'Untapped Opportunity'

"Remanufacturing may represent the largest untapped opportunity for productivity improvement in American history."

This is a quote from Ron Giuntini, executive director of OEM Product-Services Institute, a market research firm. He makes thecase to support this idea in a paper entitled "Remanufacturing: The next great opportunity for boosting U.S. productivity" (Business Horizons, Nov./Dec 2003) that he co-authored with Kevin Gaudette of the Kelley School of Business, Indiana University.

His point is a compelling one:

He states that although manufacturing productivity has improved over 300% in the last 50 years, most of the gain has been through labor productivity improvements: automation, management techniques, etc. But, there is another important aspect to improving productivity in a manufacturing environment and that is material productivity initatives.

Here's where remanufacturing comes in. Giuntini states that the cost for a company to remanufacture a product is 40% to 60% less than the cost of producing a new one. This is mainly because most of the raw materials already exisit in their final form and require only a fraction of the processing needed for new products. In terms of energy consumption, remanufacturing a product requires only about 15% of the energy used to make the product from scratch.

Remanufacturing is not a new or novel concept in the off-highway market. Many, if not most, OEMs and component suppliers are involved to some degree in remanufacturing. Most companies began remanufacturing because of customer demands. Which isn't surprising. For customers the price of a remanufactured product is anywhere from 30% to 60% the price of a similar new product.

It really hasn't been until recent years that remanufacturing has been considered a strategy for companies in this industry. And this shift in business strategy also means rethinking many traditional business practices. Giuntini outlines a number of challenges that firms might encounter when setting up a remanufacturing business. Product design, for instance. Most products today are not designed with the notion that they will one day be remanufactured. But making products that are easily disassembled and then reassembled can make remanufacturing both efficient and profitable. From a marketing perspective, product managers do not usually incorporate remanufactured products into their strategic selling plan. On a tactical basis, remanufacturing is often addressed only in response to individual requests.

Many off-highway component suppliers and OEMs have established successful and profitable remanufacturing programs. Take a look in this issue's cover story, "'Core' Competency" on page 16. Thanks for reading.