
all have to take what they’ve learned in the traditional forward supply chain
and prepare for the added levels of complexity inherent in sustainability and
remanufacturing efforts.
As we’ve learned from the APICS operations management body of knowledge,
operations are operations are operations—until they’re not. In other words,
we all take the body of knowledge and apply it to our specific industry, company,
customer base, business model, [enterprise resources planning] system,
products, and people. Logistics professionals guard the same gates they always
have, but what is behind those gates is changing.
Recycling and remanufacture—to me, they are just the next step in the evolution
of business; and, therefore, the evolution of the logistics professional. So, the
short answer is, roles aren’t changing, just the focus. Today, we are focusing on
product return from the customer base; engineering and production capability
for medium-to-small-volume repairs, as well as runners and repeaters; product
usage data and traceability; the science of varying yield rates management;
intimate knowledge of forecasting, with particular ability to recognize that
historical consumption of new parts becomes your leading indicator for the
core raw material availability; and commodity recycling.
Tilton: Sustainability can be defined as the capacity to endure, so another
important role or skill required of today’s logistics professionals would be the
ability and aptitude to recognize, deal with, and withstand the increasingly
complex and evolving demands that are put upon today’s supply chain to not
erode its performance and affect customer satisfaction levels. Years ago, to
APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES FROM APICS MAGAZINE
become more competitive, manufacturers invested in higher-technology
equipment—replacing multiple single-capability machines with fewer multi-
capability and computer-guided machines. This required fewer high-skilled
workers and [less] outsourcing. Then, we started to cut costs by cuing inventory.
We started squeezing our suppliers for more and more cost reductions. Now,
for about the last decade or so, our aention has been turned to supply chain
and logistics costs to find the hidden savings to be realized in competitiveness
and profitability.
To meet the challenges of today and tomorrow, logistics professionals must
keep looking forward to stay ahead of the game. Challenge the status quo.
Be proactive. (To learn about Tilton’s specific strategies for success, read the
October 2013 APICS Extra by Rennie.)
Rennie: Typical responsibilities for today’s logistics professionals also include
regulatory compliance and environmental concerns. Do both of these
sustainable supply chain forces affect your specific roles at Rolls-Royce?
Clonts: Absolutely. Every decision we make must consider the impacts to all
of the appropriate governing bodies. It’s in our DNA… The most visible body
is the [Federal Aviation Administration] here in the United States. There is also
[the European Aviation Safety Agency], not to mention the governmental
requirements for supplying engines to the military.
Tilton: Additionally, Rolls-Royce is International Environmental Management
System Standard ISO 14001-certified… And we have a global recycle/revert
program whereby our scrap metals are reintroduced into the raw materials
supply chain for both Rolls-Royce and our supply base.
Clonts: The other thing I’ll add is that being so highly regulated can put
constraints on what suppliers, recyclers, and [third-party logistics providers]
we can use—which is a good thing. Oen, they have to meet the same
requirements we do, so it simplifies the search.
Rennie: What are the major goals of Rolls-Royce’s remanufacturing practices?
Please give our readers a brief explanation of what the process entails.
Tilton: In Indianapolis, the remanufacturing part of our business is managed by
Global Repair Services: Americas (GRSA). GRSA is made up of repair engineering;
program management; aermarket supply chain; scheduling; logistics; quality;
and, of course, finance. The reason and mission of GRSA is to reduce the cost
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 37
38
per flight hour of [aircra engines], develop and oversee component repair
suppliers, create additional revenue opportunities for Rolls-Royce, offer
customers a one-stop shop for repaired serviceable components, and provide
a mechanism to turn technology into revenue.
Clonts: We also strive to reduce engine overhaul turn times by having a pool of
repaired inventory available and reduce our carbon footprint through reuse
and repair parts, as much as possible, and recycling those parts that cannot
be repaired or reused by reverting to original billet form. From my perspective
as master scheduler, the planning aspect is much more complex than the
standard forward supply chain. While we have to understand overall demand,
we additionally have to understand the constantly moving target of the
expected split between new and repaired components. In one sense, it can
be viewed simply as balancing a requirement between two different suppliers.
However, when the rate at which your core items—raw material input into your
remanufacturing supply chain—become available, the condition of that core,
which historical configuration of that core arrives, and which repair scenarios
can be applied all vary greatly. Suddenly, it can feel like you’re trying to hit a
moving target at 300 yards with a Wiffle Ball while blindfolded.
Rennie: What are some other noteworthy challenges Rolls-Royce has faced
along the way to building an effective remanufacturing program?
Tilton: I think one of the challenges has been to keep pace with the growth of
this program. GRSA started out as an idea to provide support for a set of
programs limited to one business unit. As the business significance became
evident, it was being applied across other business sectors. Oentimes,
multiple business sectors can end up doing the exact same thing, but using
totally different approaches. Standardization becomes paramount; mass
customization is rarely ever cost effective. Another big issue in a remanufacturing
program and the reverse logistics that support it is relationship management.
The relationship requires a bit of “role swapping,” if you will. In a program such
as this, the customer becomes the supplier, and vice versa. The customer
now supplies you with their core returns. This is where the ability to think and
act collaboratively comes in full steam. The more complex and diversified
the organizations involved are, the more challenging the relationship becomes
to manage.
The same people aren’t always the ones controlling what comes in and goes
out. Program coordination can be challenging without a solid understanding of
the bigger picture.
APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES FROM APICS MAGAZINE
Clonts: We also had to determine the best way to get used parts and
components returned in a timely manner from the overhaul shops and aircra
operators. Eventually, we had to offer an incentive—a core credit—to
encourage more timely part returns. Otherwise, some facilities would wait until
they were overwhelmed with parts lying around and ship us months-worth
of inventory. Those kinds of surges really interrupt continuous material flow.
Another issue we faced was knowing which parts to keep as core and which
ones to revert directly. In the early days, we kept absolutely everything and
ran out of storage space to the point of needing to make decisions on what
we keep and what we revert directly. Eventually, we began seing maximum
inventory levels on some of the cores that didn’t have an active repair.
Rennie: In your APICS 2013 presentation, you said that remanufactured products
sometimes can surpass their original design specifications in terms of durability,
life span, and performance thanks to the design and component improvement
that occurred while the product was in service. Can you share more on this point?
Tilton: Sure. Here are a couple of examples: On a component exposed to extreme
thermal conditions, a repair development allowed the part to beer resist the
rubbing wear created by the thermal expansion. This performance improvement
doubled the life span of the part. On another component exposed to constant
burning, the repair addition of a special coating extended the life of the part so
that it no longer causes the teardown of the assembly. In both of these cases,
the repair technology was so successful that it was incorporated into the [original
equipment] design.
Rennie: Also in your presentation, you shared with aendees that “success starts
at the front end of your returns management system.” Why do you believe this
is true? Can you share some of the key front-end enablers and requirements for
your remanufacturing and returns management systems?
Tilton: One thing about being associated with any processes involving
warehouse storage space is that people will seek you out to “find a place to
put their stuff,” as the late, great George Carlin used to say. A warehouse
is not a place to just put your stuff; those places are called storage units.
A warehouse is a storage and issuance facility. It is not unlike an efficient
filing system. Items are received into predetermined locations and valuations.
This facilitates proper and timely stockkeeping activities, reporting, issuances,
et cetera.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 39
40
Rennie: How does remanufacturing relate to risk management? Can an
effective reverse flow help mitigate some potential hazards?
Tilton: Absolutely. Having a pool of parts on hand and knowing their status
allows us to have an additional material supply other than the standard
raw, work in process, finished goods. This “pool exchange program” enables
Rolls-Royce to keep a set of serviceable parts on hand to be exchanged
for incoming core to be repaired. You now have a supply of goods that can
be reviewed for possible mitigation of a gap in the [original equipment
manufacturer] supply side. It gives customers an alternative to other
higher-priced, longer-lead-time options.
Clonts: In fact, this was part of the impetus of developing repairs in the first
place. Early in the life cycle of the engine program, the market demand for
[a particular] engine grew much, much faster than originally anticipated. That
created a strain on our supply chain and manufacturing ability, leaving very
limited capacity to support the aermarket engine repair and overhaul. So,
what could we do? To stand up and get all of the appropriate approvals for
a new manufacturer would have taken far too much time. To paraphrase Princess
Leia, “Repair development, you’re our only hope.” And like any good Jedi, they
delivered victory against the supply constraints. Those early days haven’t been
the only instances of mitigating supply risk. In fact, part of our current planning
for repair includes determining what the sustainable repair rate can be. What can
both the repair suppliers and [original equipment manufacturing] suppliers
rely on as a predictable balance of demand? As I stated earlier, it’s a constantly
moving target, but one that is critical to the business in order to meet our
customer satisfaction requirements and inventory budget constraints.
Rennie: What specific benefits does Rolls-Royce enjoy as a result of its
remanufacturing initiatives?
Tilton: Customer-facing business units are able to achieve 95 percent on-time
parts delivery. Additionally, inventory that is managed to optimum levels in our
pool exchange program provides reduced administration needs for expedited
or one-off repairs, reduced supplier repair cost, optimized inventory levels through
part exchange, beer visibility, beer management of potential supply chain
shortages, more scrap kept out of landfills, reduced raw material costs, and
cost-saving incentives for suppliers … In short, predictable parts delivery to
the shops means that our customer business units and our engine build shops
are able to achieve higher customer satisfaction levels.
APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES FROM APICS MAGAZINE
Clonts: The benefits Jim speaks of are now coveted in other parts of the
business. We developed and grew this remanufacturing/pool exchange model
in Indianapolis. It has been recognized as a best practice in Rolls-Royce globally.
We are currently adopting this mind-set and methodology for use worldwide,
specifically in the [United Kingdom] and Germany. And, like any other process,
we’re always driving improvement in and waste out—always keeping our
people, partners, and planet at the forefront of it all.
42
THE ROAD TO ZERO IMPACT
Green efforts go hand in hand with continuous improvement
and cost reduction
By Ron Crabtree, CIRM, CSCP, MLSSBB
APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES FROM APICS MAGAZINE
This article demonstrates the implementation of zero-landfill as a step
towards supply chain reversal, and supports remanufacturing.
Organizations have discovered new and innovative ways to reduce the
environmental impacts of their operations. For example, forward-thinking
firms engage lean six sigma principles to find cost-effective solutions to meet
environmental mandates and reduce waste in all aspects of the business.
One success story of embracing both lean and green can be found in the US
automotive industry. In the mid-1990s, I was head of materials management
and continuous improvement programs at an automotive parts supplier. We
manufactured interior trim used in headliners and insulation for the Big Three
US automakers. The process of forming finished parts out of resonated fiberglass,
foam, and textiles generated a large amount of extra trimming. Each production
cell was equipped with its own trash receptacle. If production was running well,
these were emptied into a large compactor around 16 times per shi, a process
that required liing up and shaking out the containers.
It took a team of four forklis working continuously to keep up with the volume.
Liing the trash receptacles overhead was dangerous work—sometimes
they would even fall off the forklis while drivers banged at them to dislodge
the contents. In addition, the compactor would jam two or three times a day,
as the nature of the trimmings made it difficult to compact them tightly. Each
40-cubic yard container usually went to the landfill with only about 20 cubic
yards of material in it.
To begin to tackle the problem, I led a lean kaizen event. First, we obtained a
baseline of the current process in order to understand the true and total costs.
A team was formed to brainstorm measures that could either reduce the
effort required to handle trimmings or the need for them in the first place. One
innovation was to use smaller baling compactors at each production cell. This
made it easier for operators to place trimmings in a more convenient location
instead of high above in a large hopper. This was an improvement in terms of
both ergonomics and safety.
The balers also enabled us to achieve maximum compaction. In fact, the forklis
simply drove the bales into an open container and stacked them neatly—any
need for a monster-sized compactor was eliminated completely. Not only were
forkli trips per shi reduced from 16 to 4 (or fewer), but we also realized a
four-to-one improvement in the density of compressed trimmings. This reduced
the landfill costs by about 75 percent.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 43
The only investment required to achieve these benefits was the capital for
eight small compactors, which paid for themselves in nine months. And,
because these costs were amortized over five years, the factory enjoyed a
boom-line improvement of more than $250,000 per year associated with
labor, forkli operations, and landfill use while improving safety dramatically.
On top of that, environmental impact in the form of landfill volumes was
greatly reduced in just a few weeks. In this case, becoming lean and green
paid for itself handsomely.
Looking to Improve
Of course, the automobile manufacturing landscape has changed significantly
since those days. Let’s take a look at some of the work that General Motors and
one of its suppliers are doing to accomplish the goal of landfill-free plant status.
MPS Group is an industrial and facilities services provider headquartered in
Detroit. Owner Charlie Williams and president and CEO Ed Schwartz both
know the importance of forming strong supply chain relationships to reach
green sustainability objectives. For manufacturers aempting zero-landfill
status, it is imperative to partner with a supplier that carries a core competency
in total waste management. Such companies have the expertise to bring
solutions to waste issues and understand the finances and how to bring
together the business case.
It’s easy for manufacturers to overlook the many fine details involved in reducing
the level of trash in operations and achieve zero-landfill status. For MPS Group,
geing to this point required being proactive in preventing trash from being
produced in the first place, collaborating with packaging to reduce materials.
Additionally, every item is examined for its potential for reuse, and any remaining
waste is recycled or transported to an energy-from-waste facility where materials
are burned or otherwise converted to generate heat, steam, or electricity
instead of buried. However, it usually costs more to send to an energy-from-waste
facility than a landfill—likely a result of the longer transportation distances—
which becomes a further incentive to minimize waste.
44 APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES FROM APICS MAGAZINE
For manufacturers aempting zero-landfill status, it is
imperative to partner with a supplier that carries a core
competency in total waste management.
MPS Group currently manages more than 13 zero-landfill sites, most of which
are operated by General Motors, but the company still looks for ways to
improve. Even at locations that have reached zero-landfill status, further waste
reductions are sought. The next goal at many sites is to go zero-impact, which
includes eliminating landfills, non-recycled waste, and air and water emissions.
The ongoing environmental challenge for organizations of all types is to innovate
continuously and adopt the credo of “good enough is never enough.” My
hope is that these two short success stories will in some way help you and
your organization take on the challenge of becoming both lean and green.
Ron Crabtree, CIRM, CSCP, MLSSBB, is president of MetaOps and coauthor
of four books on operational excellence. He also writes an online magazine;
runs an online radio show; and teaches, presents, and consults. He may be
contacted at rcrabtree@metaops.com.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 45
46
GOLD-MEDAL
REVERSE LOGISTICS
Achieve a winning supply chain program
By Dave Turbide, CFPIM, CIRM, CSCP, CMfgE
Building up capability in reverse logistics may start with packaging, move on
to product design, and then move to more specialized supply chain functions.
Recovery of value, whether from scrap or deliberate product design, is a
core feature of remanufacturing. As organizations increase reverse logistics
maturity, remanufacturing may be a good way to leverage that capability.
APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES FROM APICS MAGAZINE
A company’s introduction to reverse logistics typically is based on the return of
reusable shipping containers or pallets, product returns handling, or recycling or
reprocessing of production scrap and offal materials. These indeed are the best
places to start for company leaders not currently involved in such practices.
Reusable packaging is not always practical, but packaging and shipping
materials should be a key part of reverse logistics. Smaller packages are less
costly to produce and ship; meaning, customers appreciate them, too. For
example, a lot of household cleaners now come in concentrated refill form, and
industrial products oen can be shipped inside recyclable or reusable containers.
Most commonly, product returns are handled through package shipping
services and include return for repairs or, perhaps, for credit. The
green approach—and something that is required in many industries—is
to encourage consumers to return end of-life products for recycling. In
order to take advantage of the numerous benefits of capturing the value
of scrap and offal materials, you may want to offer incentives or returns at
no cost to the customer.
For instance, some printer cartridge manufacturers include postage-paid
envelopes at purchase, and some stores give a credit for returned cartridges.
This gets old products off the market and—if there is additional life possible
through refurbishment—revenue in your hands. Another great place to look for
savings is in design. When new products are designed or existing products
updated, every effort should be made to make use of parts rather than specify
a new part to be acquired, stored, and managed. Modular design is a big cost
saver, as is late customization.
Beyond those practices, designers and engineers should keep an item’s eventual
end of life and disposal in mind to maximize reuse and recycling potential. One
step beyond that is to design for logistics (making products easy and economical
to pack, handle, and ship); design for reverse logistics (employing reusable or
salvageable packaging, materials, and components); and design for sustainability
(specifying renewable materials).
There are suppliers that specialize in the reverse logistics arena. In fact, there
even is a Reverse Logistics Association—a collection of third-party
service providers focusing on such services as repair, customer service, parts
management, end-of-life manufacturing, returns processing, order fulfillment,
and more.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 47
Reverse logistics, which is defined by
the APICS Dictionary as “a complete
supply chain dedicated to the reverse
flow of products and materials for the
purpose of returns, repair, remanufacture,
and/or recycling.”
Worldwide Attention
Consider the case of Teck Resources, a Canadian metal supplier that provided
the gold, silver, and copper used in the medals for the Vancouver Olympics. For
the first time in Olympic history, the medals at the games contained recovered
electronic waste. According to the Los Angeles Times, the recovered gold,
silver, and copper used in the medals originated from 6.8 metric tons of circuit
boards collected and processed by Teck Resources.
For the first time in Olympic history, the medals at the
games contained recovered electronic waste.
The article also says that responsible processing of electronic waste “has
become an increasingly important issue.” Indeed, conscientious reverse
logistics is more than a trend or a fad. It is a new business requirement that
happens to make sense economically as well as ecologically.
Dave Turbide, CFPIM, CIRM, CSCP, CMfgE, is an independent consultant and
freelance writer. You may view his lean and green manufacturing blog at
daveturbide. com. He may be contacted at dave@daveturbide.com.
48 APICS INSIGHTS AND INNOVATIONS
PERSPECTIVES FROM APICS MAGAZINE
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 49
GLOSSARY AND
ADDITIONAL RESOURCES
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 49
GLOSSARY
Closed-loop manufacturing
Closed-loop manufacturing is a system in which a product is created using
renewable energy, with no pollutant output and no waste—the materials used
in production are recycled and reused, not discarded. Products are built
for durability and reuse, and producers are responsible for the entire product
lifecycle, including the post-consumer phase. The concept is rooted in circular
concepts of product design and production.
Corporate social responsibility
Corporate social responsibility means using fair and beneficial business practices
regarding labor and the community or region where a firm conducts its business.
It is about providing a safe work environment, giving back to a community by
contributing to health care and education, and avoiding the exploitation of labor
and resources of an area.
Demanufacturing
Demanufacturing, or disassembly, is oen used for products that will be recycled
or remanufactured. However, remanufacturing may use processes that seek to
preserve design and intellectual property rather than recycled scrap value. For
example, scrap vehicles may undergo demanufacturing to ensure that recyclable
materials such as metals or plastics are not mixed, rather than restoring the
vehicle or a component to as good-as-new condition.
Inventory pooling
The act of holding inventory in a single location instead of multiple locations.
Product life cycle management (PLM)
The process of facilitating the development, use, and support of products that
customers want and need. PLM helps professionals envision the creation
and preservation of product information, both to the customer and along the
reverse-logistics portion of the supply chain.
50
GLOSSARY AND ADDITIONAL RESOURCES
APICS INSIGHTS AND INNOVATIONS
Recycle
1) The reintroduction of partially processed product or carrier solvents from
one operation or task into a previous operation.
2) A recirculation process.
Rebuilding
The term rebuilding was used prior to the term remanufacturing. “Rebuilt,” may
in some circumstances, refer to a product that underwent a process similar to
remanufacturing but not necessarily to achieve good-as-new condition.
Rebuilding may also refer to work performed on a single unit, such as a “bench
rebuilt” unit, and many not define a manufacturing-style process production
and operations management.
Remanufacturing
1) An industrial process in which worn-out products are restored to like-new
condition. In contrast, a repaired product normally retains its identity, and
only those parts that have failed or are badly worn are replaced or serviced.
2) The manufacturing environment where worn-out products are restored to
like new condition.
Reuse
To use again in a new or different way than originally intended for a product, or
to use again aer a product undergoes reclaiming or reprocessing work.
Remanufactured products normally return to their originally intended purpose.
Reverse logistics
A complete supply chain dedicated to the reverse flow of products and
materials for the purpose of returns, repair, remanufacture, and/or recycling.
Reverse supply chain
The planning and controlling of the processes of moving goods from the point
of consumption back to the point of origin for repair, reclamation, recycling, or
disposal. See: reverse logistics.
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 51
Value chain
The functions within a company that add value to the goods or services that
the organization sells to customers and for which it receives payment.
Value stream mapping
A lean production tool to visually understand the flow of materials from
supplier to customer that includes the current process and flow as well as
the value-added and non-value-added time of all the process steps. Used
to lead to reduction of waste, decrease flow time, and make the process flow
more efficient and effective.
52 APICS INSIGHTS AND INNOVATIONS
GLOSSARY AND ADDITIONAL RESOURCES
ADDITIONAL RESOURCES
These organizations and publications provide resources and detailed
information about the topic.
The Remanufacturing Institute
www.reman.org
Centre for Remanufacturing and Reuse UK
www.remanufacturing.org.uk
National Key Laboratory for Remanufacturing China
www.chinaremanufacture.net/k/k.htm
Remanufacturing Industries Council
remancouncil.org/
Journal of Remanufacturing
www.journalofremanufacturing.com
ReMaTecNews.com
www.rematecnews.com
Center for Remanufacturing - Rochester Institute of Technology
www.rit.edu/gis/remanufacturing/
United States International Trade Commission: Remanufactured Goods: An
Overview of the U.S. and Global Industries, Markets, and Trade - October 2012
www.usitc.gov/publications/332/pub4356.pdf
REMANUFACTURING IN SUPPLY CHAIN MANAGEMENT 53
54 APICS INSIGHTS AND INNOVATIONS
APICS RESEARCH
For more insider information explore APICS research topics
at apics.org/research.
Reports are available on:
n
Big data
n
Project management
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Risk management
n
Supply chain strategy
n
Sustainability and more.
Comments or questions? Contact askapics@apics.org.
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© 2014 APICS
ABOUT THE APICS FOUNDATION
The APICS Foundation advances supply chain and operations management
and innovation through research, publications, education and talent
development. Organizations and academic programs gain access to the
information they need to contribute to the success of supply chains
and meet enterprise goals through the foundation’s exceptional network
and resources. The foundation is part of APICS, the premier source of
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