LINKÖPING STUDIES IN SCIENCE AND TECHNOLOGY, THESIS NO.

1192

On Remanufacturing Systems
Analysing and Managing
Material Flows and Remanufacturing Processes

Johan Östlin

Production Systems
Department of Management and Engineering
Linköpings universitet
SE-58 183 Linköping, Sweden
© 2008 Johan Östlin

ISBN 978-91-7393-877-8
ISSN 0345-7524

Distributed by:
Production Systems
Department of Management and Engineering
Institute of technology, Linköpings universitet
SE-58 183 Linköping, Sweden

Phone: +46-13-281000
URL: http://www.iei.liu.se/ps

Cover photograph by Stefan Berg, courtesy of Toyota Material Handling

Printed in Sweden by UniTryck, Linköping, 2008

There is nothing so practical as a good theory
Kurt Lewin (1890-1947)
 ABSTRACT
The aim of remanufacturing is to retrieve a product’s inherent value when the product
no longer fulfils the user’s desired needs. By taking advantage of this inherent value
through different product recovery alternatives, there is a potential for both
economically and environmental advantageous recovery of products.

Remanufacturing is a complex business due to the high degree of uncertainty in the

production process, mainly caused by two factors: the quantity and the quality of
returned products. These factors have implications both on the external processes, e.g.
coordinating input of returned products with the demand for remanufactured products,
as well as the internal processes that coordinates the operations within the factory
walls. This additional complexity needs to be considered when organising the
remanufacturing system.

The objective of this dissertation is to explore how remanufacturing companies

can become more competitive through analysing and managing material flows and
remanufacturing processes.

The first issue discussed in this dissertation is the drivers that make companies
interested in remanufacturing products in the first place. The conclusion is that the
general drivers are profit, company policy and the environmental drivers. In a general
sense, the profit motivation is the most prevalent business driver, but still there are
situations where this motivation is secondary to policy and environmental drivers.
Secondly, the need to balance the supply of returned products with the demand for
remanufactured products shows that the possible remanufacturing volumes for a
product are dependent on the shape of the supply and demand distributions. By using a
product life cycle perspective, the supply and demand situations can be foreseen and
support is given on possible strategies in these different supply and demand situations.
Thirdly, how used products are gathered from customers is categorised by seven
different customer relationship types. These types all have different effects on the
remanufacturing system, and the characteristics of these relationships are disused in
detail.

When considering the remanufacturing process within the factory walls, a generic
remanufacturing process was developed that divides the remanufacturing process into
five different phases; pre-disassembly, disassembly, reprocessing, reassembly and the
post-assembly phase. These different phases are separated by three different key
decision points in the process that also have a major impact on the material planning of
the process. For the remanufacturing material planning and production planning, the
possibility to apply lean principles can be difficult. One foundation for implementing
lean principles in new production is the existence of standardised processes that are
stable and predictable. In the remanufacturing system, the possibilities to realise a
predictable process is limited by the “normal” variations in quantity and the quality of
the returned cores. Even though lean principles can be problematic to implement in the
remanufacturing environment, this dissertation proposes a number of solutions that can
be used to make the remanufacturing process leaner.
 ACKNOWLEDGMENT
There are many people, that I would like to express my gratitude to, both internal and
external to the Department of Management and Engineering, for making this
dissertation possible. Special thanks go to:

• Professor Mats Björkman, who, as the principal supervisor, has helped me to

make this dissertation thesis a reality through constructive comments and
suggestions on the appended papers and the numerous draft of the dissertation.
• Associate Professor Erik Sundin for the day-to-day support during my PhD
studies and the numerous discussions during the writing process of this
dissertation.
• Associate Professor Ou Tang for the great help in reviewing the dissertation as
a faculty opponent in the later parts of the writing process.
• PhD Mica Comstock for all the help in proofreading this thesis and the
appended papers.
I would also thank my co-authors for some of the appended papers, Maria Mähl,
Mattias Lindahl and Rickard Svensson, for sharing their insights and experiences from
there own research work. Special thanks to research project colleagues Jörgen Eklund
and Inga-Lill Engkvist. In addition, I would give my gratitude to all of the crew at
Production Systems, past and present, for their support and friendship.

Externally, this dissertation thesis was financially enabled by the Swedish

Governmental Agency for Innovation Systems (VINNOVA). Additional financial
support for smaller projects has also been given by the Royal Swedish Academy of
Science, The Swedish Association of Graduate Engineers and the Foundation for
Strategic Environmental Research – Mistra. In addition, this research could not have
been done without the participation of the companies involved in this research. Thanks
to you all.

On a personal level, I will not forget to thank my friends and family that have made
time at the university and in Linköping a pleasant one. Special thanks go to my former
neighbours: Johan Nordgren, Henrik Lingfors, Olov Wikström, and Carl Mårten
Lindquist. My former university friends that still are present in Linköping: Johan
Åstrand, Hannes Thelander and Carl Henrik Ringh. As well as some of the friends that
I have met during this period: Rikard Norman, Per Boss, Tobias Almquist, and Mats
Billenius.
 TERMINOLOGY
The following table describes the basic terminology and abbreviations used in this
dissertation.

ABC analysis One tool to classify different objects is the Pareto analysis – or as
it is commonly referred to, “the 80-20 rule” (not to be confused
with Activity Based Costing)
Aftermarket The market for components and accessories to maintain or
enhance a previous purchase
BOM Bill of Materials
Core The worn-out or discarded product that is used to remanufacture a
product
End-of-life The end-of-life returns refer to those returns where the products
are at the end of their economic or physical life
End-of-use End-of-use returns refer to those situations where the user has a
return opportunity at a certain life stage of the product
EOQ Economic Order Quantity
FAS Final Assembly Schedule
Functional Sales To offer from a life-cycle-perspective a functional solution that
fulfils a defined customer need. The functional solution can consist
of combinations of systems, physical products and services
Installed Base The total number of placed units of a particular product in the
entire primary market or product segment
IPSE Integrated Product and Service Engineering
Life Cycle [1] The evolution of a product, measured by its sales over time. The
phases that a product goes through during it life cycle are the
introduction, growth, maturity and decline stages
Life Cycle [2] The progress of a product from raw material, through production
and use, to its final disposal
MRP Material Requirement Planning
MRR Material Recovery Rate – The uncertainty of the quality of a core
and how many of its components that can be recovered, is
measured using the metric Material Recovery Rate
Obsolescence When the demand of a component decreases and finally is no
longer desired or becomes out-of-date, it is considered as obsolete
OEM Original Equipment Manufacturer
Product The recovery of used and discarded products, components and
Recovery materials
Remanufacturing An industrial process whereby used products, referred to as cores,
process are restored to useful life. During this process, the core passes
through a number of remanufacturing operations, e.g. inspection,
disassembly, component reprocessing, reassembly, and testing to
ensure it meets the desired product standards
Remanufacturing The system for collecting used/discarded products,
system remanufacturing of the product, and the delivery of the
remanufactured product to the customer”
Reversed The coordination and control, physical pickup and delivery of the
Logistics material, parts, and products from the field to processing and
recycling or disposition, and subsequent returns back to the field
where appropriate
ROP Reorder point
 APPENDED PAPERS
Paper I Östlin, J., Sundin, E and Björkman, M (2008) “Business drivers for
remanufacturing” Proceedings of CIRP Life Cycle Engineering Seminar
-15th edition- 2008, Sidney, Australia

Paper II Östlin, J, Sundin, E and Björkman, M. (2007) “Product Lifecycle

Implications for Remanufacturing Strategies” submitted to International
Journal of Cleaner Production

Paper III Östlin, J Sundin, E and Björkman, M. (2007) “Importance of Closed-

Loop Supply Chain Relationships for Product Remanufacturing”
accepted for International Journal of Production Economics

Paper IV Östlin, J. (2005) “Material and Process Complexity – Implications for

Remanufacturing” in Proceedings of EcoDesign-05, 4th International
Symposium on Environmentally Conscious Design and Inverse
Manufacturing, Tokyo, Japan, 12-14 December

Paper V Östlin, J., Mähl, M., Sundin, E and Björkman, M (2007) “Lean
Remanufacturing – a Study Regarding Material Flow” to be submitted to
a scientific journal

Paper VI Östlin, J. and Ekholm, H. (2007) “Lean Production Principles in

Remanufacturing – A Case Study at a Toner Cartridge Remanufacturer”
in Proceedings of IEEE International Symposium on Electronics and the
Environment, 2007. Orlando, USA, May 7-10

Paper VII Östlin, J. and R. Svensson (2005) “Material handling in the

remanufacturing industry: a case study of a diesel engine
remanufacturing process” in Proceedings of CIRP Life Cycle
Engineering Seminar -12th edition- 2005, Laboratorie 3S, Grenoble,
France, April 3-5

Information on the authors’ efforts in relation to the papers is presented in Appendix B

OTHER PUBLICATIONS
Paper Östlin, J., Lindahl, M. and Sundin, E. (2005) “Managing Functional
Sales Systems - Important Aspects for Making Functional Sales an
Effective Business System” in 10th International Conference of
Sustainable Innovation, Farnham, UK, October 24-25
Paper Östlin, J. (2005) “Effectiveness in the Closed-Loop Supply Chain: A
Study Regarding Remanufacturing” in Proceedings of IEEE
International Engineering Management Conference (IEMC 2005), St
Johns, Canada, September 11-13

Paper Lindahl, M., E. Sundin, and J. Östlin, (2006). “Environmental Issues

within the Remanufacturing Industry” in LCE2006 - 13th CIRP
International Conference on Life Cycle Engineering, Leuven, Belgium,

Paper Lindahl M., Sundin E., Östlin J. and Björkman M. (2005) “Concepts
and definitions for product recovery - Analysis and clarification of the
terminology used in academia and industry” in Proceedings of CIRP
Life Cycle Engineering Seminar -12th edition- 2005, Laboratoire 3S,
Grenoble, France, April 3-5.

Paper Sundin E. and Östlin J. (2005) “Case study of Three Toner Cartridge
Remanufactures”, in Proceedings of EcoDesign-05, 4th International
Symposium on Environmentally Conscious Design and Inverse
Manufacturing, Tokyo, Japan, 12-14 December.

Paper Hermansson H., Östlin J. and Sundin E. (2005) “Development of an

automatic cleaning process for toner cartridges” in Proceedings of
CIRP Conference on Life Cycle Engineering Seminar -14th edition,
Tokyo, Japan,

Paper Sundin, E., M. Lindahl, A. Öhrwall Rönnbäck, G. Ölundh Sandström

and J. Östlin (2006) “Integrated Product and Service Engineering
Methodology” in Proceedings of 11th International Conference of
Sustainable Innovation, Chicago , USA . October 23-24.
 TABLE OF CONTENTS

PART I – INTRODUCTION .................................................................................................................1

1 INTRODUCTION ....................................................................................................................... 3
1.1 THE REMANUFACTURING INDUSTRY .......................................................................... 4
1.2 THE REMANUFACTURING PROCESS ............................................................................ 5
1.3 THE REMANUFACTURING SYSTEM ............................................................................. 6
1.4 DISSERTATION FOCUS ................................................................................................. 8
1.5 OBJECTIVE, AIM AND RESEARCH QUESTIONS .......................................................... 10
1.6 DELIMITATIONS......................................................................................................... 13

PART II – METHODOLOGY AND THEORY................................................................................15

2 METHODOLOGY .................................................................................................................... 17
2.1 CASE STUDY METHODOLOGY THEORY .................................................................... 17
2.2 CASE STUDY ADVANTAGES AND CRITIQUE ............................................................. 20
2.3 VALIDITY AND RELIABILITY IN CASE STUDIES ........................................................ 21
2.4 CASE STUDY DESIGN ................................................................................................ 23
2.5 VALIDITY AND RELIABILITY IN THE REKO CASE STUDY ........................................ 27
3 THEORETICAL FRAMEWORK ............................................................................................... 31
3.1 PRODUCT RECOVERY OPTIONS ................................................................................. 31
3.2 PRODUCT LIFE CYCLE ............................................................................................... 35
3.3 CLOSED-LOOP SUPPLY CHAIN .................................................................................. 39
3.4 SOURCES OF CORES................................................................................................... 40
3.5 THE REMANUFACTURING PROCESS .......................................................................... 43
3.6 REMANUFACTURING CHARACTERISTICS .................................................................. 45
3.7 LEAN PRODUCTION ................................................................................................... 48
3.8 MATERIAL PLANNING IN MANUFACTURING AND REMANUFACTURING ................... 49

PART III – ANALYSIS ........................................................................................................................59

4 DRIVERS FOR REMANUFACTURING ..................................................................................... 61

4.1 PROFIT AS A DRIVER FOR REMANUFACTURING ........................................................ 61
4.2 POLICY AS A DRIVER FOR REMANUFACTURING ....................................................... 63
4.3 ENVIRONMENT AS A DRIVER FOR REMANUFACTURING ........................................... 65
4.4 DISCUSSION ............................................................................................................... 67
5 BALANCING SUPPLY AND DEMAND OVER THE PRODUCT LIFECYCLE .............................. 69
5.1 PRODUCT REMANUFACTURING ................................................................................. 70
5.2 COMPONENT REMANUFACTURING............................................................................ 75
5.3 COMPONENT CANNIBALISATION .............................................................................. 77
5.4 DISCUSSION ............................................................................................................... 79
5.5 CONCLUSIONS ........................................................................................................... 79
6 CLOSED-LOOP SUPPLY CHAIN RELATIONSHIPS FOR REMANUFACTURING ..................... 81
6.1 OWNERSHIP-BASED RELATIONSHIPS ........................................................................ 82
6.2 SERVICE CONTRACT RELATIONSHIPS ....................................................................... 85
6.3 DIRECT-ORDER RELATIONSHIPS ............................................................................... 85
6.4 DEPOSIT-BASED RELATIONSHIPS.............................................................................. 86
6.5 CREDIT-BASED RELATIONSHIPS ............................................................................... 87
6.6 BUY-BACK RELATIONSHIPS ...................................................................................... 88
 6.7 VOLUNTARY-BASED RELATIONSHIPS ....................................................................... 89
6.8 DISCUSSION ............................................................................................................... 90
6.9 CONCLUSIONS ........................................................................................................... 92
7 REMANUFACTURING PROCESSES......................................................................................... 95
7.1 THE FIVE REMANUFACTURING PHASES .................................................................... 95
7.2 PRE-DISASSEMBLY PHASE ........................................................................................ 97
7.3 DISASSEMBLY PHASE ................................................................................................ 98
7.4 REPROCESSING PHASE............................................................................................. 100
7.5 REASSEMBLY PHASE ............................................................................................... 100
7.6 POST-ASSEMBLY PHASE.......................................................................................... 101
7.7 DISCUSSION ............................................................................................................. 102
8 MATERIAL PLANNING AND PRODUCTION PLANNING ...................................................... 105
8.1 MATERIAL PLANNING ON AN AGGREGATED PRODUCT LEVEL ............................... 105
8.2 MATERIAL PLANNING AT COMPONENT LEVEL ....................................................... 107
8.3 LEAN IMPLEMENTATION SOLUTIONS FOR MATERIAL PLANNING ........................... 111
8.4 PRODUCTION PLANNING ......................................................................................... 115
8.5 DISCUSSION ............................................................................................................. 122
9 MATERIAL HANDLING ........................................................................................................ 123
9.1 MATERIAL PLANNING PRINCIPLES .......................................................................... 124
9.2 MATERIAL PLANNING FRAMEWORK ....................................................................... 125
9.3 MATERIAL MOVEMENT AND STORAGE ................................................................... 127
9.4 PRODUCT EXAMPLES ............................................................................................... 129
9.5 DISCUSSION ............................................................................................................. 130

PART IV – DISCUSSION AND CONCLUSIONS ........................................................................ 131

10 DISCUSSION AND CONCLUSIONS ........................................................................................ 133

10.1 DISCUSSION OF THE RESEARCH RESULTS ............................................................... 143
10.2 FUTURE RESEARCH .................................................................................................. 143
 PART I – INTRODUCTION

This part of the dissertation introduces the remanufacturing industry, describing the
need for research in the area and highlighting the gaps in the existing body of
literature. Part also motivates the aim of the dissertation and the formulation of its
specific research questions.
 1
INTRODUCTION

Product recovery encompasses the recovery of used and discarded products,

components and materials. The product recovery consists of several activities, such as
collecting the product; determining the potential for the product’s reuse; disassembling
the product and segregating valuable components; remanufacturing of the product;
recycling materials; and disposing of waste (Toffel, 2004).

Product recovery has proved to be an economically and environmentally beneficial

alternative to ordering new products. Product recovery is an umbrella concept
involving concepts like reuse, remanufacturing and recycling. The aim of product
recovery is to retrieve a product’s inherent value when the product no longer fulfils the
user’s desired needs. By taking advantage of this inherent value through different
product recovery alternatives, there is potential for both economically and
environmental advantageous recovery of products (Bras et al., 1999). During the last
century, the industrialized world has put limited focus on product recovery. Instead,
the focus has been on the production of products from virgin materials (i.e. non-
recycled). For several different reasons, the focus has now shifted to an increase in
product recovery. For example, society’s awareness of environmental problems with
the present use of material and products has grown (Ryding, 1995). These social
pressures have resulted in increased environmental legislative pressure from the
European Union (EU), such as the launching of the WEEE1 and ELV2 directives –
creating an environment where product recovery potentially can become profitable, if
not already, and without take-back laws.

In this dissertation, the remanufacturing option of product recovery will be the focus.
Remanufacturing is an industrial process where worn-out/broken/used products are
collected from customers and restored to useful life. Here, the worn-out or discarded
products used to remanufacture a product are referred to as cores (Amezquita et al.,
1996). During this process, the core passes through a number of remanufacturing
operations, e.g. inspection, disassembly, component reprocessing, reassembly, and

1
WEEE stands for Waste of Electric and Electronic Equipment.
2
ELV stands for End of Life Vehicle.
 testing to ensure it meets the desired product standards (Sundin, 2004). This could
sometimes mean that the cores need to be upgraded and modernized according to the
customer requirements (see e.g. Seaver (1994), Lund (1996) and Sundin (2004)). The
differences and definition of remanufacturing concerning different product recovery
options such as reuse, recycling and repair are given in the forthcoming theoretical
framework. A simplified illustration of how remanufacturing is related to other
product recovery options is seen in Figure 1.
2

service

raw parts parts product users

distribution
materials fabrication assembly assembly

1
6 5 4 3

forward flows
reverse flows
7, 8

Waste Product Recovery Direct Reuse

Management Management

7: Incineration 5: Cannibalization 2: Repair 1: Direct reuse /

8: Land filling 6: Recycling 3: Refurbishing resale
4: Remanufacturing

Figure 1: Product recovery in the closed-loop supply chain (Thierry et al., 1995)

Material flows are an important factor for the overall remanufacturing system (Guide,
2000). Regarding the flow of products linked to remanufacturing, there is a specific
term called “the closed-loop supply chain”. A traditional view of the closed-loop
supply chain is that it encompasses two distinct supply chains, the forward and the
reverse, as illustrated in Figure 1. Generally, the forward chain concerns the flow of
physical products from producer to customer, while the reverse chain describes the
flow of physical products from customer to producer. These flows are then “closed”
by, for example, the remanufacturing operation (Krikke et al. 2004).

Figure 1 illustrates the closed-loop supply chain, where new products are created in the
forward flow of material through fabrication and assembly out to the end user. When
the product reaches the end of its usage period at the customer, it is subject to one of
the eight different product recovery options shown.

1.1 The Remanufacturing Industry

The remanufacturing industry got a boost during the Second World War when many
manufacturing facilities changed from ordinary production to military production;

4
 INTRODUCTION

hence, the resources (labour, material, etc.) for civilian production became scarce. As a
result, the products in use by civilians were mainly remanufactured in order to keep
society running. The concept of remanufacturing has spread during the latest decades
to sectors such as electrical apparatus, toner cartridges, home appliances, machinery,
cellular phones and many others, as discussed by e.g. Sundin (2004).

The remanufacturing industry, as an industry sector, is often referred to as a “hidden

giant” as described by Lund (1996). The reason for describing it as hidden is that the
majority of the remanufacturing performed in industry is done at companies that are
not focused on pure remanufacturing operations, and provide it mainly as an
aftermarket service. Therefore, it is difficult to estimate the turnover of the
remanufacturing industry, since the data is hidden in aggregated numbers. To give
some examples of the importance of the remanufacturing industry, the size of the
industry in the United States was estimated to have a turnover of $40.5 billion in 2003
(Reman, 2007). In the United Kingdom, the size of the remanufacturing industry was
been estimated to be £5 billion in 2004, which places it on par with the recycling
industry in the U.K. (OHL, 2004). However, remanufacturing proposes a great
business opportunity, and the European market has an enormous growth potential. In
the USA, it is a major business, and the automotive industry sells approximately 60
million remanufactured automotive products, compared to 15 million products in
Europe for an equivalent stock of vehicles (Seitz et al., 2004).

1.2 The Remanufacturing Process

The process with which the used product is remanufactured is called the
remanufacturing process (Sundin, 2004). In the remanufacturing process, the product
goes through a number of specific phases. Within these phases, the used product
undergoes a set of remanufacturing operations such as cleaning, identification,
machining, etc. The order and the purpose of the different operations are not
standardised, but rather are dependent on the individual remanufacturing cases and the
needs for recovery of individual components.

The remanufacturing definition used throughout this dissertation is as follows:

Remanufacturing is an industrial process whereby used products, referred

to as cores, are restored to useful life. During this process, the core passes
through a number of remanufacturing operations, e.g. inspection,
disassembly, component reprocessing, reassembly, and testing to ensure it
meets the desired product standards.
Adapted from Sundin (2004)

Here, a core is defined as the worn-out or discarded product that is used to re-
manufacture a product (Amezquita et al., 1996).

5
 The remanufacturing process can be organised in many different ways. The type and
complexity of the product to be remanufactured has a high degree of impact on the
organisation of the process (Sundin, 2004). Another issue that influences the
organisation of the process is the type of decisions that have to be made during the
process. For example, if a component has been found to be faulty, there must be a re-
processing operation or a replacement with a new component. If the decision is taken
to reprocess the component, then there is a need for a reprocessing operation.
Therefore, the organisation of the remanufacturing process is highly affected by this
decision (Paper IV).

1.3 The Remanufacturing System

In respect to the remanufacturing process, the remanufacturing system is a broader

context that also addresses the external processes of supplying remanufactured
products to customers, as well as collecting cores from the previous customers (thus
becoming suppliers of cores). The external processes in the remanufacturing system
set limitations on the input and output from the actual remanufacturing processes
which transform cores into remanufactured products through e.g. reprocessing
operations and new replacement components. The remanufacturing system and the
link to the remanufacturing process are illustrated in Figure 2. The figure illustrates the
forward supply chain of remanufactured products going from remanufacturer to
customers. It also illustrates the incoming new products (newly manufactured) that are
supplied to customers. When the products are discarded by the customer, the cores are
subject to product recovery (including waste management and direct reuse), and some
of the cores are remanufactured. When the core reaches the remanufacturer, it enters
the remanufacturing process (described in further detail in Paper IV).

The remanufacturing system is in this dissertation defined as:

.. the system for collecting used/discarded products, remanufacturing of the

product, and the delivery of the remanufactured product to the customer

6
 INTRODUCTION

Alternative product
recovery or waste New products
treatment Customers/
Suppliers Remanufactured
products
Used products

The Remanufacturing Process

New Components

Pre- Disassembly Reprocessing Post-

Phase Phase Reassembly Assembly Waste
Disassembly
Phase phase treatment
Phase

Material flows
Figure 2: The Remanufacturing System

The remanufacturing system is generally very different in comparison to the traditional

manufacturing system. For example, the remanufacturing batch sizes are normally
smaller, the degree of automation is lower and the amount of manual labour is higher
in comparison to a manufacturing plant (Steinhilper, 1998). Furthermore, remanu-
facturing is a complex business due to the high degree of uncertainty in the production
process (Guide 2000, Seitz et al. 2004) and mainly caused by two factors: the quantity
and the quality of returned products (cores) (Atasu et al. 2005, Umeda et al. 2005).
This uncertainty also creates variations regarding capacity requirements as well as the
yield of the process. Guide (2000) defines these factors in detail and presents all
together seven characteristics of remanufacturing found in the current research
literature. These characteristics are:

− the uncertain timing and quantity of returns,

− the need to balance returns of used products with demand for remanufactured
products,
− the need for disassembly of returned products,
− the uncertainty in materials recovered from returned items,
− the requirement for a reverse logistics network,
− the complication of material matching restrictions and,
− the problems of stochastic routings for materials for remanufacturing operations
and highly variable processing times.

The characteristics of the remanufacturing system are an important contribution to the

understanding of the problems linked to remanufacturing. To continue to develop the

7
 remanufacturing practise, it is important to address these characteristics. Some of the
characteristics are more linked to system perspectives, as for example, the need to
balance returns of used products suitable for remanufacturing with demand for
remanufactured products. Other characteristics are more linked to the internal
processes in the remanufacturing facility, e.g. the problems of stochastic routings for
materials for remanufacturing operations and highly variable processing times. To
address these problems, a holistic approach is necessary to capture the effects of the
different characteristics.

1.4 Dissertation Focus

In the remanufacturing system, the areas of interest are ultimately a result from the
characteristics of remanufacturing, presented by Guide (2000). These characteristics
address both the external processes, that simplified, can be referred to as the process of
coordinating input of cores with the output of remanufactured products from the
remanufacturing process. The other area is the internal processes that coordinate the
operations within the factory walls. Thus, the material flow and the remanufacturing
process will be the main study focus in this dissertation.

For the external process, the key activity is linked to acquiring the used products
(cores) to the remanufacturing and matching the output to the demand for
remanufactured products. This refers primarily to the remanufacturing characteristics
of the need to balance returns of used products with the demand for remanufactured
products, and the uncertain timing and quantity of returns.

In internal processes, the main activity is to remanufacture the incoming cores. The
focus of this area is to make the remanufacturing process as effective as possible. This
refers primarily to the characteristics of highly variable processing times and the
uncertainty in materials recovered from returned items.

1.4.1 External Processes

For remanufacturing to be successful, Thierry et al. (1995) highlight the need to gain
information on future market needs of remanufactured products, as well as to
determine what drivers there are for remanufacturing in the first place. The problem
then becomes matching the forecasted demand for remanufactured products with the
anticipated magnitude of return flows. Toffel (2004) also concludes that one of the
major impacting issues of remanufacturing is in the difficulty of obtaining used
products (cores) that are suitable for remanufacturing. The timing and quantity of
return of a product is dependent on the type of the product. Factors such as the mean
product lifetime, rate of technical innovation, and failure rate of components all
influence the return rate of products from end-of-use and end-of-life (Umeda et al.,
2006). End-of-use returns refer to those situations where the user has a return
opportunity at a certain life stage of the product. This refers to leasing cases and
returnable containers like bottles, or returns to second-hand markets. Although end-of-

8
 INTRODUCTION

use products are not new, they are often in a good or reasonable state. In respect to
end-of-use returns, end-of-life returns refer to those returns where the products are at
the end of their economic or physical life. They are either returned to the OEM
because of legal product-take-back obligations or “returned” to another company for
value-added recovery. Customers can be more or less active concerning the returns, as
illustrated respectively by returning bottles to the supermarket or by sending back
toner cartridges via mail (de Brito et al., 2002).

The balance between product returns and demand for remanufactured products is
clearly a function of many variables, were the rate of technological innovation and the
expected life of a product are the major influencing characteristics (Guide, 2000). One
conclusion that can clearly be drawn regarding this balance is that when a product is
new on the market, the return rate of cores from end-of-use is generally lower than the
potential demand for remanufactured products. Vice versa, after a point when the
product has been on the market for an extended time, the returns of end-of-use
products are generally higher than the demand for remanufactured products (Umeda et
al., 2006).

For the performance of the remanufacturing system, the question of acquiring cores is
an important issue for the remanufacturer in order to be able to satisfy the demand for
remanufactured products. “The challenge within the industry is not just how to
manage irregular reverse flows, but how to obtain them in the first place” (Seitz et al.,
2004). To illustrate the importance of a close relationship, Seitz et al. (2004) provides
an insight from a vehicle manufacturer:

“For vehicle manufacturers, a crucial issue is to maintain a relationship

with customers so that when an engine fails, the customer returns to the
retail network for a replacement. If the customer goes elsewhere, then the
loop will not be closed and the manufacturer will not get access to the
cores they need. Unfortunately, loyalty to OEM service schemes decreases
noticeably over time.”

Here, the management of different types of relationships with the customer and
suppliers is an important factor for the performance of the remanufacturing system. As
Seitz and Peattie (2004) put it:

“Reverse logistics and remanufacturing are a customer relationship

management challenge”.

1.4.2 Internal Processes

Just as for manufacturing companies, the remanufacturing industry is also subject to
increased competition on markets and pressure from customers and suppliers. World-
leading manufacturing companies are in a state of change towards a different view of
manufacturing. The pressure on a company can be observed from its customers,
demanding customized, cost-reduced and quality-enhanced products enabled within
short lead times, and from its suppliers who demand reduced inventory levels and

9
 increased demand variability (Mentzer et al. 2001). To respond to these demands, lean
production, which is said to increase productivity, decrease lead-time and costs and
enhance quality, has been widely adopted (Martinez Sanchez et al., 2001) . The ideas
for Lean Production (“Lean”) were developed by Toyota, and in their most basic form
are the systematic elimination of waste - overproduction, waiting, transportation,
inventory, motion, over-processing, defective units - and the implementation of the
concepts of continuous flow and customer pull (Womack et al., 1996). In a study
conducted by Sundin (2004) using mainly a Rapid Plant Assessments (RPA) ranking
methodology (see Figure 3), an investigation was conducted concerning how lean
remanufacturing companies perform in respect to a scale of manufacturing companies.

Below Above Best

RATING S
Poor average Average Average Excellent in class
CATEGO RIE S (1) (3) (5) (7) (9) (11)
1. Customer satisfaction

2. Safety, environment,
cleanliness & order
3. Visual management system

4. Scheduling system

5. Use of space, movement of 24

24Hour
HourToner
Toner
materials, and product line flow Electrolux
Electrolux
6. Levels of inventory and
work in progress MKG
MKGClearprint
Clearprint
7. Teamwork and motivation Scania
Scania
Cummins
Cummins
8. Condition and maintenance
of equipment and tools Scandi
ScandiToner
Toner
9. Management of complexity
and variability
10. Supply chain integration

11. Commitment to quality

Figure 3: RPA scoring sheets of the remanufacturing companies (Sundin 2004)

The RPA is an assessment tool that ranks a company in 11 different categories that are
traditionally linked to lean production thinking. The result from the Sundin study
indicates that the additional complexities regarding material flows in remanufacturing
may be a limiting factor for remanufacturing companies to apply lean production
principles. In relation to the study by Sundin (2004), the poor performance of
remanufacturing companies in the material flow motivates further research.

1.5 Objective, Aim and Research Questions

Remanufacturing companies are in a more complex and difficult position compared to

traditional manufacturing companies (Guide, 2000). The additional complexity needs
to be considered when organizing the remanufacturing system. If companies can find
ways to manage the additional complexity, then the possibility to develop the industry
sector further is great. This dissertation addresses the problem of how remanufacturing

10
 INTRODUCTION

can become more advantageous by developing different management principles and

methods adapted for the remanufacturing context. The dissertation is therefore given
the following overall objective:

The objective of this dissertation is to explore how remanufacturing

companies can become more competitive through analysing and managing
material flows and remanufacturing processes.

Many factors can contribute to the competiveness of the remanufacturing system. In

this dissertation, the aim is not to identify all of these factors, but rather to concentrate
on the issues linked to the material flows and the remanufacturing processes.

Based on the purpose of the dissertation and the dissertation focus as described earlier
in the introduction, a number of different key research questions have been identified
during the course of this research. Firstly, to answer how companies can become more
competitive, there is a demand to know about the foundation for competitive
advantage in the remanufacturing system. Thus, understanding what the drivers are for
the overall remanufacturing system is a key issue for developing competitiveness in
the remanufacturing system. For example, when creating different management
principles there has to be a purpose for the development of these principles. In other
words, without knowing where we are going, we cannot deliver solutions to get there.
Therefore, the identification of remanufacturing drivers becomes important for the
direction of the forthcoming analysis. The first research question is formulated as
follows:

RQ 1. What are the drivers for companies to remanufacture products?

The first research question addresses why companies remanufacture and what
companies need to aim for to create a competitive advantage. In its essence, this
research question is primarily focused on the demand side of the remanufacturing
system. How this demand for remanufactured products is linked to the supply of cores
is the focus of the next research question:

RQ 2. What strategies can be used for balancing returns of products suitable for
remanufacturing with demand for remanufactured products?

The focus of the second research question is to explore how companies can balance the
demand for remanufacturing products with the rate of product returns. The question
addresses how to develop strategies that can aid companies in balancing supply and
demand as well as providing insights for possible remanufacturing strategies in
different supply and demand situations. To analyse the problem of balancing the
supply and demand, the theory of the product life cycle (see definition in the
theoretical framework section) will be used as a framework. For the balancing of the
supply and demand in a remanufacturing system, there is also a need to consider the
types of relationships between the remanufacturer and the customer:

11
 RQ 3. What types of relationships exist between customer and remanufacturer, and
what specific characteristics can be found in these relationships?

The third research question addresses the problem of the uncertain timing and quantity
of returns as well as balancing returns of products suitable for remanufacturing with
demand for remanufactured products. The focus of this research question is partly
linked to the second research question, and aims to identify what kinds of relationships
exist between remanufacturers and their customers/suppliers of cores, and how these
relationships can be managed. Furthermore, an important issue is to explore how a
customer/supplier relationship perspective can support product take-back for
remanufacturing with a focus on the supply of cores. When considering the supply of
cores to the remanufacturing process, the focus is on the relationships with the
customers/suppliers of cores and how the supply of cores to the remanufacturer can be
managed.

The first three research questions have a strong external focus on the processes outside
of the operational part of the remanufacturing system – that is, the actual
remanufacturing process. The remaining research questions will focus on the
remanufacturing process. Firstly, the focus will be on the general remanufacturing
process and the organisation of this process:

RQ 4. How is the organisation of the remanufacturing phases and the decisions

taken linked to the remanufacturing process?

This research question focus is to describe the complexity of the material flow in the
remanufacturing process. This complexity is based on a number of factors and
decisions that have to be taken into account during the remanufacturing process. A
discussion is needed on how different factors and decisions affect the organization of
the remanufacturing process and the individual remanufacturing phases (see Figure 2).
An additional intention with this research question is to develop a general overview of
the internal remanufacturing process for further analysis in between different
remanufacturing companies. The decisions taken in the remanufacturing process also
have a major impact on the material flow, and also lead to the following research
question:

RQ 5. How can lean principles for material planning and production planning be
applied for remanufacturing?

Previous research clearly shows that the remanufacturing companies generally perform
poorly in material flow and material handling issues (Sundin, 2004). The focus for this
research question will be on how efficient material planning and production planning
can be a means for making the remanufacturing process more competitive, especially
by using principles from lean production,

12
 INTRODUCTION

RQ 6. What principles for material handling can be suitable in the reassembly

phase?

The last research question mainly relates to the problem of the uncertainty in
components recovered from cores. In the remanufacturing process, this problem results
in a need to replace faulty components with other (new or cannibalised) components.
The focus is on exploring how the uncertainty in recovered components affects the
material control and replenishment strategies for new components, material movement
and storage for both new and reprocessed components in the reassembly phase.

Customers/
Suppliers
RQ 2,3

RQ 6
The Remanufacturing Process
New Components

RQ 4

Pre- Disassembly Reprocessing Reassembly Post-

Phase Phase Phase
Disassembly Assembly
Phase RQ 5 phase

Figure 4: Overview of the linkage between the remanufacturing system and the
research questions.

Figure 4 provides an overview of the coupling between the remanufacturing system

and the research questions, while further illustrating how the research questions focus
on the remanufacturing system.

1.6 Delimitations

A number of interesting questions and factors regarding the remanufacturing system

were chosen to be excluded from this dissertation. The design of the product to be
remanufactured has a high degree of influence as to how the remanufacturing process
will be organised (Sundin, 2004). Although this is an important factor, it is excluded
from the scope of the study. This delimitation is also partly done due to the existence
of previous research in this field (Sundin, 2004). Still, the importance of the design of
the products should not to be neglected when considering the competitiveness of the
remanufacturing system. In many situations, the design of the product has the major
impact on the future possibility to economically remanufacture a product.

13
 The potential environmental benefits related to the remanufacturing system have also
been excluded from this study. Making this limitation does not exclude the potential
environmental effects from a business aspect. For the interested reader, however, the
environmental issues that are linked to some of the case studies presented here are
futher investigated in Lindahl et al. (2006) and Sundin (2004).

Another important characteristic in the closed-loop supply chain that was excluded is
the reverse logistic network. The reverse logistic network, which is regarded as the
logistical structure of the material flow, is organised between the customer and the
remanufacturer. Logistics structures are, in this dissertation, the questions of e.g.
where to place central inventories and which means of transportation that will be used.
Reversed logistic networks for product recovery have previously been modelled by
e.g. Kara et al. (2007), with the aim of calculating the total collecting costs in a
predictable manner. Kim et al. (2006) also present a closed-loop supply chain model
for remanufacturing to minimize the total cost of remanufacturing. Logistical
structures have also been treated in the closed-loop supply chain by for example Huge
Brodin (2002).

14
 PART II –
METHODOLOGY AND THEORY

This part of the dissertation introduces the approach that was chosen to peruse the
research aim and the specific research questions, discussing methodology theory as
well as the practical data collection. In addition, the validity and the reliability of the
research approach is discussed. The following section addresses previous research
that has been used for developing the research questions, as well as providing a
theoretical base for the empirical analysis.
 2
METHODOLOGY

When a researcher decides on the research methodology for a study, he or she is

influenced by many factors. The purpose and the research question(s) that have been
formulated have a direct link to the choice of research methodology, but there are
other factors that also have a more indirect influence, such as available resources with
which to perform the research and the research paradigm. The research methodology
used for this dissertation is a case study methodology. Why this methodology has been
chosen, as well as how it is used, is described in the case study design section. Before
this discussion is made, however, a theoretical overview of the case study
methodology is presented.

2.1 Case Study Methodology Theory

In situations where the issues that are under investigation cannot be easily separated
from their context or environment, a case study research methodology can be an
appropriate choice (Yin, 1994). By using case studies, one can gain a complex and
holistic view of a specific issue or problem. A case study can be described as
“problem-focused, small scale and entrepreneurial” (Merriam, 1994). As Yin states:

“In general, case studies are the preferred strategy when ’how’ and ’why’
questions are being posed, when the investigator has little control over
events, and when the focus is on a contemporary phenomenon within some
real-life context”.
(Yin, 1994)

When deciding on a methodology to investigate the research questions, Yin (1994)

presents some general factors that influence the choice of method as seen in Table 1.
 Table 1: On how to choose a research strategy (Yin 1994).
Strategy Form of research Requires control over Focuses on
Question behavioural events? contemporary events?
Experiment how, why Yes Yes
Survey who, what, where, No Yes
how many, how much
Archival who, what, where, how No Yes/No
analysis many, how much
History how, why No No
Case study how, why No Yes

When a researcher has chosen a case study approach for a study, there are five key
components that are especially important when conducting the study (Yin, 1994):

• A study’s questions
• Its propositions, if any
• Its unit of analysis
• The logic linking the data to the propositions
• The criteria for interpreting the findings

2.1.1 Setting the Research Questions and Propositions

The first key component in the study is the research questions. In case study research
the questions are normally “how” and “why” questions, as described earlier. The initial
task for this component is to clarify the nature of the study question. The form of the
study question results in different types of case study research; these are descriptive,
explanatory and exploratory case studies. (Yin, 1994)

A descriptive case study is one that documents a particular action or series of actions.
Thus, what is implied in this type of study is the formation of hypotheses of cause-
effect relationships. Hence, the descriptive theory must cover the depth and scope of
the case under study.

In exploratory case studies, fieldwork and data collection may be undertaken prior to
definition of the research questions and hypotheses. This type of study has been
considered as a prelude to some social research. However, the framework of the study
must be created ahead of time. Pilot projects are very useful in determining the final
protocols that will be used. Survey questions may be dropped or added based on the
outcome of the pilot study.

Explanatory case studies are used to pursue an explanatory purpose. The researcher’s
objective is to pose competing explanations for the same set of events and to indicate
how these explanations may apply in other situations. In regard to the other types of
case studies, the explanatory case study focuses on generating theories.

18
 METHODOLOGY

Deciding between the different descriptive, exploratory and explanatory designs is

closely related to the richness of the related theories to the topic of the study. For
example, if there is a vast body of literature regarding a specific topic, the greater the
chance there is to formulate an explanatory case study. Therefore, a key issue for
setting the research question is to search for the previous research in that area and to
identify the theoretical propositions that cover the study questions. Important issues in
this phase are to review literature, have discussions with key actors, ask challenging
questions and think of what can be learned from the case study. (Yin, 1994)

Following this, the overall research questions are set and the potential study
propositions are formulated. The research propositions can be seen as a further
detailed development of the research questions down to an operational level. The main
differences between research questions and study propositions are that research
questions are formulated according to a gap in theory, whereas the study propositions
begin to tell you where to look for relevant evidence. For the exploratory case study,
there is a limitation o the possibility to apply the more detailed study propositions
mainly due to the lack of existing theory with which to relate. Therefore, exploratory
studies normally lack detailed study propositions. (Yin, 1994)

2.1.2 Selecting the Unit of Analysis

Once the research questions and the study propositions are set, the question becomes
how to perform the actual research. This addresses what case companies are to be
chosen; generally, the cases should somehow empirically represent the interesting
topic of the study. Depending on the scope of the study, it can contain single or
multiple case studies. Single case studies are preferable when critically testing existing
theory, or to study rare or unique situations. Multiple case studies, on the other hand,
are more favourable if replication logic is used to reveal support for a theory. When
generating a theory linked to a case study, the aim is to identify the conditions when a
particular phenomenon is likely to be found and when it is not. The theoretical
framework is also the source for generalizing to other cases: if the empirical cases do
not support the finding as predicted, modifications should be made to the theory.
According to these criteria, the number of case replications depends upon factors such
as the desired degree of certainty and the richness of the underlying theoretical
propositions. (Yin, 1994)

2.1.3 Interpreting the Findings

After the data for a case study is gathered, the next step is to link the data to the
propositions and interpret the findings. These components represent the data analysis
step in the case study research, and the choice of research design has a major impact
on the potential success of the analysis. The success of the analysis is also highly
dependent on the researcher’s ability to perform the cross-case analysis for multiple
case studies. Some formalised methods for data analysis exist, and they are often based
on different methods of pattern matching and explanation building. (Yin, 1994)

19
 The pattern matching principle is mostly common in explanatory and descriptive case
studies. This analysis is based on comparing empirically-based patterns with predicted
ones. This can be done by comparing if the initially predicted results have been found
and alternative patterns are absent. Another method of pattern matching is to use rival
explanations to compare the empirical data. (Yin, 1994)

The second source of analysis is based on explanation building. This is conducted

through analysing case study data by building an explanation about the case and
identifying a set of causal links. Explanation building is often a result of a series of
iterations between an initial theoretical statement that are compared with empirical
data that might result in a revised statement. After this, the other details of this case are
analysed against the revision. This is then compared and revised in a series of
interactions between the additional cases, and as many times as needed. (Yin, 1994)

In conclusion, the analysis should show that: it accounts for all the relevant empirical
evidence; all major rival interpretations are dealt with; the most significant issue of the
study is addressed: and that prior theoretical and expert knowledge is considered in the
analysis. (Yin, 1994)

2.2 Case Study Advantages and Critique

Some specific advantages can be linked to case studies. According to Merriam (1994),
case studies can:

• Give guidance to the reader in regards to what can be done, and what should not
be done, in a similar situation.
• Address a specific situation(s) and still conclude to a general problem.
• Be frequently based on inductive reasoning.
• Have been influenced by the researcher’s own values. Although this does not
necessarily have to be the case.

Merriam also discusses some general advantages that can be attained through the case
study methodology. Case studies:

• Illustrate the complexity of a situation, e.g. the fact that not a single but a
multiple of variables affect a given situation.
• Can describe a situation over time.
• Enable the collection of data from multiple sources, e.g. quotes, interviews and
newspaper articles.
• Explain why a problem arises, give a background to a specific situation, what
happened and why.
• Explain why some changes work and why others do not.

20
 METHODOLOGY

• Provide knowledge that is more concrete and connects better with our
experience because it is more alive, concrete and direct in comparison to the
abstract and theoretical.

There are, however, also some weaknesses linked to case studies. These weaknesses
depend on the fact that case studies rely on analytical generalizations, whereas survey
research relies on statistical generalizations. This raises a wide range of biases such as
subjective and selective preconceptions, problems regarding the viewpoint of outsiders
understanding group meanings, and bias surrounding the background, agenda and
interests of the researcher. To avoid these types of biases, the issues regarding validity
and reliability become important. Other negative comments are that case studies
provide a poor basis for scientific generalization and that the studies take too long,
often resulting in massive documents. This is the same set of arguments used against
most methods of qualitative research. (Yin, 1994)

2.3 Validity and Reliability in Case Studies

Questions regarding issues like reliability and validity can be criteria that are used to
value the quality of a given research; in case study research, the general validity can be
divided in to construct, internal and external validity. (Yin, 1994)

Construct validity – refers to the operational measures that are used, and if they are
representative for the concepts that are being studied.

Internal validity – refers to the design of the study, and to what extent a researcher can
draw the conclusions the researcher was interested in drawing. A simple example
could be if a pharmaceutical given to a patient was actually the reason for the patient’s
recovery. In this situation, it can be internally invalid because it failed to compensate
for the factor of natural healing.

External validity – relates to if a result of a study can be applied to circumstances

outside the specific setting in which the research was carried out.

Reliability – relates to if a study can be repeated with the same results. The goal of
reliability is to minimize the errors and biases in a study.

A summary of how to increase validity and reliability and in what phases they can be
influenced is given in Table 2.

21
 Table 2: Validity and reliability in case studies (Yin, 1994).
Tests Case study tactic Phases of research in which
tactic occurs
Construct validity • Use multiple sources of evidence Data collection
• Establish chain of evidence Data collection
• Have key informants review Composition
draft case study report
Internal validity • Do pattern matching Data analysis
• Do explanation building Data analysis
• Do time-series analysis Data analysis
External validity • Use replication logic in multiple- Research design
case studies
Reliability • Use case study protocol Data collection
• Develop case study data base Data collection

Regarding the issue of reliability, Table 3 illustrates the strengths and weaknesses in
the different methods of collecting empirical data (Yin, 1994).

Table 3: Strengths and weaknesses in the different sources of evidence (Yin, 1994).
Source of Evidence Strengths Weaknesses
Documentation • stable - repeated review • retrievability - difficult
• unobtrusive - exist prior • biased selectivity
to case study • reporting bias - reflects author
• exact - names etc. bias
• broad coverage - • access - may be blocked
extended time span
Archival Records • same as above • same as above
• precise and quantitative • privacy might inhibit access
Interviews • targeted - focuses on case • bias due to poor questions
study topic • response bias
• insightful - provides • incomplete recollection
perceived causal • reflexivity - interviewee
inferences expresses what interviewer
wants to hear
Direct Observation • reality - covers events in • time-consuming
real time • selectivity - might miss facts
• contextual - covers event • reflexivity - observer’s
context presence might cause change
• cost - observers need time
Participant • same as above • same as above
Observation • insightful into • bias due to investigator’s
interpersonal behaviour actions
Physical Artefacts • insightful into cultural • selectivity
features • availability
• insightful into technical
operations

22
 METHODOLOGY

2.4 Case Study Design

In the previous section of this chapter, the general theory regarding the design of the
case study was presented. In this section and forward, the case study design of this
dissertation will be explained and related to the general case study methodology
theory. After the presentation of the general methodology, there will be a review of the
choice of methodology in terms of validity and reliability.

2.4.1 Formulation of the Research Questions and Propositions

As previously stated, the purpose of the design of a research methodology is to support
the purpose and the research questions of a study (Yin, 1994). The research made for
this study is based on empirical data gathered linked to several case studies of different
remanufacturing companies, as well as previously documented research in the area of
remanufacturing. The research has its foundation in empirical data, and links are made
to the existing theoretical base; hence, it follows a pattern of inductive reasoning.
Inductive reasoning is based on a transition from specific observations to broader
generalizations and ultimately theories. This is also called a “bottom-up” approach. In
inductive reasoning, one begins with specific observations and measures, detecting
patterns and regularities, formulating some tentative hypotheses that one can explore,
and finally developing some general conclusions or theories (Hartman,1998).

The purpose of the design of a research methodology is to support the purpose and the
research questions of a study (Yin 1994). The research questions for this study have
been motivated both from an academic and industrial perspective in the introductory
part of this dissertation. The formulated research questions are as follows:

RQ 1: What are the drivers for companies to remanufacture products?

RQ 2: What strategies can be used for balancing returns of products suitable for
remanufacturing with demand for remanufactured products?

RQ 3: What types of relationships exist between customer and remanufacturer, and

what specific characteristics can be found in these relationships?

RQ 4: How is the organisation of the remanufacturing phases and the decisions taken
linked to the remanufacturing process?

RQ 5: How can lean principles for material planning and production planning be
applied for remanufacturing?

RQ 6: What principles for material handling can be suitable in the reassembly phase?

Yin (1994) proposes that a case study approach is feasible if the research questions
focus on “how and why” questions (see Table 1). Merriam (1994) also concludes that
case studies are most suitable if the problems at hand are complex and demand a

23
 holistic view of a specific issue. Yin also states that case studies are appropriate if the
investigator has little control over events, and when the focus is on a contemporary
phenomenon within some real-life context. According to the reasons given by Yin and
Merriam for the choice of case studies, such a methodology seems to be the best
choice. Another advantage with case studies is that a holistic view of the problems at
hand can be taken, something that is considered essential when conducting research on
the remanufacturing system. Based on the considerations above, a case study approach
was chosen for this research.

Before the data collection began, the research questions were broken down into
interview questions. The formulation of the interview questions can be seen in the
Appendix section (see Table 6 for the linkage between the research questions and
interview questions). Prior to the interviews, a theoretical literature review was
performed; this review was the basis for the formulation of the interview questions.
The interview questions were reviewed and given feedback on by the research group
linked to the research project (REKO, 2006).

Following the formulation of the questions, a pilot study was made to verify the
validity and relevance of the questions. The main source of data for the case studies
were semi-structured interviews, which were recorded. The length of the interviews
varied from 1 to 4 hours, depending on how much information the interviewees
contributed. The questions formulated for this type of study are normally open to give
the respondents a chance to go into detail regarding the answers, i.e. the questions
were prepared without specific sequence or answering options (Jacobsen, 1993). In
each case, the interviews focused on specific areas of the remanufacturing systems,
and an individual interview was held on each of these topics. The general topics for the
interview questions had the following working titles (see further details in Appendix
A):

• External logistics
• Production processes
• Remanufacturing characteristics
• Internal material handling
• Production planning
• Remanufacturing economics

Typically, the interviewees were facility managers, production managers, controllers

and technicians. Other sources of data were direct observations made under the study
visits to the companies, as well as documentation in the form of photographs,
brochures and information from the Internet (independent as well as issued from the
case companies). These sources were mainly used for data triangulation.

2.4.2 Determining the Unit of Analysis

The empirical data for this study is linked to the research project “REKO” (2006), and
employs an explanatory, multiple-case study concerning multiple types of products.

24
 METHODOLOGY

The case company selection was made from companies that were found in the study of
the remanufacturing industry in Sweden (Sundin et al., 2005). In this study, a
multitude of potential companies were found. The choice of case companies was made
based on variables concerning their annual remanufacturing volumes, relation to
OEMs, product complexity and remanufacturing process. An attempt was made in the
project to obtain as wide a distribution between the remanufacturing companies as
possible, the reason being to gain as wide an empirical base as possible for theory
generalisation purposes.

According to Eisenhardt (1989), there is no ideal number of cases, though a number

between 6 and 10 is good for theory building. Empirical data was gathered primarily
from different Swedish remanufacturing companies. The companies selected for the
case studies are listed in Tables 4 and 5. In these tables, the size of the company is
described according to its annual turnover.

Table 4: The primary companies in the study (REKO, 2006).

Case Company Size of the Remanufactured Relation to OEM
company Products
BT Industries Large Forklift trucks OEM
Scandi-Toner Small Toner cartridges Independent
Swepac International AB Medium Soil compactors OEM
Tetra Pak and Large Filling machines OEM
Wahlquists Verkstäder
Volvo Parts Large Engines OEM
UDB Cleantech Medium Automotive Contracted and
components independent

To further validate the findings of the case study, additional (interview) studies were
performed at the following companies:

Table 5: The companies studied for further validation.

Company Size of the Remanufactured Relation to OEM
company Products
Alfa Laval Large Heat exchangers OEM
Bättre Kontor Small Office furniture Independent
Greenman Toners Small Toner cartridges Independent
Inrego Medium Computers Independent
Scania Large Engines OEM
Turbo Tech Smal Turbo chargers Indipendent

It was found that these case companies were sufficient for this study, since they
provided good in-depth knowledge to fulfil the purpose of the study. Further cases
would take to much time to investigate. According to Voss et al. (2002), this skill of
“knowing when to stop” is an important skill in theory building form case studies.

25
 2.4.3 Interpreting the Findings
To find answers to these research questions, the main empirical data was gathered in
the REKO study. The findings for each research question were also published in
academic journal papers and conferences. These research results are presented in
Papers I - VII. The way these individual papers are linked to the research questions
and to the specific interview questions is summarised in Table 6 and described in the
following paragraphs.

Table 6: Characteristics of the research questions, papers and the case studies linked
to them.
Paper Research Type of Number Interview Main theoretical analysis
question case study of cases questions model
(see appendix)
I 1 Exploratory Multiple 42-43, 61 Customer Value, Basic
Marketing Theory
II 2 Explanatory Multiple 14, 18-25, 47- The product lifecycle
48, 70-73
III 3 Explanatory Multiple 5-27, 43-46 Typologies of core returns,
General supply chain
management theory
IV 4 Descriptive Multiple 29, 36-38, 49, Process mapping
54-56, 74-83
V 5 Exploratory Multiple 28-32, 49-63, Lean principles,
66-69, 84-124 Remanufacturing
characteristics
VI 5 Exploratory Single 28-32, 49-63, Lean principles,
66-69, 84-124 Remanufacturing
characteristics
VII 6 Exploratory Single 64-66, 74-83, The AC-Model for material
84-92 control. General material
handling theory

For research questions 1 to 5, the empirical results are based on all the REKO cases,
whereas research question 6 is based on a single case from the REKO study (Volvo
Parts), as shown in Table 6. For research questions 1, 5 and 6, the case studies are of
an exploratory nature. The main reason for this is the lack of previous related literature
found in the theoretical review. The main supporting theory for the research questions
is given in Table 6. Regarding the analyses for these questions, they are mainly done
with explanation building from the cases by analysing differences and similarities
between the cases.

For research questions 2 and 3, the theoretical review provided more examples of
cases and theory compared to the questions that demanded exploratory case studies.

26
 METHODOLOGY

Thus, there was a possibility to perform explanatory case studies. The analysis for the
explanatory case study is also primarily based on explanation building, but it also
contains some elements of pattern matching, especially for research question 2, where
the patterns of the product lifecycle are analysed between the cases (see further about
the product lifecycle in the theoretical framework and in Paper II).

The fourth research question is focused on describing the general remanufacturing

process. In addition, for this question there are existing theories and previously
described case studies to draw from. Since the question has a clear descriptive
formulation, a descriptive case study approach was found appropriate. The analysis for
this question is primarily based on identifying key factors and formulating a
description of the general remanufacturing process. Therefore, the analysis is, in its
major parts, based on pattern matching, i.e. trying to formalise a general process that
corresponds to all of the cases.

2.5 Validity and Reliability in the REKO Case Study

To evaluate the research performed, one important aspect is to critically asses the
validity and the reliability of the study. The first question that regards the validity of
the study is the choice of scope, that is, if the purpose of the study is worth pursuing
and if the research questions have been correctly formulated.

2.5.1 Formulation of the Research Questions

Before the REKO-project started, there was a formal research grant application
process by a Swedish research council, the “Swedish Governmental Agency for
Innovation Systems (VINNOVA)”. In this process, the formal research proposal was
evaluated based on its relevance for both academic and industry stakeholders. Given
that the research grant was approved provides strong evidence that the research plan
has a valid scope. After the REKO project was initiated, a vast theoretical review was
performed, the purpose of which was to identify gaps in the existing research that
required further attention. By conducting the theoretical review, the scope of the
research question was further validated. For the formulation of the specific interview
questions, the researchers in the REKO project used each other as reviewers.

After the reviewing process, a pilot study was also performed for further evaluation of
the interview questions. The review and the pilot study aims to increase the
correspondence between the formulation of the interview questions and the underlying
area of interest. Since the questions were semi-structured, there was still high
flexibility for the respondent to expand on specific issues, as well as possibilities for
the researcher to pursue additional interesting observations. Since the case study has
exploratory and descriptive areas, it was also concluded that the freedom in the
respondent answers is a major factor for the success of the study. All the interviews
were recorded to maintain the possibly for the researchers to review details if
necessary. During the project, there were some interviews that lead to some specific

27
 questions that demanded special attention; for these questions, additional case-
dependent studies were created. These case studies were more company-based, and
provided further knowledge regarding individual situations, and how such situations
can contribute to a general problem. The lack of generality in the single-case studies
are therefore compensated by an additional level of detail. The validity of the
additional case studies at the company has a pragmatic approach, and the scope of
these studies was developed in consensus between the researchers and the companies.
For further descriptions of the methodology for the individual case studies, see the
related publications.

2.5.2 Determining the Unit of Analysis

To find appropriate companies for this specific case study, a background study was
made with a focus on mapping the remanufacturing industry in Sweden (Sundin et al.,
2005). From this study, a number of companies were identified. After that, a small
empirical data collection was made through semi-structured interviews with a dozen
companies; these interviews were conducted via telephone and ranged from 10 to 30
minutes in length. In addition, theoretical models and documentation from both
brochures and the Internet were used. The choice of case companies was made based
on variables concerning their annual remanufacturing volumes, as well as product
complexity and the extent of the remanufacturing process. After the study, a consensus
scoring method was used to choose the case companies.

2.5.3 Interpreting the Findings

After the case studies were performed, the analysis of the results was initiated. One
major difficulty in the analysis part is the potential biases that might exist both in the
researchers’ and the respondents’ minds. For the researcher, the danger is linked to
anticipated results, meaning that the researcher might have a previous vision of the
results and attempt to match the collected data with that perception. A serious effect of
this can be faulty conclusions and of the inability to identify important aspects. To
reduce this risk, all the key informants from the case companies have reviewed the
manuscripts for the papers in this dissertation. In this way, the validity of the
conclusions has been further validated.

For the analysis itself, the previous knowledge and experience of the researcher has a
major impact on the level of detail. The lack of theoretical knowledge in some areas
might have limited the depth of the analysis, although this is a common problem in all
types of research. For this study, the analysis was based on a number of theoretical
areas that were found suitable. (For a detailed linkage between the research questions
and the theoretical models that were used for the analysis, see Table 6.) In the
respondents’ case, the major risk for bias in an interview situation is that the
respondents answer with what he/she thinks is correct, and not according to actual
practice. One way to reduce this bias is to ask the same question to multiple of
respondents in the specific case company, and then see if the answers correlate. This
was also done with a number of the interview questions. Another way is to use
different data collection methods, and not only rely on interviews. In this study, other

28
 METHODOLOGY

sources of data were direct observations made under the study visits to the companies,
as well as documentation in the form of photographs, brochures and information from
the Internet (independent as well as issued from the case companies).

2.5.4 Discussion
The use of case studies as a source of theory generalisation has been a debated subject
in the academic community (Yin, 1994). To summarise, the use of case studies as
theory generation is most advantageous when the existing theory base is relatively
small. This is also something that is relatively true for remanufacturing as an academic
subject. To increase the general validity, a multiple case study approach was taken.
This enabled the use of a cross-case analysis. The choice of case companies also
influenced the possibility to generalise. In this study, the companies’ annual
remanufacturing volumes, relation to OEMs, process complexity, and industrial branch
were vastly different. The differences between the case companies were chosen with
the aim to increase the external validity, that is, the possibility that the conclusions also
apply in other industry settings. In respect to the positive effects of a vide array of
companies from different industry sectors, there can also be a disadvantage for the
level of detail. This negative effect is based on the fact that valid conclusions in
respect to one industry are discarded due to opposing findings in another industry
sector. The result can therefore be that the details of the conclusions made are
described on such an aggregated level that they lose the appropriate level of detail. As
this study had limited resources, the further investigations in specific industry sectors
are referred to as potential future research. Another important issue that can have an
impact on the conclusions is the use of companies with a Swedish origin. This can
result in that different cultural aspects are neglected. Still, these effects are not seen as
a major problem, since the majority of the companies are working in a global or at
least in a European perspective.

29
 3
THEORETICAL FRAMEWORK

In this chapter, the theoretical framework will be presented. As this dissertation

focuses on the remanufacturing system from a holistic perspective, the discussion
about the relevant theory will focus on a more general level, opposed to giving
detailed explanations of specific areas of the remanufacturing. Generally, for detailed
discussions, references will be given to the reader for further exploration in the related
appended papers.

The structure of the theoretical framework is as follows. Firstly, remanufacturing will

be addressed as a product recovery activity. The aim in the first part of the theory is to
put remanufacturing on the “product recovery map”. Thereafter, the differences
between remanufacturing and ordinary manufacturing will be further expanded, to
provide a discussion for the forthcoming detailed discussions. The second part will
principally address the external processes that are specifically linked to research
questions 2 and 3. In this part of the theoretical framework, the issues of balancing the
supply of cores for remanufacturing and demand for remanufactured products in
relation to the product lifecycle will be addressed. The third part of the theoretical
framework will address the internal processes that influence the remanufacturing
process linking theory to research questions 4, 5 and 6.

3.1 Product Recovery Options

Products can be recovered in many ways, and this recovery can be performed at
different levels. For example, at a lower level, it could be the product materials that are
recovered. In this situation, it is often called “material recycling”. Product recovery on
a higher level, where product, components or modules are reused, is often called
“remanufacturing”, “reconditioning” or “refurbishment”. Hence, remanufacturing not
only promotes the multiple reuse of materials, but it also allows for the steady
upgrading of product quality and functionality, and does this without the need to
manufacture completely new products and scrap used ones (Sundin 2004).
 2

service

raw parts parts product users

distribution
materials fabrication assembly assembly

1
6 5 4 3

forward flows
return flows
7, 8

Waste Product Recovery Direct Reuse

Management Management

7: Incineration 5: Cannibalization 2: Repair 1: Direct reuse /

8: Land filling 6: Recycling 3: Refurbishing resale
4: Remanufacturing

Figure 5: Product recovery in the closed-loop supply chain (Thierry et al., 1995)

There exist many definitions for product recovery. An illustration of the linkage
between different product recovery options can be seen in Figure 5. In reference to
Figure 5, the following definitions can be found in theory:

The installed base is...

.. the total number of placed units of a particular product in the entire

primary market or product segment.
Krikke et al. (2004)

The following definitions of reuse, remanufacturing, reconditioning, refurbishment,

component cannibalization and material recycling illustrate the complexity of
describing the product recovery area:

Reuse is…

…the additional use of a component, part or product after it has been

removed from a clearly defined service cycle.
(Keoleian et al., 1993).

Reconditioning is …
… the process of restoring components to a functional and/or satisfactory
state but not above original specification using such methods as
resurfacing, repainting, sleeving, etc.
(Amezquita, 1996).

32
 THEORETICAL FRAMEWORK

Refurbishment is …

… when a product is cleaned and repaired to return it to a ‘like new’ state.

(Rodgers et al., 1996).

Component cannibalization is …
… the process in which a limited number of components are extracted from
a product for recovery.
(REVLOG, 1999).

Material recycling is …
… when a product is reduced to its basic elements, which are reused.
(Rogers et al., 1998).

Based on the definitions above, it is apparent that numerous definitions regarding

product recovery can be found. The appropriate product recovery options are
dependent on many factors and in many situations. This business aspect of
remanufacturing and the situations where remanufacturing is advantageous will be
discussed further in the following sections. The area of discussion in this section is
what distinguishes the different product recovery options from remanufacturing.

The terms refurbishment and reconditioning are the product recovery options that
relate the closest to remanufacturing. The product recovery process for refurbishment
and reconditioning are similar to the one for the remanufacturing process; the main
difference between them is the quality level of the products after recovery. The
definition for remanufacturing given in this dissertation (see below) does not specify a
specific quality standard regarding the original product, for example “as new” or
“equal or better than new”. What it does say is that the “quality level desired by the
customer” should be reached. In this dissertation, refurbishing and reconditioning
terminology is not needed, as it is included in the definition for remanufacturing,
which is stated as follows:

Remanufacturing is an industrial process whereby products, referred to as

cores, are restored to useful life. During this process, the core passes
through a number of remanufacturing operations, e.g. inspection,
disassembly, part reprocessing, reassembly, and testing to ensure it meets
the desired product standards.
(Adapted from Sundin, 2004)

Another product recovery option that is close to remanufacturing is the reuse option.
The main difference with remanufacturing is that the reuse does not involve any
processing of the product. The processing of the product is in this case unnecessary
since value of the product to the new consumer is sufficient. One similarity with the
remanufactured and the reused product is that they are frequently sold in the same

33
 marketplaces, and the quality of newer reused products can be in line with
remanufactured products.

As a product recovery option, repairs are closer to the remanufacturing option. In the
repair case, something is done to the product to put it in working order. The purpose of
the repair operation is mainly to extend the product life for a low cost. In a normal
situation when the product is broken down, the most frequent recovery option is to
repair the product, since the functionality of the product is restored to working order
with small inputs of resources as labour and new components. As a process, the repair
is different from remanufacturing. In the remanufacturing case, the product is
inspected to find potential weak components that might limit the quality level to be
expected by the customer. In a repair operation, the identification process is limited to
failure detection, and after failure detection, to restore the product to working order.
From this perspective, the repair process can be considered as a craft and the
remanufacturing operation as an industrial process. In addition, the warranty provided
in the repair option is generally limited to the individual functions. In the case of
remanufacturing, the warranty regards the entire product. Remanufacturing also
creates the possibly to upgrade the product to future standards (Linton, 2005;
Steinhilper, 1998).

Figure 6: The hierarchy of secondary market production processes (Ijomah, 2002).

A summary of the different product recovery operations of repair, reconditioning and

remanufacturing is given in Figure 6. These options are ranked based on the work
content that they typically require, the performance that can obtained from them and
the value of the warranty that they normally supply.

34
 THEORETICAL FRAMEWORK

3.2 Product Life Cycle

The concept of the “product life cycle” has been discussed widely in research (see the
overview by Kotler, 2003). In the theory, at least two conflicting definitions about the
product lifecycle can be found. The first refers to the progress of a product from raw
material, through production and use, to its final disposal. The second definition of the
product lifecycle, which will be used in this dissertation, describes the evolution of a
product, measured by its sales over time, as seen in Figure 7.
Product Form (2-Head)
Product Class (VCR)

Sales
Volume Product Models
(GTL-3.5)

Time
Development Introduction Growth Maturity Decline Cancellation

Figure 7: The product lifecycle for a VCR (Tibben-Lembke, 2002).

Every product passes trough a series of phases in the course of its life, referred to as
the product life cycle. The phases that a product goes through during it life cycle are
the introduction, growth, maturity and decline stages (Cox, 1967). The product life
cycle can be analysed on different levels from the main product type (product class)
down to different product models; this is illustrated in Figure 1 (Tibben-Lembke,
2002). To use an example, consider the product class to be a VCR (Video Cassette
Recorder). The components of the VCR also have their own life cycles, and are
referred to as product form (in this example the 2-headed reader). Within the group of
VCRs, there is also the development of different product models based on the 2-head
technology, each with individual life cycles. In addition, the types of products can be
divided into different types of categories according to technical innovation: (1)
unquestionably new products, (2) partially new products, (3) major product changes
and (4) minor product changes. The characteristics of the life cycle and its effects on
the reversed supply chain have been discussed by Tibben-Lembke (2002), although it
lacks a discussion on its effects on remanufacturing operations.

3.2.1 Forecasting Product and Component Returns

When the historical sales data (product distribution) is known, this data can be used as
a basis for forecasting when these products are likely to be returned (product disposal
distributions). Umeda et al. (2006) present a model based on empirical data from
return rates for remanufacturing of a single-use camera and the remanufacturing of a

35
 photocopier. In this model, a simple normal distribution function has shown sufficient
results in predicting returns when using average life as an indicator for timing of
returns. In the study by Umeda et al., the distribution of disposed products S(t) is
calculated as the historical sales data D(t) over a limited timeframe D(τ)Δτ, distributed
as a normal distribution function (NDist) with a standard derivation (σ) after an
average usage time (μ). This is illustrated in Figure 8 (Umeda et al., 2006):

Number of Production distribution for new

products products D(t) (sales volume)
Disposal distribution S(τ,t) of D(τ)Δτ

Normal distribution with

D(τ) standard derivation (σ)
Average usage time (μ)

Time

Δτ
Figure 8: Model of the linkage between the product distribution and the disposal
distribution.

Another source of items suitable for remanufacturing is the components of a product.

Here, the end product (e.g. a car) is not at its end-of-use but requires the exchange of a
component to continue working properly (e.g. remanufacturing of the brake caliper).
This disposal distribution of components (CD) is therefore a function of how many
products there are in the market (the installed base (IB)) and the failure rate of the
individual components λ(t). This is shown in Equations 1 and 2 (Umeda et al., 2006):

t
IB(t ) = ∫ D (τ ) − S (τ )dτ (1)
0

CD(t ) = IB(t ) × λ (t ) (2)

Potts (1988) defines the number of products in the installed base as follows:

The installed base consists of the difference between total shipments and
total ‘decay’- that is, the reduction in number still in use.
(Potts, 1998)

36
 THEORETICAL FRAMEWORK

Number of IB(t) – Installed base (Total number of products)

products
D(t) – Production distribution (Sales over time)
CD(t) – Component disposal distribution
(Disposal rate over time )
S(t) – Disposal distribution
(Disposal rate over time)

Time

Figure 9: Illustration of the linkage between the life cycle and other life cycle
distributions (Umeda et al., 2006).

The relations between the different distributions are illustrated in Figure 9. In this
figure, the upper line is the total amount of products on the market (the installed base).
The installed base is the sum of the produced products to a given time subtracted by
the sum of the disposed products during the given time (see Equation 1). Linked to the
formulations of these distributions, Umeda et al. (2006) present a framework for
product reuse based on three possible reuse scenarios: (1) product installation reuse,
(2) spare part reuse from maintenance, and (3) Spare part reuse from disposed
products.

The functions of the different distributions (production distributions, product disposal

distribution, and component disposal distributions) can take many different forms,
mainly depending on some key factors, where the average use period and the failure
rate of individual components have the major impacts. As an example of the impact of
the average usage period, Umeda et al. (2006) present real case data for two
fundamentally different cases. The first case is a single use camera with a very short
average usage period (4.2 months). In this case, the potential to remanufacture the
products is very good, and more or less all of the products that are returned can be
reused as seen in Figure 10.
Number of
products
D(t) – Production distribution

S(t) – Disposal distribution with a

collection rate of 60%

Months

10 20 30 40 50
Figure 10: Linkage between historical sales data and collected products for single-use
cameras. Adapted from Umeda et al. (2006).

The second case is a photocopier where the average usage period is about 7.6 years
(see Figure 11). In the photocopier case, the potential for remanufacturing in the same

37
 product version is limited to about 15%. If it is possible to remanufacture products and
upgrade them to the next product version, the situation becomes more advantageous
with 45% as illustrated in Table 7. This table illustrates the possible remanufacturing
volumes as a percentage of the disposal distribution when products can be upgraded to
a higher product version.

Product version 1
Number of Product version 2
products
Product version 3

D(t) – Production distribution

S(t) – Disposal distribution

Years
10 20
Figure 11: Linkage between historical sales data and collected products for
photocopiers. Adapted from Umeda et al. (2006).

Table 7: Percentage of possible remanufacturing volumes when products can be

upgraded to a higher product version from an earlier type of product.

From 1 2 3
To
1 14.5 %
2 46.2 % 14.5 %
3 24.4 % 46.2 % 14.5 %

The disposal distributions in the Umeda et al. study are linked to end-of-use, end-of-
life and reusable components, but there are also additional sources of cores that can be
good sources for remanufacturing. Krikke et al. (2004) present commercial returns as
another category, i.e. returns that are linked to the sales process. For a further
discussion, see the forthcoming section regarding the different sources of cores for
remanufacturing.

This previous research shows that the product life cycle and the technical and
economic issues linked to the life cycle have a major impact on the ability to balance
the returns and demand for remanufactured products. The characteristic of the life
cycle provides a theoretical foundation regarding the possibilities of acquiring used
products suitable for remanufacturing.

38
 THEORETICAL FRAMEWORK

Different companies in different industries will apply different relations with the
suppliers of the cores to get a sufficient number of cores for their remanufacturing
operations. This is further developed in Paper III. Guide et al. (2000) present a number
of management propositions on what to focus on when trying to balance the supply
and demand for remanufacturing. Regarding core (used products or components)
acquisition, one of the most important issues is to focus on identifying different
sources of cores and rating them according to their characteristics. Forecasting core
availability is critical in order to balance supply and demand. This reduces the need to
purge the system of excess cores and reduces stock-outs of unavailable units.
Managers should also try to synchronise return rates with demand rates, since doing so
will lower the overall uncertainties in the system and lead to lower overall operating
costs.

3.3 Closed-Loop Supply Chain

From a supply chain perspective, the logistical system regarding product recovery
operations can be referred to as the closed-loop supply chain. As described earlier, the
traditional view of the closed-loop supply chain is that it encompasses two distinct
material supply chains: the forward and the reverse. Generally, the forward chain
concerns the flow of physical products from producer to customer, while the reverse
chain describes the flow of physical products from customer to producer. These flows
are then “closed” by, for example, the remanufacturing operation (Krikke et al., 2004).

A reversed logistic flow is very different from the forward flow. In the forward flow,
forecasts of future sales are used to project future requirements. At each level in the
forward flow, forecasts can be used to help predict what will be needed. The scheduled
incoming products to different levels in the supply chain can also be tracked, and the
visibility of incoming products is high. In the reversed supply chain, the situation is
different. Generally, the handling of returns is more reactive, with much less visibility.
Reversed logistics activities are generally not initiated by companies’ planning and
decision making. Instead, reversed logistic processes are generally initiated by the
actions of customers or downstream channel members. In Table 8, a framework is
presented with the basic differences between the forward and the reversed supply
chains (Tibben-Lembke et al., 2002).

39
 Table 8: Differences between forward and reversed supply chains (Tibben-Lembke et
al., 2002).
Forward Reversed
Forecasting relatively straightforward Forecasting more difficult
One-to-many transportation Many-to-one transportation
Product quality uniform Product quality not uniform
Product packaging uniform Product packaging often damaged/missing
Destination/routing clear Destination/routing unclear
Standardised channel Exception driven
Disposition options clear Disposition not clear
Pricing relatively uniform Pricing depends on many factors
Importance of speed recognised Speed often not considered as a priority
Forward distribution costs closely monitored
Reverse costs less directly visible
by accounting systems
Inventory management consistent Inventory management not consistently
Product life cycle manageable Product life cycle issues more complex
Negotiation complicated by additional
Negotiation between parties straightforward
consequences
Marketing methods well-known Marketing complicated by several factors
Real-time information readily available to
Visibility of processes less transparent
track product

3.4 Sources of Cores

In the closed-loop supply chain, there are four main types of returns that can be a
source of cores for remanufacturing (Krikke et al. 2004):

• End-of-Life Returns. These are returns that are taken back from the market to
avoid environmental or commercial damage. These products are often returned
as a result of take-back laws. These types of returns are often linked to
electrical end electronic waste, end-of-life vehicles, packaging, batteries, tires,
and construction waste. Normally, these products end up being recycled or
placed in landfills.

• End-of-Use Returns. These are used products or components that have been
returned after use by a customer. They are returned, for example, when a lease
is terminated, with a trade-in, or when a product is replaced. These products are
normally traded on an aftermarket or remanufactured.

• Commercial Returns and Secondary Channel Goods. These are returns that are
linked to the sales process. These products can be returns from customers that
return their products shortly after sales. Other reasons for the returns include
problems with products under warranty or a product recall.

40
 THEORETICAL FRAMEWORK

• Re-Usable Components. These returns are related to consumption, use, or

distribution of the main product. This type concerns many different products,
for example refillable cartridges, pallets, bottles and reusable containers. The
common characteristic is that they are not part of the product itself, but contain
and/or carry the actual product. For example, toner cartridges are frequently
returned for remanufacture.

3.4.1 End-of-Use and Re-Usable Component Returns

Previous research has reported different systems and techniques for gathering cores for
remanufacturing. A common observation is that off-lease and off-rent products are an
important source of used products for remanufacturing. Thierry et al. (1995) have
concluded that this type of return is more predictable than other types of returns due to
the additional information that is available to the remanufacturing company. In the
automotive industry, there is widespread use of “exchange cycles” where products are
only sold if a core is given back (Seitz and Peattie, 2004). In this scenario, the
customer must first act as a supplier of a core in order to become a customer of a
remanufactured product. Other reported systems are voluntary, where e.g. the supplier
freely returns the cores to a remanufacturer or where the cores are bought from core
brokers or end customers. The company Lexmark uses a “prebate” program giving a
discount on a product if the customer agrees to the return the product after use; this
program prohibits the customers from returning or selling their used products to other
companies.

The products returning from this category have not been addressed widely, and there is
a clear research need to identify the linkages of these types of returns and how they
may be acquired by remanufacturers. This research need is addressed by the
formulation of Research Question 3.

3.4.2 Commercial Returns and Secondary Channel Goods

Commercial Returns and Secondary Channel Goods refer to returns that are linked to
the sales process or products that newer leaves the sales process. These products can
be returns from customers that return their products shortly after sales. Other reasons
for the returns include problems with products under warranty or a product recall. The
normal path for a product, as preferred by retailers and manufacturers, is shown by the
solid lines in Figure 12.

41
 Manufacturer Retailer
Factory Store Customer
distribution center distribution center

Return Center

Product flow to
secondary markets
Overstock brokers
Salvage brokers Primary product flow

Figure 12: Returned or overstock products flow in the secondary market (Tibben-
Lembke, 2004).

The flow of products originates from the factory, travelling from the manufacturer
distribution center to the retailer to the store, where it is can be sold to the customer.
Some of the products are never sold to the customer, however; these products are sent
through the reverse supply chain to an overstock broker. Some products can be sold
and returned by the customer to the store; these reversed flows can be quite extensive,
and for commercial returns in general, approximately 6% of all retail purchases are
returned (Tibben-Lembke, 2004). When products are returned they are resold if
possible, or they might be sent back in the reverse supply chain to a returns center. If
no new customers can be found for a returned product, the last resolution is to sell the
product to a salvage broker or send it to a landfill. When a product is sold outside the
primary marketing channel, it enters what is known as the secondary market,
illustrated in Figure 12 (Tibben-Lembke, 2004). As a complement to commercial
returns, Guide et al. (2000) also reports “seed stock” as a possible solution for core
acquisition. Seed stock is composed of products that failed OEM specifications at the
manufacturing plant. These products can provide a fruitful source of cores for
remanufacturing. In Table 9, the different sources of potential cores that can be used
for remanufacturing and cannibalisation for components is presented. However, the
possibility for independent remanufacturing companies to acquire commercial returns
and secondary channel goods can be limited due to their frequent competition with
OEMs (Hammond et al., 1998).

Table 9: Type of products in the secondary channel. (Tibben-Lembke, 2004).

New Product in Secondary Market Product that Cannot Be Sold as New
Overproduction or Cancelled Orders Second Quality or Irregular
Stock Balancing Returns Freight or Insurance Damage
Shelf Pulls Recalls
Marketing Returns Customer Returns
Packaging Change Used or Secondhand Product
End-of-Life Closeouts
End-of-Season Closeouts

42
 THEORETICAL FRAMEWORK

3.5 The Remanufacturing Process

The process within which the used product is remanufactured is called the
remanufacturing process. It is an industrial process where the core (defined as a
used/broken product that is suitable for remanufacturing) is being returned to the
remanufacturer where it passes through the typical steps of the remanufacturing
process. A general remanufacturing process is illustrated in Figure 13:

Incoming Remanufacturing
Cores Process

Cleaning Reprocess

Inspection Disassembly Testing

Storage Reassembly
Remanufactured
Products

Figure 13: The generic remanufacturing process (Sundin, 2004).

When a core goes through a remanufacturing process, it may pass through a number
of specific operations. In no specific order, these are (Sundin, 2004):

• Inspection
• Cleaning
• Storage
• Disassembly
• Reprocessing
• Reassembly
• Testing

The model in Figure 13 shows that the order of these operations is not defined, and
that this order of operations is in fact dependent on the situation. Another important
issue is that not all of these operations have to been undertaken in order to be classified
as a remanufacturing process. As an example, the scheme in Figure 14 demonstrates
the order of the operations in a remanufacturing process for home appliances.

43
 Incoming
Product Cleaning Reprocess

Inspection Disassembly Testing

Remanufactured
Product
Storage Reassembly

Figure 14: An example of a product flow for a home appliances remanufacturing

process (Sundin, 2004).

Steinhilper (1998) arranges the process in the order of disassembly, cleaning,

inspection, reconditioning, reassembly and testing. Disassembly and cleaning of used
products/components can be viewed as new technologies on the industrial level, where
industry itself has a pioneering role in setting new standards and creating new
solutions. In disassembly, the product is disassembled to the single component level.
The components are first identified and inspected, and the decision is made whether
the individual components are reprocessable, can be reused in their current state or if
they should be scrapped or recycled. Oil, dirt and rust can complicate disassembly
operations and call for new solutions to be developed. Automation is rare, even though
some experiments with robots have taken place in recent years. In the disassembly
processes, the cores can also be cannibalized for components. Component
cannibalization is when components are separated from the core and used to repair or
rebuild another unit of the same product (Rogers et al., 1998). Thereafter, during
inspection, it is decided if and how the components should be reprocessed. The
uncertainty of the quality of a core, i.e. how many of its components can be recovered,
is measured using the metric Material Recovery Rate (MRR) Equation (3) below
(Guide 2000).

Number of reusable components

MRR = (3)
Number of total components

According to (Steinhilper, 1998), the cleaning operation is the most time consuming,
and entails much more than just removing dirt; it also means de-greasing, de-oiling,
de-rusting and freeing components from paint. For this complex task, several methods
have been developed for both sequential and concurrent execution, including
sandblasting, steel brushing, baking ovens, cleaning petrol, chemical and hot water
baths, etc. Following the cleaning operation, reprocessing has the aim of repairing or
increasing the quality of the core. Geometrical change of the components through

44
 THEORETICAL FRAMEWORK

metal cutting like grinding will change the dimensions. Sometimes after reprocessing,
for example, a highly worn-out product will not match the standard tolerance, such as
the diameter of a crankshaft, and must be scrapped. In the reassembly operation, the
separated components are assembled. Reassembly can be done with components that
are either reused, reprocessed, taken from previous cores (i.e. cannibalised
components) or new components. The reassembly of components is often done with
power tools and assembly equipment as in new product assembly. Thereafter, the final
testing of the product is executed. During the reprocessing and operations, the
component’s quality is continuously assured through applied measurements
(Steinhilper, 1998).

Bras and Hammond (Sundin 2004) use an aggregated categorization of cleaning,

damage correction, quality assurance (inspection and testing) and component
interfacing (disassembly and reassembly). Arranging the steps in a standardized order,
however, could be misguided, since every remanufacturing process is unique. For
example, inspection should be performed before disassembly and cleaning in order to
prevent cores with too many fatal errors from entering the production flow;
conversely, inspection could be performed with greater detail after the core has been
cleaned (Sundin, 2004).

3.6 Remanufacturing Characteristics

As mentioned in the introduction, the remanufacturing environment is very different to

the traditional manufacturing environment of the same products. In previous research,
seven characteristics of differences between remanufacturing and manufacturing have
been observed (Guide, 2000). In all, these characteristics add different kinds of
complexity and uncertainty in the remanufacturing process. In this section, these
characteristics will be discussed.

3.6.1 Need to Balance Returns with Demand

In order to generate profit, the aim of a remanufacturer is to balance the return of cores
to the demand of remanufactured products. It is also important for avoiding excessive
inventory generated by exceeding returns, and low service levels generated by
exceeding demand. Both problems of excessiveness and scarcity of cores are observed
by Guide. To balance returns and final demand, a forecast or a real rate of demand can
be used, or a mix of them. When only using real demand, the effects of demand
uncertainty and lead times are buffered against by the use of work in process
inventories. As it is reliant upon the quantity and condition of the cores, balancing
problems affect the resource planning, materials management and lot sizing of
replacing components, as well as production decisions such as scheduling (Guide,
2000).

45
 3.6.2 Uncertain Timing and Quantity of Returns
The timing and amount of returned cores, caused by the uncertainty of the product’s
life cycle and its rate of technological change, make the return process most uncertain.
In the early phase of a product’s life cycle, there are few cores available on the market
since few products are returned, making cores expensive. In the later phase, demand
and supply become more balanced, and in the end of the life cycle there will be an
excessive supply of cores and the price will fall (Steinhilper 1998). These problems
should be suppressed by forecasting for planning purposes, and the forecast should be
compared to the demand forecast. Activities to repress these problems are mainly core
deposit systems, which generate a core when a manufactured product is sold.
However, this reduces only the uncertainty of quantities returned. Due to variation of
core supply and variability of demand, remanufacturers hold high levels of inventory
(Guide, 2000).

3.6.3 Disassembly of Returned Products

The criticality of disassembly operations is significant since, they affect materials
management, resource planning and production scheduling and control as well as shop
floor control. If not coordinated with other functionalities, disassembly operations may
lead to high inventories and poor customer service. Information from the disassembly
phase for purchasing decisions is critical to ensure the supply of new parts.
Disassembly activities are highly labour-intensive, and no optimal automated
techniques are found in the literature. The coordination of disassembly and the
remanufacturing shop is of high importance; to decrease and grant reactive lead times,
planners have great responsibility to release disassembled parts to reprocessing in
adequate time and quantity. The operations time required for disassembly has a high
variability, ranging from minutes to weeks. Even within the same product group the
average time is variable, with such a high coefficient of variance as 5.0. Due to this
uncertainty, predicting production flow and lead times is difficult. (Guide, 2000)

3.6.4 Uncertainty in Materials Recovered from Returned Items

The uncertainty of the quality of a core, how many of its components that can be
recovered, is forecasted by using the metric Material Recovery Rate (MRR) shown in
Equation 3 (Guide 2000). A remanufactured product is generally estimated to consist
of one third replacement parts. The MRR forecasts are often applied when determining
batch sizes for purchasing and manufacturing. Simple methods to forecast the MRR,
like an average, are most common in the industry but more refined regressive models
are also employed. The options of input data to calculate the MRR use historical and
statistical data or the procurer’s or planner’s subjective estimation, where the former is
most common. When deciding on the size of purchase batches, dynamic lot sizing
techniques are the most common; these are based on price, historical and statistical
consumption patterns and service levels (Guide, 2000).

A number of problems have been identified in the purchasing process: uncertainty in

demand, long lead times, and single suppliers for components and diminutive purchase

46
 THEORETICAL FRAMEWORK

orders, which lead to unresponsive suppliers. Lead times are highly variable, varying
from 0.5 weeks to 90 weeks, and purchased parts are a common origin of late orders
(Guide, 2000).

3.6.5 Requirement for a Reverse Logistics Network

A network for collecting cores from the end user and returning them to the facility is a
key function for balancing demand and return. Core acquisition ensures the adequate
supply of cores. In the automotive industry, where the incentives for a customer to
return the products, e.g. an engine, are high due to its high-value items, the trade
organization is well-established, whereas in other industries it is not. It is common to
call for a trade-in when the customer purchases a new engine, and a kind of exchange
system is employed. The other options are core brokers, who serve as intermediaries
for core collectors, third-party agencies, who arrange for the exchange of cores, and
leasing and possibly also seed stock. Seed stock, consists of products that originally
failed OEM specifications at the manufacturing plant (Guide, 2000).

3.6.6 Complication of Material Matching Restrictions

When the customer retains the ownership of the product and wants the same
remanufactured unit back, something practiced e.g. by Xerox which as a part of its
service program, the matching restrictions of the ingoing parts complicate the
materials management and production process. This problem is also present when a
unit consists of components that are marked with serial numbers, and obliges the
coordination between disassembly, reprocessing and assembly operations. This is
familiar for Make-to-Order-based production (MTO), which also has the observed
problems with short planning horizons and poor visibility for replacement parts. Order
release is common to be one-to-one, which makes setup reduction programs common,
and to be able to offer reasonable lead times, excess capacity for critical resources is
widespread. Lot-for-lot is a common lot sizing technique due to the complicated
requirements of the operations. This characteristic also influences the information
system and scheduling in order to keep track of the item. Purchase orders are
problematic because of low volume and poor visibility of demand, and buffers are
often used for high-volume replacement parts (Guide, 2000).

3.6.7 Stochastic Routings and Highly Variable Processing Times

Highly variable processing times are referred to as one of the most complicating
factors for the internal process control in remanufacturing (Guide, 2000). At the
operational level, the condition of a returned unit is a critical factor of the uncertainty
of the production process and operation times, because of processing time and
stochastic routings of operations. To estimate flow time and to plan both machine and
labour resources are therefore extremely complicated. There is a set of maximum
operations that a part can go through to get fully restored, but most parts only go
through some of them and even between identical component types the routings are
unique, which make processing time highly variable. The variety of the parts’
condition also complicates the machine setup times. Some operations are known with

47
 certainty, but others are dependent on the age and condition of the cores. This makes
remanufacturing more complex than traditional production in the perspective of
capacity and resource planning, scheduling, shop floor and inventory control.
Bottlenecks are a common problem, and they have a shifting nature in
remanufacturing due to this characteristic, e.g. cleaning where parts might return to the
cleaning station several times, and the MRR. This characteristic is also referred to as
the single most complicating factor for lot sizing decisions and scheduling. There is no
evidence for a best practice regarding lot sizing-method, but a size of one is common.
When employing a fixed quantity, this is usually based on the Economic Order
Quantity, the EOQ. Dynamic lot sizing techniques based on demand and capacity
constrains are also common (Guide, 2000). For a detailed discussion regarding EOQ in
remanufacturing, see the forthcoming section on material planning in remanufacturing.

3.7 Lean Production

Taiichi Ohno is often regarded as the founder of the Toyota Production System (TPS).
TPS evolved out of need, as the marketplace in post-war Japan required small
quantities of cars to be produced in many varieties, and this created a new type of
production system at Toyota Motor Company. It was essentially the further
development of the Ford principle of mass-producing the same automobiles in large
production runs. Womack et al. (1990) coined the phrase Lean Production to describe
TPS when they printed the results of a five-year study in the automotive industry in the
book “The Machine That Changed the World”. Lean is in its essence an approach that
eliminates waste by reducing costs in the overall production process, in operations
within that process, and in the utilization of production labour. The focus is on making
the entire process flow, not the improvement of one or more individual operations.
According to these authors, “waste” can be categorized as anything that the customer
is not willing to pay for (Womack et al., 1996).

The previous research in applying lean production principles in remanufacturing is

scarce. The only known previously reported study in this area is a case study by
Amezquita et al. (1998) that focuses on the remanufacturing of an automotive clutch.
The main results from this case study were the development of techniques for lean
automation and different methods for reduction of setup times. Another conclusion
from this study is that different reprocessing technologies – e.g. additive technologies
– need to be developed to be able to apply several lean principles, e.g. a one-piece
flow.

3.7.1 Material Flow in Lean Production

The principle of Lean Production is to target these wastes in different ways with the
aim of reducing them. Figure 15 illustrates an implementation plan of different Lean
Production methods covering a vast number of issues in a manufacturing business. As
the focus of this dissertation is not targeted towards Lean Production in general, but
rather specifically towards material flow, the forthcoming analysis will address only

48
 THEORETICAL FRAMEWORK

the relevant aspects of Lean Production that have the greatest impact on the material
flow. These methods can be grouped in the following generic groups: (1) production
to customer orders (customer pull); (2) create a levelled workload; (3) one-piece flow;
(4) reduced setup times (costs for order preparation); (5) takt time; (6) just-in-time
deliveries; and (7) stable production processes.

Figure 15: A roadmap on how to accomplish Lean Production using Lean Production
methods. Adapted from Jacobs et al. (2006).

3.8 Material Planning in Manufacturing and

Remanufacturing

Compared to ordinary manufacturing, production planning for remanufacturing is

influenced by some additional complicating factors that have been presented (Guide,
2000). The effect of these characteristics are that the material and production planning
becomes different from manufacturing situations. To support the forthcoming analysis,
some of the main principles and methods for material planning in manufacturing and
remanufacturing are presented.

3.8.1 Material planning in manufacturing

Regarding the field of material planning, the focus in this study is on replenishment
policies. In ordinary manufacturing, there are some general methods concerning how

49
 to handle replenishment, the most common of which are Reorder Point and Material
Requirement Planning (see, for example, Blumenfeld (2001)).

Reorder Point (ROP)

ROP policies are one of the most common methods in materials management. One
reason for their popularity can be their simplicity. The policy implies that when an
inventory position of a component falls below a Reorder Point (r), then a new lot-size
(Q) is ordered (see Figure 16). Here, the Reorder Point is set to cover the demand of
products during the lead time for replenishment. The Reorder point can also include a
safety stock to cover the risk of a higher demand during the lead time or a delay in the
replenishment (Axsäter et al., 1994).

Components
in stock

Reorder Point
Safety Stock

Time
Lead time Lead time

Figure 16: The Reorder Point system (Blumenfeld, 2001).

Reorder point policies can also be divided into two different categories of stock
policies: installation and echelon. Installation stock polices (Q,ri) regard only the
actual stock (installation) in a given level. The difference with echelon stock policies
(Q,re) is that the stock is calculated as a sum of multiple levels (installations) and the
components in transit between levels (Axsäter et al., 1994).

Two-bin System
The two-bin system uses the principle of the Reorder Point for material replenishment.
The difference is that the replenishment is based on visual control. The principle of the
system is the creation of two bins, where one bin becomes the working bin and the
other a spare bin. When the working bin is empty, an order request is created and the
spare bin becomes the working bin while the former working bin generates a refill
order (Chaneski, 2002). Two models of the system can be seen in Figure 17. The
model to the left uses a single bin with a separator creating a working bin and a spare
bin. In the model to the right, there are two bins of equal size where the spare bin
becomes the work bin when the work bin runs out.

50
 THEORETICAL FRAMEWORK

Working Bin Spare Bin Working Bin Spare Bin

Figure 17: The principle of the two-bin system.

The two-bin system is a visual Reorder Point system with fixed reorder points (r) and
order quantities (Q). Today, ROP systems are normally integrated in computerised
systems; however, the two-bin systems are not. No components in a two-bin system
are registered in the system, and therefore the number of components in the bins is
unknown. One major advantage with the two-bin system is that it works both as a
control system and as a material movement and storage solution (Hautanemi et al.,
1999).

Material Requirement Planning (MRP)

One of the disadvantages with Reorder Point systems is that they require relatively
stable demand to be optimal. For example, if the demand for a product fluctuates over
time and the demand can be predicted, a due-date policy (for example MRP) can be
superior. MRP uses fixed planning horizons, and a production plan is generated based
on the external requirements of components for each period, the lead time of
components, product structures (BOM – Bill of Materials), safety stock of the
component and the order quantity (Axsäter et al., 1994). For a detailed description
regarding the MRP and associates planning, see Browne (1996).

3.8.2 Lot-sizing principles in manufacturing

When determining what number of products to be produced (or ordered), the question
of lot sizing technique arises. Two frequent principles for this calculation are to use
fixed or variable order quantities. Economic Order Quantity (EOQ) uses fixed
quantities. Because it is simple, EOQ is often used as a decision rule when orders are
placed in a requirements planning system (Vollmann et al., 2004).

EOQ is one of the simplest lot sizing techniques, and is helpful in deciding what order
quantity should be used. EOQ is an equation that describes the connection between the
costs of placing orders, the costs of carrying inventory and the order quantity. In using
EOQ, some simplifying assumptions must be made, such as constant demand rate,
non-fluctuating costs, and unlimited production and inventory capacity (Vollmann et
al., 2004).

3.8.3 Material planning in remanufacturing

Regarding material planning in remanufacturing, there is one particularly important
difference when compared to manufacturing. This concerns the fact that there are a
limited number of cores to be supplied. In manufacturing, the supply of raw materials

51
 or components can be regarded as relatively predictable; in remanufacturing, this is not
the situation (Guide, 2000).

One major reason for the insecure supply of cores is the many suppliers (the users of
the products) and the way that these products are collected (see Paper II).

When the complexities of a system become greater, the more difficult it becomes to
optimize; this is especially true in the remanufacturing environment. In this section,
two principles relating to how to plan for materials are presented: one of which is
similar to the ROP system, and the other which is linked to material requirement
planning (MRP).

Reorder point in remanufacturing

The Reorder Point system is in this situation linked to both the demand for products
and the supply of cores. Just as in the ROP for manufacturing, there is an order issued
when the inventory level drops below a given inventory position. If there are enough
cores in the inventory to fill a remanufacturing order quantity, the remanufacturing
order is released. If sufficient numbers of cores are not available, the next order point
issues a manufacturing/purchasing order in order to satisfy the demand for products
(see Figure 18). This strategy is ill suited when the return of cores is greater than the
demand for remanufactured products. If that happens, large stocks of remanufacturable
products will emerge (Teunter et al., 2005). The following abbreviations apply to
Figure 18:

52
 THEORETICAL FRAMEWORK

L = Lead time
Qm = Order quantity for manufacturing
Qr = Order quantity for remanufacturing
rm = Order level for manufacturing
rr = Order level for remanufacturing
Serviceable inventory position
Serviceable inventory on-hand

Qm
Qr
rr
rm

Time

Inventory of cores to be remanufactured

Qr

Time
Figure 18: The upper diagram shows the position of serviceability inventory, while
the lower diagram shows the cores available on hand (Teunter et al. 2005).

MRP in remanufacturing
Compared to MRP in manufacturing, the remanufacturing situation includes additional
input data such as the expected return flows and the current stock of remanufacturable
cores. An example of MRP in remanufacturing is presented in Table 10. Here, the
“remanufacturing first” priority rule is employed, and a disposal limit of 10
components is specified. Table 10 shows how planned order releases for all activities
(disposal, remanufacturing and manufacturing) develop over time, taking into
consideration the respective lead times (2 periods for remanufacturing and 1 period for
manufacturing). Here, the numbers in bold are input data (Inderfurt et al., 2001).

It should be noted that alternative order release rules can also be used here. For
instance, another alternative is to immediately remanufacture all units available. In
addition, uncertainties in returns and lead times can be taken into account by using
safety stocks and/or safety lead times as a means of security (Inderfurth et al., 2001).

53
 Table 10: Example of a MRP table adapted to remanufacturing (Inderfurth et al.,
2001).

3.8.4 ABC analysis

Components in an inventory create costs; to minimise the costs associated with
holding an inventory, efficient planning and control of the inventory can reduce these
costs. The planning and control should be focused on the important components versus
the unimportant ones; therefore, a classification of different components can be made
to enable the focus on important components.

One tool to classify different objects is the Pareto analysis – or as it is commonly

referred to, “the 80-20 rule”. This rule was created in 1906 by the Italian economist
Vilfredo Pareto. He used a mathematical formula to describe the unequal distribution
of wealth in his country, observing that twenty percent of the people owned eighty
percent of the wealth. This logic is also the basis for the ABC analysis (not to be
confused with Activity Based Costing, a supporting method for distributing costs and
pricing products).

The ABC analysis is based on (1) the value of the component and (2) the demand for
the same component (usage rate). Multiplied, they create the value of usage (or annual
requirement value).

In a normal example, 10% of the components constitute 60% of the value of usage (see
the A components in Figure 19). These components are especially important and
demand a high degree of control. C components are less important, and represent
about 60% of the components and only approximately 5% of the total value of usage
as seen in Figure 19 (Partovi et al., 2002). The ABC analysis can be a valuable tool
when the need to categorise components arises. Taking inventory as an example, close
planning and control is more important for fast moving components with a high unit
value. Conversely, for slow moving, low unit value components, the cost of inventory

54
 THEORETICAL FRAMEWORK

planning and control systems may exceed the benefits to be gained, and simple
methods of control should be substituted.
Value of Usage
[% of total]
100 %

Components
A B C [number]
Figure 19: An example of the ABC analysis and value of usage.

3.8.5 AC model for material planning

With respect to the ABC analysis, the AC analysis simply does not consider the B
components in a control perspective; instead, these components are spread to either the
A or C group. The use of AC analysis as a tool when choosing replenishment polices
has been documented by Hautaniemi et al. (1999), albeit in a make-to-order situation.
First, the value of usage is used to find components with low value of usage. Then, the
components that have a shorter lead time than the final assembly schedule (FAS) are
identified. The components with a longer lead time than the FAS are then divided up
depending on the demand pattern. The groups are then associated with different MRP
and ROP systems for control. One of the reasons to identify C components is that the
use of MRP creates higher administrative costs, and therefore other control methods
can be more feasible. A summary of the framework can be seen in Figure 21
(Hautaniemi et al. 1999).

55
 Figure 21: A summary of the AC-analysis (Hautaniemi et al., 1999).

3.8.6 New components (spare parts)

Replacement Material
Another complicating factor for production planning is the coordination of
replacement material that can come from both remanufactured and manufactured parts.
In the situation when parts cannot be remanufactured, they have to be purchased. This
leads to some problems, due to reasons like: (1) long lead times for purchased
products, (2) single suppliers for parts or components, (3) poor visibility of
requirements, (4) small purchase quantities leading to unresponsive vendors, (5) parts
no longer in production, and (6) vendors’ minimal purchase requirements. Even

56
 THEORETICAL FRAMEWORK

though purchase of material can be complicated, some protection can be gained

against variability in material recovery as well as more predictable remanufacturing
schedules (Guide et al., 2000).

Obsolescence
When the demand of a component decreases and finally is no longer desired or
becomes out-of-date, it is considered as obsolete (Cobbaert et al., 1996). Obsolete
components are no longer usable, and the remaining components have no value and
result in a cost for the company, both in value and disposal. Obsolescence can occur
either through an expected pattern or a sudden decrease in demand (also referred to as
sudden death) (Teunter et al., 2002).

Some lot sizing and replenishment options for manufacturing have been created for
both sudden death (Cobbaert et al., 1996) and expected decrease in the final phase of
the product’s life cycle (Teunter et al., 2002). However, there is no existing model that
focuses on the effects of obsolescence in remanufacturing environments.

Spare Parts Inventory Management

One main difference between ordinary inventory control and the control of spare parts
is the usually low demand pattern for spare parts. In an ordinary situation, an ABC
analysis is an appropriate tool, due to the fact that the products are more or less
homogenous. However, the inventory control of spare parts differs, due to the more
complex situations. For an effective analysis, the characteristics of criticality (process
and control), specificity, demand patterns and value are good criterions when
classifying spare parts (Huiskonen, 2001).

3.8.7 Material handling

Line Storage and Kitting
Material movement in the line storage solution is the transportation of a component
from a warehouse position to a storage position in connection to the assembly
operation. The kitting operation is when the components of a specific assembly are
collected, often on a specific part carrier, and brought to one or more assembly
operations (Brynzér et al., 1995).

Some pros and cons can be identified with each option. In an assembly situation, some
advantages with kitting can be identified, such as: a liberation of space connected to
the assembly operation, a simplification of the material movement (especially in the
situation when components are stored at multiple positions, as in a parallel flow) and
improved control and visibility in the system (Bozer et al., 1992). Another advantage
is a reduction in lead time for the assembly operation (Brynzér et al., 1995). The
disadvantages of kitting versus line stocking are: that the operation does not add any
value to the product, that it creates an extra need for space in the warehouse, and that it
increases the need for control and increases the risk of errors in the handling of
components due to human errors (Brynzér, 1995).

57
 The kitting operation can be done in many ways using different picking techniques.
Some factors that influence the kitting activity are: the storage solution of the
inventory, the number of components in a kit, the number of common components
between kits, the lead time for the kitting operation, the resources demanded by the
process and the type of components to be picked. For an overview, see for example
Brynzér (1995).

58
 PART III – ANALYSIS

This part of the dissertation presents the results of the individual research questions.
In this section, the general analysis is presented as well as a discussion regarding the
specific results. This section reports the major findings and provides some empirical
evidence, although the major empirical data is further presented in the appended
papers.
 4
DRIVERS FOR REMANUFACTURING

This section focuses on the first research question, that which targets the basic
questions of why companies are involved in remanufacturing and what are the drivers
that motivate companies to remanufacture products. Several authors have partly
addressed this question in their previous research, and there are several case studies
that contribute to answering this question. A main conclusion from these studies is that
the motives for remanufacturing a product are very case-dependent (see for example
Seitz (2007); Gray et al. (2007); Toffel (2004), Bras et al. (1999) and de Brito et al.
(2004)). These previous studies, together with the empirical findings from this study,
provide a good empirical base for further analysis. In this section, the first research
question will be addressed, that is:

RQ 1: What are the drivers for companies to remanufacture products?

Understanding what the drivers are for the overall remanufacturing system is a key
issue for developing competitiveness in the remanufacturing system. For example,
when creating different management principles, there has to be a purpose for the
development of these principles. Without knowing where we are going, we cannot
deliver solutions to get there either. Therefore, the identification of remanufacturing
drivers becomes important for the direction of the forthcoming analysis.

4.1 Profit as a Driver for Remanufacturing

One of the most frequent answers given when a company is asked why they are
involved in remanufacturing is that remanufacturing is a profitable business for the
company. In this section the identified profit drivers for remanufacturing are
presented.

4.1.1 General Cost Reductions

Remanufacturing as a solution for realising a product that meets the customer’s
requirements can provide substantial cost savings in comparison to the new product
 alternative. Remanufacturing can provide cost reductions, both for customers and for
remanufacturers. This is done by taking advantage of the resources that were used in
the manufacturing of the product. By taking advantage of these resources, there is a
potential that the costs of producing remanufactured products is lower than in the case
of new production - in other words, providing a situation where remanufacturing can
be profitable (Toffel, 2004). The reused resources consist of the material in the
product, energy, machine time, labor and other costs that have been accumulated in the
new production process (Bras et al., 1999).

This cost reduction is also the main criteria for making remanufacturing profitable. For
example, Xerox Corporation saves hundreds of million of dollars a year by
disassembling its end-of-life photocopiers and then cleaning, sorting, and reprocessing
components and recycling residual materials (Toffel, 2004). Another example of
remanufacturing becoming profitable is seen at Volvo, which uses remanufactured
engines in warranty claims instead of new engines (Paper VII).

4.1.2 New Business Strategies

How companies formulate their business strategies to meet customer demands can also
create opportunities for profitable remanufacturing. A trend today is that many
manufacturing companies are moving from a focus of selling products to a perspective
linked to optimising the use of the product during its lifetime. In this way, the focus is
shifting from the cost at the point of sale to the life cycle cost. In this way, the focus
shifts away from the price difference of a remanufactured product in comparison to a
new product. One example of this thinking is when the product is linked to a
functional sales offer. In the functional sales offer (e.g. a rental contract), the business
strategy of a company is to sell the function of a product instead of the physical
product itself. A formal definition of functional sales is: “To offer from a life-cycle-
perspective a functional solution that fulfils a defined customer need. The focus is,
with reference to the customer value (defined customer need), to optimize the
functional solution from a life-cycle perspective. The functional solution can consist of
combinations of systems, physical products and services” (Lindahl et al., 2001). One
result from this is that the product can remain in the ownership of the company, and
can then be remanufactured when returned from the customer (Jacobsson, 2000). In
this case, remanufacturing can be a preferred product recovery option for products
coming back after the lease or rental period (Toffel, 2004). One practical example of
this is the rental agreements for forklift trucks offered by BT (Paper III). Normally, the
forklifts are stationed at the customer for up to five years. When the product is
returned, it is remanufactured before it is sent out to another customer or sold in the
second-hand market.

4.1.3 New Product Sales and Entry into New Market Segments
This category refers to the practice of trading in old products when customers are
buying a new product. When providing compensation for the old product, a drive for
new product sales is made. If the company is involved in remanufacturing the product,
the effect can be that the customer gets some discount for the new product, and the

62
 REMANUFACTURING DRIVERS

remanufacturer gets a core that can be remanufactured. For the OEM remanufacturer,
the result is a profit from the sale of the new products and a profit for the
remanufactured product. One frequently cited reason for companies not to become
involved in remanufacturing is that it can possibly reduce its new product sales. This
does not have to be the case, since it is common that the new and the remanufactured
products are sold to different markets, or are sold through different marketing
channels, as well as that the new and the remanufactured products often target
different market segments. One example of this is the case of remanufactured soil
compactors from Swepac and forklift trucks from BT; both of these products are
targeted towards different markets and market segments (Paper III). In each of these
cases, the products that are sold as remanufactured are targeted towards customers
with a lower demand of innovation level and to customers that are price sensitive.
Targeting new market segments by offering remanufactured products is also one way
for premium brands to address new customer groups that would not be able to buy new
premium products.

4.1.4 Provide Spare Parts

For products that have been on the market for an extended period, the only option for
the customer to replace a broken component might be with a remanufactured
component. The main reason for this is that there are no new or reused components
available on the market (Gray et al., 2007). Additionally, OEMs may be obliged to
supply spare parts for products for a certain length of time after new production
ceases; in many industry sectors, such as automotive, this timeframe can be up to 15
years, as for the case of Volvo and UBD (Paper III). By using a business model which
provides these spare parts as remanufactured products, OEMs are able to cease
production of small numbers of new spare parts for older product lines. This means
that remanufacturing can offer a further cost savings to the OEM.

Another interesting point is that remanufacturing also provides an alternative to new

production for spare parts. Hence, the dependency on sub-suppliers for spare parts can
to some extent also be reduced by offering the remanufacturing option (Seitz, 2007).
This is especially true for components that have been on the market for many years,
making the costs for producing new components high due to the generally low
production volumes (see Paper II).

4.2 Policy as a Driver for Remanufacturing

The drivers for remanufacturing can also be linked to non-direct economical issues.
Policy issues, such as protecting a secondary market, promoting brand image,
preventing legislation and other similar issues can motivate remanufacturing. The
drivers that are presented here are drivers that have a positive economical impact on
the company as a whole, even if the profit from the remanufacturing operations can be
negative.

63
 4.2.1 Protecting Aftermarket Volumes
The aftermarket is defined “as the market for components and accessories to maintain
or enhance a previous purchase” (Toffel, 2004). The aftermarket is often a very
lucrative business area for OEMs, and therefore it can be beneficial for the OEM to
keep independent competitors away from this market. By collecting components and
products from customers, the “risk” of independent remanufacturers targeting this area
is reduced through limiting the supply of cores. Based on a study at an engine
remanufacturer, Seitz (2007) provides the following insight:

Officially a remanufactured engine can only bought if a core is returned.

But if a customer offers us just the core without buying a remanufactured
product, we tend to buy it anyway, because otherwise, the core would be
“food” for our competitors. With regard to commercial vehicle engines, at
one point, we even bought back used engines from scrap yards to avoid that
competitors would get hold of them.

Another example of protecting the aftermarket is the company Lexmark, which

uses a “prebate” program giving a discount on a product if the customer agrees
to the return the product after use. This program prohibits its customers from
returning or selling their used products to other companies (Seitz et al.,2004).

4.2.2 Brand Protection

The image of a company is one of the most critical factors for a successful business. It
is also something that demands a lot of time and investment to build, and it can
quickly be destroyed by for example negative publicity. For high profile OEMs that
target premium customer segments, it is very important that the quality of
remanufactured products be under control. To maintain control over the product during
its lifetime, the OEMs might want to restrict the supply of cores to the independent
remanufacturing companies. The result can be that OEM does not want independent
companies “playing around” with their branded products, resulting in a risk that the
original brand gets the negative impact if something goes wrong with the
remanufactured product from an independent remanufacturer. One example of this
practice is the remanufacturing and upgrading of filling machines at Tetra Pak. By
upgrading the products to the latest specifications, Tetra Pak is actively increasing the
level of technology in its installed base, as described in Paper II. The reason for this is
partly motivated by maintaining a company profile of innovative products and
reducing the risk of inferior remanufacturing performance from independent
remanufacturers.

4.2.3 Gaining Information of Customer Needs

Just as trading-in products can be a driver for new sales, information on
remanufacturing needs and the status of the installed base can gain substantial
advantages in respect to competitors. With the information about the status of the
installed base gained from the customer, the seller can be one step ahead, realising the

64
 REMANUFACTURING DRIVERS

needs of the customer before the customer themselves. If the information of the current
situation can be gathered, there is a possibility to act proactive instead reactive. Acting
proactively according to information can enable a company to control different
activities according to the organisation’s ability to perform at its best. For example, a
sale advantage can be gained when the products that are close to their end-of-use are to
be replaced. This information can then initiate a proactive sales activity. Another
example is when an innovation pushes the product out of its economic lifetime in the
customer’s specific case. According to Holmlund (1997), the actions in these
sequences have great influence on the perception of the relationship. With the
information about the customers installed base, an information advantage over the
competitors can be gained. (For a more detailed discussion about how this can be in
ownership-based relations, see Paper III.)

4.2.4 Providing Additional After Market Solutions

Matching different customer needs for aftermarket services can also be a source for a
positive company profile. Remanufacturing can then be a low-price option for the
price-sensitive customer. In general, this reflects on the broader market appeal for
customers, including the company’s ability to provide replacement components for a
reasonable period, at a reasonable price. One remanufacturer puts it like this (Seitz,
2007):

One of the reasons why we remanufacture passenger car engines and

engines for small commercial vehicles is the fact that we want to offer the
customer the option to purchase remanufactured engines. It all boils down
to customer orientation and customer satisfaction.

4.2.5 Feedback to new Product Design

Engaging in a remanufacturing activity can also provide additional knowledge about
how the products are performing during the later parts of their usage periods. Products
that are subject to warranty claims have previously been reported to be a good
feedback source in new product design. When engaging in remanufacturing there is an
additional advantage, since older products that are not returned under warranty
considerations can easily be analysed. By remanufacturing, companies can get good
insight into what happens to the product in the later phases of its life. A practical
example of this is the close collaboration between the design and remanufacturing
departments at household apparatus manufacturer Electrolux (Sundin, 2004).

4.3 Environment as a Driver for Remanufacturing

From an environmental perspective, remanufacturing can in many cases offer superior

material recovery due to additional reused resources (Smith et al., 2004). From an
environmental perspective, it is still important to consider the impact of prolonging the
life of products with obsolete or polluting technologies. Remanufacturing products
with less environmentally-sound technology can have a negative impact, especially if

65
 the major environmental impact is concentrated in the use phase. Still,
remanufacturing in the proper scenario can lead to substantial environmental
advantages (Bras et al., 1999).

4.3.1 Legislation
Environmental considerations and corporate social responsibility are putting pressure
on governments and other institutions to react. A result of this is that the
environmental legislative pressure from institutions like the European Union (EU) is
growing. Examples of this include the launching of the WEEE and ELV directives,
which are currently being implemented in the EU member countries in either an
“industry collective” or “company individual” manner. From a remanufacturing
viewpoint, the effects of theses directives can become a significant driver for the
remanufacturing industry. How these directives are implemented will have a
significant effect on the future remanufacturing industry. According to Webster and
Mitra (2007), in a collective implementation situation, the specific industry branches
are collectively responsible, and would make a structural change to the industry –
creating an environment where remanufacturing becomes profitable, if not already
profitable without a take-back law. On the other hand, if these directives are
implemented company individually, i.e. if each company will be responsible for its
own products, then the companies will gain better control of their own
remanufacturing businesses.

One example of legislation as a driver for remanufacturing can be taken from the toner
cartridge business. Toner cartridges are regulated under the WEEE directive; as a
result, toner cartridges cannot be treated as ordinary office supplies. This creates a
recycling problem for the customer. Scandi-Toner recognizes the embedded value in
the discarded product that can be realized through remanufacturing. A recycling
service is provided to the customer free-of-charge, and results in the access to used
toner cartridges. The relationship is established by providing a take-back system that is
realized with a return box that is (when full) sent to the company free-of-charge. The
boxes are sent to the company randomly and can contain several cartridges. According
to Scandi-Toner, the take-back system also motivates customers to remain customers,
and provides a sales opportunity since a customer is more likely to purchase
remanufactured cartridges when they are supplying the used ones through the take-
back system.

4.3.2 Moral and Ethical Considerations and Green Marketing

When Kodak started to produce single-use cameras, they really were just “single use”.
As a result, the customers started to refer to them as “throwaways” and “disposables”.
This, in combination with environmental groups addressing concerns of this
wastefulness, resulted in a remanufacturing program that took care of these single-use
cameras. This environmental driver was the start of one of the most successful
remanufacturing programs in the world, with millions of cameras being
remanufactured each year (Toffel, 2004).

66
 REMANUFACTURING DRIVERS

Remanufacturing can also be a way of promoting a green image of a company. Green

marketing can therefore be a way of promoting environmental issues in the company
marketing efforts. The main aim with the green marketing idea is that the customer is
informed of the environmental effect of the products they are considering buying. As a
result, green marketing aims to make the customer aware of this information in the
decision on which product to purchase (Rex et al., 2007).

4.4 Discussion

This study shows that there are three main business drivers for remanufacturing: profit,
company policy and environmental drivers. For remanufacturing to be successful,
these drivers are crucial, although not all of these drivers need be present for a
successful remanufacturing business. The main drivers for remanufacturing can be
very different across different industries as well as between individual companies.
When combining the profit, policy and environmental factors, there is great potential
for a win-win-win situation, meaning that the customer gets a quality product at a
lower price, the manufacturer reduces its manufacturing costs, and the environment
gains from a lower environmental impact, as seen in Figure 21.

Environment
− Legislation
Profit Policy
− Moral and ethical
- Cost reductions − Protecting aftermarket
considerations
- New Business − Brand protection
Strategies − Green marketing
− Providing additional
- Driver for new after market solutions
product sales − Feedback to new
- Targeting new REMANUFACTURING product design
market segment
- Provide spare
parts

Figure 21: The potential for win-win-win situations through remanufacturing

In a general sense, the profit motivation is the most prevalent business driver, but still
there are situations where this motivation is secondary to policy and environmental
issues. This is especially true for OEMs that are involved in remanufacturing to
enhance their image, to promote new product sales or to offer other types of after-sales
offerings.

The identification of the different business drivers is also important to determine

which aspects need to be optimised in order to create a competitive advantage. When
developing and managing the remanufacturing system, the main point might not be to
focus on cost as a primary objective. For example, if a main driver for remanufacturing
is to protect the aftermarket, acquiring cores should be the priority.

67
 5
BALANCING SUPPLY AND DEMAND
OVER THE PRODUCT LIFECYCLE

In this section, the second research question is addressed, that is:

RQ 2: What strategies can be used for balancing returns of products suitable

for remanufacturing with demand for remanufactured products?

In the remanufacturing environment, the life cycle of a product and the disposal rate
for both products and components have a great impact on the possibility to perform
profitable remanufacturing. Previous research has shown that that issues such as the
age of the generation of the product, the expected life (reliability), the rate of
technological development and the willingness to return products for remanufacturing
will influence these distributions (Guide et al., 2000). This section will focus on
shedding light on these issues, as well proposing strategies that can possibly make the
overall remanufacturing system more competitive. In the following section, the stages
of the life cycle are addressed according to three different remanufacturing scenarios
(adapted from Umeda et al. (2006)).

• Product remanufacturing – Used products are remanufactured to “as new” or

upgraded status; an example of this category is the remanufacturing and
upgrading of Tetra Pak filling machines.
• Component remanufacturing – Used components are remanufactured to “as
new” or upgraded status; an example of this category is the remanufacturing of
automotive components (UBD case) and toner cartridges (Scandi-Toner case).
• Component cannibalisation – Used products are cannibalised for components,
and the components are then remanufactured “to new” or upgraded status. An
example of this category is the cannibalisation of components from heavy
trucks (Scania) and forklift trucks (BT Industries). In these cases, the
component cannibalisation option is mainly a supporting activity for the
product and component remanufacturing scenarios.
 Each of theses different remanufacturing scenarios will be discussed in detail in the
forthcoming analysis, starting with the product remanufacturing scenario. In each of
these scenarios, the empirical data in presented in further detail in Paper II.

5.1 Product Remanufacturing

In this section, the basics for the demand and supply for remanufacturing will be
analysed. After this, the linkage between the supply and demand will be analysed from
a product life cycle perspective.

5.1.1 Demand for Remanufacturing

The shape of the product distribution for newly produced products has a major impact
on the demand for remanufactured products with equal characteristics. A theoretical
illustration of the linkage between demand for new and remanufactured products is
seen in Figure 22.

Number of Production distribution for new

products products (sales volume)
Demand for remanufactured products
Effects of the difference in the
remanufacturing offer (e.g. marketing and
price) on the demand for remanufactured
products
Time

Figure 22: Linkage between new product sales and demand for manufactured
products.

Figure 22 illustrates that the demand for remanufactured products generally follows
the trends of newly manufactured products. Just as for new manufacturing, there is a
possibility to affect the shape of the demand for remanufactured products by different
remanufacturing offers; this is illustrated by the dotted lines in Figure 22. For example,
if no marketing of the remanufacturing product is possible, then the demand of
remanufactured products often tends to be lower, due to customers’ poor knowledge of
the availability of remanufactured products. In addition, the pricing strategy of
remanufactured products has a major effect on the shape of the demand for
remanufactured products. For example, in traditional manufacturing a major reason for
the drop in sales is that once new products with better performance are introduced, and
that the price for the older version of the products cannot compete with the price of the
newer product. In the case of remanufacturing, some products can still be attractive for
a longer period of time due to the traditionally lower price for remanufactured
products. This is especially true for products with low technological development, or
within customer segments that are not sensitive to new technology. One factor that
limits the demand for remanufactured products is other types of product recovery
options; reuse is one example. In the secondary market, resale can be a more viable

70
 BALANCING SUPPLY AND DEMAND

solution in the eye of the customer if the product at hand is in working order and the
expected lifetime of the product is sufficient (the quality of the used product). In
practice, this is largely a matter of the cost of the reuse and the remanufacturing
options, a detailed discussion of which is found in Paper II. Hence, the competition
from other recovery options limits the demand for remanufacturing volumes over the
life cycle, as illustrated in Figure 23.

Reuse Remanufacturing Reuse Recycle

Monetary
Units Market price for a
remanufactured product
Market price for a reused
product
Cost for remanufacturing

High Low Core quality (usage level and age)

Figure 23: Illustration of the economically preferred product recovery option as a

function of core quality (from the forklift truck case).

In Figure 23, the cost and benefit from the remanufacturing option is compared with
the product recovery options of reuse and recycling. When the core quality is high, the
cost for the remanufacturing operation is not motivated according to the market price
for a remanufactured product. In this situation, the logical option from a profit
perspective is to reuse the product. Later, when the quality of the core is decreasing,
the benefit for remanufacturing becomes greater and is logically motivated from a
profit perspective. After a point, the quality of the returning core becomes so low that
the cost for remanufacturing becomes too high according to the potential market price.
In these situations, it can be motivated to recycle the product, especially if the desire is
to protect the aftermarket or to protect the brand image. However, in situations where
the quality of the used product is sufficient, the option of reusing the product “as is” on
a secondary market can be motivated – especially for low-performance tasks,

5.1.2 Supply for Remanufacturing

To match the demand for remanufactured products there is a need to forecast the future
supply of cores suitable for remanufacturing. The potential supply of cores from end-
of-use and end-of-life can be forecasted according to historical OEM production data
as explained in the theoretical framework (Umeda et al, 2007). One problem with this
is that the forecast is made for the total disposal distributions of all products. The
disposed products are also subject to reuse/repair (if the quality level is high enough)
and recycling/waste treatment (if the quality is too low), as illustrated in Figure 23. As
a result and as seen in Figure 24, the supply of cores suitable for remanufacturing will
always be lower than the disposal distribution. In addition, the supply of cores will
fluctuate according to the quality level of the disposed products over time, due to the

71
 logic of the economically preferred product recovery option as a function of core
quality, as illustrated in Figure 23.
Demand for remanufactured
products
Number of Disposal distribution
products Disposal distribution of products
suitable for remanufacturing
Effects of the competition from
other product recovery options

Time

Figure 24: Linkage between the disposal distribution and the distribution of products
suitable for remanufacturing.

5.1.3 Life Cycle Aspects for Balancing Supply and Demand

The possible remanufacturing volumes for a product are dependent on the relation
between the supply and demand curves. The case when remanufacturing is generated
from end-of-use returns is illustrated in Figure 25. The shape of the potential
remanufacturing volumes is dependent on the shape of supply and demand
distributions. The exact shape of the distributions differs between different types of
products. For example, the potential remanufacturing volumes of single-use cameras
are high, as described in section 3.2, due to the short average usage period that
“pushes” the supply distribution to the left in Figure 25. Another example is the
remanufacturing of filling machines to “as when produced status”; in this case, the
machines are returned after an extended period of time, and the supply distribution is
pushed to the right.

Number of Potential remanufacturing volumes

products Supply/demand breakpoint
Demand for remanufactured products
Disposal distribution of products
suitable for remanufacturing

Time

Introduction Growth Maturity Decline Cancellation

Figure 25: Potential remanufacturing volumes.

In product remanufacturing, there is one special case were this reasoning does not
apply: when the supplier of the core is also the customer of the remanufactured
product as in a direct-order customer relationship (Paper III), as for example in
remanufacturing as a service. In this case, the customer supplies the core directly
according to a make-to-order principle, and there is potentially a perfect match

72
 BALANCING SUPPLY AND DEMAND

between supply and demand. A practical example of this is the remanufacturing

service provided for soil compactors (Swepac case), where the customer (often rental
companies) supplies the compactor and gets it back within two weeks.

In the case when remanufactured products are being upgraded to the latest
specifications from cores based on a previous version (illustrated as A+1 in Figure 26),
the situation can become advantageous from a potential remanufacturing volume
perspective, as illustrated in Figure 26. The possibilities to do so are limited according
to the upgrading cost it generates, but also according to the level of technology of the
core to be upgraded. In conclusion, upgrading products can be a very effective strategy
for matching supply and demand and increasing remanufacturing volumes.
Potential remanufacturing volumes
Number of
products Demand for remanufactured
products (A)
Demand for remanufactured
and upgraded products (A+1)
Disposal distribution of products
(A), suitable for remanufacturing
Time

Introduction Growth Maturity Decline Cancellation

Figure 26: Potential remanufacturing volumes when upgrade to latest technology is a

viable option.

Life cycle aspects in the introduction phase

Before remanufacturing can be undertaken, there can be difficulty in identifying the
potential products for which remanufacturing is profitable and technically feasible
(Zwolinski et al., 2006). One important competitive mean for remanufacturing
companies in this phase is to quickly develop and present remanufactured products to
the market once a new type of product has been introduced. With closer cooperation
between remanufacturing stakeholders, new manufacturing and potential customers,
the following advantages can result:

• Better identification of potential remanufactured products can stimulate

increased remanufacturing of products.
• A faster time-to-market for remanufactured products, gaining a first-movers’
advantage in respect of competitors.
• An earlier start of remanufacturing has the potential to better match underlying
demand for remanufactured products, and hence increase remanufacturing
volumes.
• Demands regarding quality and technical specifications of cores/components
can be distributed from the OEMs to the remanufacturing industry.

In this phase, the possibility to identify potential products and shorten the time-to-
market is largely dependent on the ability to act in a network of actors such as OEMs,

73
 component suppliers and customers. Hence, relationships between partners become
important. Previous research reports that competition between OEM remanufacturers
and independent remanufacturers can be a major limitation for collaboration, although
this is not always the case (Hammond et al., 1998). In this study, there have been
examples of fruitful collaboration between OEMs and independent/contracted
remanufacturers. In the UBD case, the remanufacturer is contracted by the OEM, but it
also competes with the OEMs as they also provide remanufactured products to the
independent market. Additionally, if the products have been designed for
remanufacturing in the first place, the possibilities to identify and motivate
remanufacturing will be greater.

Growth phase
This is the phase when remanufacturing volumes emerge and increase over time. Here,
the core returns from end-of-use are limited, and the potential demand for products is
high. In this phase, the possibilities for generating good profit margins are high,
mainly due to the high demand for remanufactured products with respect to the lower
supply of products suitable for remanufacturing. The companies that have a better
ability to acquire cores in this phase will have a major competitive advantage (Paper
II). As the end-of-use and end-of-life disposal rates are limited to failure rates and
average usage periods, the possibility to manage the returns is low. In this phase, the
greatest potential for acquiring cores is from other sources such as seed stock,
commercial returns and other Secondary Channel Goods, as for example warranty
claims and transportation damage.

Maturity phase
In this phase, the return rates from end-of-use increase more and more, to the extent
that they start to meet and extend the demand for remanufactured products. As
volumes increase and a more stable remanufacturing process is developed, efficiency
and cost-consciousness become important issues. Important in this phase is to manage
the inventory levels of returned products in relation to the demand for remanufactured
products. Another important issue is how to make the processes become even more
efficient, e.g. through lean production principles.

As illustrated in Figure 25, there is a breakpoint between supply and demand. This
breakpoint also has a significant impact on the competitive advantage for
remanufacturing companies. Before the breakpoint, competitive advantage is based on
e.g. identifying potential products and the ability to acquire cores. After the
breakpoint, this becomes less important, while efficiency in the remanufacturing
process increases in importance. As the supply of end-of-use and end-of-life products
increases, an important issue is to limit and acquire only the cores that are most
suitable for remanufacturing. Another characteristic in the later stages of this phase, as
well as in the decline phase, is that the quality of the cores can become lower; this in
turn can cause a demand for new types of reprocessing operations.

74
 BALANCING SUPPLY AND DEMAND

Decline phase
In this phase, the need for remanufacturing decreases, and there is normally an
abundance of cores available on the market. The main danger in this phase is having
excessively high inventory levels of cores and remanufactured products when demand
for remanufactured products decreases. This can result in high obsolescence costs,
both for end products as well as for components that are kept in inventory as spare
parts. This is especially important for complex, low-volume products with many
product-specific components, as for example diesel engines (as in the Volvo case).
Knowing when this drop is about to happen is critical in reducing the risk and cost of
obsolescence.

5.2 Component Remanufacturing

The cases of component remanufacturing and product remanufacturing are quite

different. In the case of component remanufacturing, the demand for remanufacturing
activities is primarily linked to the characteristics of the installed base and the failure
rate of individual components. One example of this is that the need for break calliper
remanufacturing is dependent on the number of installed cars (UBD case). Just as in
the case of product remanufacturing, the component remanufacturing volumes are not
directly correlated to the disposal distribution of components from a product.
Competition from other after-market options such as component replacement by new
components (spare parts) influences the remanufacturing volumes. Just as for product
remanufacturing, component remanufacturing volumes are sensitive to new
component pricing (spare parts pricing), something which is further discussed in Paper
II. For example, as shown in Figure 27 the increase in remanufacturing volumes late in
the life cycle is a result of component replacement options being reduced to buying a
remanufactured or a reused one.

As a general conclusion, the competition arising from replacement volumes by new

components is generally higher in the early life cycle; vice versa, completion from
component cannibalisation/reuse occurs later in the life cycle (see reasoning in the
forthcoming component cannibalisation section).
Demand for remanufactured
Number of components
products Supply of used components
Additional supply of
components from e.g. product suitable for remanufacturing
cannibalization Product disposal distribution
Potential remanufacturing volumes
Increase in remanufacturing
volumes due to no available
spare parts

Time
Figure 27: Potential remanufacturing volumes for component remanufacturing.

75
 5.2.1 Life Cycle Aspects on Balancing Supply and Demand
In a perspective of matching supply and demand, component remanufacturing is a lot
different from product remanufacturing. In component remanufacturing, the supply of
cores has a direct link to the demand for remanufacturing. Simply put, when a
customer needs a remanufactured component they supply the old component (which
will be the core in the remanufacturing process), and in return the customer receives a
remanufactured component. From this perspective, the need to balance supply and
demand is not as prevalent as in the product remanufacturing case. Still, in the
introduction phase there is a shortage of cores to be remanufactured for the simple
reason that not every core is remanufacturable. Another issue to consider is that the
number of available cores from remanufacturing can also be decreased by losses of
cores in the supply chain, as further addressed in Paper II. There are also differences
between make-to-order cases (as in Figure 27) and deposit or a credit-based
relationship based on a make-to-stock policy (as in Figure 28). In the make-to-stock
situation, there is a lag between the supply of a component and the delivery of a
remanufactured product. In this situation, the customer returns the used component
and receives a different remanufactured component immediately. The problem with
this system is the existence of a lead-time between the supplying of cores until the
time the product is remanufactured and put into inventory, ready for sale (See Paper
II).
Number of Demand for remanufactured
products Difference between timing of the components
supply curves with and without Supply of used components
additional lead-time
Supply of used components + lag
in lead-time
Potential remanufacturing volumes
with lag in lead-time

Time

Figure 28: Potential remanufacturing volumes for component remanufacturing with

additional lag in lead-time for the supply of cores.

Introduction and growth phases

Just as for product remanufacturing, there is a need to find potential components for
remanufacturing; here, the same type of reasoning used for product remanufacturing is
valid. Once new products have been introduced into the market, there is a specific
problem for companies using deposit-based relationships (make-to-stock). Before
being able to sell remanufactured products, there is a need to acquire cores; with no
sale of remanufactured products, however, there is no incoming flow of used cores. In
this phase, the producers will have to make an investment in cores before they can
begin to sell remanufactured products. This need for investment can be quite large if
e.g. a remanufacturer is to put an inventory of remanufactured products at each retailer

76
 BALANCING SUPPLY AND DEMAND

(as for example in the UBD case). One way of minimizing the number of components
to be used as an investment is to try to minimize the lead-times between when
products are returned from the customer and when they are available for sales. Hence,
in order to decrease lead-times there is a need to minimise the number of products
listed as work in process in the supply chain. Examples of causes that can generate
high work in process are infrequent transports between retailer and the
remanufacturing facility, the need to batch products together, and a lack of new
replacement components.

Just as for product remanufacturing, a key factor for competitive advantage is to gain
access to component cores suitable for remanufacturing. Cannibalization of
components from end-of-use and end-of-life is a potential source of cores, but it
appears much later in the life cycle (see discussion about component cannibalization).
For a discussion regarding acquiring cores in this phase, see further in Paper II

Maturity phase
In this phase, the product returns from end-of-use and end-of-life life start to increase.
Acquiring component cores that have been cannibalised from end products begins to
be a viable source. In the automotive industry, scrap yards are a frequent source of
component cores for remanufacture.

Decline and cancellation

Just as with product remanufacturing, the risks of obsolescence are great in this phase,
especially for companies with make-to-stock polices. One solution to become less
sensitive towards obsolescence is to apply a direct-order relationship (make-to-order)
policy on some components, thereby reducing the need to keep a finished product
inventory. The disadvantage with the direct-order relationship (Paper III) is that the
customer has to wait while the product is being remanufactured. As a result, this
option is only viable when (1) the product can be sent off for a longer period of time,
(2) when no cores are available, and (3) when the customers want the same product
back as they sent in (e.g. customized products).

5.3 Component Cannibalisation

This last category is based on the idea that products are cannibalised for components
that are later remanufactured. Cannibalisation of components for reuse, in e.g. scrap
yards, is a frequent activity in the automotive industry. Cannibalised components are
also a source of components for both component remanufacturing and for product
remanufacturing.
Balancing supply and demand
The supply of used products suitable for component cannibalisation is dependent on
the other product recovery options that are available. Figure 23 presented a framework
regarding the economically preferred product recovery option as a function of core

77
 quality; a similar approach can be taken for the case of component cannibalisation. For
cannibalisation to be economically motivated, the earnings must be higher than the
earnings from other product recovery options such as remanufacturing, recycling, and
reuse. The earnings from component cannibalisation can be calculated as Equation 4
(example taken from component cannibalisation of forklift trucks).
x y x
Earnings = ∑ p( x) +∑ r ( y ) − ∑ ic( x) − DC − MP (4)
0 0 0
x = number of components that can be reused
y = number of components that cannot be reused
p = market price of disassembled components
r = gain/cost for recycling/waste treatment of disassembled components
ic = inventory carrying cost for cannibalised components
DC = total disassembly cost
MP = market price or cost for lost sales for the core in an “as is” status

There are two main variables that change according to the quality of the core and
which determine the outcome of Equation 4: the number of reusable components and
the cost for acquiring the core or cost for the lost sales. For cannibalisation to be a
viable option, the market price of the core should not be too great, and secondly the
number and value of the reusable components should be sufficient. As a result,
cannibalisation has the greatest potential late in the life cycle (Figure 29), something
discussed in further detail in Paper II. The timeframe in which the possibilities to
cannibalise components can therefore be quite limited, something which increases the
risks of obsolescence in reused components. A technical hindrance linked to
cannibalisation is that components that are usually in demand for remanufacturing
operations are also in such bad shape in the object for cannibalisation that they cannot
be reused in remanufactured products. As a result, there might be a need to dissemble
several cores to find one component that can be remanufactured or reused in a
satisfactory manner. As a general conclusion, component cannibalisation is generally
feasible for components with a generally high material recovery rate, manly due to the
purchasing difficulties of this category of components, (see Paper IV). The possibility
to reuse and remanufacture cannibalised components is also a question of
compatibility between different versions of a product. If the components can be reused
between the different versions, the window in which cannibalisation is possible is
expanded, and the chance that the components will be reused is greater.
Potential cannibalization volumes
Number of
products
Supply/demand breakpoint
Demand for remanufactured
products
Disposal distribution

Time

Figure 29: Potential component cannibalization volumes to be reused in product

remanufacturing.

78
 BALANCING SUPPLY AND DEMAND

Component cannibalisation can also be motivated even though the potential earnings
are low or negative. As far as brand image (see Papers I and II), there can be legitimate
reasons for keeping the end-of-use and end-of-life products off the market; in this case,
cannibalisation can be a solution for restoring some value. Other motivation factors for
taking a product off the market are that the resale option is competing with other, more
profitable solutions, such as new sales and remanufacturing.

5.4 Discussion

This analysis is in its essence focused on how to provide remanufactured products in

an effective way during the product’s life cycle. The problem is focused on a supply
and demand balancing problem that also creates variations in remanufacturing
volumes. The life cycle theory can be effective when trying to forecast the general
trends of remanufacturing volumes. When going into further detail, the problem
becomes more difficult and addresses the problem of uncertainty in timing and
quantity. The difficulty in applying a life cycle perspective in more detailed
forecasting is that the variables used to calculate future returns are insecure. The
average use and life of a product/component can be forecasted beforehand, but this
factor is also dependent on complex factors, for example, to what extent the product
has been used and in which environment (to mention some variables). Another factor
is the willingness to return old products for reuse. In addition, the demand for
remanufactured products can be said to follow new product demands, but is also
sensitive to prices of substitute products such as brand-new products and reused
second-hand products (if available). The rate of technical development also has a
major impact on the demand for remanufactured products, in some cases resulting in a
sudden drop in sales for remanufactured products. In all, these insecurities make it
difficult to accurately forecast the supply and demand for calculating exact return
quantities and timing. The major advantage of using the life cycle as a foundation for
balancing supply and demand is the insights it brings on a general/strategic level.

5.5 Conclusions

At a general level, some additional conclusions can also be made. The OEMs are
generally in a more favourable position to perform remanufacturing with respect to
independent remanufacturers, especially in the earlier phases of the life cycle when
access to commercial returns and seed stock are a competitive advantage.

Upgrading products to the latest standard is one possible solution for increasing the
potential remanufacturing volumes for the product remanufacturing case, using for
example modular design strategies. For component cannibalization, this is not an as
important issue; for this category to expand further, component remanufacturing has to
become a more attractive option with respect to the new component alternative. Also,

79
 a more standardized and modularized use of components could increase the
possibilities to cannibalize components for remanufacturing and reuse.

The ability to attract cores for remanufacturing in the early life cycle phases is a source
for competitive advantage. Later in the life cycle, only the most suitable cores should
be acquired for remanufacturing. These conflicting ways of looking at cores may
introduce difficulties for companies. Normally remanufacturers handle a vast amount
of products that are in different life cycle phases, but they have to be coordinated in
the same supply chain; the coordination and administration of different take-back
systems is an important aspect in managing this. The mix of different marketing
channels for product returns is also an important aspect for matching the different
needs over the life cycle.

Furthermore, remanufacturers should focus on the development of methods that can

make returns predictable. In remanufacturing, the source of cores is the current users
of the desired cores. Each of these users is a potential supplier, but with a limited
supply capacity and usually very long lead-times for core production. To identify and
communicate continuously with all of these potential suppliers is simply perceived as
impossible. The result of this lack of communication is that the user comes to the
remanufacturer with the core only “when they think if it” (if they come back at all),
thus displaying a stochastic return rate. The problem of sourcing cores becomes a
question of which of these potential suppliers can supply a core at the right time, at the
right quality and at the right price. To be able to find the right cores, different
marketing channels and business concepts provide communication solutions with
potential suppliers. For example, off-lease products have been rated more predictable
than other types of returns due to the additional information that is available to the
remanufacturing company (Thierry et al., 1995; Sundin et al., 2005). The off-lease
product provides some degree of security that the product be returned at the right time
and at a known price (and hopefully the right price). Using different contracts that
result in the take-back of cores can be one solution for securing that products are
returned at the right time and for the right price, although the quality of the returned
product cannot be contracted that easily.

The problem of balancing supply and demand can also be limited or aided depending
on the business solution. Remanufacturing of single-use cameras with fast exchange
cycles are, for example, aided by the policy of returning the entire camera for
development, resulting in faster returns. Coordination of leasing and rental contracts
according to average usage age, as in the Xerox and Tetra Pak cases, can also aid a
balance between supply and demand. As a result, the more thought about the business
solution and how it can aid in balancing returns with demand, the greater the
possibilities for successful remanufacturing.

80
 6
CLOSED-LOOP SUPPLY CHAIN
RELATIONSHIPS FOR REMANUFACTURING

The previous two sections have focused on (1) the general business drivers for
remanufacturing and (2) how to manage the remanufacturing system for balancing the
need for remanufactured products with the demand for remanufactured products. In
this section, the focus will be on how to interact with the customer in order to be able
to collect the returned products. To be specific, the third research question is:

RQ 3: What types of relationships exist between customer and remanufacturer, and

what specific characteristics can be found in these relationships?

Previous research has highlighted that there are some major differences between the
“normal-forward” supply chains and the closed-loop supply chain with
remanufacturing (e.g. Guide et al., 2003). By applying a relationship perspective to the
area of remanufacturing and the closed-loop supply chain, important insights can be
gained. The importance of managing relationships has also been proven a prosperous
and important issue in the supply chain management literature. Christopher (2005)
adapts the following definition of supply chain management:

“The management of upstream and downstream relationships with supplier

and customers to deliver superior customer value at less cost to the supply
chain as a whole.”

In a closed-loop supply chain, the management of relationships becomes even more

important as the supplier of cores and the customer often are the same person or
company. In the remanufacturing industry, there are many different types of
relationships with customers and core suppliers. Some relationships are very close,
such as where the amount of trust, commitment and collaboration is high; in other
relationships, the linkage is rather weak. Even in the latter case, the relationship still
exists and constitutes an important issue for the remanufacturers as well as the
customers. In this study, seven different types of structural relationships have been
identified:
 • Ownership-based. This type of relationship is common when the product is
owned by the manufacturer and operated by the customer, as for example in a
rental, lease or product-service offer. Here, the control of the installed base is
high and often regulated by contracts.
• Service contract. This type of relationship is based on a service contract
between a manufacturer and a customer that includes remanufacturing.
• Direct-order. The customer returns the used product to the remanufacturer, the
product is remanufactured and the customer gets the same product back (if it is
possible to perform a remanufacturing operation)
• Deposit-based. This type of relationship is common in the automotive industry.
When the customers buy a remanufactured product, they are obligated to return
a similar used product, thus also acting as a supplier to the remanufacturer.
• Credit-based. When the customer returns a used product, they receive a
specific number of credits for the returned product. These credits are then used
as a discount when buying a remanufactured product.
• Buy-back. The remanufacturer simply buys the desired used products from a
“supplier”, which can be the end user, a scrap yard or similar, or a core dealer.
• Voluntary-based. The supplier gives the used products to the remanufacturer.
The supplier can also be a customer, but does not have to be.

Concerning these different types of relationships, some disadvantages and advantages

can be identified. As will be shown, these relationship structures are not used
individually but they can also complement each other, as discussed in Paper III. For
example, the deposit-based relationship will have to be complemented with another
alternative, due to the inevitable fact that not all cores can be remanufactured. The
following paragraphs describe the seven identified customer take-back relationships
for remanufacturing companies. A summary of these different findings is given in
Table 11.

6.1 Ownership-Based Relationships

An ownership-based relationship is often related to a leasing, rental or a product-

service offering as in the forklift truck (BT Industries) case. The basis for the
ownership-based relationship is that some sort of ownership is still present for the
seller, and that the product is returned to the seller after the end-of-use; it is also in this
phase that the remanufacturing operation is undertaken.

The use phase of a product in a leasing or a rental offer, for example, can vary in
length from a couple of weeks to several years. The intensity of the interactions with
the customer can also vary depending on the situation of the customer (see Paper III).
In some cases, the product is rented to a customer for many years with regular
servicing; other times, the products are rented for shorter periods, following for
example seasonal demands. BT Industries, which provides many of its forklift trucks
through rental programs, explains it to its customers as follows:

82
 CLOSED-LOOP SUPPLY CHAIN RELATIONSHIPS

“Think of the advantages. You avoid all the risks of ownership. You don’t
consume capital – not even a deposit is required. We take care of the
equipment and make sure it’s always reliable, and we work with you to
manage your fluctuating need – we call it capacity management. Rental
from BT means flexibility for the future and all of your costs are
predictable.”
(BT Industries, 2004)

During the use phase, the seller is responsible for maintenance and repairs of the
product; the maintenance technicians handle this commitment. By providing regular
service and maintenance operations at the customer’s location, a relationship is
established through the service/maintenance personnel. Maintaining the relationship is
an important factor of the BT policy of basing its service technicians at its major
customers.

Another effect of a close relationship such as found in the BT case is that the
service/maintenance personnel gain detailed information as to whether or not there is a
need for a future remanufacturing operation. This information can make the return
flow of products easier to control and provide information on the forklift truck status
to the remanufacturing process. A high degree of control can for example be gained by
high control of the products that are in operation at the customer, also called the
installed base. By using information gathered from the installed base, the supply chain
can be effectively coordinated. This information can be gathered by, for example,
service/maintenance personnel as in the BT case, or by software solutions integrated in
the product (used by for example Xerox in photocopiers).

The installed base of a rental/lease or functional provider is often called the “fleet”,
and this term is also used at BT. The products in this fleet are either in operation at the
customer (in-use fleet) or waiting for a customer (buffer fleet), as shown in Figure 30.
High use of the installed base leads to a low size of the buffer fleet; vice versa, a low
degree of use will indicate a larger buffer fleet. If the use of the installed base is too
high (i.e. a small-sized buffer fleet), the company tends to have problems in supplying
the demanded products and only the unneeded products are available. If the use of the
installed base is too low, there are too many products in the buffer fleet.

Products needed by New

customers products

Products returning
Products sold as Buffer fleet from use In-use fleet
reused or (Cores and (Products located at
recycled/scrapped remanufactured customer sites)
products)

Figure 30: The product flows between customer and remanufacturer in an ownership-
based relationship.

83
 In Figure 30, the size of the buffer fleet is dependent on the inputs (the return of cores)
and the output (the need for products). Information about planed returns in
combination with demand for remanufactured products can enable a more accurate
fleet management. Balancing the size of the buffer has proven to be a difficult task due
to the high number of variables that influence the need for the buffer. Some important
variables are:

Uncertainty in returns – A close relationship between the customer and the seller can
reduce this insecurity. Still, there are situations where the customer wants to prolong
the contract; this, however, will delay the return of the products. Furthermore,
sometimes the used products are not returned immediately after the contract has ended.
This also increases the delay of returning cores (product take-back).

Uncertain demand for products – Accurately forecasting the needs for products is
always a difficult task. This uncertainty can be reduced if the buffer fleets are
coordinated in a wider perspective – for example on an international or national level
as opposed to a regional level. By distributing products between regions and countries
according to demand, the total buffer size required can be reduced. This is especially
true for seasonal demands where a large number of specific products are needed for a
limited period.

A high number of customized products that target a specific segment of customers –

When dealing with leasing or product-service offerings, the physical product tends to
remain at the customer for a long period. This first customer carries the major part of
financing for the product. For this reason, the sales department tends to be willing to
customize the product, the result being that the product can become ill suited for other
applications. For example, a customer might want a specific reach height for their
forklift truck. This makes the mast of the forklift truck taller than normal and unusable
for other customers because it will not fit into their environment, limiting the forklift
to a narrower range of customer. Here, remanufacturing can provide a solution by
changing the specifications of the forklift truck in the remanufacturing process, either
to a standard or according to another customer’s specification. Having this in mind, a
standardization and/or modularization of product types would facilitate the
downstream remanufacturing processes. Remanufacturing provides an opportunity to
modify the specifications according to the customer’s needs, given that the design of
the product allows for modification.

Gaining control of the installed base provides more than just support for fleet
management issues; the information gathered from the customer also provides detailed
information about the life cycle of the products in use by the customer. In this way, the
company can plan its sales activities according to the needs of the customer.

84
 CLOSED-LOOP SUPPLY CHAIN RELATIONSHIPS

6.2 Service Contract Relationships

This type of relationship has a high degree of similarity with the ownership-based
relationship. The main difference is that the product is owned by the customer, thereby
reducing the level of control over the products compared to an ownership-based
situation. The service contract type of relationship is based on the formulation of a
contract for aftermarket service. In the Swepac case, this contract contained clauses for
repairs and maintenance as well as remanufacturing after a set period. A major
similarity between the cases is that the offers are still regulated by a contract that has
the major influence on the relationship. Given these similarities, the characteristics of
the ownership-based relationships is still valid, although the lack of ownership and the
characteristics of a service contract add some differences to this type of relationship.

For Swepac, coordinating returns for remanufacturing has proven to be a difficult task,
mainly because of the unwillingness to return products at a specified date. This
problem is rooted in the reduction of the customer’s capacity when a product is being
remanufactured. When a product is sent for remanufacturing, it is unusable by the
customer; consequentially, this leads to unwillingness to return the product for
remanufacturing at a specific time. As a result, the timing of the returns becomes
unpredictable.

In this type of relationship, it is important to manage the remanufacturing activity of

the customer relationship. If the remanufacturer pushes the remanufacturing operation
according to a contract, this can result in a negative response from the customer,
depending on if the customer needs the product at that time. This can result in a
negative perception of the relationship from a customer perspective. One way to
reduce this risk is to plan remanufacturing at a time when the utilisation of the product
or the fleet of products is low. For example, Swepac performs its remanufacturing
operations during the winter, when demand for compactors is lower due to the ground
frost. This is fundamentally the same problem as the companies that have a direct-
order relationship have, which is further described in the following section regarding
direct-order relationships.

6.3 Direct-order Relationships

In this situation, the customer gives an order for the remanufacture of a used product.
Generally, in the eyes of the customer there is a problem in determining if there is a
technical possibility to remanufacture the used product (core). Another uncertainty is
what the price of the remanufacturing will be. The cost of the remanufacturing is
dependent on the quality of the core and how much new material and labour is needed
in the process, something that is difficult to determine before remanufacturing is
undertaken. Regarding the pricing of the remanufacturing operation, there are different
practises from company to company, and pricing can be variable to fixed. If fixed

85
 prices are used for remanufacturing, the risks of sending the used product to
remanufacturing will be transferred to the remanufacturer.

In the case where the customer orders the remanufacturing, there is not normally a
need to keep an inventory of cores; this is because the cores are supplied directly by
the customer. Using a make-to-order system also reduces the need for a finished goods
inventory. In some cases, remanufacturing to a direct order is the only alternative due
to for example a lack of spare parts (normally due to the age, and consequentially the
low volumes, of the product).

In the situation of a direct-order, the cores from a customer have to be sent away for
remanufacturing. Say, for example, that the core for remanufacturing is a component
of a product; the result will be that the product will be non-usable for the time when
the component is being remanufactured. This is not preferable for many situations, as
discussed in Paper III. These disadvantages make this type of relationship only suited
for a limited range of situations, mainly when:

• The product can be sent off for a longer period of time

• When no other type of spare parts is available
• When the price of remanufacturing is an important issue
• When the customers want the same product back as they sent in (e.g.
customized products with high value).

6.4 Deposit-Based Relationships

In this situation, the customer is obligated to return the core when buying a
remanufactured product, thus becoming the supplier of cores. This system is common
in the automotive industry, where the remanufacturer normally supplies a product to a
sort of “middleman”, for example, an automotive part retailer as in the UBD example.
The retailer pays a price and a deposit for the remanufactured product. When the
retailers sell the product, they collect the used core from the customers; later, they
return the core to the remanufacturer and their deposit is refunded, resulting in the one-
for-one (1:1) take-back relationship illustrated in Figure 31.

Remanufactured
Remanufactured products are products are supplied
supplied, and a deposit is taken
Customer
A deposit is given back Cores are supplied to
Cores and when a core is supplied Cores and the retailer
remanufactured remanufactured
products at products at
remanufacturer retailer

Figure 31: Illustration of the core and deposit flow in a deposit-based relationship.

86
 CLOSED-LOOP SUPPLY CHAIN RELATIONSHIPS

This system creates a theoretical match between the supply of cores and the demand
for remanufactured products due to the one-for-one link. However, in practice UBD
reports that the 1:1 link is not valid. In reality, some of the cores are still not being
demanded due to many random actions, for example sales clerks failing to demand the
take-back of the core. Another factor that reduces the theoretical 1:1 relationship is
that a percentage of the cores that are retuned cannot economically be remanufactured
due to extensive damage that would require extensive reprocessing. The result of this
mismatch is that the company must use alternative systems to gather the missing cores,
something that is discussed further in Paper III.

In relation to the direct-order relationship, the deposit-based relationship enables the

customer to get a remanufactured product back at the same time as the used product is
given back. This has proven to be a strategically important ability, especially for
business-to-business relations where maintaining functionality is a critical factor.
Another important issue not to be neglected is that this type of relationship is common
when dealing with warranty claims. To be able to provide a remanufactured product
immediately once a product breaks down during warranty can help to create a positive
relationship with a potentially unsatisfied customer.

With a deposit-based system, no consideration is taken about the quality of the core
that is supplied to the remanufacturer. The result may be that the perceived cost of
remanufacturing, according to the customer, becomes too high if a high-quality core is
supplied. Vice versa, the value of remanufacturing for a customer supplying a low-
quality core becomes higher.

6.5 Credit-Based Relationships

This type of relationship is similar to the deposit-based relationship, but provides a

higher level of sophistication (Volvo Parts case). Instead of a deposit fee, the
customers receive credits for the type of cores they supply to the company. As a result,
this means that the customer can return cores without purchasing a remanufactured
product. The number of credits the customers gain from the supplied cores is
dependent on the state of the core, and the credit they have acquired gives them a
discount when ordering a new remanufactured product as seen in Figure 32. This
credit system, however, does not have the same 1:1 relationship as the deposit-based
system. This enables the customers to return as many cores as they wish.

Credits are supplied to be used as

discounts for future purchases
Customer
Cores are supplied to
Cores and remanufactured the remanufacturer
products at remanufacturer

Figure 32: Illustration of the core and credit flow in a deposit-based relationship.

87
 In the deposit-based system, no considerations are taken for the quality level of the
returned core; it also does not motivate the customer to return more cores than the one-
for-one principle. With a credit-based system, these considerations are taken into
account. Credits are given according to two factors: first, the quality level of the core,
and if any of the specific components in the core are missing; second, the number of
credits given, which is also variable between different types of products, with highly-
demanded cores given a higher credit, and low credit given for cores with low demand.
In this way, the remanufacturer gets a high variety of cores and can practice some level
of control through the credit system, while the customer can return cores for credits.
This type of system enables the remanufacturer to control the balance between the
supply and demand. The credit system can also work as a method for assessing the
incoming quality level of the cores according to the number of credits given for
returned cores.

The credit-based system prove ineffective as well: this type of system provides the
customer with a high degree of flexibility to return cores, but the control and
predictability is more complex in comparison with the deposit-based system. The
system can also be taken advantage of by the customer; respondents have reported
cases where customers have given back twenty cores of low value (e.g. a water pump)
and used the credits to order a high value item (e.g. a remanufactured engine),
resulting in a major loss for the remanufacturer. In this situation, a lack of long-term
commitment and cooperation is needed for this system. One major disadvantage with
this system is that it also creates a higher administrative cost for the remanufacturer.
The customers also have an uncertainty in the number of credits they will receive for a
specific core; this can result in a situation where price-sensitive customers hesitate to
remanufacture, due to the uncertainty in price.

6.6 Buy-Back Relationships

Buy-back is as simple as it sounds; the remanufacturer simply pays out money for the
cores. The sellers of a core, or multiples of cores, can vary greatly, and range from
core brokers/dealers that specialize in the trading of cores, scrap yards, or end
customers. This type of relationship is present in most cases of remanufacturing, and it
is used as a compliment to some other type of relationship. It is common that the cores
that are difficult to find are acquired in this way.

In many cases, buy-back is considered to be the last option if no other alternatives are
present. For example, buying a product on a spot market is one way of buying cores;
other more advanced systems are also used. One way is through core brokers, who
have a close relation with their suppliers, often scrap yards. They are specialized in
what they do and they have their own channels for acquiring cores. These core brokers
are relatively frequent in the toner and automotive industries; the disadvantage can be
the higher price paid (UBD and Greenman Toners), as discussed in Paper III. In some
situations, the OEMs have their own facilities for cannibalisation of components. The

88
 CLOSED-LOOP SUPPLY CHAIN RELATIONSHIPS

company Scania has a facility that buys trucks that are in some way damaged, and
cannibalises them for valuable components for reuse and remanufacturing. The main
source of trucks in this case is those that have been damaged and are supplied by
insurance companies.

Buy-back of products mainly results in customers getting money for their cores,
although other systems do exist. Toffel (2004) reports a case where Lexmark uses a
“prebate” program, giving a discount on a product if the customer agrees to return the
product after use. This program prohibits the customers from returning or sell products
to other companies. According to Lexmark, this program has boosted its product
returns, although no reports about the efficiency of the program are given (Toffel,
2004). The ability to gather “hard-to-get” cores is especially important when there are
many independent remanufacturers that want to retrieve cores for their business.

6.7 Voluntary-Based Relationships

This sort of system is common in the recycling of different types of material such as
newspapers. It also exists in the closed-loop supply chain with remanufacturing
(Scandi-Toner case). This system is based on the idea that the customer will voluntary
give back the core. This system can also be forced on the customer and the original
equipment manufacturer. This is done for example through take-back laws stimulated
by EU directives like the waste electrical and electronic equipment directive (WEEE)
(EU, 2002) and the end-of-life vehicles directive (EU, 2000).

One example of this is the toner business that is regulated under the WEEE directive;
as a result, toner cartridges cannot be treated as ordinary office items, and this creates
a problem for the customer. A product recovery service is provided to the customer
free-of-charge, and results in the access to used toner cartridges. The relationship is
established by providing a take-back system with a return box that is (when full) sent
to the remanufacturer free-of-charge. According to Scandi-Toner, the take-back
system also motivates customers to remain customers, and provides a sales opportunity
since a customer is more likely to purchase remanufactured cartridges when they are
supplying the used ones through the take-back system. The environmental advantages
of remanufacturing are strongly promoted as a motivational factor due to the lack of
financial stimuli. This is done both to acquire cores and for use in motivating sales. Of
course, the environmental issues count as a sales motivation in the other types of
relationships as well, and not just in the Scandi-Toner case; it is here where this issue
is most actively marketed to the customer.

The voluntary take-back relationships can generate a large supply of cores that in
many situations have low demands for remanufacturing, which can lead to high levels
of obsolete cores in inventory. A key issue is to keep this tendency at a minimum,
continuously reviewing core inventory according to long-term forecasted needs. This
type of relationship can also lack the ability to motivate the return of valuable cores
that have a high demand for remanufacturing. The cores that are the most valuable do

89
 have a value and are subject to buy-back from competitors. A challenge here is to
make the customer committed to the company for the long-term.

6.8 Discussion

This research has focused on building theory based on case study research. By
identifying the closed-loop supply chain relationships, a greater understanding can be
gained about the structure of the remanufacturing industry and the characteristics of its
relationships. The identified general relationships are ownership-based, service
contract, direct-order, deposit-based, credit-based, buy-back, and voluntary-based
relationships. These individual relationships have different characteristics and are
suitable in different situations, as described earlier in this section.

Each company has different resources and abilities that limit it to some specific
relationships. For example, the ownership-based and the service-based relationships
are mainly linked to original equipment manufacturers, and are less common among
independent remanufacturers. As a result, none of these relationships is suited for
every company. Another important issue is that these relationship structures are not
used individually; in reality, some of these relationships are used simultaneously to
complement each other. One general observation from this study is that buy-back
relationships are generally present in all companies that are involved in
remanufacturing. Although buy-back is normally not the major source of cores, it is
used for the “hard-to-get” cores and cores that they are lacking. The buy-back of cores
also serves other strategic issues. For example, the buy-back of a product can both
provide a sales opportunity as well as protect sales in the aftermarket (Paper I). The
ability to adapt a specific type of relationship is dependent on multiple factors. Issues
such as the type of product and the interest from the customer to have a relationship
will influence the success of a specific type of relationship. Regarding the different
relationships and their characteristics, a summary is given in Table 11.

Regarding the different types of relationships, the ownership and the service-based
relationships have the highest control over the installed base, and have a favourable
position in gaining information about the installed base. The higher degree of control
gained by the detailed information can decrease uncertainty in the quality level of the
incoming product (core). This information, combined with detailed contracts about the
duration of the contracts and the point of return, makes the remanufacturer able to
predict the timing and quantity of the returns and ease the need to balance returns with
demand. In an earlier study, Thierry et al. (1995) arrive at the same conclusion when
they write, “companies that lease their products are generally in a more favourable
position than companies that only sell products. Lease companies usually have more
information on the quality and return of used products”.

90
 CLOSED-LOOP SUPPLY CHAIN RELATIONSHIPS

Table 11: A summary of the relationship characteristics

Relationship Core control Relationship focus Characteristics
High, long-term Used by OEMs with a high degree of
High, returns are
relationships, focus interaction with customers that focus
Ownership often regulated by
on integrating on the function (e.g. reliability) of
contracts
products and services products
Medium-high, High, long-term
Used by OEMs with a high degree of
Service return probability relationships, focus
interaction with customers that want
contract is dependent on on adding services to
to own the products
different contracts the products
Suitable in situations where: the
Low to medium, product can be sent off for a longer
High, cores are according to the period of time, no new parts are
Direct-
supplied to an importance of the available, the price of
order order product in respect to remanufacturing is an important issue,
customer operations and the customers want the same
product back as sent in
Can provide a remanufactured
product immediately once a product
Medium, a breaks down, e.g. during warranty
Deposit- Low, transactional
theoretical 1:1 No considerations about the quality of
based focus
relation exists the core are needed
Commonly used in the automotive
industry
Medium, enables
Medium to high,
Credit- some control Considers and compensates for
based on long-term
based opportunity, no different quality levels of the core
cooperation
strict 1:1 relation
Low to high, ranges
from buying cores at Used mainly as a compliment to some
Medium, one can other types of relationship.
spot price to long-
Buyback control what one
term collaboration
wants to buy Used especially for acquiring hard-to-
with e.g. insurance get cores
companies
Low to high, focus
Low, the company
on providing the
gets what the Minimising the cost for acquiring
Voluntary customer is willing
customer with a
cores
positive
to give
environmental profile

Regarding deposit and credit-based relationships, the major difference is the level of
sophistication. The credit-based system has an additional function of stimulating the
customer to return specific cores. From a customer-relationships perspective, this
system will be the most fair. This system also stimulates cooperation between the
parties, and the accumulation of credits stimulates a long-term commitment to the
remanufacturer. Overall, the credit-based system relies on commitment, trust and the
win-win situation, compared to the more transaction-based and deposit-based
relationships. In this type of relationship, the gatekeeping function is very important.
Gatekeeping in this context refers to the screening of cores that are coming back to the

91
 entry point of the reversed logistics network. The foremost important issue of the
gatekeeping function is inspecting cores and giving the appropriate number of credits.

Voluntary-based relationships are based on the idea that the customers will voluntarily
give back the core. This relationship system can also be forced on the customer and the
OEM with take-back laws. To stimulate customers into giving back their used
products, relationship management becomes important. Some negative effects of this
system are that it can generate a high supply of cores that in many situations have a
low demand for remanufacturing. It can also lack the ability to motivate the return of
valuable cores that have a high demand for remanufacturing. The environmental
advantages of remanufacturing are strongly promoted as a motivational factor due to
the lack of financial stimuli.

6.9 Conclusions

The more general conclusions about how the relationships can be managed are as
follows:

Firstly, one should understand that these relationship structures are not used
individually; in reality, some of these relationships are used simultaneously to
complement each other.

Secondly, a proposition is that the more important a product is for the customer’s
operation, the greater the will to have a closer relationship in an ownership or service-
contract relationship. In addition, the perceived risk of the remanufacturing operation
has a strong influence on the willingness to become involved in a closer relationship.
Issues like cooperation, trust, and long-term commitment are important in these types
of relationships. When managing these types of relationships, the focus should be on
reducing risk and the perceived relationship costs.

Thirdly, a higher degree of control over the installed base can enable the seller to
control the timing of activities in the relationship (as in an ownership or service
contract relationship). The remanufacturer can be one step ahead, realising the needs
of the customer before the customer themselves. Hereby, a seller can control the
timing of different activities according to its ability to perform at its best.

Fourthly, remanufacturing can be a source of negative responses in the relationship.

This is especially apparent when the remanufacturing operation results in a loss of
functionality in the customer’s value-adding process. One way of reducing the risk of a
bad response is to plan remanufacturing at a time when the utilisation of the product or
the fleet of products is low, and thus reduce the perceived cost of the relationship.

Fifthly, one proposition is that remanufacturing becomes more effective when there is
a clear win-win situation for both the customer and the remanufacturer. The customer

92
 CLOSED-LOOP SUPPLY CHAIN RELATIONSHIPS

enables the low cost option of remanufacturing by supplying, from their perspective, a
low-value core, at the same time as the remanufacturer gets a supply of cores

To conclude this section, the success of a remanufacturing business is very dependent

on the relationship between the remanufacturer and the customer, since the customer
can act both as supplier and customer to the remanufacturing company. Since the
retrieval of used products is crucial for the remanufacturer, the management of these
supplier/customer relations is very important. The companies studied in this case
study all recognise that the management of the relationship with their suppliers and
customers has contributed to their business success.

93
 7
REMANUFACTURING PROCESSES

In the previous three chapters, the focus has been on external processes, mainly
focused on securing the supply and demand in a supply chain. From this point forward,
the attention will be on the internal remanufacturing process. In this chapter, an
analysis is provided to answer the following research question:

RQ 4: How is the organisation of the remanufacturing phases and the decisions

taken linked to the remanufacturing process?

Sundin (2004) has formulated a general remanufacturing process, shown in Figure 33.
In this description of the general remanufacturing process, the order of the individual
operations is not specified. The results from Paper IV show that the remanufacturing
process can divided in to five different remanufacturing phases. In these five phases,
there are some key decisions in the process, decisions that will be elaborated on in the
following analysis.

Incoming Remanufacturing
Cores Process

Cleaning Reprocess

Inspection Disassembly Testing

Storage Reassembly
Remanufactured
Products

Figure 33: The generic remanufacturing process (Sundin, 2004).

7.1 The Five Remanufacturing Phases

According to previous research and empirical data regarding the different

remanufacturing cases, there are many ways to logically organise a remanufacturing
 process. Even though there are some general characteristics that appear to be valid in
all situations – such as disassembly being conducted before reprocessing, and
reprocessing being done before reassembly – the order of the operations in
remanufacturing, such as inspection, testing, cleaning etc., are case-dependent (Paper
IV). Compared to the general remanufacturing process described by Sundin (2004),
the main difference is that the remanufacturing process can be divided into the
following five phases due to the linkage between disassembly, reprocessing and
reassembly (see Figure 34):

• Pre-disassembly phase
• Disassembly phase
• Reprocessing phase
• Reassembly phase
• Post-assembly phase

The specific order and purpose of the operations that define the process is dependent
on a number of factors and decisions. In each phase of the remanufacturing process,
there can be one or may operations, just as specified by the general process described
by Sundin (2004). In Figures 23–26, the specific set of operations will be illustrated in
the same manner as the generic remanufacturing process described by Sundin (2004);
the difference, however, is that they will be limited to one of the a specific phases.
This can be illustrated as in Figure 34, where each of the different remanufacturing
phases contains a set of case-dependent operations as described by Sundin (2004).
Remanufactured
Core Components
Product
Reuse NC
Can
C ReP
1 2 3
Rem

ReC
ReC ReC
Pre-Disassembly Disassembly Reprocessing Reassembly Post-
Phase Phase Phase Phase Assembly
Phase

= Operations
C = Cores Can = Cannibalize components from core
ReP = Reprocess Rem = Remanufacture the core = Decision Point
ReC = Recycling NC = New Components
= Inventory

Figure 34: An overview of the five remanufacturing phases (Paper IV).

Figure 34 is an overview of the general material flow in the remanufacturing process.

This is a summary of the five phases, which will be explained in detail in the following
analysis.

96
 REMANUFACTURING PROCESSES

7.2 Pre-Disassembly Phase

The pre-disassembly phase can be described as a preparatory phase before the

disassembly process begins. When a core is returned from a customer, the state of the
core must be assessed; this is important in order to decide whether to remanufacture,
cannibalize components or recycle the core. This decision is taken in the decision point
1 in Figure 35.
Information from: Extended Core Information:
Customers, Service Core Identification, Quality
Records, etc.. Level, Core Value, Fault Cannibalization
Diagnosis, etc. of Components
Pre-Disassembly Decision Remanufacturing
Point 1
of the Core
Cores
Inspecting, Sorting, Testing,
Cleaning, Valuation

Recycle
the Core
Inventory
Figure 35: The Pre-Disassembly Phase (Paper IV).

In the UBD case, there is no need to rank the quality level of the core; in this example,
only the type of core is identified as there is a higher demand for products than the
supply of cores, and thus all of the cores are used. This is an effect of that components
are remanufactured (see reasoning in Paper II) and with a deposit-based system (see
Paper III).

In the Scandi-Toner case, in contrast, the cores are inspected to maintain better control
of the process. Just as in the UBD case, it is a component that is remanufactured,
although there is no 1:1 linkage with supply and demand since a voluntary take back
system is used.

In the BT case, the inspection is important in order to make a correct valuation of the
market value of the core and to obtain an estimate of the costs for remanufacturing.
This is then considered in regard to the market value of a remanufactured product. In
the BT case, some of the information regarding the state of the product is known in
advance, due to a specified service record.

In this phase, inspection and testing are made to identify the correct quality level of a
core, or its market value, as illustrated in Figure 35. Sorting is also performed to be
able to control the process in later phases, for example by using high-quality cores
when free capacity is low, as in the Scandi-Toner case, something explained further in
Papers IV and V. Sorting is also done in order to determine what economic potential a
core has for remanufacturing.

When information about the core is retrieved, there is a decision point concerning what
to do with the core. The alternatives are to remanufacture, cannibalize components,
recycle the core or keep it in inventory for future needs. The decision about what to do
with the core is based on a number of different factors.

97
 To be able to motivate remanufacturing for profit purposes, the costs for
remanufacturing have to be considered (see Paper II). Here, the information about the
cores can be of great use when deciding if to remanufacture the core. In this situation,
many different contributing economic factors (direct and indirect) influence the choice
of remanufacturing the core; Paper I describes the indirect economic factors. Examples
of important remanufacturing decision variables in the process are:

• Costs for acquiring the cores

• Potential costs for disassembly, reprocessing and reassembly as well as the cost
for new components
• Inventory levels and values of components (new, used and reprocessed
components) in the disassembly and reassembly phases
• Minimal order quantities in relation to future needs
• Cost for logistical and marketing activities
• Quality level required by the customer
• The customer demand to keep the product in the portfolio of remanufactured
products

The main decision variables are case-dependent, and all of these factors add to the
complexity of the remanufacturing process. By gaining information about the core, the
decision can be simplified; therefore, making it easier to retrieve this information can
aid in making a correct decision.

For the decision whether to cannibalize the core for components, the inventory levels
and the need for individual components later in the disassembly and the reassembly
processes need to be put in relation to the costs associated with cannibalisation, as
further discussed in Papers II and IV.

Deciding whether to recycle the core is a question of if the core can be useful in the
future. This depends on if there will be a potential market demand in the future, and if
there are other cores available to be remanufactured or cannibalized, as well as the
status of these cores with respect to the present core.

7.3 Disassembly Phase

After the decision is taken to remanufacture a core or cannibalize it for components,

the cores are sent to disassembly. When the component has been disassembled from
the core, another important decision must be made regarding the state of the individual
components: if they are reusable in their current status or are reprocessable. This
decision is made in Decision Point 2 in Figure 36.

98
 REMANUFACTURING PROCESSES

Reuse the
Core to be Status of the Component
Cannibalized Components:
Disassembly Decision Reprocess the
reusable, Point 2 Component
Core to be
reprocessable,
Remanufactured Separating, Inspecting, not reprocessable
Sorting, Testing, Cleaning,
Valuation
Recycle the
component
Inventory

Figure 36: The Disassembly Phase (Paper IV).

The disassembly of a core can possibly involve a number of different activities where
different separating operations are the most prevalent as seen in Figure 36. In the
Volvo Parts case, the complete core is disassembled. During the disassembly
operation, the components are inspected to determine if they are reusable or
reprocessable; if not, they are sent to recycling. Some of the components may be
reusable or reprocessable, but are still recycled. For example, all of the case companies
have policies in place to always exchange certain components. These policies can be
driven by reliability or security reasons, (see Paper IV). In all, the different
characteristics of the components are important factors for the overall material flow.

For the decision of what to do with the components, there are several economical
factors that influence the choice. Take, for example, a battery from a forklift truck in
the BT case. Here, the battery may be in working condition, although it could have
only 30% of its normal capacity. Installing this used battery in a remanufactured
product will mean that the customer must replace it after a short period, potentially
creating a warranty claim or badwill. Alternatively, the battery could go through a
reprocessing activity that, for example, would change a cell of the battery and return
the battery’s work capacity to 60%, or the battery could be recycled. Some customers
might demand the highest standard; in that situation, a new battery would be the only
option. This issue and the effects on the remanufacturing process are further elaborated
on in Paper V. As for the core, the appropriate way to handle the individual component
depends, just as in the pre-disassembly phase, on many different decision variables
such as:

• The cost for new components

• Potential costs for reprocessing
• Inventory carrying costs
• Inventory levels and values of components in the reassembly phases (new, used
and reprocessed components)
• Lead-time to reprocess or to purchase new components
• Minimal order quantities in relation to future needs and the risk for
obsolescence
• Quality level needed by the customer
• Availability of an upgraded version of the component.

99
 7.4 Reprocessing Phase

The components that are planned to be reprocessed can undergo a variety of different
operations that aim to reprocess or raise the quality of a component. However, in some
situations, the component might be found to be non-reprocessable; in this case, it is
recycled, as seen in Figure 37. An example of this is a hidden crack in the housing of a
brake caliper in the UBD case (Paper V).
New
Components
Reused Components

Disassembled Decision
Reprocessing Reassembly
Point 3
Components
Cleaning, Machining, Gather components, set
Painting, Inspection, up for reassembly
Testing
Recycle
Inventory

Figure 37: The Process in the Reprocessing and Reassembly Phase (Paper IV).

In some situations, the reprocessing activities might make changes in the component
that makes it incompatible with a standard core or a component. An example of this is
when a cylinder in an engine is damaged and can be reprocessed by expanding the
diameter. Here, the result is that a wider diameter for the piston has to be used
compared to the standard. When doing so, the complexity of the process increases
since the bill of materials (BOM) is changed (due to the difference in piston diameter).
UBD has chosen not to remanufacture a product if it changes its BOM, as such a
change creates excessive administration. This is not the situation in all cases. Volvo
uses “over dimensions” as in the cylinder example. The difference between Volvo and
UBD is that an engine has a higher value than a brake caliper, and thereby the
additional cost is compensated for. In this phase, the major decision on if the
component should be reprocessed is normally taken in the disassembly phase. Still,
there are situations where the decision needs to be changed, due to for example the
results of further testing of the component.

The extent of component reprocessing varies significantly between the different

situations. The trend is that the more value in each component, the more feasible it is
to reprocess. This is mainly due to the higher cost reduction potential; this depends,
however, on the desired level of quality demanded by customers.

7.5 Reassembly Phase

In the reassembly operation, the individual components that have been separated from
the core need to be reassembled. This can be done in four ways: with a reprocessed
component, with the replenishment of a new component, with a reused component or
with a component taken from a cannibalized product by ordering a disassembly

100
 REMANUFACTURING PROCESSES

operation. The mix of components to be reassembled is determined in the third

decision point in Figure 37. The new component can be an exact copy of the original
component or an upgraded one, depending on the customer’s needs.

In the UBD case, all of the components that are to be reused and have been
reprocessed are stored together. Here, the challenge is to have the right number of each
component. The missing components are replaced with mostly new components, but in
some situations with used ones. Another alternative used by Volvo is that new, used
and reprocessed components are stored together, and the specific amount is gathered
from this common inventory. The advantage of the UBD scenario is that some material
handling is avoided. In the Volvo case, the gathering process is simplified.

Regarding the decision of what components to use in the reassembly of the

remanufactured product, the used components should be used in the first hand,
because, ideally, they should have the lowest cost (if not, they should have been
recycled in earlier phases). Even so, some of the components might need to be
replaced with a new component due to differences in customer needs (as, for example,
in the battery example presented earlier). Once a component is discarded, it needs to
be replaced with another component; here, the first priority is the reprocessed
components, if they are available. It is possible that the lead time for reprocessing may
be too long, meaning that components might not be available in time. Some
components can also be cannibalized from cores if the new component cost is too
high.

One of the major obstacles in controlling the remanufacturing is the uncertain material
recovery rates. Ordering and storing new components is used to compensate for the
lack of of reusable components. This solution, however, is not ideal for all
components, because it demands inventories, and thereby capital, and thus it could
lead to obsolescence problems. One solution made by Volvo is to forecast the material
recovery rate (MRR) of each component; this is set by experience. Based on this, a
percentage of the components is ordered for a specific order. An example of this can
be when 12 engines are to be remanufactured and 40% of the 12 camshafts are
predicted to be recycled; in this situation, the company would order five new ones. The
material flow and the planning of the process in this phase is further discussed in the
analysis for research questions 5 and 6, and described in Papers V and VII.

7.6 Post-Assembly Phase

When the core is reassembled, it is ready to become a finished remanufactured

product. In this phase, the products are put into working order. For example, software
might be upgraded to the latest standard (as in the Volvo case). The functionality
might also be tested. Other operations can include painting and preparations to send
the remanufactured product to the customer

101
 7.7 Discussion

The main contribution of the general remanufacturing process is the descriptive nature
of the results. The result from this section provides an important tool for further
analysis. The formulation and the distinction of the five remanufacturing phases is a
clear effect of the three major questions in the process. These decisions are made at the
decision points in the remanufacturing process shown in Figures 34 – 37, and are as
follows:

1. Whether to remanufacture the core, cannibalize components or recycle the

core.
2. Whether to reuse, reprocess, or recycle the individual components.
3. Which components to reassemble into a remanufactured product.

In this dissertation, five distinct phases have been identified, phases which are always
present in a complete remanufacturing process:

• Pre-disassembly phase
• Disassembly phase
• Reprocessing phase
• Reassembly phase
• Post-assembly phase

How the decisions taken in the remanufacturing processes are linked to the material
flow can be seen in Figure 34. An evaluation of how these decisions affect the
remanufacturing phases and the operations within these phases has been made in the
analysis. Some general conclusions regarding these decisions are as follows:

The main purpose in the pre-disassembly phase is to evaluate what to do with the core.
This is done to support the first decision in the process (Whether to remanufacture,
cannibalize components or recycle the core). This decision is taken in the first decision
point in Figure 31. Given the purpose of this phase, there are some specific operations
that can be used, such as inspecting, testing, cleaning and sorting. The decision taken in
this phase has a major influence on the overall result of the remanufacturing process.

When the first decision is made, the core enters the disassembly phase with the main
purpose to separate and evaluate the individual components. This is made to enable the
second decision (Whether to reuse, reprocess, or recycle the individual components).
This decision is taken in the second decision point in Figure 34. The decision that is
taken in this phase also has a high degree of influence regarding the material flow.

The reprocessing phase has the purpose of restoring the functionality of a component
from the core to a specific quality level. This process is highly dependent on the result
of the second decision.

102
 REMANUFACTURING PROCESSES

The purpose of the reassembly phase is to assemble the components into a

remanufactured product. This phase is dependent on the third decision (Which
components are to be reassembled into a remanufactured product), which is made in
the third decision point in Figure 34. In this phase, the planning of the material flows is
a key issue for success.

The post-assembly phase has as its purpose to ensure that the remanufactured product
corresponds to the quality level required by the customer.

These decisions not only concern the organisation of the process, but also the
management of the material flows. Concerning the decisions in the process, the second
and third decisions have the highest influence on the material flow. This is because the
components are separated from the core, thereby increasing the complexity as well as
the planning needs. In the remanufacturing process, this is linked to the disassembly,
reprocessing and reassembly phases.

103
 8
MATERIAL PLANNING AND
PRODUCTION PLANNING

The previous chapter addressed the remanufacturing process as a process model with
distinct phases and important process decisions that have to be made. In the following
two chapters, the focus will be on how to make this process more competitive. In this
chapter, the focus will be on how material planning and production planning can be a
solution for making the remanufacturing process more competitive, especially by
using principles from lean manufacturing, thus addressing the question of:

RQ 5: How can lean principles for material planning and production planning be
applied for remanufacturing?

The analysis in this study regarding the material flow will focus on two categories:
material planning and production planning. In this study, material planning refers to
the coordination of incoming material, both cores and new replacement components,
with the customer demand for remanufactured products. Production planning is
defined as the coordination of the different processing phases (pre-disassembly,
disassembly, reprocessing, reassembly and post-assembly).

8.1 Material Planning on an Aggregated Product Level

In the remanufacturing environment, one of the characteristics is that the demand for
remanufactured products (output) and the returns of cores (input) is not always
synchronised. Rather, the rate of product returns is dependent on the characteristics of
the product life cycle. The balance between product returns and demands for products
is a function of many variables, where the rate of technological innovation and the
expected life of a product are the major influencing properties. (For further details
regarding the research about balancing supply and demand, see Guide (2000); Umeda
et al. (2006) and Paper II.)

Another major difference between the remanufacturing and manufacturing process is

the disassembly phase of the process. In manufacturing, the majority of the
components for a product can be sourced independently of the other components. In
 remanufacturing, the sourcing of components is a result of the disassembly of a core,
thus becoming dependent of each other. This is illustrated in Figure 37.

End
product Core

Assembly Disassembly Reassembly

Components Reprocessing

End product

Figure 37: The dependency between a core and a product in remanufacturing.

The dependency between the components combined with variations in the amount of
components recovered for a core are a limiting factor for using the principle of a
demand pull on a component level. An example of this is an engine to be
remanufacture, which when after disassembly and inspection, it becomes obvious that
some components cannot be reprocessed, for example the crankshaft, fuel pump and
the cylinder head. The result is that these components then must be replaced. This can
be done either by cannibalizing a core for components, or by using new components. If
the cannibalisation alternative is used, disassembly will generate the needed
components, but it will also generate a lot of other components due to the
interdependency between the components. In the remanufacturing environment, this
becomes a planning issue. In the remanufacturing cases observed for this study, the
solution used by all of the case companies is to first plan according to the supply and
demand of a core to remanufactured product level, and then to break it down to
component level.

There are principally two ways to plan material flows: (a) planning for the demand of
remanufactured products (Make-To-Order) and (b) planning according to availability
of cores (Make-To-Stock). This is illustrated in Figure 38.

Remanufacturing Remanufacturing
Process Process
Input Output Input Output

? X X ?

(1) Planning for remanufactured (2) Planning according to

product demand the availability of cores
Figure 38: The aggregated planning perspective.

106
 MATERIAL PLANNING AND PRODUCTION PLANNING

8.1.1 Planning for Remanufactured Product Demand

In the Volvo, Tetra Pak, Swepak and BT cases, the planning focus was on the number
of remanufactured products to be produced; this means that the number of
remanufactured products that are produced are fixed according to customer orders
(Illustrated as an X in Figure 38). Still, due to the option of cannibalizing components
the are situations where more cores are used in respect to the demand for
remanufactured products, hence, the number of products that enter the process are
variable (illustrated as a “?” in Figure 38). For example, the production planning
might demand four products to be remanufactured, but six cores enter the process.
Hence, the extra two cores that enter the process are cannibalized for components
instead of being remanufactured. However, in the observed cases there was more or
less a one-in and one-out (1:1) relation between cores entering and products leaving
the process. This was especially true when the products were new to the market; that
is, when the supply of cores suitable for cannibalization was low. Later in the life
cycle, when cores were easier to find and less expensive, the companies reported that
they tended to use cannibalization as a planning option more often.

8.1.2 Planning according to Availability of Cores

Both UBD and Scandi-Toner used a reorder-point system for initiating
remanufacturing orders. The planned remanufacturing orders were dependent on the
number of cores that were available in inventory when the order arrived, thereby
becoming fixed (illustrated with an “X” in Figure 38). These cores were then sent
through the process, and the numbers of recovered products from the process was
dependent on the quality of the incoming cores and the possibility to remanufacture
them according to the objectives of the company. This variability is generally not
considered as a critical from a material control perspective, since the remanufactured
products are used to fill up an inventory (although variation in capacity usage does
influence production planning, as discussed in the following section).

8.2 Material Planning at Component Level

On the aggregated level, the material planning problems were focused on balancing
demand for remanufactured products and the supply of cores. On the component level,
the problems addressed the uncertainty in the number of components recovered from
the returned items. The components that were broken or faulty needed to be
reprocessed or exchanged by a new component. From the material planning
perspective, the components can be separated into different planning categories. These
categories, shown in Figure 39, are:
1. Components that are always replaced
2. Components that can be reused or reprocessed
3. Components that are found unusable, but can be ordered before the
reassembly start date
4. Components that are found unusable, but have to be ordered
according to forecasts

107
 All components

Yes
Component Order according to
always replaced? confirmed needs

No

Yes
Reusable or re-
processable within Reuse
lead-time?

No

Can demands Yes

Order after
be confirmed within
inspection
order lead-time?

No
Components need to be
ordered according to
forecasts

Figure 39: Material planning categories on a component level

8.2.1 Components that are Always Replaced

Some components in a remanufactured product are always replaced with a new
component. Normally these components are wear-and-tear components, for example,
pistons and roller bearings in an engine. The components in a remanufactured product
can also be upgraded to the latest standards; one example is the electronic control units
in the filling machine (Tetra Pak) case that are replaced by components of the latest
standard. When components are always replaced, there is no need to consider the
specific characteristics of remanufacturing, as for example variations in the material
recovery rate (MRR), since no components in this category is reused. As a result, all of
these components can be sourced independently of what happens in the forthcoming
remanufacturing process. Material planning for this category of component is the most
predictable. When the customer orders for remanufactured products are issued, the
exact demand for components can be calculated without any need for disassembly or
inspection, just as in a manufacturing situation (Figure 39). Still, some complicating
factors might cause planning problems. One practical example of this is that ordering
lead-times for new components can be longer then the time between the confirmation
of a remanufacturing order and the reassembly start date; this is illustrated as a

108
 MATERIAL PLANNING AND PRODUCTION PLANNING

“additional planning horizon due to ordering limitations” in Figure 40. In these

situations, the components have to be ordered according to forecast and placed in
inventory. Minimal order quantities accepted by vendors can also pose disadvantages
when higher than the confirmed demand for components (confirmed demand of
products refers to the orders from customers opposed to orders generated by forecasts);
as a result, some of the components are ordered according to forecasted demands.

Pre-disassembly
Disassembly
Reprocessing
Reassembly Post-
reassembly

Reassembly Remanufacturing
Forecasted orders Confirmed order start-date due-date

Components that are always

replaced
Components that can possibly be
reused or reprocessed
Components that can possibly be
ordered within the lead-time
Components that cannot be
ordered within the lead-time

Planning horizon due to component characteristics

Additional planning horizon due to ordering limitations

Figure 40: Planning horizons for the different component categories.

8.2.2 Components that can be Reused or Reprocessed

These are the components that in some situations can be reused or reprocessed; this
decision is dependent on the quality of the single component. An example of these
components is broken housings for the brake callipers (UBD case) that can be
reprocessed in some situations. The ratio between reusable and non-reusable
components is described as the material recovery rate (MRR), as shown in Equation 3
in the theoretical framework. For these components, the confirmed demands are not
known until the components have been inspected and approved for reuse/reprocessing.
For some types of components, the status of the component can be assessed before
disassembly is undertaken (pre-disassembly phase). For other components, the
components might need to be disassembled from the core before inspection/testing can
be done (disassembly phase). From the planning perspective, the result is a shorter
planning horizon for the components inspected in the disassembly phase.

For components that are being reprocessed, the reprocessing operation has to be done
within the timeframe between disassembly/inspection/testing and the time in which
reassembly is undertaken; this can be referred to as the reprocessing window as seen in
Figure 41. If the components can be reprocessed before reassembly is undertaken

109
 (within the reprocessing window), they can be reused in the same core; otherwise these
components need to be sourced in a different manner, e.g. from a reprocessed
component inventory or as new components. Therefore, performing inspection as soon
as possible can increase the timeframe for both ordering new components and the time
available for reprocessing.

An example of the impact of the reprocessing window is taken from the

remanufacturing of engines at Volvo Parts, as illustrated in Figure 41. In this case, the
engines are remanufactured according to customer orders. The lead-time for customer
delivery is three weeks. Hence, all customer orders within a timeframe of three weeks
before the remanufacturing due date are confirmed. This three-week timeframe with
confirmed customer orders is referred to as the “freeze window” in the lean literature.
Customers also provide demand forecasts that consider future demands outside of the
freeze window. The needed cores are delivered to the facility before the 3 weeks of
freeze window, according to customer forecasts. Reassembly of one weeks’ production
(deliveries to customers are performed once a week) are then planned to start about 1.5
weeks before the delivery due date. The disassembly of cores is planned to begin three
weeks before the remanufacturing due date. As a result, the reprocessing window
becomes less than 1.5 weeks, depending on how soon the disassembly operation can
be performed. In the Volvo study, a value stream mapping investigation showed that
some of the components could not be reprocessed within the reprocessing window,
mainly due to high amounts of work in process. The main reasons for the high amount
of work in process were unmotivated high batch sizes in combination with sequential
operations with long throughput times, for example cleaning and drying operations
(see the forthcoming section about production planning for additional details.)

Cores delivered to the facility Waiting time for

delivery, used as
Waiting for disassembly security lead-time
Reprocessing
Disassembly window
Reassembly
Weeks to due-date

5 4 3 2 1 Due-date
Forecasted orders Confirmed orders
Figure 41: An example of the remanufacturing lead-time and the effect on the
reprocessing window.

8.2.3 Components that can be Ordered within the Lead-Time for

Reassembly
This category of components is the components that have been inspected/tested and
found faulty, and which are not economically viable to reprocess. In this situation, the
preferable situation is to order the lacking components and have them delivered before
the reassembly start date. If the inspection can be performed as early as possible, the
chance to order according to confirmed need of components is higher. The information

110
 MATERIAL PLANNING AND PRODUCTION PLANNING

about confirmed component demands can be used to create a customer pull for this
category of components.

8.2.4 Components that cannot be Ordered Within the Lead-Time

for Reassembly
The components in this category are the most difficult components to plan, and their
lead-time is longer than the time available before reassembly, as seen in Figure 40.
The components in this category can also be divided in to two sub-groups. The first
group is the components that that are ordered according to the forecast of
remanufacturing orders. In the Volvo example, this would be components that have to
be ordered three weeks before the due date (outside of the freeze window). The second
group is the components that can be ordered due to confirmed remanufacturing orders
(within the freeze window); in the Volvo example, these are the components that can
be ordered three weeks before the remanufacturing due-date and delivered before the
reassembly is undertaken. Ordering components according to demand forecast for
remanufactured products is, in comparison, a less favourable option since this group of
components is sensitive to both uncertainties in future demand for remanufactured
products as well as uncertainties in the number of recovered components (those subject
to MRR). When ordering according to the confirmed demand for remanufactured
products, the uncertainties in future demand are reduced. From a lean perspective,
ordering components without confirmed customer demand (push principle) can result
in unwanted waste.

8.3 Lean Implementation Solutions for Material

Planning

In the previous section, four different component categories were presented, each of
which had different characteristics that had different effects on material planning.
Considering a lean perspective, it is important to actively adapt to these characteristics
and to develop lean principles that are specific to the remanufacturing characteristics.
Among the categories of components, the one with the worst implications for lean
practice are the components that cannot be ordered within reassembly lead-time and
have to be placed in inventory according to forecasts. One solution to make the
remanufacturing process leaner is to try to transfer these components into the other
“better” planning categories. A company can, for example, invest in reprocessing
technologies and reprocess the component instead of manufacturing or purchasing it.
The result of a reprocessing activity is that components can be moved to the
reprocessable component planning category. The alternatives for adapting lean
principles to the remanufacturing environment found in this study include:

111
 • Improved reprocessing processes
• Component inspection as soon as possible to determine actual component
recovery possibilities
• Cannibalization of components for some lacking components
• Reduction of sourcing lead-time for new components
• Reduction of minimal order quantities
• Expanding the freeze window in order to produce according to confirmed needs

These points will be described in detail in the forthcoming analysis. In Table 12, a
summary is given regarding these different ways of implementing a more lean material
flow and the effects on the individual component categories.

Table 12: Proposed improvement solution and the effect on the component categories.
Components that Components
Components
Components that can be ordered that are ordered
that are always
can be reused within the lead- according to
replaced
time forecasts

Can lower the

Reprocessing Can increase MRR,
More components can need for placing
technologies resulting in lower
be reused components in
purchasing costs
inventory
Inspection as More components Can lower the
soon as can be ordered need for new
possible according to component
confirmed demands inventory
Is a source for
reusable components;
Can lower the
viable for need for new
Decreases the need
Cannibalization components with high component
for purchasing of
MRR; inventory
new components
dissasembly can also
generate unwanted
components
Reduction of More components
ordering lead- More components Can lower the
can be ordered
time and can be ordered need for new
according to
minimal order according to component
confirmed
confirmed demands inventory
quantities demands
The reprocessing
More components
window is increased. More components Can lower the
Expanding the can be ordered
More components can can be ordered need for new
freeze window according to
be reprocessed and according to component
confirmed
reused in the original confirmed demands inventory
demands
core
Have to be used Have to be used for Have to be used
Have to be used for
for components components that for products that
Inventories components with
with high cannot be reprocessed cannot be ordered
high minimal
minimal ordering within the within ordering
ordering quantities
quantities reprocessing window lead-time

112
 MATERIAL PLANNING AND PRODUCTION PLANNING

8.3.1 Reprocessing Technologies

Reprocessing aims to process broken or worn components back to original
specifications or better. By doing so, the costs for new components can be reduced.
Reprocessing is generally an advantageous strategy for components with high
purchasing/manufacturing prices, long purchasing lead-times and when there is low
annual demand for new components that have to be kept in inventory. One
disadvantage with this solution is that the possibilities for using reprocessing
technologies are limited to some specific areas. Most of the reprocessing technologies
that have been observed are additive technologies that add new material to broken or
worn-out materials; these components are then machined to original specifications.
The use of additive technologies is frequent in, for example, the automotive industry,
with many mechanical components (as seen for example in the UBD and Volvo cases
presented in Paper IV).

8.3.2 Inspection as soon as Possible

One of the major sources for instability in material planning is the effect of insecure
material recovery rates (MRR). Planning according to a preset MRR is a frequent
practice at remanufacturing companies, but from a lean perspective, preset MRR
should be avoided. The main reason for using preset MRR is that components cannot
be inspected before replacement components have to be ordered (due to e.g. long
sourcing lead times). Therefore, they have to be ordered beforehand according to a
preset MRR. If components can be inspected earlier, the time gap between inspection
and reassembly can be extended. The earlier inspection can be undertaken, the more
components can be ordered according to confirmed demands on a component level.
The result of this is a higher opportunity to generate a customer pull. One major
obstacle in many cases is that the status of the individual components cannot be
inspected until disassembly is undertaken. Different techniques, such as on-line
monitoring and other monitoring devices, can be used to communicate faulty
components and therefore ease the material planning.

Even though the inspection operation gives information that is useful for the
forthcoming material planning and production planning (see the following section), the
studies at the companies show that normally this information is not collected and used
as in practice (e.g. as in the Volvo case). The main reason for this is that there are no
efficient ways of gathering and analyzing the information, and that the cost for
administration is perceived as greater than the gains. One reason for this is that the use
of MRR calculations for future new component demand shows a “good enough”
result. Another important insight is that even if inspection can be performed earlier,
the sourcing lead-times will still be too long. Another limiting factor is the minimal
ordering quantities that force the remanufacturer to order batches of components that
also cover forecasted demands. As a result, the category of components that can gain
the most planning advantages from inspection operations are components with low
sourcing lead-times and low minimal order quantities, which instead of being kept in
inventory can be ordered just-in-time.

113
 8.3.3 Cannibalization
Cannibalization of components from a core is a debated subject. The principle of
cannibalization is based on two scenarios. In the first scenario, a demand for some
components arises and all of the components from a core are disassembled. If the
entire core is disassembled, it generates components with no demand and that have to
be put into inventory for future demand or scrapped. In the second scenario, the cores
are kept in inventory, and when the demand for component arises, a specific
component is disassembled from the core. After the disassembly of the component, the
core is placed in the core inventory again. However, when specific components are
taken from a core it generates an administrative problem of keeping track of what
components have been taken from what core.

If component cannibalization is to be regarded as an economically viable option for

product recovery, then the cost savings of cannibalizing a core for components should
be higher than the gain from other product recovery options, as discussed in Paper II.
These options can e.g. include remanufacturing the core or selling the core on the
second-hand market. In practice, this means that for cannibalization to be a viable
option, there has to be an excess of cores on the market compared to the demand of
remanufactured or reusable products. This situation is mostly common when the
product has been on the market for a while and the product is in the later phases of its
life cycle. However, under specific characteristics cannibalization is a viable solution.
This is especially true for components with a high chance of retrieving a reusable
component from a core (high MRR). In the case of components with a low MRR, the
opposite is true; in many cases, several cores have to be cannibalized before a reusable
component can be found. For components with a high MRR, the general demand for
new components is generally low – simply because the component seldom breaks. The
low demand for new components will also generally have a negative impact on the
ability to purchase new components at a competitive price and lead-time for sourcing.

8.3.4 Reduction of Ordering Lead-Time and Minimal Ordering

Quantities for New Components
The long purchasing lead-times for new components are a hinder for employing a just-
in-time principle. If the sourcing lead-times can be lowered, the possibilities for
ordering more according to confirmed demands will increase. Guide et al. (2000)
report that the main reasons for long lead-times are that: 1) components are no longer
in production; 2) the component has a sole supplier; and 3) the purchase orders are
small (resulting in unresponsive vendors). Another issue for many components is that
the minimal order quantities force the remanufacturer to order batches of products that
are greater than the actual demands. A result of the minimal ordering quantities is that
a part of the order will be made according to forecast. To be able to reduce ordering
lead-time and minimal ordering quantities, remanufacturing companies have to work
together and develop relations with their suppliers.

114
 MATERIAL PLANNING AND PRODUCTION PLANNING

8.3.5 Expanding the Freeze Window

To compensate for long ordering lead-limes and long reprocessing throughput times,
one solution is to expand the freeze window. The result is that more components can
be ordered according to confirmed demands enabling a customer pull . There is also a
greater chance that reusable components can be reprocessed within the reprocessing
window and be used in the same core as from which it was disassembled. Negative
impacts are that the ordering lead-time in a make-to-order case will be extended. In a
make-to-stock environment, the amount of safety stock will have to be increased due
to an increase in remanufacturing lead-time.

8.3.6 Inventories
Some components simply have to be put into inventory. Generally, components with
long ordering lead-times have to be ordered and put into inventory according to
forecast. A negative impact on lean practice is that components are pushed forward
instead of being pulled according to confirmed customer orders. The result is a need
for keeping components in inventory, something that also results in additional costs.
Components with long lead-times are normally components that no longer are in
production and with generally low annual demands; as a result, these components
become sensitive to obsolescence. Another reason for storing new components in
inventories concerns minimal order quantities, where orders have to account for future
forecasted demands. Still, keeping components in inventory is a key cost driver in
many remanufacturing companies (Guide et al., 2000). In the research there has been a
strong focus on adapting different rule-based optimization models (e.g. heuristics for
determining economic ordering quantities) for inventory management; for an
overview, see e.g. van der Laan (2005).

8.4 Production Planning

To analyse the remanufacturing process from a lean perspective, the framework for the
general remanufacturing process, as presented in Chapter 7, has been used. The
framework from this chapter divides the process into five phases: pre-disassembly,
disassembly, reprocessing, reassembly and post-assembly (Paper IV). In this part of
the chapter, the remanufacturing process will be analysed.

8.4.1 Pre-Disassembly Phase

This phase can be described as a preparatory phase before the disassembly process
begins. Normal activities in this phase include inspection, testing and sorting of the
cores. The major purpose of this phase is to receive information about incoming cores
in order to control the forthcoming process. One important aspect of this information is
decision support in order to decide whether to remanufacture, cannibalize components
or recycle the individual cores.

115
 By inspecting cores and sorting them into quality categories, a capacity control
mechanism can be created. Through the use of different quality categories, “hard” or
time-consuming cores are remanufactured when the capacity utilisation is low; when
capacity utilisation is high, “easy” cores are remanufactured. By sorting cores into
different quality categories, a solution for levelling the workload is created. These
quality categories can be used to control the effects of the uncertainty in MRR as well
as the stochastic routings and variable processing times in the forthcoming phases. The
variability cannot be reduced per se, but the information helps to balance the
remanufacturing capacity on an aggregated level.

8.4.2 Disassembly Phase

After the decision is made to remanufacture a core or cannibalize a core for
components, the cores are sent to disassembly. The disassembly phase can involve a
number of different operations where separating is the most prevalent. Other
operations in this phase are e.g. inspection and sorting. This phase is highly exposed to
stochastic processing times due to different quality levels of the incoming cores.
Broken, dirty, and rusty cores can be very hard to disassemble, and as a result, the
cycle times for disassembly operations can be highly variable. This variation in cycle
time strongly limits the possibility to introduce the lean principles of a fixed takt time
and a levelled workload, and it limits a stable production process. The main reason for
not being able to employ a takt time is mainly due to the waiting time that is generated
due to variations in cycle times, resulting in major risk for balancing losses. Still, the
possibilities for a levelled workload are not excluded due to the possibility of sorting
cores into quality categories.

During disassembly, the majority of components can be inspected and the defective
components are scrapped or sent to recycling; the remaining components are then
reused or reprocessed. Information concerning the recovered components can
potentially aid in both material planning and production planning. In material
planning, this will confirm demands for replacement components, as discussed in the
previous section. For production planning, information regarding confirmed
reprocessing demands can be used to balance capacity in forthcoming process phases.
Still, just as for material planning, the use of MRR calculations for capacity planning
can be sufficiently shown. One reason for this is the short planning horizon between
inspection and the reprocessing operations that limit the planning possibilities (see
Figure 41 regarding planning horizons in the Volvo Parts case).

8.4.3 Reprocessing Phase

After the components have been disassembled they are reprocessed (or reused) if the
quality level of the components is sufficient. The reprocessing phase aims to raise the
quality of a component. The components can undergo a variety of different operations
in this phase, such as testing, cleaning, different machining operations, painting, etc.,
all depending on the type of component.

116
 MATERIAL PLANNING AND PRODUCTION PLANNING

From a planning perspective, the ideal situation is that the reprocessing operations of
each component should be performed within the reprocessing window (time between
disassembly and reassembly). If components cannot be delivered to reassembly before
reprocessing has been initiated, a component from the inventory must be used (if
available). Taking a lean perspective, this will constrain the use of a customer pull;
thus, it is important to design the reprocessing phase so that the highest degree of
components possible can be reused in the same core.

The reprocessing of components can be organised in two principal ways: either in

parallel or in sequence. In the parallel situation, the components from a core are
separated and reprocessed independently of each other. In the sequential situation, all
of the components from a core are kept together and operations are undertaken one at a
time, as illustrated in Figure 42. In the observed cases, none of the companies used
purely sequential or parallel strategies; they applied a mix of both. The choice of
reprocessing organisation has a substantial impact on important variables such as lead-
time and material-handling efficiency.

Disassembly Reassembly
Disassembly Reassembly
Parallel reprocessing Sequential reprocessing

Figure 42: Differences in accumulated lead-time in the reprocessing phase with a

parallel and sequential flow.
Parallel reprocessing
When applying a parallel reprocessing organisation, the minimal theoretical
reprocessing lead-time of the operations becomes equal to the throughput time of the
longest component, as shown in Figure 42. From a material flow perspective, parallel
reprocessing has the potential for a low throughput time and low levels of work in
process (WIP). The negative aspects are that when separating components from a core
it can create non-value adding activities in the form of extensive administration and
complex material handling.

Normally, when the individual components are separated from the core they are placed
in material holders that often are specialised according to the type of components. The
components are then transferred to different reprocessing workshops. The possibility
to apply a one-piece flow in a parallel material flow can be limited by material
handling. The major limiting factor to employ a one-piece flow in the Volvo Parts case
was the transportation costs between disassembly cells and the specific reprocessing
workshops. The transportation between the workshops generated material handling
costs, which in turn generated a need to batch components from multiple cores
together to reduce the material handling costs. Other material handling activities that
result in “ordering costs” can be the need to switch between specialised material
carriers in between product categories. The reduction of material handling between

117
 disassembly and reprocessing workshops is therefore important to work against a one-
piece flow; this is the same logic as when reducing set-up times in machining
operations. In practise, high material handling cost can result in material carriers that
contain several days of production before transferred to reprocessing operations. In
fact, cases have been observed with even higher levels, accounting for several weeks
of production. Overall, this has a major impact on the lead-time of the system.

The parallel material flow can also generate many non-value adding activities. When
separating the components, the natural link to the bill of materials (BOM) of the
original core is lost, and several inspections might have to be done during the
reprocessing operations just to keep track of the components. One solution to avoid
multiple inspection requirements is to attach different types of labels that ease
identification, although the labelling itself becomes a non-value adding activity.
Another difficulty with inspection is that cores with material matching restrictions,
meaning that the components from a core need to be used in the same remanufactured
product, will demand additional administration.

Sequential reprocessing
Instead of separating the components, a second solution is to have components from
the same core stored together on a material carrier that is transported through
reprocessing in a sequential manner. The employment of such a strategy poses a
number of advantages with respect to the parallel organisation. Firstly, it reduces the
need for identification, sorting and handling in the disassembly operation. Secondly, it
enables a one-piece flow. Thirdly, it reduces setup times in the disassembly operation
because of a reduction in the material carriers needed. Fourthly, it solves the problems
with material matching restrictions. A disadvantage of keeping components together in
a material carrier proceeding sequentially between different reprocessing cells for
different components is that the theoretical throughput time becomes the sum of the
throughput times of all components.

For some components, the only opportunity from a lean perspective is to use a
sequential material flow, especially when applying takt time, as discussed in Paper V.

Variation in processing times and effect of the material recovery rate (MRR)
The quality level of the incoming cores has a major impact on the reprocessing phase
of the remanufacturing process, resulting in variances in processing times for example
in the cleaning and machining operations. The variances in quality levels also have an
impact on the material recovery rate. An example of this can be taken from the
reprocessing of crankshafts at Volvo. To make the crankshafts reusable there is a need
to smoothen specific surfaces, which is done by grinding the surface material.
Depending on the amount of surface unevenness, there will be different processing
times according to the amount of material that has to be removed. In the case of
crankshafts, there is also a limitation on how much material that can be removed. For
instance, if the unevenness of the surface is too high, the component cannot be reused.

118
 MATERIAL PLANNING AND PRODUCTION PLANNING

In a situation applying a one-piece flow through the reprocessing operations, the

impact of the variations in processing times and the MRR can be illustrated as in
Figure 43. This figure illustrates the case of a component from eight cores entering one
workstation in a one-piece flow. The figure illustrates the unevenness in processing
times for the individual objects as well as the effect when the object has previously
been rejected (e.g. in the disassembly phase). From a lean perspective, these
characteristics have a negative impact on the possibility of implementing principles
like stable production processes and a levelled workload. The MRR will create a
waiting time when the component from the (scrapped) fourth and sixth cores are
supposed to be reprocessed; this will then demand WIP buffers. When applying a takt
time, the takt is calculated according to the maximum processing times, resulting in
balancing losses when components requiring shorter processing times are processed.
From a lean perspective, the possibility of implementing principles of a one-piece flow
and takt time are constrained.

Outcome
Variation in
processing times Effect of the material
recovery rate
Processing time

1 2 3 4 5 6 7 8
Component number

Figure 43: Simulation of a operation time outcome of 8 cores in a one-piece flow.

Lean implementation solutions for reprocessing operations
In the reprocessing phase, highly variable processing times and stochastic routings
imply limitations of the flow. The effects of the characteristic uncertainty in materials
recovered add additional complexity. These two characteristics can be derived from
the quality of the core and have to be considered, although division of cores into
quality categories can partly mitigate the effects of uncertainties in MRR. From a lean
perspective, it becomes important to try to reduce the effects of the MRR and the
variations in cycle time. Some solutions that can be used to reduce the effects are:

• Reprocessing technologies
• Work in process buffers
• Solutions for a levelled workload
o Cannibalisation
o Compensating low capacity with new components

119
 o Quality categories
o Work organisation

Reprocessing technologies
The use of reprocessing technologies can possibly increase the MRR – reducing
balancing losses in a one-piece flow. Taking a one-piece flow perspective, the use of
reprocessing technologies can also result in some negative effects. For example, the
use of additive technologies will demand additional operations where material is added
onto the component before machining can be undertaken. These additional operations
are not used on every reprocessed component, thus adding variations in processing
time and the introduction of stochastic routings. Still, the reprocessing activity
addresses the wastes of scraping reusable components and is a value-adding process.

Work in process buffers

Using a one-piece flow with a takt time can create a large amount of waiting time in
workstations due to balancing losses. If the use of a takt time is discarded and buffers
of work in process can be placed between workstations, then the buffers can work as a
hedge against both variations in processing times as well as MRR. The negative effects
with adding WIP is that it prolongs the throughput of the components and adds
inventory carrying costs. The use of batches in production can be positive for the
components with high variations in MRR or processing times due to the balancing
losses that otherwise can occur.

Cannibalisation
Using cannibalised components as a replacement for scraped components can reduce
the effects of variations in MRR. This will enable the use of a takt time in this respect.
It would also provide a solution for maintaining a levelled workload, at least in the
sense that capacity is utilised. The disadvantage with this solution is that it does not
reduce the variations in processing times.

Compensating low reprocessing capacity with new components

When the reprocessing capacity becomes scarce, as for example at remanufacturing
volume peaks or when incoming quality is low (resulting in additional reprocessing
demands), there is always the possibility to source new components or to use
cannibalised components that have been previously reprocessed and put into
inventory. The existing inventory of components ready for reassembly (new or
cannibalised components) can then serve as security against fluctuations in capacity
requirements. The components that cannot be processed due to lack of reprocessing
capacity are then rescheduled to periods with lower capacity utilisation. The negative
effects of this practise are that components are placed in inventory. Hence, one
important question is to decide which components are to be rescheduled. This is
mainly a question of balancing costs for carrying inventory and the costs for capacity
utilisation. Components that are well-adapted for rescheduling can, for example, be
low-value components, with a low risk of obsolescence, high turnover and that also
have a high strain on reprocessing capacity.

120
 MATERIAL PLANNING AND PRODUCTION PLANNING

Quality categories
The effects of the MRR and variable processing times could partly be suppressed by
inspection and quality categorization, making the capacity demands predictable.
Sorting of cores enables a capacity control, i.e. when there is available production
capacity, remanufacturing “hard” or time-consuming cores, and when capacity
utilisation is high, remanufacturing “easy” cores. The negative impact when applying
this principle is that there has to be an inventory of cores available. Therefore, this
option is only suitable in situations where the supply chain characteristics result in a
core inventory.

Work organisation
In situations where capacity demands can be increased by increased man-hours, a
possible solution is to rearrange operators in the flow according to actual demands.
Another solution is to reorganise the work content so that operators can perform value-
adding tasks when waiting time arises, e.g. perform setups when switching between
orders. This can reduce balancing losses and therefore reduce the effects of an uneven
workload.

8.4.4 Reassembly and Post-Assembly

In the reassembly phase, the components are assembled. The components to be
assembled can be taken from four sources: reused components, reprocessed
components, new components or cannibalized components. In this phase, processing
(assembly) times are not variable as in the disassembly and the reprocessing phases.
When all components are available for reassembly, the remanufactured products can
be reassembled in a procedure similar to manufacturing. Hence, the foundations for
applying lean principles are equal to manufacturing environments, given that all
components are available for reassembly. Although a general difference is that many
more (different) products and versions are to be handled in the flow, this is especially
true for the independent remanufacturers that remanufacture many different brands of
products.

Complications in previous phases can result in not all of the required components
being available for reassembly, which in turn will negatively influence stability in this
phase. When demands for a new component are calculated using MRR, problems can
occur if the estimated MRR is false. The result in a false MRR is either a component
shortage or excess inventories of new components. Therefore, a correct estimate of the
MRR will have a great impact on the inventory management.

The possibility to create a customer pull for new components is also limited, mainly
due to long purchasing lead-times and high minimal order quantities from suppliers. If
a purchase lead-time extends the freeze window for orders, the products must be
ordered according to forecasts or kept stocked, thereby hindering a just-in-time
material flow. If just-in-time deliveries and contracts could be used the principle of
customer pull could be realized, although, according to management, the negotiation
position for remanufacturing companies is not high when forming purchase contracts
with suppliers.

121
 The specific characteristics of the reassembly phase and the material handling in this
phase will be further developed in the next section addressing material handling.

8.5 Discussion

In this section, the focus has been on the material flow and how different solutions that
specifically target the remanufacturing system, can make the process more
competitive. In the analysis section, the material planning and production planning
were addressed independently, but the linkage between the two was shown to be
strong. For example, one factor that has a major impact on the material flow is the
setup of customer order to delivery process, and especially the time between fixed
order deliveries for the remanufactured product. This puts major limitations on the
organisation and planning of the remanufacturing process in general, and sequentially
also on the material planning horizons.

Applying lean principles in a remanufacturing environment can be difficult. One

foundation for implementing lean principles is the existence of standardised processes
that are stable and predictable. In the remanufacturing process, the possibility to realise
such a predictable process is limited by the “normal” variations in quantity and quality
of returned cores. An important conclusion that can be drawn from this study is that
the inherent characteristics of variable processing times and uncertainty in materials
recovered have the major negative impact for implementing a lean production process.
Vice-versa, given an accurate supply of cores for reassembly, all the principles of a
lean material flow in normal manufacturing can be implemented in the phases of
reassembly and testing.

The analysis section of this chapter presents different solutions that can be used to
reduce the hindering characteristics of remanufacturing. Each of these solutions has
different effects on different process phases and categories of components. To
summarise, the proposed solutions for making the material flow lean can be a source
of inspiration to the lean practitioners in their daily task of reducing different types of
waste.

122
 9
MATERIAL HANDLING

In the previous section, the material flow in the remanufacturing process was
addressed. One major conclusion from the previous section was that the uncertainty in
recoverable components puts limitations on the efficiency of the process, something
that has implications for both the reprocessing phase (as described in the previous
section) as well as the reassembly phase. In this section, the focus is on the reassembly
phase. In the reassembly phase, the major difficulty linked to the uncertainty of
recoverable components is to coordinate the replacement material for the components
that have been found non-reusable. The formal research question was formulated as:

RQ 6: What principles for material handling can be suitable in the reassembly

phase?

According to the Material Handling Industry of America (2005), “material handling

and logistics is the movement, protection, storage and control of materials and
products throughout the process of their manufacture and distribution, consumption
and disposal.”

In Paper VII, there is a focus on coordination of the reassembly phase and its
implications on material control and replenishment strategies for new components,
material movement, and storage for both new and reprocessed components. This was
investigated in the Volvo Parts case.

Compared to ordinary manufacturing, remanufacturing in the Volvo case suffers from

low inventory turnover and large amounts of tied-up inventory. One reason for the
inventory levels is the obsolete components that have been accumulated over the
years; another is the relatively large number of components with a low demand (see
Paper VII).

The components from a core can be divided in to different material control categories
as explained in the previous section. For this case, the interesting categories are the
categories that are subject to uncertainties in materials recovered. These categories are
the components that undergo some sort of reprocessing or reuse without
 remanufacturing (Paper V). The only category of components that is not effected by
this characteristic is the category of components that are always replaced or upgraded.

The components that are subject to reprocessing or are reused demand special
attention; see an illustration of the material flow of these components in Figure 44. In
the following sections, the focus will be on this category of components.
New Components
Reuse

Reprocessing Reassembly
Phase Phase
Figure 44: Components that undergo some sort of reprocessing or reuse (gray, dotted
lines) and may have to be replaced by new components (black, solid line).

9.1 Material Planning Principles

The components that undergo some sort of reprocessing or are reused have some
specific characteristics. These characteristics can be a basis for making decisions
regarding how to control these components.
Prob.- Components

A- Components

C- Components
C- Components

Group IV
Group III
Group II
Group I

Criteria I

All Criteria II
components
Criteria III

Criteria IV

Figure 45: The separation of components in material handling groups.

124
 MATERIAL HANDLING

By using the principles of the ABC analysis (i.e. the Pareto principle, not Activity
Based Costing) and the AC model for material planning described in the theoretical
framework, some general groups of components can be identified. (For further details
concerning this analysis, see Svensson et al. (2004) or Paper VII.) Firstly, the valuable
components with a low demand are identified. These are referred to as problem
components, and are the first category to be sorted out according to Criteria I as
illustrated in Figure 45. This group should try to capture the components that have a
high risk for obsolescence or that are critical in the material planning (long lead-time,
high price, etc.).

Secondly, the focus is on the components that need to be planned with sophisticated
methods, using for example MRR forecasts. For these components, the value and
general advantages of using sophisticated methods surpass the cost of these methods.
The other category of components and those that can be planned using more simple
methods are generally bulk components that are ordered frequently or cheaper
products with low demand that have limited effect for material handling cost.

To sort components into these material handling categories, the ABC analysis is used
with value of usage as the key variable (value of the component multiplied by the
annual demand of the component). To identify the components that need to be
controlled with sophisticated methods, the value of usage has to be high enough to
motivate the cost for the control. To exclude some high-volume components with low
value, a constraint is that the value of the component should be sufficient. These
components are here forward referred to as “A-components”

The components that have not been listed as A-components are regarded as
components that can be controlled with simpler control methods and are referred to as
“C-components”. We also make a distinction between the C-components based on the
demand pattern. Components with a higher and more stabile demand rate on an
aggregated level could be treated as independent, as further discussed in Paper VII.

9.2 Material Planning Framework

After the identification of the characteristics, a framework is created with four groups.
The principle of the AC analysis is to sort out the components in different groups. This
is done by using different criteria for each sorting as seen in Figure 45. The variables
used are value, demand and value of usage. Value of usage is the sum of the value of a
component multiplied by the demand for the same component. These criteria are also
presented in the second to the fourth rows of Table 13.

125
 Table 13: A summary of the material handling framework
Group I Group II Group III Group IV
Type Problem A C C

Value > X (high) > Y (high)

Demand < P (low) < D (low) > D (high)

Value of
> V (high)
Usage
Manually
Planning influenced, based MRP based on forecast Reorder point Reorder point
on MRP
Movement Kitting Kitting Kitting Two-bin system

Two-bins and
Depending on Central/
Storage situation
Central storage
automated storage
automated/
central storage
High control of Minimise material
Minimise processes, handling and Stock out costs,
Planning obsolescence, correct order quantities, storekeeping costs, safety stock,
Priorities order quantities, effective safety stocks, cost-effective cost-effective
cannibalisation forecasting, control, control
supplier collaboration stock-out costs
Dividing storage into Stored in
Storage Cost effective
high and low flow zones Easily accessible connection with the
Comments storage
according to demand assembly operation

For sorting the components into the categories, a series of criteria testing is used. First,
the first criterion (Group I - with a high value and a low demand) is used to sort out the
components for Group I. The components that fit in with the criteria for Group I are
placed in this planning group. Then, the remaining components not applicable for
Group I are then tested for the remaining groups, as illustrated in Figure 45.

The method for using the model is as follows. First, Group I components are
identified; these are the problem components and are sorted out first by the criteria
sufficient high value and then by relatively low demand. Group II components are
identified from the remaining components that have not been associated to Group I
components. The remaining groups are also sorted out in the same manner. Group II is
sorted out using a sufficient value of usage; this is made according to the ABC method,
although for material handling issues the components must also have a relatively high
value. The remaining C-components are then sorted into two groups based on if they
have a high or low annual demand.

A summary of the proposed framework is given in Table 13. (For further details about
the principles, see Paper VII.)

126
 MATERIAL HANDLING

9.3 Material Movement and Storage

The analysis of the material movement and storage is concentrated on the reassembly
phase, hence involving reused, reprocessed, and new components. For the movement
of components from the inventory to the assembly facility, there are two major
options: transportation of components to a designated location (line storage), and the
kitting operation that transports unique sets of components to be combined in the
reassembly operation. The choice of material movement and the material control
principles together affects the appropriate solution storage.

Two-bin System
The two-bin system is a common tool for material movement and storage in assembly
situations. The method is cheap and easy-to-use. The system is used in situations
where there is a high demand for the components, and in many situations where the
turnarounds in the bins are high. In the remanufacturing situation, this type of handling
is feasible for Group IV components with a high demand and low value. Typical
components in this group can be screws and plugs. The components are stored in a
central warehouse and then refilled when the refill order arrives. The inventory
position in the central storage is known, but not in the two-bin system. This makes the
inventory levels in the two-bin system unknown, and can create a planning problem if
the turnaround is low.

For Group III components, the low demand, the high inventory levels, the invisibility
and the obsolescence risk make the two-bin system infeasible.

Two-bin Storage
The area of the two-bin system is limited, and thus the amount of space for
components is limited. Some components in Group IV that are suited for two-bin
control can be unsuitable for two-bin storage, since they are too large or demand
excessive space. The components in the two-bin system are usually quite small and
take up limited amounts of space. In this case, the use of a central inventory is
required. The reason for this inventory is that the order quantity is larger than the
quantity in the bins. There can be situations when the order quantity is less than the
order quantity in the bin; here, the order could be initiated directly without passing
through the central inventory (if lead time for replenishment is shorter than the time
for usage of a order quantity) or handled by a kitting policy. An illustration of a two-
bin system from Volvo Parts can be seen in Figure 46.

127
 Figure 46: An example of the two-bin system in the reassembly line at Volvo (right
image) and two examples of the working bin and the spare bin (left images).

Kitting and Storage Keeping

For components that demand more control and total visibility, the use of a kitting
system is superior to the two-bin solution, especially for components with low
demand. Groups I, II and III are thus most suitable for this type of material movement.

The parts that are most suitable for picking into kits are the ones that are ordered to be
picked the most times. The number of times depends on the demand for the
component, but also on the “normal” order quantity of a component. There are a
number of different practical storage solutions for inventory (see e.g. Pareschi et. al.
(2002)).

Some components cannot be picked from storage due to some practical issues; for
example, they can be too spacious or too heavy. These components have to be moved
strait to the assembly operation, for example by a forklift. When moving a single unit
from the inventory to the assembly operation, a cost arises and that has to be
minimised. One way to minimise this cost is to minimise the time to find and retrieve a
component. The use of an ABC-divided inventory, where the most frequent
components are placed closest to the ground and the input/output point can be used as
a tool to create a cost effective material storage and movement by minimising the total
time to find and retrieve a component. Generally, Group I components are placed far

128
 MATERIAL HANDLING

away from the input/output point, while Group II components are placed close to the
input/output point, due to their demand pattern.

Figure 47: A material kit in remanufacturing (example taken from Volvo Parts).

9.4 Product examples

In order to show how the model can be applied in practice, some examples from the
case study are presented. The components that are used in these examples are a belt
pulley, a fuel injection pump, a screw and a camshaft.

Belt Pulley
The first step is to check for Group I; in this case, the value is medium-high and the
demand low, although not low enough to be a problem component. Then Group II is
checked. Here, the value of usage is low and therefore the demand pattern must be
checked in order to decide between Groups III and IV. The demand is low and
singular; therefore, Group III is appropriate for the belt pulley. Regarding the material
handling, a Reorder Point option is preferred. The component should also be kitted and
stored in a central storage facility.

Fuel Injection Pump

This is an expensive component with a low demand. Therefore, it should be
considered as a problem component and controlled as a Group I component. This
component should be under tight observation and controlled by MRP. Regarding
material movement and storage, it should be kitted and stored, preferably in a cost-
effective way.

129
 Screw
This component is of low value and has a high demand. After checking the criteria for
Groups I, II and III, we see that this component should be a Group IV component. This
component should be controlled by the two-bin system in connection with the
reassembly operation, and in our example, an upstream automated storage solution
using an echelon inventory should be implemented. This should be done in order to
create a cost-effective material handling and minimise the stock-out costs.

Camshaft
The value of this component is high, although not as high as that of the fuel injection
pump, and the demand is medium-high. This makes the value of usage quite high, and
the component is associated to Group II. This component should be closely watched
using the MRP system. Close attention should be given to correct order quantities,
effective safety stocks, forecasting, and good supplier collaboration. This component
should also be kitted.

9.5 Discussion

One way to manage the material flows is to divide the components into several
material handling groups. In this study, a framework for material handling is presented
based on four different groups (see Figure 45). These groups are sorted into their
respective groups by the use of four different quantitative criteria:

• Problem components – with a high value and a low demand (Criteria I)

• A–Components – with a high value of usage (Criteria II)
• C–Components – with a low annual demand (Criteria III)
• C–Components – with a high annual demand (Criteria IV)

Each of these groups has its own characteristics. To set the quantitative criteria for the
material handling groups, the ABC analysis can be used. A list of how these groups
can be managed is provided in Table 13.

The planning consideration in this framework is a further development of a method

that is used in manufacturing (Hautaniemi et al., 1999); in this study, it has been
adapted to the specific environment of remanufacturing.

130
 PART IV –
DISCUSSION AND CONCLUSIONS

In this section the results of the analysis part of this dissertation is disused in relation
to the overall aim of the dissertation. In this section there will be a more general
discussion regarding the linkage between the individual research questions and what
main conclusions that can be drawn from the research results. This section does also
include a section on the future challenges for further studies in remanufacturing.
 10
DISCUSSION AND CONCLUSIONS

In this section, the results of the analysis part of this dissertation will be discussed in
relation to the overall objective of the dissertation:

The objective of this dissertation is to explore how remanufacturing companies

can become more competitive through analysing and managing material flows and
remanufacturing processes.

The objective of the dissertation was broken down in to six different research
questions that address some key areas identified in the overall remanufacturing system.
The research questions that were formulated are as follows:

RQ 1: What are the drivers for companies to remanufacture products?

RQ 2: What strategies can be used for balancing returns of products suitable for
remanufacturing with demand for remanufactured products?

RQ 3: What types of relationships exist between customer and remanufacturer, and

what specific characteristics can be found in these relationships?

RQ 4: How is the organisation of the remanufacturing phases and the decisions

taken linked to the remanufacturing process?

RQ 5: How can lean principles for material planning and production planning be
applied for remanufacturing?

RQ 6: What principles for material handling can be suitable in the reassembly

phase?

These research questions have been analysed and discussed in the previous sections. In
this section, there will be a more summarised discussion regarding the linkage between
 the individual research questions and the main conclusions and contributions that can
be drawn from the research results. Starting with research question one:

RQ 1: What are the drivers for companies to remanufacture products?

The first research question addresses the drivers for remanufacturing. The analysis
regarding this research question identifies that the potential for competitive
remanufacturing is great when there is a clear win-win-win potential. Win-win-win
situations can be described as when all actors gain from remanufacturing, meaning that
the customer gets a quality product at a lower price, the manufacturer reduces its
manufacturing costs and increases profit, and the environment gains from a lower
environmental impact. The drivers for remanufacturers can be generalised to profit,
company policy and the environmental drivers, as seen in Figure 48. For
remanufacturing to be successful, these drivers are crucial, although this model does
not propose that all of these drivers have to be present for a successful
remanufacturing business.
Environment
− Legislation
Profit Policy
− Moral and ethical
- Cost reductions − Protecting aftermarket
considerations
- New business − Brand protection
strategies − Green marketing
− Providing additional
- Driver for new after market solutions
product sales − Feedback to new
- Targeting new REMANUFACTURING product design
market segment
- Providing Spare
Parts

Figure 48: The drivers for companies to remanufacture products

In a general sense, the profit motivation is the most prevalent business driver, but still
there are situations where this motivation is secondary to policy and environmental
drivers. This is especially true for OEMs that are involved in remanufacturing for
policy reasons, for example, to promote new product sales, protecting after-sales as
well as protecting brand image.

Linked to the overall objective, the results of the first research question are important
for understanding what to aim for when developing a competitive remanufacturing
system. The main contribution of this research result is that it is not only the traditional
lower cost of remanufacturing that motivates companies to remanufacture products;
other drivers can also be present. Another important contribution from this research
result is the identification and the classification of the different drivers. In the existing
body of literature, there have been case studies addressing similar research questions.
Still, this study provides additional drivers that haven’t been identified previously, as
well as integrating results from past research. By identifying the drivers for
remanufacturing, the objective of the first research question is satisfied.

134
 DISCUSSION AND CONCLUSIONS

The knowledge of the basic drivers that create a demand for remanufacturing is also an
important input to the second research question that was formulated as follows:

RQ 2: What strategies can be used for balancing returns of products suitable for
remanufacturing with demand for remanufactured products?

The second research question is in its essence focused on how to provide

remanufactured products in a competitive way during all the phases of the product’s
life cycle, that is, when the product is new on the market, reaches the peak of its sales
and starts to decrease its sales. This question is focused on the problem of balancing
the supply of cores suitable for remanufacturing with the demand of remanufactured
products. Different authors have concluded that forecasting as a mean for reducing
uncertainty in the exact timing and quantity of returned products is less effective than
trying to forecast the general trends of remanufacturing volumes. The average use and
life of a product or component can be tested and validated beforehand with different
experiments, but this factor also depends on complex factors, for example, to what
extent the product has been used and in which environment (to mention some
variables). The rate of technical development also has a major impact on the demand
for remanufactured products, and in some cases results in a sudden drop of sales for
remanufactured products. In all, these insecurities make it difficult to accurately
forecast the supply and demand for calculating exact return quantities and timing. The
major advantage of using the life cycle as a foundation for balancing supply and
demand is the insights it brings on a general/strategic level. To analyse
remanufacturing and the supply and demand situations three different remanufacturing
scenarios are used:

• Product remanufacturing – Used products are remanufactured to “as new” or

“upgraded” status; an example of this category is the remanufacturing and
upgrading of Tetra Pak filling machines.
• Component remanufacturing – Used components are remanufactured to “as
new” or “upgraded” status; an example of this category is the remanufacturing
of automotive components (UBD case) and toner cartridges (Scandi-Toner
case).
• Component cannibalisation – Used products are cannibalised for components,
and the components are then remanufactured to “new” or “upgraded” status. An
example of this category is the cannibalisation of components from heavy
trucks (Scania) and forklift trucks (BT Industries). In these cases, the
component cannibalisation option is mainly a supporting activity for the
product and component remanufacturing scenarios.

The possible remanufacturing volumes for a product are dependent on the relation and
the shape of the supply and demand distributions. The case when remanufacturing is
generated from end-of-use returns is illustrated in Figure 49. The exact shape of the
distributions differs between different types of products. For example, the potential
remanufacturing volumes of single-use cameras are high, as described in Section 3.2,
due to the short average usage period that “pushes” the supply distribution to the left in

135
 Figure 49. An opposite example is the remanufacturing of photocopiers to “as when
produced status”, as described in Section 3.2; in this case, the machines are returned
after an extended period of time, and the supply distribution is pushed to the right.

Potential remanufacturing
Number of volumes
products
Supply/demand breakpoint
Demand for remanufactured
products
Disposal distribution of products
suitable for remanufacturing

Time
Introduction Growth Maturity Decline Cancellation
Figure 49: Potential remanufacturing volumes.

As illustrated in Figure 49, there is a breakpoint between supply and demand. This
breakpoint also has a significant impact on the competitive advantage for
remanufacturing companies. Before the breakpoint, competitive advantage is based on
e.g. identifying potential products and the ability to acquire cores. After the
breakpoint, this becomes less important while efficiency in the remanufacturing
process increases in importance. As the supply of end-of-use and end-of-life products
increases, an important issue is to limit and acquire only the cores that are most
suitable for remanufacturing.

To increase the possible remanufacturing volumes, upgrading products to the latest

standard is one possible solution for the product remanufacturing case. To make this a
competitive option, the use of modular design strategies can prove to be promising
solutions for upgrading key components. For component remanufacturing to become
more competitive, it has to become a more attractive option with respect to the new
component alternative. In addition, a more standardized and modularized use of
components could increase the possibilities to cannibalize components for
remanufacturing and reuse.

The main contributions from research question two are the support that it provides in
different supply and demand situations. By using a product life cycle perspective, the
supply and demand situations can be foreseen, and support given for possible
strategies in these situations. The product lifecycle as a theoretical model has been the
subject of numerous publications concerning new products (Kotler, 2003); the same,
however, cannot be said for remanufactured products. In the literature review for this
research question, there where only limited studies on the life cycle for
remanufactured products, with the study made by Umeda et al. (2005) as the most
prominent. Therefore, the results from the second research question and Paper II are an
important contribution to the existing research in the area. By identifying and
discussing the different supply and demand scenarios for remanufacturing, the
objective of the second research question is satisfied.

136
 DISCUSSION AND CONCLUSIONS

Before remanufacturing can take place, there have to be cores available for
remanufacturing; before cores are available, they have to be supplied by customers.
This, along with the take-back relationship between the remanufacturer and the
customer, is addressed in research question three:

RQ 3: What types of relationships exist between customer and remanufacturer, and

what specific characteristics can be found in these relationships?

As a conclusion, this study identifies seven general types of relationships between

remanufacturer and customer:

• Ownership-based. This type of relationship is based on the product being

owned by the manufacturer and operated by the customer, as for example in a
rental, lease or product-service offer. Here, the control of the installed base is
high and often regulated by contracts.
• Service contract. This type of relationship is based on a service contract
between a manufacturer and a customer that includes remanufacturing.
• Direct-order. The customer returns the used product to the remanufacturer, the
product is remanufactured and the customer gets the same product back (if it is
possible to perform a remanufacturing operation).
• Deposit-based. This type of relationship is common in the automotive industry.
When the customers buy a remanufactured product, they are obligated return a
similar used product, thus also acting as a supplier to the remanufacturer.
• Credit-based. When the customers return a used product, they receive a
specific number of credits for the returned product. These credits are then used
as a discount when buying a remanufactured product.
• Buy-back. The remanufacturer simply buys the wanted used products from a
“supplier”, e.g. the end user, a scrap yard or similar, or a core dealer.
• Voluntary-based. The supplier gives the used products to the remanufacturer.
The supplier can also be a customer, but does not have to be.

Each company has different resources and abilities that limit it to some specific
relationships. For example, the ownership-based and the service-based relationships
are mainly linked to original equipment manufacturers, and are less common among
the independent remanufacturers. As a result, none of these relationships are suited for
every company. Another important issue is that these relationship structures are not
used individually; in reality, some of these relationships are used simultaneously to
complement each other. The ability to adapt a specific type of relationship is
dependent on multiple factors. Issues such as the type of product and the interest from
the customer to have a relationship will influence the success of a specific type of
relationship.

Regarding the different types of relationships, the ownership and the service-based
relationships have the highest control over the installed base, and have a favourable
position in gaining information about the installed base. The higher degree of control
gained by the detailed information can decrease uncertainty in the quality level of the

137
 incoming core. This information, combined with detailed contracts about the duration
of the contracts and the point of return, makes the remanufacturer able to predict the
timing and quantity of the returns and ease the need to balance returns with demand.

Regarding deposit and credit-based relationships, the major difference is the level of
control. The credit-based system has an additional function of stimulating the customer
to return specific cores. This system also stimulates cooperation between the parties.
The accumulation of credits also stimulates a long-term commitment to the
remanufacturer. Overall, the credit-based system relies on commitment, trust and a
win-win situation, compared to the more transaction-based and deposit-based
relationships. In this type of relationship, the gatekeeping function is very important.
Gatekeeping in this context means the screening of the cores that are coming back to
the entry point of the reversed logistics network. The foremost important issue of the
gatekeeping function is inspecting cores and giving the appropriate number of credits.
These kinds of relationships are mostly used for component remanufacturing, since
they are used in make-to-stock situations where remanufactured components often are
sold from a retailer’s inventory.

Voluntary-based relationships are based on the idea that the customers will voluntarily
give back the core. This relationship system can also be forced on the customer and the
OEM with take-back laws. To stimulate customers to return their used products,
relationship management becomes important. Some negative effects of this system are
that it can generate a high supply of cores that in many situations has a low demand for
remanufacturing. It can also lack the ability to motivate the return of valuable cores
that have a high demand for remanufacturing. The environmental advantages of
remanufacturing are strongly promoted as a motivational factor due to the lack of
financial stimuli.

The main contributions of answering the third research question is the general
categorization of the different kinds of customer relationships. An additional
contribution is the description of the characteristics of these relationships. In previous
research for the take-back of products, the focus has been on quite technical issues, as
for example what product properties are suitable for remanufacturing and how these
are collected and transported back to the remanufacturing site. The previous research
regarding the typical relationship with the customer, on the other hand, is limited to
dispersed observations. The results presented in this dissertation shows that managing
the relationship with the customer is a key aspect for the competitiveness of a
remanufacturing company. By identifying the relationships and the characteristics of
these relationships, the objective of the third research question is satisfied.

Up to this point, the discussion has been focused on the external processes. From this
point forward, the discussion will be focused on the research questions that mainly
consider the remanufacturing process within the factory walls. Starting with the fourth
research question:

138
 DISCUSSION AND CONCLUSIONS

RQ 4: How is the organisation of the remanufacturing phases and the decisions

taken linked to the remanufacturing process?

This question addresses the formulation and organisation of a general remanufacturing

process. One of the main points with the formulation is also to describe the
remanufacturing process so that it can be analysed in comparison with different
remanufacturing cases. The advantage of a formulation of a general remanufacturing
process is that it can be used as a general framework for further studies. Judging from
the experiences gained from previous research and different remanufacturing cases,
there are many different ways to organise a remanufacturing process (Sundin, 2004).
In a dissertation by Sundin (2004), a generic remanufacturing process was developed;
this general framework proposes that the order and organisation of the different
remanufacturing “steps” is very case-dependent. In Paper IV, the analysis continues on
the framework presented by Sundin (2004) with additional details. This study shows
that are some general characteristics that appear to be valid in all situations – such as
disassembly being conducted before reprocessing, and reprocessing being done before
reassembly – and that the order of the operations in remanufacturing, such as
inspection, testing, cleaning etc., are situation-dependent.

Based on the generic remanufacturing process (Sundin, 2004), remanufacturing can be

divided into the following five phases (see Figure 50):

• Pre-disassembly phase
• Disassembly phase
• Reprocessing phase
• Reassembly phase
• Post-assembly phase

Remanufactured
Core Components
Product
Reuse NC
Can
C ReP
1 2 3
Rem

ReC
ReC ReC
Pre-Disassembly Disassembly Reprocessing Reassembly Post-
Phase Phase Phase Phase Assembly
Phase

= Collection of Operations
C = Cores Can = Cannibalize components from core
ReP = Reprocess Rem = Remanufacture the core = Decision Point
ReC = Recycling NC = New Components
= Inventory

Figure 50: An overview of the five remanufacturing phases (Paper IV).

139
 The specific order and purpose of the operations that define the process is dependent
on a number of factors and decisions. In each phase, there can be one or many
operations. In Figure 50, the specific set of operations will be illustrated in the same
manner as the generic remanufacturing process described by Sundin (2004).

The formulation and the distinction of the five remanufacturing phases is a clear effect
of the three major questions in the process. The decisions that are made in the decision
points in the remanufacturing process are the following:

1. Whether to remanufacture the core, cannibalize components, or recycle the

core.
2. Whether to reuse, reprocess, or recycle the individual components.
3. Which components to reassemble into a remanufactured product.

The timing of the different decision points in respect to the remanufacturing process
can be seen in Figure 50. These decisions not only concern the organisation of the
process, but also the management of the material flows. Concerning the decisions in
the process, the second and third decisions have the highest influence on the material
flow. This is because the components are separated from the core, thereby increasing
the complexity as well as the planning needs. In the process, this is linked to the
disassembly, reprocessing and reassembly phases.

The main contributions regarding research question four is a further detailed

development of the general remanufacturing process as described by Sundin (2004)
and Guide (2000). The identification of the important decision points in the
remanufacturing process also have an major impact on the understanding of the
remanufacturing process in general, and how this influences both the organisation of
the remanufacturing process and the material flow in the remanufacturing process. By
identifying these factors, the objective of the fourth research question is satisfied The
results from research question four and the view on the general remanufacturing
process developed in Paper IV also provides a foundation for the forthcoming analysis
to research questions five and six. Starting with research question five:

RQ 5: How can lean principles for material planning and production planning be
applied for remanufacturing?

This research question addresses how material planning and production planning can
be a solution for making the remanufacturing process more competitive, especially by
using principles from lean manufacturing. The results show that applying lean
principles in a remanufacturing environment can be difficult. One foundation for
implementing lean principles in new production is the existence of standardised
processes that are stable and predictable. In the remanufacturing process, the
possibilities to realise such a predictable process are limited by the “normal” variations
in quantity and quality of returned cores. The main conclusions that can be drawn from
this study are that the inherent characteristics of variable processing times and
uncertainty in materials recovered have the major negative impact for implementing

140
 DISCUSSION AND CONCLUSIONS

lean production principles. Vice versa, given a predictable supply of incoming

components for reassembly, all the principles of a lean material flow in normal
manufacturing can be implemented in the phases of reassembly and testing.

Even though lean principles can be problematic to implement in the remanufacturing

environment, this dissertation proposes a number of solutions that can be used to make
the remanufacturing process more competitive from a material planning perspective:

• Improved reprocessing processes

• Component inspection as soon as possible to determine actual component
recovery possibilities
• Cannibalization of components for missing components
• Reduction of sourcing lead-time for new components
• Reduction of minimal order quantities
• Expanding the freeze window

A similar list can also be created for process planning:

• Improved reprocessing processes

• Work in process buffers
• Solutions for a levelled workload
o Cannibalisation
o Balancing reprocessing utilisation with new components
o Quality categories
o Work organisation

Just as e.g. the principle of reducing setup times is a key element in making ordinary
manufacturing companies leaner, the proposed solutions can be a similar tool for
making the general remanufacturing process leaner. Thus, the main contribution of
answering research question five is the propositions on how the different solutions can
be used to apply a leaner remanufacturing process, and as a result, make the process
more competitive. Each of these solutions has different effects on different process
phases and categories of components. By presenting these proposed solutions, the
objective of the fifth research question is satisfied. Another important contribution
from these results is the contribution to the lean remanufacturing area; the theoretical
review for this paper shows that the literature in the area is limited. Only one case
study was found where lean production principles were applied in a remanufacturing
case (Amezquita et al. 1996), opposed to the numerous publications regarding lean
production for manufacturing companies. The results presented here, therefore, are an
important contribution for the theory regarding lean remanufacturing.

RQ 6: What principles for material handling can be suitable in the reassembly

phase?

This final research question is closely linked to the fourth and fifth research questions.
The previous research question (RQ 5) addresses the material planning of the
remanufacturing process in general. With respect to RQ 5, the sixth research question

141
 addresses a more limited part of the remanufacturing process, that is, the material
planning and handling in the reassembly phase. The empirical data for this research
question is also limited to a single case. For this research question, the validated AC-
model for manufacturing is developed further with the use of the results from Papers
IV and V regarding remanufacturing characteristics. The result is a material handling
framework for the reassembly phase of the remanufacturing process. This framework
proposes that one way to organise the material flows in the reassembly phase is to
divide the components into several material handling groups (see Figure 51). In this
study, a framework for material handling was presented based on four different groups
(see Figure 45). These groups were sorted into their respective groups by the use of
four different quantitative criteria:

• Problem components – with a high value and a low demand (Criteria I)

• A–Components – with a high value of usage (Criteria II)
• C–Components – with a low annual demand (Criteria III)
• C–Components – with a high annual demand (Criteria IV)
Each of these groups has its own characteristics. These groups are then associated to
different solutions for planning, movement, storage, and planning priorities according
to the previously presented Table 13.

The main contribution of research question six is the development of a framework on

how to handle different types of components in a reassembly situation in a
remanufacturing process. The material handling for remanufacturing is different
depending on the manufacturing situation, with for example slow-moving components.
One main difference is the existence of planning Group I – that is the “problem
components” with a low annual demand and generally long lead-times. The main
contribution of this research question is the further development of the AC material-
handling framework for a remanufacturing context.
Prob.- Components

A- Components

C- Components
C- Components

Group IV
Group III
Group II
Group I

Criteria I

All Criteria II
components
Criteria III

Criteria IV

Figure 51: The separation of components in material handling groups.

142
 DISCUSSION AND CONCLUSIONS

10.1 Discussion of the Research Results

Companies in the remanufacturing industry are frequently compared to manufacturing

companies and their practises. Both researchers and practitioners often characterise
remanufacturing as a more complex industry with more variability in the processes.
Still, remanufacturing is often treated with the same methods and solutions commonly
used for manufacturing companies. The issue that should be further investigated is if
these practices in manufacturing are suitable also for remanufacturing, and if not, how
remanufacturing practice should be different. This dissertation has focused on
shredding light on some of these issues, as well as highlighting new issues for further
research.

The objective of this dissertation was to explore how remanufacturing companies can
become more competitive through analysing and managing material flows and
processes. Given the results of the research questions presented earlier, this
dissertation has highlighted the importance of several areas in the remanufacturing
system, as well as how these areas can contribute to the competitive advantage for
remanufacturing companies. By exploring these research questions, the overall
objective is also considered satisfied.

The results of this dissertation have different importance for different readers. Firstly,
the industry actors that are already involved in remanufacturing have several potential
gains from this dissertation, with the results from RQ 2, 3 and 5 as the most obvious.
The discussion of these research questions is mainly explanatory in its nature, giving
guidance for the management of the companies’ current processes. The second actor
that has a potential gains is the industry actors that identify remanufacturing as a
potential business opportunity, but are not currently involved in a remanufacturing
operation. For these actors, the research questions one and four are the most important,
due to the more descriptive nature of the results that provide support in a start-up
phase of a remanufacturing operation. Thirdly, for the academic reader, the more
theory-focused research results might be of interest.

To summarise, this dissertation’s main contribution to the reader is in providing

increased insight how companies to become more competitive by analysing and
managing the remanufacturing system.

10.2 Future research

In this dissertation, the focus has been on the material flow and remanufacturing
process, and how improvements in these areas can help companies to become more
competitive. As concluded in the dissertation, these are important areas for the
competitiveness of remanufacturing companies; still, there are many other areas that
also have a big impact on the competitiveness of remanufacturing companies. During

143
 this research, several other important issues regarding remanufacturing have been
found.

The general trends of the previous research are focused on operations management
with that aims in reducing the “costs” of remanufacturing, e.g. in some way balancing
inventory carrying costs with production costs; this is often done with the use of rule-
based management principles as e.g. economic order quantities. This type of
mathematical modelling has had a major focus on the reduction of remanufacturing
costs. One of the conclusions in this dissertation is that reduction of remanufacturing
costs is one of the important factors for remanufacturing success; still, there are other
business drivers for remanufacturing that require attention by researchers. One factor
that deserve more attention is how remanufacturing can be a source for further
collaboration with costumers in a relationship perspective, especially for OEM
remanufacturers. For example, the BT case indicates that remanufacturing can provide
several advantages in driving new product sales and protecting the aftermarket.
Regarding the profitability (= price - cost) of the remanufacturing process, previous
research has focused on the cost for remanufacturing operations, not on the “price
side” of the equation. Generally, the price for remanufactured products is lower than
that of new products and still the status of the products can be “as good as new or
better”; even so, customer behaviour drives the price for a remanufactured product
down. If business solutions can be found that reflect on the quality of the
remanufactured product, there is the potential for higher profit in remanufacturing
operations. One potential source for this is when companies starts to sell functions
instead of products; in these cases, the costumer pays for what is delivered from the
product instead of the product itself. For example, an aircraft engine can be paid
according to the amount of power the engine generates during one hour - “power by
the hour”.

The second main point that also has a major impact on the possibility to create a
profitable remanufacturing process is the design of the input product. The design of the
product is a key issue regarding how effective the remanufacturing is going to be.
Although the companies tend to design products for manufacturing, and this can be
contradictorily to the design needs for competitive remanufacturing. One important
issue here is to develop product development methods that consider both the design
needs for manufacturing and remanufacturing.

There is also a need to further develop management control principles (methods of

calculation, accounting, budgeting, etc.) that are adapted to remanufacturing
environments.

Another important issue is how remanufacturing can be included in the service

offering of a company. Examples of remanufacturing sold as mainly a service have
been found in many cases. Here the different methods of selling the service of
remanufacturing need to be mapped.

144
 REFERENCES
Amezquita, T. and B. Bras. (1996) “Lean remanufacturing of an Automobile clutch” in
Proceedings of First International Working Seminar on Reuse. Eindhoven, The Netherlands.
Amezquita, T., Hammond, R. and Bras, B.A., (1998): Issues in the Automotive Parts
Remanufacturing Industry: Discussion of Results from Surveys Performed among
Remanufacturers. International Journal of Engineering Design and Automation – Special
Issue on Environmentally Conscious Design and Manufacturing, Vol. 4, No. 1, pp. 27-46.
APICS, APICS Dictionary. 9th Edition ed. (1998), Falls Church, VA, USA: APICS - The
Educational Society for Resource Management. p. 81.
Ashenbaum, B., (2006) Designing the Supply Chain for Production and After Market Need
2006. Critical Issues Report. CAPS Research.
Atasu, A. & Van Wassenhove, L. N., (2005) “Outsourcing Remanufacturing under Finite Life
Cycles: Operational and Tactical Issues”. ZfB-Special Issue. No.3, pp. 77-94.
Axsäter, S. and Rosling, K., (1994) “Multi-level production-inventory control: Material
requirements planning or reorder point policies?” European Journal of Operational
Research, 75:405-412.
Baudin, M., (2002) “Lean Assembly – The Bolts and Nuts of Making Assembly Operations
Flow” New York: Productivity Press.
Borenstein S. MacKie-Mason J. K. and Netz J. S (2000) “Exercising Market Power in
Proprietary Aftermarkets” Journal of Economics & Management Strategy, 9/2: 157-188
Bozer Y. A. and McGinnis L. F., (1992) “Kitting versus line stocking: A conceptual
framework and a descriptive model “ International Journal of Production Economics, 28:1-
19
Bras B. and Hammond R. (1996) Design for Remanufacturing metrics, Proceedings of First
International Working Seminar on Reuse, Eindhoven, The Netherlands, pp 35-51.
Bras B. McIntosh, M. W. (1999) “Product, processes and organizational design for
remanufacture – an overview of research” in Robotics and Computer Integrated
Manufacturing, Vol. 15
Bras, B. and R. Hammond. (1996) “Design for Remanufacturing metrics.” in Proceedings of
First International Seminar on Reuse. 1996. Eindhoven, The Netherlands.
Brennan, L., Taleb, K. N. and Gupta, S. M., 1994: “Operations planning issues in an
Assembly/Disassembly Environment” International Journal of Operations and Production
Management. Vol. 14, No. 9, pp. 57-67.
Browne, J., Harhen, J. och Shivnan, J. (1996) “Production Management Systems – An
integrated Perspective” 2nd edition, Addison-Wesley.
Brynzér, H. (1995) “Evaluation of kitting systems: implications for kitting system design”
Report - Chalmers University of Technology, Department of Transportation and Logistics, 26.
Brynzér, H. and Johansson M. I., (1995) “Design and performance of kitting and order
picking systems“ International Journal of Production Economics 41:115-125
BT-Industries, (2004) “Don’t Buy Trucks” Information brochure, Mjölby, Sweden.
 Chaneski, W.S. (2002) “Back to basics with the simple two-bin system”, Modern Machine
Shop, 74: 50-51.
Christopher M. (2005) “Logistics and Supply Chain Management: Creating Value - Adding
Networks” Financial Times, Prentice Hall, UK
Cobbaert, K. and Van Oudheusden, D. (1996) “Inventory models for fast moving spare parts
subject to ‘sudden death’ obsolescence”, International Journal of Production Economics, 44:
239-248.
Cooper, T., (1994) “Beyond recycling: the longer life option”., London, UK: New Economics
Foundation.
Cox Jr., W. E. (1967) “Product life cycles as marketing models” in Journal of Business 40:4
Davis, M. M. and Heineke, J., 2005: Operations Management – Integrating Manufacturing
and Services. New York: McGraw Hill.
De Brito, M. P., and Dekker, R., (2004) “A framework for Reversed Logistics” Reversed
Logistics Quantitative Models for Closed-Loop Supply Chains, p. 3-27, Springer, Berlin
De Brito, M. P., and Dekker, R., (2002) “Reverse Logistics – a framework” in Econometric
Institute Report EI 2002-38, Erasmus University, Rotterdam.
Dowlatshahi, S., 2005: A strategic framework for the design and implementation of
remanufacturing operations in reverse logistics. International Journal of Production
Research, Vol. 43 No. 6, pp. 3455-3480.
Egan, J. (2001) “Relationship marketing : exploring relational strategies in marketing”.
Harlow : Financial Times Prentice Hall.
Eisenhardt K.M. (1989) “Building Theories from Case Study Research” in The Academy of
Management Review, Vol. 14, No. 4, (October 1989), pp. 532-550.
EU, Directive 2000/53/EC of the European Parliament and of the Council of 18 September
2000 on end-of life vehicles. Official Journal of the European Communities, 2000(L269): p.
34-42.
EU, Directive 2002/95/EC of the European Parliament and or the Council of 27 January 2003
on the restriction of the use of certain hazardous substances in electrical and electronic
equipment. Official Journal of the European Union, 2003.
EU, Directive 2002/96/EC of the European Parliament and the Council of 27 January 2003 on
waste electrical and electronic equipment (WEEE). Official Journal of the European Union,
2003.
Fairlie, S., (1992) “Long distance, short life: Why big business favours recycling”. The
Ecologist,. Vol. 22 (No. 6).
Fargher, J. S. W. Jr., “Lean Manufacturing and Remanufacturing Implementation Tools”
Missouri Enterprise. Rolla. Available at The Remanufacturing Institute, www.reman.org
(available online: 2006-12-04)
Ferrer, G., (2001) “On the widget remanufacturing operation” European Journal of
Operational Research 135/2: 373-393
Geyer R. and Jackson T. (2004) “Supply Loops and Their Constraints: The Industrial Ecology
of Recycling and Reuse”, California Management Review, Vol. 46, No. 2, Winter 2004, p.55-
73.

146
Gray C. and Charter M. (2007) “Remanufacturing and Product Design – Designing for the 7th
Generation”, The Centre for Sustainable Design, University Collage for the Creative Arts,
Farnham, UK
Grönroos C. (1997) “Value-driven Relational Marketing: from Products to Resources and
Competencies” Journal of Marketing Management, vol 13 pp. 407-419.
Guide Jr., V.D.R and Jayaraman V. (2000) “Product acquisition management: current
industry practice and a proposed framework” International Journal of Production Research
38/16: 3779-3800.
Guide Jr., V.D.R. (2000) “Production planning and control for remanufacturing: industry
practice and research needs” Journal of Operations Management 18(4): 467-483.
Guide, V. D. R., Harrison, T. P. and Van Wassenhove, L. (2003), The challenge of Closed
Loop Supply Chains, Interfaces, Vol. 33, No 6, pp. 3-6
Gummesson E. (1994) “Making Relationship Marketing Operational“ International Journal
of Service Industry Management, 5: 5-20
Hammond, R., Amezquita, T., and Bras, B.A., (1998) “Issues in the Automotive Parts
Remanufacturing Industry: Discussion of Results from Surveys Performed among
Remanufacturers.” International Journal of Engineering Design and Automation – Special
Issue on Environmentally Conscious Design and Manufacturing, Vol. 4(1).
Hartman, J. (1998) ”Vetenskapligt tänkande – Från kunskapsteori till metodteori”
Studentlitteratur, Lund, Sweden.
Hautaniemi P. and Pirttilä T., (1999) “The choice of replenishment policies in an MRP
environment”, International Journal of Production Economics 59: 85-92.
Holme, I. M. and Krohn Solvang, B., 1997: Forskningsmetodik: kvalitativa och kvantitativa
metoder. Lund: Studentlitteratur.
Holmlund, M. (1997). “Perceived Quality in Business Relationships”, Doctoral Dissertation,
Swedish School of Economics and Business Administration, Helsinki.
Huge Brodin, M. (2002) “Logistics Systems for Recycling – on the Influence of Products,
Structures, Relationships and Power” Linköping Studies in Management and Economics,
Dissertations; No. 53, Linköping University.
Huiskonen, J., (2001) “Maintenance spare parts logistics: Special characteristics and strategic
choices“ International Journal of Production Economics, 71 :125-133
Ijomah W. (2002) “A model-based definition of the generic remanufacturing business
process” Doctoral dissertation, University of Plymouth, UK
Indenfurth, K., Flapper, S.D.P., Lambert, A.J.D, Pappis, C.P and Voutsinas, T.G. (2004)
“Production Planning for Product Recovery Management” Reversed Logistics Quantitative
Models for Closed-Loop Supply Chains, p. 250-274, Springer, Berlin
Inderfurth, K. and Teunter R., H., (2001) “Production planning and control of closed-loop
supply chains” Ecometric Institute Report EI 2001-39.
Jacobs, F. R. and Chase, R. B., (2006) “Operations and Supply Management – The Core”.
Boston: McGraw Hill.
Jacobsen J.K. (1993) “Intervju - Konsten att lyssna och fråga” Studentlitteratur, Lund, ISBN
91-44-38361-4, (in Swedish).

147
 Jacobsson N. (2000) “Emerging product strategies - Selling services of remanufactured
products”, Licentiate dissertation, The International Institute for Industrial Environmental
Economics (IIIEE), Lund University, Lund, Sweden, ISBN 91-88902-17-X.
Johansson, 1999, L.-G., (1999) ”Introduktion till vetenskapsteori” Thales, Stockholm.
Kara S., Rugrungruang F. and Kaebernick H. (2007) ”Simulation modelling of reverse
logistics networks” International Journal of Production Economics, Vol. 106:1 p. 61-69.
Keoleian, G. and D. Menerey, (1993) “Life Cycle Design Guidance Manual” - Environmental
Requirements and The Product System. United States Environmental Protection Agency.
Kerr W. and Ryan C. (2001) Eco-efficiency gains from remanufacturing - A case study of
photocopier remanufacturing at Fuji Xerox Australia, Journal of Cleaner Production no.9, p
75-81.
Kibum Kim, Iksoo Song, Juyong Kim and Bongju Jeong (2006) “Supply planning model for
remanufacturing system in reverse logistics environment” Computers & Industrial
Engineering, Vol. 51: 2 p.279-287.
Kiesmüller, G.P., (2003) “A new approach for controlling a hybrid stochastic
manufacturing/remanufacturing system with inventories and different leadtimes”. European
Journal of Operational Research. Vol. 147, No. 1, pp. 62-71.
Klausner M. and Hendrikson C. T. (2000) “Reverse-Logistics Strategy for Product Tacke-
Back” Interfaces, Inform, Vol. 30/3, pp. 156-165.
Kotler, P. (2003) “Marketing Management” Eleventh edition, Prentice Hall, USA.
Krikke H., le Blanc, I, and van de Velde, S., (2004) ”Product modularity and the Design of
Closed-Loop Supply Chain”, Californian Management Review, 46/2: 23-39
Lindahl, M. and Ölundh, G. (2001). “The Meaning of Functional Sales” in Life Cycle
Engineering 8th International Seminar. Varna, Bulgaria.
Lindahl, M., E. Sundin, and J. Östlin, (2006). “Environmental Issues within the
Remanufacturing Industry” in LCE2006 - 13th CIRP International Conference on Life Cycle
Engineering, Leuven, Belgium,
Linton J. D. and Jayaraman V. (2005) “A framework for identifying differences and
similarities in the managerial competencies associated with different modes of product life
extention” in International Journal of Production Research, Vol, 43(9)
Lund R. T. (1983) Remanufacturing: The Experience of the United States and Implications
for Developing Countries. CPA/83-17, The World Bank, Washington, D.C
Lund, R.T. (1996) “The remanufacturing Industry: Hidden Giant” Boston, Massachusetts:
Boston University.
Lund, R. T. and R. Kutta (1978). ”Remanufacturing: A Preliminary Assessment. Cambridge”
M.I.T., Center for Policy Alternatives.
Martinez Sanchez, A. and Perez Perez, M. (2001): Lean indicators and manufacturing
strategies. International Journal of Operations and Production Management, Vol. 21, No. 11,
pp. 1433-1451.
Material Handling Industry of America (2004), http://www.mhia.org/about/, (20 September
2004)

148
Mentzer, J. T., DeWitt, W., Keebler, J. S., Soonhoong, M., Nix, N. W., Smith, C. D., and
Zacharia, Z. G., (2001): "Definition of Supply Chain Management" Journal of Business
Logistics, Vol. 22, No 2, pp. 21-26.
Merriam, SB (1994). “Fallstudien som forskningsmetod”. Studentlitteratur, Lund, Sweden.
Minner, S. and Lindner G. (2004) ”Lot Sizing Desitions in Product Recovery Management”
Reversed Logistics Quantitative Models for Closed-Loop Supply Chains, p. 157-179,
Springer, Berlin
Mårtén E. (2004) “En inventering av Sveriges återtillverkningsindustri,” M.Sc. report, LiTH-
IKP-EX- 04/2195-SEE, Division of Production Systems, Department of Mechanical
Engineering, Linköping University (in Swedish).
Oakdene Hollins Ltd. (2004). “Remanufacturing in the UK: A Significant Contributor to
Sustainable Development?” Skipton: The Resource Recovery Forum.
Olesen, J. (1992) “Concurrent Development in Manufacturing – based on dispositional
mechanisms” Dissertation, Technical University of Denmark, Lyngby. IK.
Olhager, J. (2000) ”Produktionsekonomi”. Lund: Studentlitteratur.
Oliva, R and Kallenberg, R. (2003). "Managing the transition from products to services."
International Journal of Service Industry Management 14/2: 160-172.
Pareschi, A., Ferrari, E., Persona, A. och Regattieri, A. (2002) “Logistica integrata e
flessibile”, Societá Editrice Esculapio s.r.l., Bologna.
Partovi, Y. och Anandarajan, M., (2002) ”Classifying inventory using an artificial network
approach”, Computers & Industrial Engineering, 41: 389-404.
Potts, G, W. (1988) “Exploit your product's service life cycle”. Harvard Business Review,
66/5:32-36
Pyke, F., Mahadevan, B. D., and Fleischmann, M., 2003: Periodic review, push inventory
policies for remanufacturing. European Journal of Operational Research. Vol. 151, No. 2, pp.
536-551.
REKO, (2006) REKO- project homepage, available online, 18 of June 2006,
http://www.ikp.liu.se/ps/projects/reko/index_e.asp
REVLOG - The European Working Group on Reverse Logistics. 1999.
Rex, E. and Baumann, H. (2007), “Beyond ecolabels: What green marketing can learn
fromconventional marketing” in Journal of Cleaner Production, Vol. 15, pp. 567-576.
Richard Barrett (2003) “Training, Developing and Motivating People” Vocational Business
Nelson Thornes, London.
Rogers D. S. and Tibben-Lembke R. S. (1999) “Going Backwards: Reverse Logistics Trends
and Practices” Reverse Logistics Executive Council,
Ryding, S.-O., et al., Miljöanpassad produktutveckling (in Swedish). Stockholm, Sweden:
Industrilitteratur AB, 1995.
Sapsford, R. and Jupp, V., 2006: Data Collection and Analysis. 2nd ed.. London: Sage
Publications.
Seaver W. B., (Xerox) (1994) “Design Considerations for remanufacturability, recyclability
and reusability of user interface modules”, in Proceedings of IEEE International Symposium
on Electronics and the Environment. San Francisco, CA, USA, p. 241-245

149
 Seitz M. (2007) “A critical assessment of motives for product recovery: the case of engine
remanufacturing” in Journal of Cleaner Production, Vol. 15(11)
Seitz M. A., and Peattie K. (2004) “Meeting the Closed-Loop Challenge: The Case of
Remanufacturing” Californian Management Review, 46/2: 74-89.
Smith, V.M. and Keoleian, G.A., (2004) “The Value of Remanufactured Engines: Life-Cycle
Environmental and Economic Perspectives” in Journal of Industrial Ecology, Vol. 8 p. 193-
221
Spengler T. and Schröter M. (2003) “Strategic Management of Spare Parts in Closed-Loop
Supply Chains – A system Dynamics Approach” Interfaces, Inform, Vol. 33/6, pp. 7-17.
Stanfield, P.M., King, E. R. and Hodgson, T.J., (2006) :Determining sequence and ready
times in a remanufacturing system. IIE Transactions. Vol. 38, No. 7, pp. 597–607.
Steinhilper, R (1998) “Remanufacturing: The Ultimate Form of Recycling” Stuttgart:
Frauenhofer IRB Verlag.
Steinhilper, R. (2001) “Recent Trends and Benefits of Remanufacturing: From Closed Loop
Businesses to Synergic Networks” in Proceedings of EcoDesign 200,1 Second International
Symposium on Environmentally Conscious Design and Inverse Manufacturing, pp 481-488
Sundin, E., (2004) “Product and Process Design for Successful Remanufacturing”, in
Production Systems, Dissertation No. 906, Department of Mechanical Engineering. Linköping
University: Linköping, Sweden.
Sundin E. and Bras B. (2005) “Making Functional Sales Environmentally and Economically
Beneficial through Product Remanufacturing” in Journal of Cleaner Production, Vol. 13(9),
Sundin E., Tang O. and Mårtén E. (2005) “The Swedish Remanufacturing Industry - An
Overview of Present Status and Future Potential,” Proceedings of CIRP Life Cycle
Engineering Seminar -12th edition- 2005, Paper BM4 on the LCE-05 CD, Laboratoire 3S,
Grenoble, France, April 3-5.
Svensson R., Östlin J., (2004) “Material control in the remanufacturing industry: a study of
the inventory system at Volvo Parts in Flen” MSc. Report. Linköping University, Department
of Production Economics, LiTH IPE Ex arb 2004:691, (in Swedish).
Tangen, S., “Performance Measurement: from philosophy to practice” International Journal of
Productivity and Performance Management, Vol. 53 No. 8, 2004.
Teunter, R. H. and Klein Haneveld W. K. (2002) “Inventory control of service parts in the
final phase” European Journal of Operational Research 137: 497-511.
Teunter, R.H. & van der Laan, E.A. (2005), “Simple heuristics for push and pull
remanufacturing policies” European Journal of Operational Research, Available online 24
August 2005.
The Remanufacturing Institute (2007) http://www.reman.org
Thierry, M., Salomon, M., van Nunen, J. and van Wassenhove, L., (1995) “Strategic issues in
product recovery management” Californian Management Review, 37/2: 114-135.
Tibben-Lembke R. S. and Rodgers, D. S. (2002) “Differences between forward and reversed
logistics in a retail environment” in Supply Chain Management: An International Journal,
volume 7(5).

150
Tibben-Lembke R. S. (2002) “Life after death: reverse logistics and the product life cycle”
International Journal of Physical Distribution & Logistics Management, Vol 32/3, pp 223-
244.
Tibben-Lembke R. S. (2004) “Strategic Use of the Secondary Market for Retail Consumer
Goods” in Californian Management Review, vol. 46(2)
Toffel, M. W., (2004) ”Strategic Management of Product Recovery”, Californian
Management Review, 46/2: 120-141.
Umeda Y., Kondoh S. and Takashi S. (2005) “Proposal of “Marginal Reuse Rate” for
Evaluating Reusability of Products” in International Conference on Engineering Design,
Melbourne, August 15-18, 2005.
Waller, D. L. (2002) “Operation Management a supply chain approach” 2nd edition,
Thomson, Italy
van der Laan, E. A., and Teunter, R. H., (2005) “Simple heuristics for push and pull
remanufacturing policies” European Journal of Operational Research. Vol. 175, No. 2, pp.
1084-1102.
van Nunen J.A.E.E. and Zuidwijk R.A. (2004) "E-Enabled Closed-Loop Supply Chains" in
California Management Review, Vol.46, No.2, Winter 2004, p40-54.
Webster S. and Mitra S. (2007) “Competitive Strategy in Remanufacturing and the Impact of
Take-Back Laws”, Journal of Operations Management
Vlachos D., Georgiadis P. and Iakovou E. (2006) “A system dynamics model for dynamic
capacity planning of remanufacturing in closed-loop supply chains” Computers & Operations
Research, Vol. 34: 2 p. 367-394
Vollmann, T.E., Berry, W.L., Whybark, D.C. & Jacobs, R.F. (2004),”Manufacturing planning
and control systems for supply chain management” McGraw Hill, Boston, MA
Womack, J. P. and Jones, D. T., (1996) “Lean Thinking – Banish Waste and Create Wealth in
your Corporation”. New York: Simon & Schuster.
Womack, J. P., Jones, D. T. and Roos, D., (1990) "The Machine that changed the World".
New York: Rawson Associates.
Voss C., Tsikriktsis N. and Frohlich M. (2002) Case research in operations management,
International Journal of Operations & Production Management, Vol. 22, No. 2, pp. 195-219.
Yin, R. (1994). “Case study research: Design and methods” (2nd ed.). Beverly Hills, CA:
Sage Publishing.
Zwolinski, P., Lopez-Ontiveros, M-A., and Brissaud D. (2006) “Integrated design of
remanufacturable products based on product profiles” in Journal of Cleaner Production, Vol.
14

151
 APPENDIX A
INTERVIEW GUIDE FOR THE REKO STUDY

Basic company information

1 What annual turnover do you have for your remanufacturing business
2 Do you also have some additional products that are manufactured?
3 How many employees do you have?
4 How many are linked to the remanufacturing operations?

External logistics
Supply chain characteristics
5 How is the cores supplied from the customer to the remanufacturing operations?
6 What are the lead-times for delivery in the supply chain?
7 Where are the cores stored in the supply chain?
8 What are the turnover rates in these inventories?
9 Who sends the cores to you? Specify in a percentage
• Retailers?
• The customer?
• Independent party
• Other:
10 Estimate the type of transportation used and the average distance.
11 How is your outbound logistics organized?
12 How is the material flow organized for products and components that cannot be
remanufactured? And are recovered in other product recovery options?
13 How is the supply chain influenced by the type of customer that returns the product?
14 How is the logistics changed when the product have been on the market for a longer
period of time?
15 What differences are there between the revered supply chain and the forward supply
chain?
16 Can they be combined?
 Collection of cores
17 How can you control when a core will be returning from a customer?
18 Is there any way that you can improve the control to get a more accurate return?
19 Describe how the costumer decides on how and when to return the core?
20 What different collection methods are there?
21 What percentages of the possible cores are generally collected?
22 How is the forecasting done for product returns?
23 Are there any business offers that are particularly advantageous for making products
return, such as functional sales, rental, etc?

Transports

24 Is the products value in some way decreased over time during the product return
process?
25 What are the most important aspect for you, lower cost for transportation or fast
deliveries?
26 How dose the cost for transportation influencing the size of the possible target area
for core take back?
27 What are the general costs for logistics activities?

Production process
28 What type of layout has you chosen and why?
29 Describe the material flow in the remanufacturing process by making a drawing
• What lead times do you anticipate
• Safety inventory
• Inventory turnover
• Work-in-process
• What are the operations

30 What are the drivers for the current layout and the material flow.
31 What advantages and disadvantages exist in the current layout
32 Are there any critical or product specific operations in the process that put limits on
the material flow?
33 Are there any energy demanding operations in the process?

Advantages of scale
34 What advantages can be found when remanufacturing volumes increase in the current
situation?
35 How is the relation between the fixed and variable costs associated with the plant and
the remanufacturing operations.

2
 APPENDIX A

Flexibility
Where is your customer decupling point?
• MTO (Make to order)
• ATO (Assemble to order)
• MTS (Make to stock)
• Other:

36 What demands are put from the customer on the ordering lead time?
37 Are there any operations that have a major limitation on the lead time for the
remanufacturing process?
38 Generally, what types of flexibility requirements are put on the equipment used in the
remanufacturing process?

Remanufacturing characteristics
39 Generally, what is the most frequent reason/source for product returns? Specify in
percentage:

% Transportation damage discovered in the supply chain

% Trade in
% Warranty claims
% Returns from functional sales, rentals, leasing, etc
% Directly from retailer or similar (specify reason):
% Technical upgrades
% Buy back
% Core dealers or similar
% Quality defects from new production
% Return of components for prolong life of a product
% Other (specify):

40 Are the any particular characteristics for these returns?

3
 41 What are your drivers for remanufacturing products? For example
(active)
• Cost savings, due to for example expensive raw material or difficult production
operations
• Promoting an environmental image
• Defending the after sales market
• Creating a relationship with the customer?
• A more rapid way of delivering products to customer
• Other (specify)
(reactive)
• Environmental legislation
• Demands by customers
• Political
• Warranty claims
• Unprofitable for the current user – but not for other segments of customers

42 What criteria are used for the choice to take/by back cores, for example:
• Legislation
• Economical
• Marketing reasons
• Other

43 How is the communication organized between the company and the actor that are
actually retrieving the cores from customers?
44 How can this communication be improved?
45 If the cores are purchased, how is it valued?

Degree of remanufacturing

46 To what extent are the cores remanufactured? (Classify)

• The core are remanufactured as a unit to:
o As “when newly produced” status
o Upgraded to the latest specifications, similar to the currently new products
o To a level specified by the customer
o To a level specified by the company
• The core are cannibalized for components
o To be used in remanufactured products
o To be sold as spare parts
o To be used in new products

47 Do you use a mix of the remanufacturing levels (described earlier), why is that and
what determines the appropriate level?
48 In what situations do you choose to by components instead of reprocessing the
component?

4
 APPENDIX A

49 Who in the organizations sets these characteristics?

50 What type of information is needed to make the right answer?
51 How is this presented to operational personnel, for example in disassembly and
inspection operations
52 Is this system working satisfying when the information changes over time?
53 How is the status of the core assessed before disassembly?
54 How and where is this information used?
55 Do you use some sort of quality categories for the status of the cores?
56 How are these used in the remanufacturing process?
57 What effects can be gained from quality categories in the remanufacturing process?
58 Is there any additional inspection needed further down in the process to assess what
to do with the core and the components?
59 Are there situation when remanufacturing isn’t appropriate? For example when:
• Environmental reasons?
• Legislation?
• Competition with new products?
• Economical?
• Other?
60 Are there any possibilities to, at an early stage before the cores arrive at the
remanufacturing plant, sort and decide what to do (and what needs to be done) with the
core
61 Do you use any system like this?
62 Internal material handling

Internal material handling

63 What characteristics are use to decide on how to handle the component in the factory?
For example issues as:
• The value of the components
• Annual demand for a component
• The physical space, in for example assembly lines
• The since of the components
• Other

64 Make a drawing on how the material is handled in the plant

Core inventory
65 For how long in general are a core situated in your core inventory
66 How is the core stored?
67 Are the cores sensitive to storage methods? E.g. storage outside
68 Dose the value of the core decrease during the time in inventory?

5
 In the case when the supply of cores is greater than the demand of remanufactured
products:

69 Under which conditions are a core recycled?

70 How is over stocking cores avoided
71 How do you now when to phase out a product from the product offerings?

In the case when the supply of cores is less than the demand of remanufactured
products:

72 How is this situation dealt with?

Material handling in the material flow: (Disassembly)

73 How do you keep track of the components when they have been disassembled?
74 What types of material carriers are used?
75 What type of methods do you use to create an effective inventory management of
disassembled components?
76 To what degree do you use specialized material carriers?

Material handling in the material flow: (Reprocessing)

77 How do you coordinate the need of components between disassembly, reprocessing

and reassembly due to for example yield rates?
78 What degree of standardization of processes and material carriers are used in this
phase?
79 What type of methods do you use to create an effective inventory management of
reprocessed components?

Material handling in the material flow: (Reassembly)

80 Do you have some solution for innovative material carriers?

81 How du you store new and reprocessed/reused components?
82 What are the criteria for storing components at assembly stations vs. centralized
storage?

Procurement
83 How are your possibilities for procurement of new components?
84 What are the differences between procuring a component that are also used in new
products (e.g. cheaper, lower ordering lead times, etc) opposed to components produced
as spare parts?

6
 APPENDIX A

Obsolescence

85 How are obsolete new components managed in the inventory?

86 How are obsolete reprocessed components managed in the inventory?
87 On what criteria are the components classified as obsolete and what are done to these
components?
88 Are there any options to send back unused components to the manufacturer?
89 When components are bought under high risk for obsolescence, how is it then priced
internally?
90 How are the (high?) order quantities influencing the cost for new components in
respect to risk (e.g. obsolescence)
91 Production planning

Production planning
92 What area has the greatest potential for improvements regarding your
remanufacturing process?
93 Describe how the remanufacturing planning is conducted from order to delivery
94 Why is this approach applied in your case?

Planning
95 How are the disassembly orders set in respect to when and to what quantities?
96 How are the reprocessing orders set in respect to when and to what quantities?
97 How are the orders for new replacement component issued (when and to what
quantities)?
98 How are the reassembly orders set in respect to when and to what quantities?
99 How do you coordinate disassembly, reprocessing and reassembly phases in respect
to order quantities and timing?
100 What extent of planning and control are economically justified?
101 Are there any information technology software available to manage this issues?
102

Yield
103 Are there any calculation/forecasts on the material recovery rate in the different
phases of the remanufacturing process?
• If yes, how are these variables assessed?
• If no, why not?
104 To what rate are the forecast of material recovery rate predictable?
105 To what extent are the forecasts for the material recovery rate used in the planning
process?
106 Is the material recovery rate in any way measured during disassembly? If so, how is
this information used, for example when ordering new components?
107

7
 Reprocessed components
108 How do you assess the cost and time for reprocessing a component?
• Part of the cost of sourcing the product core?
• Energy?
• Machine hours?
• Labur?
• Material handling?

Capacity and flexibility

109 How is capacity planning performed in the process?
110 How dose the incoming quality of cores influence the capacity planning?

111 How do you se upon the need to be flexible in the remanufacturing process
(compared to new production)?
112 Is it possible to increase the degree of reprocessing at times with high reprocessing
capacity?
113 Do you use new components as a hedge for variations in reprocessing capacity?
114 How is the capacity managed between reprocessing job shops and the members of the
operational staff?
115 How important is flexibility in the operational staff?

Bottlenecks
116 Do you have any specific bottlenecks in the remanufacturing process?
117 Does the position of the bottleneck in the material flow change frequently?

Lead-times
118 How are your anticipated lead-times in the remanufacturing process? (make drawing)
119 How is the amount of planning lead time influencing the efficiency of the
remanufacturing process?
120 What operations are effecting the lead time the most?
121 Are ordering lead time an important aspect for customer orders?
122 Dose the lead time between order and delivery fluctuate, and why?
123 What effect dose fluctuating lead times generate?
124 Dow dose the lead time effect the planning and cost for the reprocessing operations?

8
 APPENDIX A

Remanufacturing Economics
125 Describe the general cost distribution of the remanufacturing system (draw)
126 Which of these costs can the company influence?
127 According to what principle are the pricing of the products performed?
128 If OEM, how is the internal pricing of new components conducted between the spare
parts division and the remanufacturing division?
129 How is the correlation between the forecasted cost of remanufacturing and the actual
outcome?
130 What variables regarding the performance of the remanufacturing system are
measured upon? E.g.:
• Financial data?
• Customer satisfaction?
• Personnel development
• Internal data?
• Other?

131 How are these factors measured?

132 How are the components valued during the remanufacturing process?
• Core inventory
• Disassembled components
• Reprocessed components
• Products ready for delivery

What effects dose the values of the components have on material and production planning?
(e.g. the choice to reprocess a component or not)

Logistical demands
133 What demands are set from customer regarding time to delivery?
134 What types of demands are set on the delivery accuracy?
135 How dose the time between order and delivery of remanufactured products compare
with new products time to delivery?

Additional questions
Are there any questions that you feel that should have been asked or some other aspects of
remanufacturing that are important for the competitiveness of your company?

9
 APPENDIX B
INFORMATION ON THE AUTHORS
EFFORTS IN RELATION TO THE PAPERS

This appendix will present a clarification to what extent the author of this dissertation has
contributed to each of the Papers I-VII

For all the appended papers in this dissertation, I have been the main author, which means that
I have been responsible for the process of writing them. As for my principal supervisor, Mats
Björkman and my co supervisor Erik Sundin contributed constructive critique on all of them.
Erik has also been a part in the gathering and co-authoring some of the appended papers.
Concerning the research efforts in relation to each paper the following can be stated:

Paper I I conducted the interviews at the companies; I also did the theoretical review as
well as writing the paper. Approximately 95% of the work for this paper is done
by the author.

Paper II I conducted the interviews at the companies; I also did the theoretical review as
well as writing the paper. Approximately 95% of the work for this paper is done
by the author.

Paper III I conducted the interviews at the companies; I also did the theoretical review.
Erik Sundin contributed with a part of the methodology section as well as
contributing to a 10% degree when writing the paper. Approximately 90% of the
work for this paper is done by the author.

Paper IV I conducted the interviews at the companies; I also did the theoretical review as
well as writing the paper. Approximately 95% of the work for this paper is done
by the author.

Paper V The foundation for this paper is linked to a Master of Science in Business
Administration thesis made jointly by myself and Maria Mähl. After this thesis
has been writhen, I expanded the scope to also include the empirical data from
the REKO-study. Approximately 80 % of the work for this paper is done by the
author.

Paper VI The foundation for this paper is linked to a Master of Science thesis conducted
by Helene Ekholm. My part for this paper was to identify the objective of the
study and to initiate the project. All the empirical data was gathered by Helen,
Approximately 40 % of the work for this paper is done by the author.

Paper VII The foundation for this paper is linked to a Master of Science in Mechanical
Engineering thesis made jointly by myself and Rickard Svensson.
Approximately 75 % of the work for this paper is done by the author.

1
 PAPER I

Östlin, J., Sundin, E and Björkman, M (2008) “Business drivers for

remanufacturing” Proceedings of CIRP Life Cycle Engineering Seminar -15th
edition- 2008, Sidney, Australia
 Business Drivers for Remanufacturing

Johan Östlin, Erik Sundin and Mats Björkman

Department of Management and Engineering, Linköping University, Linköping, Sweden

Abstract

In this paper the aim is to explore what drives companies to get involved in the remanufacturing operations. In
the previous research there have been numerous case studies that partly have addresses the issue of why a
company is getting involved in remanufacturing. A main conclusion from this study is that the motives for
remanufacturing a product are very case-dependent e.g. in what industry sector the company have business in
and what product type being remanufactured. In this study it is found that there are mainly three general
business drivers for remanufacturing. These are: profit, company policy and the environmental drivers. For
remanufacturing to be successful, these drivers are crucial, although it does not propose that all of theses
drivers have to be present for a successful remanufacturing system. When combining the profit, policy and
environmental factors there is a great potential for a win-win-win situation, meaning that the customer gets a
quality product at a lower price, the manufacturer reduces their manufacturing costs and the environment
gains from a lower environmental impact.

Keywords:
Business Strategies, Business drivers, Product recovery

1 INTRODUCTION component reprocessing, reassembly, and testing to ensure it

The field of product recovery encompasses the recovery of all meets the desired product standards. This could sometimes
used and discarded products, components and materials. mean that the cores need to be upgraded and modernized
The product recovery consists of several activities such as: according to the customer requirements (see e.g. [4], [5] and
collecting products, determining the potential for the product [6]
reuse, disassembling the product and segregating valuable 1.1 The remanufacturing industry
components; remanufacturing of the product; recycling
The remanufacturing industry got a boost during the Second
materials; and disposing of waste. [1]
World War when many manufacturing facilities changed from
Product recovery has traditionally been viewed by customers ordinary production to military production, and therefore the
as an economically and environmentally beneficial alternative products in use by civilians were largely remanufactured in
to ordering new products. Product recovery is interpreted as a order to keep society running. The concept of
superior concept that involves concepts like reuse, remanufacturing has spread during the latest decades to
remanufacturing and recycling. The aim with product recovery sectors such as those dealing with products like; automotive
is to retrieve a product’s inherent value when the product no components, electrical apparatus, toner cartridges, home
longer fulfils the user’s desired needs [2]. During the last appliances, machinery, cellular phones and many others, see
century, the industrialized world has put limited focus on e.g. [6]
product recovery. Instead, the main focus has been on the
The remanufacturing industry, as an industry sector, is often
production of products from virgin materials (i.e. non-
referred to as a “hidden giant” as described by Lund [5]. The
recycled). For several different reasons, the focus has now
reason for describing it as hidden is that the majority of the
shifted to an increase in product recovery. For example,
remanufacturing preformed in industry is done at companies
society’s awareness of the environmental problems of the
that are not focused in pure remanufacturing operations and
present use of material and products has grown [3]. As a
provides it mainly as an after market service. In comparison,
result of the social perspective has resulted in increasing
the companies that are focused on pure remanufacturing are
environmental legislative pressure from the European Union
1 2 not at all as common. Therefore, it is hard to exactly estimate
(EU), such as the launching of the WEEE and ELV
directives. These directives has the potential in creating an the turnover of the remanufacturing industry in a sector since
environment where product recovery becomes profitable if not the data is hidden in aggregated numbers. To give some
already profitable without a take-back law. examples of the importance of the remanufacturing industry,
the size of the industry in the United States is estimated
In this paper, the remanufacturing option of product recovery turnover $ 40.5 billion in 2003 [7]. In the United Kingdom, the
will be the area of interest. Remanufacturing is defined as an size of the remanufacturing industry is estimated to £ 5 billion
industrial process where worn-out/broken/used products in 2004, which is about equal to the recycling industry [8].
referred to as cores are restored to useful life. During this However remanufacturing proposes a great business
process, the core passes through a number of opportunity and the European market has an enormous
remanufacturing operations, e.g. inspection, disassembly, growth potential; in the USA it is a major business and the
automotive industry, sells approximately 60 million
1 remanufactured automotive products compared to 15 million
WEEE stands for Waste of Electric and Electronic Equipment.
2
products in Europe, for an equivalent stock of vehicles [9].
ELV stands for End of Life Vehicle.
In this paper the aim is to explore what drives companies to answering options [16]. Prior to the interviews, a theoretical
get involved in remanufacturing operations. In the previous literature review was performed; this review was the basis for
research there have been numerous case studies that partly the formulation of the interview questions.
have addressed the issue of why a company is getting The case company selection was made from companies that
involved in remanufacturing. A main conclusion from these were found in the study of the remanufacturing industry in
studies is that the motives for remanufacturing a product are Sweden [17]. In this study, a multitude of potential companies
very case-dependent (see for example [1], [2], [10], [11]). was found. The choice of case companies was made based
1.2 Purpose on variables concerning their annual remanufacturing
volumes, as well as product complexity and remanufacturing
As the aim of this paper is to identify the possible generic
process.
drivers that make companies interested in performing
remanufacturing. The formal purpose of this paper is to According to Eisenhardt [18] there is no ideal number of
answer the following question: cases, though a number between 6 and 10 is good for theory
building. Empirical data was gathered primarily from different
What drivers can be identified for companies to Swedish remanufacturing companies. The companies
remanufacture products? selected for the case studies were:
Understanding what the drivers are for the remanufacturing
Case Remanufactured Company Relation to
system is a key issue for developing management methods
Company Products Size OEM
and policies. The term management can be described as the
3
“the actions taken to reach one's intended goal” . Using this BT Industries Forklift trucks Large OEM
analogy, the goal of the actions taken in the remanufacturing Scandi-Toner Toner cartridges Small Independent
system would be to maximize the relevant drivers for
Swepac Soil compactors Medium OEM
remanufacturing. Hence, without knowing where we are
International
going, we cannot deliver solutions to get there either.
AB
Therefore, the identification of remanufacturing drivers
becomes an important issue not just for industry but also for Tetra Pak Filling machines Large OEM
the direction of management research in remanufacturing. Volvo Parts Engines Large OEM
2 METHODOLOGY UDB Automotive Medium Contracted and
The purpose of the design of a research methodology is to Production components independent
support the purpose and the research questions of a study
[13]. The research made for this study is based on empirical
3 BUSINESS DRIVERS FOR REMANUFACTURING
data linked to several case studies of different
remanufacturing companies as well as previous documented 3.1 Profit as a driver for remanufacturing
case study research results in the area of remanufacturing. In
One of the most frequent answers given when a company is
this paper new findings are presented integrated with the
asked why they are involved in remanufacturing is that
previous research to support the forthcoming analysis. Using
remanufacturing is a profitable business for the company. The
case studies as a research method are particularly feasible in
first driver for remanufacturing is based on the idea that
situations where the issues that are under investigation
resources that were used in the manufacturing of the product
cannot be easily separated from their context or environment
are reused, therefore the costs of producing remanufactured
[13]. By using case studies, one can gain a complex and
products has a potential to be lower than in new production
holistic view of a specific issue or problem. A case study can
and thereby making remanufacturing profitable (market price
be described as “problem-focused, small-scale and
– costs for the remanufacturing process) [1]. The reused
entrepreneurial” [14]. Some specific abilities can be linked to
resources consist of the material in the product, energy,
case studies. According to Merriam [14], case studies can do
machine time, labor and other costs that have been
several things. First, they can give guidance to the reader
accumulated in the new production process [2]. In the normal
regarding what could be done, and what should not be done,
case, the price available for a remanufactured product is
in a similar situation; second, they help the reader to regard
dependent on the price of an equal new product. Generally
specific situations and still conclude to a general problem;
the price of the remanufactured product tends to be lower
and finally, they illustrate the complexity of a situation, e.g.
than the price of a new product [11].
the fact that not a single but a multiple of variables affect a
given situation. General cost reductions
2.1 Empirical Investigations Remanufacturing as a solution for realizing a product that
meets the customer requirements can provide substantial
The empirical data for this study is linked to an ongoing
cost savings in comparison to the new product alternative.
research project called “REKO” [15], which employs an
Remanufacturing can in advantageous situations provide cost
explanatory multiple-case study concerning multiple types of
reductions, both for customers and remanufacturers. This is
products. The main source of data collection was semi-
done by taking advantage of the resources that were used in
structured interviews. The questions formulated for this type
the manufacturing of the product, therefore the costs of
of study are normally open and give the respondents a
producing remanufactured products has a potential to be
chance to go into detail regarding the answers, i.e. the
lower than in new production and thereby realizing a cost
questions were prepared without specific sequence or
reduction. This cost reduction is also the main criteria for
making remanufacturing profitable. For example, Xerox
3 Corporation saves hundreds of million of dollars a year by
A definition of management given by Mary Parker Follet, in [12]
disassembling its end-of-life photocopiers and then cleaning, the long time frame can provide a problem, for example, in
sorting, and reprocessing components and recycling residual the automotive business it can be as long as 15 years, as for
materials [1]. Other examples of remanufacturing becoming the case of Volvo and UBD. By using a business model which
profitable are when Volvo is using remanufactured engines in provides these spare parts as remanufactured products,
warranty claims instead of new engines OEMs are able to cease production of small numbers of new
spare parts for old product lines. This means that
New business strategies
remanufacturing can offer a further cost saving to the OEM.
How companies formulate their business strategy to meet
Another interesting point is that remanufacturing also
customer demands can also create opportunities for
provides an alternative to new production of spare parts.
profitable remanufacturing. A trend today is that many
Hence the dependency on sub suppliers for spare parts can
manufacturing companies are moving from a focus of selling
to some extent also be reduced by offering the
products, to a perspective linked to creating a relationship
remanufacturing option [10]. This is especially true for
with the customer during the products life cycle. By
components that have been on the market for a long wile and
formulating a business strategy in a life cycle perspective,
the costs for producing new components are high due to the
remanufacturing becomes a service in the product’s life cycle
generally low production volumes.
[19]. One example of this thinking is when the product is
linked to a functional sales offer. In the functional sales offer 3.2 Policy as a driver for remanufacturing
(e.g. a rental contract), the business strategy of a company is The drivers for remanufacturing can also be linked to non-
to sell the function of a product instead of just the product. direct economical issues. Policy issues, such as protecting a
One result from this is that the product can remain in the secondary market, promoting brand image, preventing
ownership of the company and it can be remanufactured legislation and other similar issues can motivate
when returned from the customer [16]. In this case, remanufacturing. The drivers that are presented here are
remanufacturing can be a preferred product recovery option drivers that have a positive economical impact on the
for products coming back after the lease or rental period [1]. company as a hole even if the profit from the remanufacturing
One practical example of this is the rental agreements for operations can be negative.
forklift trucks offered by BT. Normally the forklifts are
stationed at the customer for up to about five years. When the Protecting aftermarket volumes
product is returned, it is remanufactured before it is sent of to The aftermarket is defined “as the market for components and
another customer or sold in the second-hand market. accessories to maintain or enhance a previous purchase” [1].
New product sales and entry to new market segments The aftermarket is often a very lucrative business area for the
OEMs, therefore there are heavy invectives to keep
This category refers to the practice of trading in old products independent competitors away form this market. By collecting
when the customers are buying a new product. When components and products from customers, the “risk” of
providing compensation in some form for the old product, a independent remanufacturers targeting this area is reduced.
drive for new product sales is given. If the company is In a study at an engine remanufacturer Seitz has was given
involved in, remanufacturing the effect can for example be; the following insight [10]:
that the customer gets some discount on the new product,
and the remanufacturer gets a core that can be “Officially a remanufactured engine can only bought if a
remanufactured. For the OEM remanufacturer the result is a core is returned. But if a customer offer us just the core
profit for the sale of the new products and a profit for the without buying a remanufactured product, we tend to
remanufactured product. One frequent cited reason for buy it anyway, because otherwise, the core would be
companies not to involve in remanufacturing is that it reduces “food” for our competitors. With regard to commercial
the new product sales, although this dose not have to be the vehicle engines, at one point, we even bought back
case since it is common that the new and the remanufactured used engines from scrap yards to avoid that
products are not sold in the same marketing channel and competitors would get hold of them”
targets different market segments. One example of this is Another example of protecting the aftermarket is the company
remanufactured soil compactors from Swepac and the forklift Lexmark that uses a “prebate” program giving a discount on a
trucks from BT that are targeted towards a different market product if the customer agrees to the return the product after
segments. In both these cases, the products that are sold as use; this program prohibits the customers from returning or
remanufactured are targeted towards customer with a lower selling their used products to other companies. [9]
demand of innovation level and to customers that are price
Brand protection
sensitive. Targeting new markets segments by offering
remanufactured products is also one way for premium brands The image of a company is one of the most critical factors for
to address new customer groups that wouldn’t be able to by a successful business. It is also something that demands a lot
new premium products. of time and investment to build, and it can quickly be
destroyed with for example negative publicity. For high profile
Provide Spare Parts OEMs that target premium customer segments, it is very
For products that have been on the market for a long time the important that the quality of remanufactured products is under
only option for the customer to replace a broken component, control. To maintain control over the product during the
might be to remanufacture the component. The main reason lifetime the OEMs might want to restrict the supply of cores to
for this is that there are no new or reused components the independent remanufacturing companies. In a sense the
available on the market [11]. Additionally, OEMs may be OEM, do not want independent companies “play around” with
obliged to supply spare parts for products for a certain length their products, resulting in a risk that the original brand that
of time after new production ceases. In many industry sector gets the negative impact if something goes wrong with the
remanufactured product. Even, if it is a result of inferior products with obsolete or polluting technologies.
remanufacturing from an independent remanufacturer. One Remanufacturing products with less environmentally sound
example of this is the remanufacturing and upgrading of filling technology can have a negative impact, especially if the
machines at Tetra Pak. By upgrading the products to latest major environmental impact is concentrated in the use phase.
specifications, Tetra Pak is actively increasing the level of Still remanufacturing in the proper content can gain
technology in there installed base, The reason for this is substantial environmental advantages. [2]
partly motivated by maintaining a company profile of The environmentalness of remanufacturing has been debated
innovative products and reducing the risk of inferior since it e.g. could require more transports. However, previous
remanufacturing performance from independent research conducted by Lindahl et al. and Sundin shows that it
remanufacturers. is a partly preferable option. Lindahl et al. concludes that
Gaining information on customer needs based on industrial cases and a literature review,
remanufacturing is preferable from a material resource
Just as trading-in products can be a driver for new sales, the
perspective when compared with manufacturing of new
information on remanufacturing needs and the status of the
products. The second conclusion from this study is that
installed base can gain substantial advantages in respect to
remanufacturing is preferable from a more overarching
competitors. With the information about the status of the
perspective for some of the investigated cases, but it is not
installed base gained from the customer, the seller can be
possible to draw any general conclusions since the
one step ahead, realizing the needs of the customer before
companies studied are few and benefits from remanufacturing
the customer themselves. In a sense, if the information of the
are highly context-related. [23], [6]
current situation can be gathered there can be a possibility to
4
be proactive instead of acting reactively. Acting proactively Legislation
according to information, can enable a company to control The environmental considerations and corporate social
different activities according to the organizations ability to responsibility are putting pressure on governments and other
perform at its best. For example, a sale advantage can be institutions to react. A result of this is that the environmental
gained when the products that are close to their end-of-use legislative pressure from institutions as the European Union
are to be replaced. This information can then initiate a (EU) is growing. Examples of this are the launching of the
proactive sales activity. Another example is when an WEEE and ELV directives. These directives are currently
innovation pushes the product out of its economic lifetime in being implemented in the EU member countries in either an
the customer’s specific case. According to Holmlund, the “industry collective” or “company individual” manner. From a
actions in these sequences have great influence on the remanufacturing viewpoint, the effects of theses directives
perception of the relationship [21]. With the information about can become a significant driver for the remanufacturing
the customers installed base, an information advantage over industry. How these directives are implemented will have a
the competitors can be gained. significant effect on the remanufacturing industry. According
Providing additional after market solutions to Webster and Mitra a collective implementation, the specific
industry branch are collectively responsible, would make a
Matching different customer needs of after market services structural change to the industry – creating an environment
can also be a source for a positive company profile. where remanufacturing becomes profitable if not already
Remanufacturing can then be a low price option for the price profitable without a take-back law. On the other hand if these
sensitive customer. In general, this reflects on the broader directives are implemented company individually, i.e. each
market appeal for customers, including the company ability to company will be responsible for their own products, the
provide replacement components for a reasonable period, at companies will get better control of their own remanufacturing
a reasonable price. One remanufacturer puts it like this: [10] business. [24]
One of the reasons why we remanufacture passenger
car engines and engines for small commercial vehicles One example of legislation as a driver for remanufacturing
is the fact that we want to offer the customer the option can be taken from the toner cartridges business. Toner
to purchase remanufactured engines. It all boils down to cartridges are regulated under the WEEE directive; as a
customer orientation and customer satisfaction result, toner cartridges cannot be treated as ordinary office
Feedback to new product design supplies. This creates a recycling problem for the customer.
Scandi-Toner recognizes the embedded value in the
Engaging in a remanufacturing activity can also provide discarded product that can be realized through
additional knowledge about how the products are performing remanufacturing. A recycling service is provided to the
during there use. Products that are subject to warranty claims customer free-of-charge, and results in the access to used
have previously been reported to be a good feedback source toner cartridges. The relationship is established by providing
in new design [6]. When engaging in remanufacturing there is a take-back system that is realized with a return box that is
an additional advantage since products that are not under (when full) sent to the company free-of-charge. The boxes are
warranty considerations can be analyzed. A practical example sent to the company randomly and can contain multiple
of this is the close collaboration between design and cartridges. According to Scandi-Toner, the take-back system
remanufacturing departments within the household appliance also motivates customers to remain customers, and provides
manufacturer Electrolux. a sales opportunity since a customer is more likely to
3.3 Environment as a driver for remanufacturing
4
In an environmental perspective, remanufacturing can, in Examples of legislative take-back laws are derived from different
many cases, offer superior material recovery due to additional EU directives such as the waste electrical and electronic
reused resources [22]. From an environmental perspective, it equipment directive (WEEE) (EU, 2002) and the end-of-life
is still important to consider the impact of prolonging the life of vehicles directive (ELV) (EU, 2000).
 Environment
− Legislation Policy
Profit
− Moral and ethical
- Cost reductions considerations − Protecting aftermarket
- Meeting customer − Green marketing − Brand protection
demands − Providing additional
- Driver for new after market solutions
product sales − Preempting Regulation
- Targeting new REMANUFACTURING − Feedback to new
market segment product design
- Only option for
component
replacement WIN­WIN­WIN
Figure 1: The potential for win-win-win situations by remanufacturing

purchase remanufactured cartridges when they are supplying [3] Ryding, S.-O., et al., Miljöanpassad produktutveckling
the used ones through the take-back system. (in Swedish). Stockholm, Sweden: Industrilitteratur AB,
Moral and ethical considerations 1995.
When Kodak started to produce single use cameras, it was [4] Seaver W.B. (1994) “Design Considerations for
just “single use”. As a result the customers started to refer remanufacturability, recyclability and reusability and
them as “throwaways” and “disposables” this, in combination reusability of user interface modules”, Proceedings of
of environmental groups addressing concerns of this IEEE International Symposium on Electronics and the
wastefulness, resulted in a remanufacturing program that Environment, (IEEE-94), San Francisco, CA, USA, pp
takes care of the single use cameras. This environmental 241-245.
driver was the start of one of the most successful
remanufacturing programs in the world with millions of [5] Lund, R. (1996) “The Remanufacturing Industry: Hidden
cameras being remanufactured each year. [1] Giant”, Boston, Massachusetts: Boston University.

4 CONCLUSIONS [6] Sundin E. (2004) “Product and Process Design for

As described in this section there are mainly there general Successful Remanufacturing”, Linköping Studies in
business drivers for remanufacturing. These are: profit, Science and Technology, Dissertation No. 906,
company policy and the environmental drivers. For Department of Mechanical Engineering, Linköpings
remanufacturing to be successful, these drivers are crucial, Universitet, SE-581 83 Linköping, Sweden.
although it does not propose that all of theses drivers have to [7] The Remanufacturing Institute (2007)
be present for a successful remanufacturing system. The http://www.reman.org
main drivers for remanufacturing can be very different in-
between different industry as well as between individual [8] Oakdene Hollins Ltd. (2004). Remanufacturing in the
companies. When combining the profit, policy and UK: A Significant Contributor to Sustainable
environmental factors there is a great potential for a win-win- Development? Skipton: The Resource Recovery
win situation, meaning that the customer gets a quality Forum.
product at a lower price, the manufacturer reduces there [9] Seitz M. A., and Peattie K. (2004) “Meeting the Closed-
manufacturing costs and the environment gains from a lower Loop Challenge: The Case of Remanufacturing”
environmental impact, se Figure 1 Californian Management Review, 46/2: 74-89.
5 ACKNOWLEDGEMENTS
[10] Seitz M. (2007) “A critical assessment of motives for
The authors wish to thank the companies that have product recovery: the case of engine remanufacturing”
contributed to this knowledge of this paper. Furthermore, the in Journal of Cleaner Production, Vol. 15(11)
authors would like to give gratitude to the Swedish
Governmental Agency for Innovation Systems (VINNOVA) as [11] Gray C. and Charter M. (2007) “Remanufacturing and
th
well as the Royal Swedish Academy of Science for partly Product Design – Designing for the 7 Generation”, The
sponsoring this research. Centre for Sustainable Design, University Collage for
the Creative Arts, Farnham, UK

6 REFERENCES [12] Richard Barrett (2003) “Training, Developing and

Motivating People” Vocational Business Nelson
[1] Toffel, M. W., (2004) ”Strategic Management of Product Thornes, London.
Recovery”, Californian Management Review, 46/2: 120-
141. [13] Yin, R. (1994). “Case study research: Design and
methods” (2nd ed.). Beverly Hills, CA: Sage Publishing.
[2] Bras B. McIntosh, M. W. (1999) “Product, processes
and organizational design for remanufacture – an [14] Merriam, SB (1994). “Fallstudien som
overview of research” in Robotics and Computer forskningsmetod”. Lund Studentlitteratur. Sweden
Integrated Manufacturing, Vol. 15
[15] REKO- project homepage, available online, 15 of
November 2007,
http://www.ikp.liu.se/ps/projects/reko/index_e.asp
[16] Jacobsson N. (2000) “Emerging product strategies - through product remanufacturing” Journal of Cleaner
Selling services of remanufactured products”, Licentiate Production, In Press, Corrected Proof, Available online.
dissertation, The International Institute for Industrial [21] Holmlund, M. (1997). “Perceived Quality in Business
Environmental Economics (IIIEE), Lund University, Relationships”, Doctoral Dissertation, Swedish School
Lund, Sweden, ISBN 91-88902-17-X. of Economics and Business Administration, Helsinki.
[17] Sundin E., Tang O. and Mårtén E. (2005) The Swedish [22] Smith, V.M. and Keoleian, G.A. (2004) “The Value of
Remanufacturing Industry - An Overview of Present Remanufactured Engines: Life-Cycle Environmental
Status and Future Potential, Proceedings of CIRP Life and Economic Perspectives” in Journal of Industrial
th
Cycle Engineering Seminar -12 edition- 2005, Ecology, 2004. 8: p. 193-221.
Laboratoire 3S, Grenoble, France, April 3-5.
[23] Lindahl, M., E. Sundin, and J. Östlin, (2006).
[18] Eisenhardt K.M. (1989) “Building Theories from Case “Environmental Issues within the Remanufacturing
Study Research” in The Academy of Management Industry” in LCE2006 - 13th CIRP International
Review, Vol. 14, No. 4, (October 1989), pp. 532-550. Conference on Life Cycle Engineering, Leuven,
[19] Oliva, R and Kallenberg, R. (2003). "Managing the Belgium,
transition from products to services." International [24] Webster S. and Mitra S. (2007) “Competitive Strategy in
Journal of Service Industry Management 14/2: 160-172. Remanufacturing and the Impact of Take-Back Laws”,
[20] Sundin. E. and Bras. B., (2004). “Making functional Journal of Operations Management
sales environmentally and economically beneficial
 PAPER II

Östlin, J, Sundin, E and Björkman, M. (2007) “Product Lifecycle Implications

for Remanufacturing Strategies” submitted to International Journal of Cleaner
Production
 Product Lifecycle Implications for
Remanufacturing Strategies
Johan Östlin, Erik Sundin and Mats Björkman
Division of Production Systems, Department of Management and Engineering,
Linköping University, Sweden.

Abstract
For remanufacturing to be successful, there is a need to gain information on future market needs of
remanufactured products and match this to the information on the magnitude of return flows. One of
the major impacting issues of the possibilities to perform remanufacturing is in the difficulty of
obtaining used products (cores) that are suitable for remanufacturing. The timing and quantity of
return of a product is dependent on the type of the product. Factors such as the mean product lifetime,
rate of technical innovation, and failure rate of components all influence the return rate of products
from end-of-use and end-of-life. The balance between product returns and demand for remanufactured
products is a function of many variables, were the rate of technological innovation and the expected
life of a product are the major influencing characteristics. The main contribution of this paper is the
support that is provides in different supply and demand situations. By using a product life cycle
perspective, the supply and demand situations can be foreseen, and support is given on possible
strategies in these situations.

Keywords: Remanufacturing, Component Cannibalisation, Product Lifecycle, Remanufacturing

Strategies

1 Introduction
Remanufacturing is an industrial process whereby used/broken-down products (or components)
- referred to as “cores” - are restored to useful life. Remanufacturing means that a product is
reprocessed or upgraded in an industrial process. During this process, the core passes through a
number of remanufacturing operations, e.g. inspection, disassembly, part reprocessing, reassembly,
and testing to ensure it meets the desired product standards (Sundin et al., 2005). The business concept
of remanufacturing is based on the idea that resources that were used in the manufacturing of the
product are reused, thereby making remanufacturing advantageous. The reused resources consist of the
material in the product, energy, machine time, labour and other costs that have been accumulated in
the new production process (Bras et al., 1999). Remanufacturing can, in many cases, offer superior
material recovery due to additional reused resources (Smith et al., 2004). From an environmental
perspective, it is still important to consider the impact of prolonging the life of products with obsolete
or polluting technologies. Remanufacturing products with less environmentally-sound technology can
have a negative impact, especially if the major environmental impact is concentrated in the use phase
(Bras et al., 1999).
The driving forces for using product remanufacturing in product recovery are many, just as are
the barriers against remanufacturing. These motives and barriers can be both economic and technical.
Several researchers have tried to characterise under which conditions remanufacturing is advantageous
(see Seitz (2007) for an overview). A main conclusion from these studies is that the motives for
remanufacturing a product are very case-dependent (Seitz, 2007). For remanufacturing to be
successful, Thierry et al. (1995) highlight the need to gain information on future market needs of
remanufactured products and match this to the information on the magnitude of return flows. Toffel
(2004) also concludes that one of the major impacting issues of the possibilities to perform
remanufacturing is in the difficulty of obtaining used products (cores) that are suitable for
remanufacturing. The timing and quantity of return of a product is dependent on the type of the
product. Factors such as the mean product lifetime, rate of technical innovation, and failure rate of
components all influence the return rate of products from end-of-use and end-of-life (Umeda et al.

1
2006). End-of-use returns refer to those situations where the user has a return opportunity at a certain
life stage of the product. This refers to leasing cases and returnable containers like bottles, or returns to
second-hand markets. Although end-of-use products are not new, they are often in a good or
reasonable state. In respect to end-of-use returns, end-of-life returns refer to those returns where the
products are at the end of their economic or physical life. They are either returned to the OEM because
of legal product-take-back obligations or “returned” to another company for value-added recovery.
Customers can be more or less active concerning the returns, as illustrated respectively by returning
bottles to the supermarket or by sending back toner cartridges via mail (de Brito et al., 2002) The
balance between product returns and demand for remanufactured products is clearly a function of
many variables, were the rate of technological innovation and the expected life of a product are the
major influencing characteristics (Guide, 2000). One conclusion that can clearly be drawn regarding
this balance is that when a product is new on the market, the return of cores from end-of-use are
generally lower than the potential demand for remanufactured products. Vice versa, after a point when
the product has been on the market for a long time, the returns of end-of-use products are generally
higher than the demand for remanufactured products (Umeda et al. 2006).
The purpose of this paper is to further investigate how companies can balance the demand for
remanufacturing products with the rate of product returns. The aim is to develop strategies for
companies that can aid them in balancing supply and demand as well as providing insights for possible
remanufacturing strategies in different supply and demand situations. To analyse the problem of
balancing the supply and demand, the theory of the product lifecycle (see definition in the forthcoming
section) will be used as an analytical framework.

2 Previous research
The concept of the “product life cycle” has been discussed widely in research (see the overview
by Kotler, 2003). In the theory, at least two conflicting definitions about the product lifecycle can be
found. The first refers to the progress of a product from raw material, through production and use, to
its final disposal. The second definition of the product lifecycle, that will be used in this paper,
describes the evolution of a product, measured by its sales over time, as seen in Figure 1. Every
product passes trough a series of phases in the course of its life, referred to as the product lifecycle.
The phases that a product goes through during it lifecycle is the introduction, growth, maturity and
decline stages (Cox, 1967). The product life cycle can be analysed on different levels from the main
product type (product class) down to different product models; this is illustrated in Figure 1 (Tibben-
Lembke, 2002). The characteristics of the lifecycle and its effects on the reversed supply chain have
been discussed by Tibben-Lembke (2002), although it lacks a discussion on its effects on
remanufacturing operations.
Product Form (2-Head)
Product Class (VCR)

Sales
Volume Product Models
(GTL-3.5)

Time
Development Introduction Growth Maturity Decline

Figure 1: The product lifecycle for a VCR (Tibben-Lembke, 2002)

When the historical sales data (product distribution) is known, this data can be used as a basis
for forecasting when these products are likely to be returned (product disposal distributions). Umeda et
al. (2006) present a model based on empirical data from return rates for remanufacturing of a single-

2
use camera and the remanufacturing of a photocopier. In this model, a simple normal distribution
function has shown sufficient results in predicting returns when using average life as an indicator for
timing of returns. In the study by Umeda et al., the distribution of disposed products S(t) is calculated
as the historical sales data D(t) over a limited timeframe D(τ)Δτ, distributed as a normal distribution
function (NDist) with a standard derivation (σ) after an average usage time (μ). This is illustrated in
Figure 2 (Umeda et al., 2006):

Number of Production distribution for new

products products D(t) (sales volume)
Disposal distribution S(τ,t) of D(τ)Δτ

Normal distribution with

D(τ) standard derivation (σ)
Average usage time (μ)

Time

Δτ
Figure 2: Model of the linkage between the product distribution and the disposal distribution.

Another source of items suitable for remanufacturing is the components of a product. Here, the
end product (e.g. a car) is not at its end-of-use but requires the exchange of a component to continue
working properly (e.g. remanufacturing of the brake caliper). This disposal distribution of components
(CD) is therefore a function of how many products there are in the market (the installed base (IB)) and
the failure rate of the individual components λ(t). This is shown in Equations 1 and 2 (Umeda et al.,
2006):
t
IB (t ) = ∫ D (τ ) − S (τ )dτ (1)
0

CD(t ) = IB(t ) × λ (t ) (2)

The relations between the different distributions are illustrated in Figure 3. In this figure, the
upper line is the total amount of products on the market (the installed base). The installed base is the
sum of the produced products to a given time subtracted by the sum of the disposed products during
the given time (see Equation 2). Linked to the formulations of these distributions, Umeda et al. (2006)
present a framework for product reuse based on three possible reuse scenarios: (1) product installation
reuse, (2) spare part reuse from maintenance, and (3) Spare part reuse from disposed products.
Number of IB(t) – Installed base (Total number of products)
products
D(t) – Production distribution (Sales over time)
CD(t) – Component disposal distribution
(Disposal rate over time )
S(t) – Disposal distribution
(Disposal rate over time)

Time

Figure 3: Illustration of the linkage between the lifecycle and other lifecycle distributions (Umeda et
al., 2006)
The disposal distributions in the Umeda et al. study are made in regard to end-of-use, end-of-life
and reusable components, but there are also additional sources of cores that can be good sources for
remanufacturing. Krikke et al. (2004) present commercial returns as another category, i.e. ones that are
linked to the sales process. These products can be returns from customers that return products shortly

3
after purchase. Other reasons for the returns include problems with products under warranty or a
product recall. Guide et al. (2000) also reports “seed stock” as a possible solution for core acquisition.
Seed stock is composed of products that failed OEM specifications at the manufacturing plant.
However, the possibility for independent remanufacturing companies to acquire seed stock is limited
due to their frequent competition with OEMs (Hammond et al., 1998).
This previous research shows that the product lifecycle and the technical and economic issues
linked to the lifecycle have a major impact on the ability to balance the returns and demand for
remanufactured products. The characteristic of the lifecycle provides a theoretical foundation
regarding the possibilities of acquiring used products suitable for remanufacturing. Different
companies in different industries will apply different relations with the suppliers of the cores to get a
sufficient number of cores for their remanufacturing operations. In a study, Östlin et al. (2007)
presents seven different kinds of relationships with suppliers/end customers that have different
characteristics for the ability to control the rate and timing of the returns of used products/components.
These take-back relationships are ownership-based (e.g. leasing and rental), service-contracts, direct-
order, deposit-based, credit-based, buy-back, and voluntary-based relationships (Östlin et al, 2007).
Guide et al. (2000) present a number of management propositions on what to focus on when trying to
balance the supply and demand for remanufacturing. Regarding core (used products or components)
acquisition, one of the most important issues is to focus on identifying different sources of cores and
rating them according to their characteristics. Forecasting core availability is critical in order to
balance supply and demand. This reduces the need to purge the system of excess cores and reduces
stock-outs of unavailable units. Managers should also try to synchronise return rates with demand
rates, since doing so will lower the overall uncertainties in the system and lead to lower overall
operating costs.

3 Methodology
The purpose of the design of a research methodology is to support the purpose and the research
questions of a study (Yin, 1994). The research made for this study is based on empirical data linked to
several case studies of different remanufacturing companies as well as previously documented
research in the area of remanufacturing. The research has its foundation in empirical data, and links
are made to the existing theoretical base. Case studies are particularly feasible in situations where the
issues that are under investigation cannot be easily separated from their context or environment (Yin,
1994). By using case studies, one can gain a complex and holistic view of a specific issue or problem.
A case study can be described as “problem-focused, small-scale and entrepreneurial” (Merriam, 1994).
Some specific abilities can be linked to case studies. According to Merriam (1994), case studies can do
several things. First, they can give guidance to the reader regarding what could be done, and what
should not be done, in a similar situation; second, they help the reader to regard specific situations and
still conclude to a general problem; and finally, they illustrate the complexity of a situation, e.g. the
fact that not a single but a multiple of variables affect a given situation.

3.1 Empirical Investigations

The empirical data for this study is linked to an ongoing research project called “REKO 1 ”
(2006) which employs an explanatory multiple-case study concerning multiple types of products. The
main source of data collection was semi-structured interviews. The questions formulated for this type
of study are normally open and give the respondents a chance to go into detail regarding the answers,
i.e. the questions were prepared without specific sequence or answering options (Jacobsen, 1993).
Prior to the interviews, a theoretical literature review was performed; this review was the basis for the
formulation of the interview questions. The formulation of the interview questions were reviewed and
given feedback on by the research group linked to the REKO project. After the formulation of the
questions, a pilot study was made to verify the validity of the questions. The main source of data for
the case studies was interviews, all of which were recorded and varied in length from 1 to 4 hours,
depending on how much information the respondents had to contribute. Typically, those interviewed

1
The REKO project was sponsored by the Swedish Governmental Agency for Innovation Systems
(VINNOVA) – see www.vinnova.se.

4
were facility managers, production managers, controllers and technicians. Other sources of data were
direct observations made under the study visits to the companies, as well as documentation in the form
of photographs, brochures and information from the Internet (independent as well as issued from the
case companies). These sources were mainly used for data triangulation.
The case company selection was made from companies that were found in the study of the
remanufacturing industry in Sweden (Sundin et al., 2005). In this study, a multitude of potential
companies was found. The choice of case companies was made based on variables concerning their
annual remanufacturing volumes, as well as product complexity and remanufacturing process.
According to Eisenhardt (1989) there is no ideal number of cases, though a number between 6
and 10 is good for theory building. Empirical data was gathered primarily from different Swedish
remanufacturing companies. The companies selected for the case studies were:
Case Company Remanufactured Company Relation to OEM
Products Size
BT Industries Forklift trucks Large OEM
Scandi-Toner Toner cartridges Small Independent
Swepac International AB Soil compactors Medium OEM
Tetra Pak and Filling machines Large OEM
Wahlquists Verkstäder
Volvo Parts Engines Large OEM
UDB Production Automotive components Medium Contracted and
independent
To validate the findings of the case study, further (interview) studies where performed at the
following companies:
Company Remanufactured Company Relation to OEM
Products Size
Alfa Laval Heat exchangers Large OEM
Bättre Kontor Office furniture Small Independent
Greenman Toners Toner cartridges Small Independent
Inrego Computers Medium OEM
Scania Diesel Engines Large OEM
Turbo Tech Turbo chargers Small Independent
It was found that these case companies were sufficient for this study, since they provided good
in-depth knowledge to fulfil the purpose of the study. It was determined that additional cases would
take too much time to investigate; according to Voss et al., (2002) this is an important skill in theory
building for case studies - to know when to stop.

4 Lifecycle Implications for the Remanufacturing System

In the remanufacturing environment, the lifecycle of a product and the disposal rate for both
products and components has a great impact on the possibility to perform profitable remanufacturing.
Previous research has shown that that issues such as the age of the generation of the product, the
expected life (reliability), the rate of technological development and the willingness to return products
for remanufacturing will influence these distributions (Guide et al., 2000). This section will focus on
shedding light on these issues, as well proposing strategies that possibly can make the overall
remanufacturing system more efficient. In the following section, the stages of the lifecycle will be
addressed according to three different remanufacturing scenarios (adapted from Umeda et al. (2006)).
• Product remanufacturing – Used products are remanufactured to “as new” or upgraded
status; an example of this category is the remanufacturing and upgrading of Tetra Pak filling
machines.
• Component remanufacturing – Used components are remanufactured to “as new” or
upgraded status; an example of this category is the remanufacturing of automotive
components (UBD case) and toner cartridges (Scandi-Toner case).

5
 • Component cannibalisation – Used products are cannibalised for components, and the
components are then remanufactured “to new” or upgraded status. An example of this
category is the cannibalisation of components from heavy trucks (Scania) and forklift trucks
(BT Industries). In these cases, the component cannibalisation option is mainly a supporting
activity for the product and component remanufacturing scenarios.

4.1 Product Remanufacturing

4.1.1 Demand for Remanufacturing
The shape of the product distribution of newly produced products has a major impact on the
demand for remanufactured products. A theoretical illustration of the linkage between demand for new
and remanufactured products can be seen in Figure 3.
Number of Production distribution for new
products products (sales volume)
Demand for remanufactured products
Effects of the difference in the
remanufacturing offer (e.g. marketing and
price) on the demand for remanufactured
products
Time

Figure 3: Linkage between new product sales and demand for manufactured products.
Just as for new manufacturing, there is a possibility to affect the shape of the demand for
remanufactured products by different remanufacturing offers; this is illustrated by the dotted lines in
Figure 3. For example, if no marketing of the remanufacturing product is possible, then the demand of
remanufactured products often tends to be lower, due to customers’ poor knowledge of the availability
of remanufactured products. In addition, the pricing strategy of remanufactured products has a major
effect on the shape of the demand for remanufactured products. For example, in traditional
manufacturing a major reason for the drop in sales is that once new products with better performance
are introduced, and that the price for the older version of the products cannot compete with the price of
the newer product. In the case of remanufacturing, some products can still be attractive for a longer
period of time due to the traditionally lower price for remanufactured products. This is especially true
for products with low technological development, or within customer segments that are not sensitive
to new technology. One factor that limits the demand for remanufactured products is other types of
product recovery options; reuse is one example. In the secondary market, resale can be a more viable
solution in the eye of the customer if the product at hand is in working order and the expected lifetime
of the product is sufficient (the quality of the used product). In practice, this is largely a matter of the
cost of the reuse and the remanufacturing options, as illustrated in Figure 4. For example, when the
quality of a forklift truck is high, there is no motivation to remanufacture it because the value of the
forklift on a secondary market is sufficient, and the cost for remanufacturing of this high quality
product is greater than increase in the market price for the remanufactured product. Later, when the
product is worn and has been on the market for a longer time, the cost for remanufacturing is less than
the additional value of a product when it is remanufactured in respect to the resale price. For cores
with low quality, the cost for remanufacturing can become so great that it cannot match the possible
value on a secondary market; in this situation, it can be motivated to sell the used product to a segment
with lower quality demands. Examples of these customers are those having very limited needs of
“lifting capacity”, and who might want a forklift truck for use just for a couple times a week. For this
customer, a reusable forklift of lower quality is “good enough” because the usage is so low that the
remaining lifetime of the forklift will be sufficient. Hence, the competition from other recovery
options limits the demand for remanufacturing volumes over the lifecycle.

6
 Reuse Remanufacturing Reuse Recycle
Monetary
Units Market price for a
remanufactured product
Market price for a reused
product
Cost for remanufacturing

High Low Core quality (usage level and age)

Figure 4: Illustration of the economically preferred product recovery option as a function of core
quality (from the forklift truck case).
Another interesting factor in respect to the demand for remanufactured products over time is
that there is sometimes a local peak of remanufacturing sales after that the product is no longer
manufactured. This can be especially apparent for independent remanufacturers competing with OEMs
that do not perform remanufacturing. One practical example of this can be taken from the furniture
industry in Sweden, where Bättre Kontor (independent remanufacturer) remanufactures IKEA
(furniture retailer) furniture that is no longer in production. In this case, the customer is normally
interested in complementing a set of furniture with additional examples of the same furniture.

4.1.2 Supply for Remanufacturing

To match the demand for remanufactured products there is a need to forecast the future supply
of cores suitable for remanufacturing. The potential supply of cores from end-of-use and end-of-life
can be forecasted according to historical OEM production data as explained in the theoretical
framework (Umeda et al, 2007). One problem with this is that the forecast is made for the total
disposal distributions of all products, regardless of the quality level of the product. The disposed
products are also subject to reuse/repair (if the quality level is high enough) and recycling/waste
treatment (if the quality is too low), as illustrated in Figure 4. As a result and as seen in Figure 5, the
supply of cores suitable for remanufacturing will always be lower than the disposal distribution. In
addition, the supply of cores will fluctuate according to the quality level of the disposed products over
time, due to the logic of the economically preferred product recovery option as a function of core
quality as illustrated in Figure 4.
Demand for remanufactured
products
Number of Disposal distribution
products
Disposal distribution of products
suitable for remanufacturing
Effects of the competition from
other product recovery options

Time

Figure 5: Linkage between the disposal distribution and the distribution of products suitable for
remanufacturing.

7
4.1.3 Lifecycle Aspects for Balancing Supply and Demand
The possible remanufacturing volumes for a product are dependent on the relation between the
supply and demand curves. In the growth phase, the potential volumes are limited to the supply of
cores suitable for remanufacturing. After the growth phase comes a maturity phase, where underlying
supply and demand are more or less balanced. After a while, when supply increases and the demand
starts to decrease, more cores are available than needed. In this decline phase, the limiting factor for
remanufacturing volumes is the demand for remanufactured products. The case when remanufacturing
is generated from end-of-use returns is illustrated in Figure 6. The shape of the potential
remanufacturing volumes is dependent on the shape of supply and demand distributions. The exact
shape of the distributions differ between different types of products, for example, and the potential
remanufacturing volumes of single-use cameras are high due to the short average usage period that
“pushes” the supply distribution to the left in Figure 6. An opposite example is the remanufacturing of
filling machines to “as when produced status”; in this case, the machines are returned after a long
period of time and the supply distribution is pushed to the right.

Potential remanufacturing volumes

Number of
products
Supply/demand breakpoint

Time

Introduction Growth Maturity Decline Cancellation

Figure 6: Potential remanufacturing volumes.
In product remanufacturing, there is one special case were this reasoning does not apply: when
the supplier of the core is also the customer of the remanufactured product as in a direct-order
customer relationship, as for example in remanufacturing as a service. In this case, the customer
supplies the core directly according to a make-to-order principle, and there is potentially a perfect
match between supply and demand. A practical example of this is the remanufacturing service
provided for soil compactors (Swepac case), where the customer (often rental companies) supplies the
compactor and gets it back within two weeks. The logic regarding this case is very similar to the
make-to-order case of component remanufacturing; a discussion of this is referred to the forthcoming
section
In the case when remanufactured products are being upgraded to the latest specifications from
cores based on a previous version (illustrated as A+1 in Figure 7), the situation can become
advantageous from a potential remanufacturing volume perspective, as illustrated in Figure 7.
Examples of this include filling machines that are upgraded to the newest development steps (Tetra
Pak) or upgraded copying machines (Xerox). Upgrading products to the latest technical solution is a
viable option when expanding the lifetime of a product. The possibilities to do so are limited
according to the upgrading cost it generates, but also according to the level of technology of the core
to be upgraded. If the fundamental technology of a product is changed completely in the new product
(product class level), the possibilities to remanufacture are low. If instead the changes in technology
are minor and concentrated only to specific modules/components (product model level) in the product,
the potential for upgrading is greater. (For a detailed discussion about design solutions that can ease
upgrading in a remanufacturing case, see e.g. Zwolinski et al., 2006, Bras, 1998 and Ishii, 1995.) In
conclusion, upgrading products can be a very effective strategy for matching supply and demand and
increasing remanufacturing volumes.

8
 Potential remanufacturing volumes
Number of
products Demand for remanufactured
products (A)
Demand for remanufactured
and upgraded products (A+1)
Disposal distribution of products
(A), suitable for remanufacturing
Time

Introduction Growth Maturity Decline Cancellation

Figure 7: Potential remanufacturing volumes when upgrade to latest technology is a viable option.

4.1.4 The Introduction Phase

Before remanufacturing can be undertaken, there can be difficulty in identifying the potential
products for which remanufacturing is profitable and technically feasible (Zwolinski et al., 2006). One
important competitive mean for remanufacturing companies in this phase is to quickly develop and
present remanufactured products to the market once a new type of product has been introduced (i.e.
shorten the time-to-market for remanufactured products). To do this, it is important to quickly identify
and secure the access of used products suitable for remanufacturing. One of the independent
remanufacturers puts it like this “If we can work in different ways with the customer to identify
products earlier, we can stand prepared when the need for a remanufactured product arises.” Closer
cooperation between the remanufacturing stakeholders, new manufacturing and potential customers
can result in these advantages:
• Better identification of potential remanufactured products can stimulate increased
remanufacturing of products.
• A faster time-to-market for remanufactured products, gaining a first-movers’ advantage in
respect of competitors.
• An earlier start of remanufacturing has the potential to better match underlying demand for
remanufactured products, and hence increase remanufacturing volumes.
• Demands regarding quality and technical specifications of cores/components can be
distributed from the OEMs to the remanufacturing industry.
In this phase, the possibility to identify potential products and shorten the time-to-market is
largely dependent on the ability to act in a network of actors such as OEMs, component suppliers and
customers. Hence, relationships between partners become important. Previous research reports that
competition between OEM remanufacturers and independent remanufacturers can be a major
limitation for collaboration, although this is not always the case (Hammond et al., 1998). In this study,
there have been examples of fruitful collaboration between OEMs and independent/contracted
remanufacturers. In the UBD case, the remanufacturer is contracted by the OEM, but it also competes
with the OEMs as they also provide remanufactured products to the independent market. Additionally,
if the products have been designed for remanufacturing in the first place, the possibilities to identify
and motivate remanufacturing will be greater.

4.1.5 Growth phase

This is the phase when remanufacturing volumes emerge and increase over time. Here, the core
returns from end-of-use are limited, and the potential demand for products is high. In this phase, the
possibilities for generating good profit margins are high, mainly due to the high demand for
remanufactured products with respect to the lower supply of products suitable for remanufacturing.
The companies that have a better ability to acquire cores in this phase will have a major competitive
advantage. As the end-of-use and end-of-life disposal rates are limited to failure rates and average
usage periods, the possibility to manage the returns is low. In this phase, the greatest potential for
acquiring cores is from other sources such as seed stock, commercial returns and other Secondary
Channel Goods, as for example warranty claims and transportation damage. A practical example of

9
this is the remanufacturing of warranty claims and transport-damaged white goods at Electrolux.
These sources of cores are especially fruitful because they appear early in the lifecycle. A source for
competitive advantage is the ability to find new and creative ways to acquire cores needed for
remanufacturing. One example is automotive companies (e.g. Scania), which are beginning to work
closely with insurance companies, creating contracts for the supply of products being damaged linked
to insurance activities (e.g. traffic accidents).
The growth phase also has a great impact on the inventory control of remanufacturing
companies. The supply and demand situation makes it important to remanufacture the incoming cores
and prepare them for delivery as soon as possible (see more about the importance in lead-time
reduction in the component remanufacturing section). Hence, in order to decrease lead-times there is a
need to minimise the number of products listed as work-in-process in the supply chain. An example of
causes that can generate high work-in-process are infrequent transports between retailer and the
remanufacturing facility, the need to batch products together, and a lack of new replacement
components.
In this phase, there is a need to secure that the remanufacturing system is able to accept these
new products. To secure the acceptance of these products, a justified degree of flexibility is needed at
the same time as a stable process is being created. Flexibility in the remanufacturing process is an
important factor in its efficiency due to the complexity and uncertainties in the process. In some cases,
there is also a need for large investments in machining, test equipment and process equipment.

4.1.6 Maturity Phase

In this phase, the return rates from end-of-use increase more and more, to the extent that they
start to meet and extend the demand for remanufactured products. As volumes increase and a more
stable remanufacturing process is developed, efficiency and cost-consciousness become important
issues. Important in this phase is to manage the inventory levels of returned products in relation to the
demand for remanufactured products. Another important issue is how make the processes become
even more efficient, e.g. through lean production principles.
As illustrated in Figure 6, there is a breakpoint between supply and demand. This breakpoint
also has a significant impact on the competitive advantage for remanufacturing companies. Before the
breakpoint, competitive advantage is based on e.g. identifying potential products and the ability to
acquire cores. After the breakpoint, this becomes less important, while efficiency in the
remanufacturing process increases in importance. As the supply of end-of-use and end-of-life products
increases, an important issue is to limit and acquire only the cores that are most suitable for
remanufacturing. Another characteristic in the latter stages of this phase, as well as in the decline
phase, is that the quality of the cores can become lower; this in turn can cause a demand for new types
of reprocessing operations.

4.1.7 Decline Phase

In this phase, the need for remanufacturing decreases, and there is normally an abundance of
cores available on the market. The main danger in this phase is having excessively high inventory
levels of cores and remanufactured products when demand for remanufactured products decreases.
This can result in high obsolescence costs, both for end products as well as for components that are
kept in inventory as spare parts. This is especially important for complex, low-volume products with
many product-specific components, as for example diesel engines (as in the Volvo case). Knowing
when this drop is about to happen is critical in reducing the risk and cost of obsolescence.

4.2 Component remanufacturing

The cases of component remanufacturing and product remanufacturing are quite different. In the
case of component remanufacturing, the demand for remanufacturing activities is primarily linked to
the characteristics of the installed base and the failure rate of individual components. One example of
this is that the need for break callipers remanufacturing is dependent on the number of installed cars
(UBD case). Just as in the case of product remanufacturing, the component remanufacturing volumes
are not directly correlated to the disposal distribution of components from a product.

10
 Competition from other after-market options such as component replacement by new
components (spare parts) influence the remanufacturing volumes. One additional problem in assessing
the failure rate for components is that different components also have different characteristics, for
example, mechanical components tend to fail in respect to how the product has been used, whereas
electronic components display a more random failure pattern (Stinehilper, 1998).
Just as for product remanufacturing, component remanufacturing volumes are sensitive to new
component pricing (spare parts pricing). As a result, automotive companies (Volvo case) report that
when the end products still are in production, the prices for new replacement components generally
tend to be lower, and increase when the end product goes out of new production. This logic is derived
from that when end products stops being produced, the manufacturing volumes of components
becomes limited to spare parts production and the produced volumes of new components decreases.
As a result, the higher costs for new components (spare parts) can further stimulate remanufacturing
volumes later when demand already has started to decrease. A reported negative impact on the
remanufacturing companies is that some of the prices for replacement parts (sub-components) used in
the remanufacturing process also have a tendency to increase according to the same logic. This
increase in remanufacturing volumes late in the lifecycle is a result of component replacement options
being reduced to buying a remanufactured or a reused one, as shown in Figure 8.
As a general conclusion, the competition arising from replacement volumes by new components
is generally higher in the early lifecycle; vice versa, completion from component cannibalisation/reuse
occurs later in the lifecycle (see reasoning in the forthcoming component cannibalisation section).
Demand for remanufactured
Number of components
products Supply of used components
Additional supply of
components from e.g. product suitable for remanufacturing
cannibalization Product disposal distribution
Potential remanufacturing volumes
Increase in remanufacturing
volumes due to no available
spare parts

Time
Figure 8: Potential remanufacturing volumes for component remanufacturing.

4.2.1 Balancing Supply and Demand

In a perspective of matching supply and demand, component remanufacturing is a lot different
than product remanufacturing. In component remanufacturing, the supply of a core is linked to the
demand for remanufacturing. Simply put, when a customer needs a replacement component they
supply a component, and in return receive a remanufactured component. In this perspective, the need
to balance supply and demand is not as prevalent as in the product remanufacturing case. Still, in the
introduction phase there is a shortage of cores to be remanufactured as not every core is reusable.
Another issue to consider is that the number of available cores from remanufacturing can also be
decreased by losses of cores in the supply chain. One example of these losses can be the failure to
collect used cores when selling a remanufactured product to a customer. Later in the lifecycle, when
the rate of product disposal is increased, there is also an increase in available used components
through component cannibalisation of disposed products. This is illustrated in Figure 8, along with the
potential for remanufacturing volumes.
Figure 8 is typical for direct-order relationships (make-to-order). Here, the components are sent
to the remanufacturer, remanufactured and returned to the customer. In this situation, there is direct
link between supply of the core and demand for the remanufacturing service, just as in the case of
solid compactor remanufacturing as a service to rental companies (Swepak case). The situation with a

11
deposit or a credit-based relationship (make-to-stock) is different due to that; it is a previously
supplied (and remanufactured) component that is sold to the customer. In this situation, there is a lag
between the supply of a component and the delivery of a remanufactured product, as illustrated in
Figure 9. In this situation, the customer returns the used component and receives a different
remanufactured component immediately. This system is common in the automotive industry, where
the remanufacturer normally supplies a product to a sort of “middle man”; an automotive part retailer
(as in the UBD example) is one such intermediary. The retailer pays a price and a deposit for the
remanufactured product. When the retailers sell the product, they collect the used core from the
customers; later, they return the core to the remanufacturer and their deposit is refunded, resulting in
the one-for-one (1:1) take-back relationship shown in Figure 9.
Remanufactured Remanufactured products
products are supplied are supplied to customer

Customer
A deposit is given until Cores are supplied to
Cores and a core is supplied Cores and the retailer
remanufactured remanufactured
products at products at retailer
remanufacturer

Figure 9: Illustration of core/deposit flow in a deposit based relationship.

The problem with this system is the existence of a lead-time between the supplying of cores
until the product is remanufactured and put in inventory, ready for sale. As seen in Figure 10, this
lead-time will push the supply curve forward in time and reduce the possible remanufacturing
volumes. A detailed discussion of the effects of lead-time is given in the following discussion about
the lifecycle phases.
Number of Demand for remanufactured
products Difference between timing of the
components
supply curves with and without Supply of used components
additional lead time Supply of used components + lag
in lead-time
Potential remanufacturing volumes
with lag in lead time

Time

Figure 10: Potential remanufacturing volumes for component remanufacturing with additional lag in
lead-time for the supply of cores.

4.2.2 Introduction and Growth Phases

Just as for product remanufacturing, there is a need to find potential components for
remanufacturing; here, the same type of reasoning used for product remanufacturing is valid. Once
new products have been introduced into the market, there is a specific problem for companies using
deposit-based relationships (make-to-stock). Before being able to sell remanufactured products, there
is a need to acquire cores; with no sale of remanufactured products, however, there is no incoming
flow of used cores. In this phase, the producers will have to make an investment in cores before they
can begin to sell remanufactured products. This need for investment can be quite large if e.g. a
remanufacturer is to put an inventory of remanufactured products at each retailer (as for example in
the UBD case). One way of minimizing the number of components to be used as an investment is to
try to minimize the lead-times between when products are returned from the customer and when they
are available for sales.
The possibilities to acquire cores suitable for remanufacturing are limited in the growth phase.
Cannibalization of components from end-of-use and end-of-life is a potential source of cores, but it
appears much later in the lifecycle (see discussion about component cannibalization). Cores coming

12
from seed stock and commercial returns can be a much more fruitful option. just as in the case of
product remanufacturing. In the automotive industry, auto repair shops are a major source for cores
(UBD case). In the early lifecycle, the broken components are replaced with new components, while
the used cores are sold to core dealers or directly to remanufacturers. Another frequent solution used
in automotive practice is to supply new components instead of remanufactured products. Minimising
lead-times from the supply of cores to the delivery of remanufactured products in the earlier phases of
the lifecycle is an important issue, since the costs for acquiring cores are generally higher during the
later phases of the lifecycle, when cores are more abundant. In the case of toner cartridges, the use of
voluntary takeback is more widely used. This system is based on new components purchased early in
the lifecycle, and used cores given back voluntarily to the remanufacturer. The drawback with this
system is that there is no way of competing early in the lifecycle; it also entails the major risk that
competition will gain a first-mover advantage.

4.2.3 Maturity Phase

In this phase, the product returns from end-of-use and end-of-life life start to increase.
Acquiring component cores that have been cannibalised from end products begins to be a viable
source. In the automotive industry, scrap yards are a frequent source of component cores for
remanufacture.

4.2.4 Decline and cancellation

As previously discussed, in the case of component remanufacturing there can be a local peak of
remanufacturing volumes in the latter phases of the lifecycle. This is a result of OEMs stopping
manufacturing of new components (spare parts). Simply put, these components need to be replaced by
remanufactured, or possibly reused products. Just as with product remanufacturing, the risks of
obsolescence are great in this phase, especially for companies with make-to-stock polices. One
solution to become less sensitive towards obsolescence is to apply a make-to-order policy on some
parts of the offered products, thereby reducing the need to keep a finished product inventory. The
disadvantage with the make-to-order policy is that the customer has to wait while the product is being
remanufactured. As a result, this option is only viable when (1) the product can be sent off for a longer
period of time, (2) when no cores are available, and (3) when the customers want the same product
back as they sent in (e.g. customized products).

4.3 Component cannibalisation

This last category is based on the idea that products are cannibalised for components that are
later remanufactured. Cannibalisation of components for reuse, in e.g. scrap yards, is a frequent
activity in the automotive industry. Cannibalised components are also a source of components for both
component remanufacturing and for product remanufacturing.

4.3.1 Balancing Supply and Demand

The supply of used products suitable for component cannibalisation is dependent on what other
options are available. Figure 4 presented a framework regarding options about reuse and
remanufacturing; a similar approach can be taken for the case of component cannibalisation. For
cannibalisation to be economically motivated, the earnings must be higher than the earnings from
other product recovery options such as remanufacturing, recycling, and reuse. The earnings from
component cannibalisation can be calculated as Equation 4 (example taken from component
cannibalisation of forklift trucks).
x y x
Earnings = ∑ p ( x) + ∑ r ( y ) − ∑ ic ( x) − DC − MP (4)
0 0 0
x = number of components that can be reused
y = number of components that cannot be reused
p = market price of disassembled components
r = gain/cost for recycling/waste treatment of disassembled components

13
ic = inventory carrying cost for cannibalised components
DC = total disassembly cost
MP = market price or cost for lost sales for the core in an “as is” status
There are two main variables that change according to the quality of the core and which
determine the outcome of Equation 4: the number of reusable components and the cost for acquiring
the core or cost for the lost sales. For cannibalisation to be a viable option, the market price of the core
should not be too great, and secondly the number and value of the reusable components should be
sufficient. As a result, cannibalisation has the greatest potential late in the lifecycle, when the supply
of cores is higher then the demand for remanufacturing and reuse of the product, resulting in a
generally lower market price for used products. Figure 10 illustrates the potential area for product
cannibalisation in respect to the remanufacturing option. The timeframe in which the possibilities to
cannibalise components can be quite limited, something which increases the risks of obsolescence in
reused components. A technical hindrance linked to cannibalisation is that components that are usually
demanded for remanufacturing operations are also in such bad shape in the object for cannibalisation
that they cannot be reused in remanufactured products. As a result, there might be a need to dissemble
several cores to find one component that can be remanufactured or reused in a satisfying manner. The
possibility to reuse and remanufacture cannibalised components is also a question of compatibility
between different versions of a product. If the components can be reused between the different
versions, the window in which cannibalisation is possible is expanded, and the chance that the
components will be reused is greater.
Potential cannibalization volumes
Number of
products
Supply/demand breakpoint
Demand for remanufactured
products
Disposal distribution

Time

Figure 11: Potential component cannibalization volumes to be reused in product remanufacturing.

Component cannibalisation can also be motivated even though the potential earnings are low or
negative. For the OEMs, the option to recycle/cannibalise a product instead of selling the product to a
secondary market (e.g. an independent retailer) can be more advantageous. If the quality of the object
is too low, or if the product causes an accident, the product still carries the brand and can bring bad
will to the company. As far as brand image, there can be legitimate reasons for keeping the end-of-use
and end-of-life products off the market; in this case, cannibalisation can be a solution for restoring
some value. Other motivation factors for taking a product off the market are that the resale option is
competing with other, more profitable solutions, such as new sales and remanufacturing.

5 Discussion and Conclusions

This paper addresses the effects of balancing supply and demand in the remanufacturing
industry. This analysis is in its essence focused on how to provide remanufactured products in an
effective way during the product’s life cycle. The lifecycle theory can be effective when trying to
forecast the general trends of remanufacturing volumes. When going into further detail, the problem
becomes more difficult and addresses the problem of uncertainty in timing and quantity. The difficulty
in applying a lifecycle perspective in more detailed forecasting is that the variables used to calculate
future returns are insecure. The average use and life of a product/component can be forecasted in
beforehand, but this factor is also dependent on complex factors, for example, to what extent the
product has been used and in which environment (to mention some variables). Another factor is the
willingness to return old products for reuse. An example of this can be taken from the mobile phone
industry, where customers are reluctant to return their old mobile phones even after purchasing a new
one, rationalizing “my old phone can come in handy if my new one breaks”. In addition, the demand
for remanufactured products can be said to follow new production demands, but are also sensitive to

14
prices of substitute products as brand new products and reused second-hand products (if available).
The rate of technical development also has a major impact on the demand for remanufactured
products, in some cases resulting in a sudden drop of sales for remanufactured products. In all, these
insecurities make it difficult to accurately forecast the supply and demand for calculating exact return
quantities and timing.
The major advantage of using the lifecycle as a foundation for balancing supply and demand is
the insights it brings on a general/strategic level. In this paper, a number of insights have been
presented that can be used in the different phases of the lifecycle. At a general level, some additional
conclusions can also be made. The OEMs are generally in a more favourable position to perform
remanufacturing with respect to independent remanufacturers, especially in the earlier phases of the
lifecycle when access to commercial returns and seed stock are a competitive advantage.
In the remanufacturing product life cycle there is a breakpoint where the supply of cores
becomes greater than the demand for remanufactured products. This breakpoint has a significant
impact on the competitive advantage for remanufacturing companies. Before the breakpoint,
competitive advantage is based on e.g. identifying potential products and the ability to acquire cores.
After the breakpoint, this becomes less important while efficiency in the remanufacturing process
increases in importance. As the supply of end-of-use and end-of-life products increases, an important
issue is to limit and acquire only the cores that are most suitable for remanufacturing. These
conflicting ways of looking at cores may introduce difficulties for companies. Normally
remanufacturers handle a vast amount of products that are in different life cycle phases, but they have
to be coordinated in the same supply chain; the coordination and administration of different take-back
systems is an important aspect in managing this. The mix of different marketing channels for product
returns is also an important aspect for matching the different needs over the life cycle.
Upgrading products to the latest standard is one possible solution for increasing the potential
remanufacturing volumes for the product remanufacturing case, using for example modular design
strategies. For component cannibalization, this is not an as important issue; for this category to expand
further, component remanufacturing has to become a more attractive option with respect to the new
component alternative. Also, a more standardized and modularized use of components could increase
the possibilities to cannibalize components for remanufacturing and reuse.
Furthermore, remanufacturers should focus on the development of methods that can make
returns predictable. In remanufacturing, the source of cores is the current users of the desired cores.
Each of these users is a potential supplier, but with a limited supply capacity and usually very long
lead-times for core production. To identify and communicate continuously with all of these potential
suppliers is simply perceived as impossible. The result of this lack of communication is that the user
comes to the remanufacturer with the core only “when they think if it” (if they come back at all), thus
displaying a stochastic return rate. The problem of sourcing cores becomes a question of which of
these potential suppliers can supply a core at the right time, at the right quality and at the right price.
To be able to find the right cores, different marketing channels and business concepts provide
communication solutions with potential suppliers. For example, off-lease products have been rated
more predictable than other types of returns due to the additional information that is available to the
remanufacturing company (Thierry et al., 1995; Sundin et al., 2005). The off-lease product provides
some degree of security that the product be returned at the right time and at a known price (and
hopefully the right price). Using different contracts that result in the take-back of cores can be one
solution for securing that products are returned at the right time and for the right price, although the
quality of the returned product cannot be contracted that easily.
The problem of balancing supply and demand can also be limited or aided depending on the
business solution. Remanufacturing of single-use cameras with fast exchange cycles are, for example,
aided by the policy of returning the entire camera for development, resulting in faster returns.
Coordination of leasing and rental contracts according to average usage age, as in the Xerox and Tetra
Pak cases, can also aid a balance between supply and demand. As a result, the more thought about the
business solution and how it can aid in balancing returns with demand, the greater the possibilities for
successful remanufacturing.

15
6 References
Bras B. McIntosh, M. W. (1999) “Product, processes and organizational design for remanufacture – an
overview of research” in Robotics and Computer Integrated Manufacturing, Vol. 15
Bras, B. and R. Hammond. (1996) “Design for Remanufacturing metrics.” in Proceedings of First
International Seminar on Reuse. 1996. Eindhoven, The Netherlands.
Cox Jr., W. E. (1967) “Product life cycles as marketing models” in Journal of Business 40:4
De Brito, M. P., and Dekker, R., (2002) “Reverse Logistics – a framework” in Econometric Institute
Report EI 2002-38, Erasmus University, Rotterdam.
Eisenhardt K.M. (1989) “Building Theories from Case Study Research” The Academy of Management
Review, Vol. 14(4)
Guide Jr., V.D.R and Jayaraman V. (2000) “Product acquisition management: current industry
practice and a proposed framework” International Journal of Production Research 38/16: 3779-3800.
Guide Jr., V.D.R. (2000) “Production planning and control for remanufacturing: industry practice and
research needs” in Journal of Operations Management 18
Hammond, R., Amezquita, T., and Bras, B.A., (1998) “Issues in the Automotive Parts
Remanufacturing Industry: Discussion of Results from Surveys Performed among Remanufacturers.”
International Journal of Engineering Design and Automation – Special Issue on Environmentally
Conscious Design and Manufacturing, Vol. 4(1).
Jacobsen J.K. (1993) “Intervju - Konsten att lyssna och fråga” Studentlitteratur, Lund, (in Swedish).
Kotler, P. (2003) “Marketing Management” Eleventh edition, Prentice Hall, USA.
Krikke H., le Blanc, I, and van de Velde, S., (2004) ”Product modularity and the Design of Closed-
Loop Supply Chain”, Californian Management Review, 46/2
Merriam, SB (1994). “Fallstudien som forskningsmetod”. Lund Studentlitteratur. (in Swedish).
Seitz M. (2007) “A critical assessment of motives for product recovery: the case of engine
remanufacturing” in Journal of Cleaner Production, Vol. 15(11)
Smith, V.M. and Keoleian, G.A., (2004) “The Value of Remanufactured Engines: Life-Cycle
Environmental and Economic Perspectives” in Journal of Industrial Ecology, Vol. 8
Steinhilper, Rolf, (1998) “Remanufacturing: The Ultimate Form of Recycling” Stuttgart: Frauenhofer
IRB Verlag.
Sundin E. and Bras B. (2005) “Making Functional Sales Environmentally and Economically
Beneficial through Product Remanufacturing” in Journal of Cleaner Production, Vol. 13(9),
Sundin E., Tang O. and Mårtén E. (2005) “The Swedish Remanufacturing Industry - An Overview of
Present Status and Future Potential,” Proceedings of CIRP Life Cycle Engineering Seminar -12th
edition- 2005, Paper BM4 on the LCE-05 CD, Laboratoire 3S, Grenoble, France, April 3-5.
Thierry, M., Salomon, M., van Nunen, J. and van Wassenhove, L., (1995) “Strategic issues in product
recovery management” Californian Management Review, 37(2):
Tibben-Lembke R. S. (2002) “Life after death: reverse logistics and the product life cycle”
International Journal of Physical Distribution & Logistics Management, Vol 32(3)
Toffel, M. W., (2004) ”Strategic Management of Product Recovery”, in Californian Management
Review, 46(2)
Umeda Y., Kondoh S. and Takashi S. (2005) “Proposal of “Marginal Reuse Rate” for Evaluating
Reusability of Products” in International Conference on Engineering Design, Melbourne, August 15-
18, 2005.

16
Voss C., Tsikriktsis N. and Frohlich M. (2002) “Case research in operations management”
International Journal of Operations & Production Management, Vol. 22(2)
Yin, R. (1994). “Case study research: Design and methods” (2nd ed.). Beverly Hills, CA: Sage
Publishing.
Zwolinski, P., Lopez-Ontiveros, M-A., and Brissaud D. (2006) “Integrated design of remanufacturable
products based on product profiles” in Journal of Cleaner Production, Vol. 14
Östlin J. (2006) “On Remanufacturing Systems – Management of Material Flows and Process
Organisation”, Linköping Studies in Science and Technology, Thesis No. 1242, Department of
Mechanical Engineering, Linköping University.

17
 PAPER III

Östlin, J Sundin, E and Björkman, M. (2007) “Importance of Closed-Loop

Supply Chain Relationships for Product Remanufacturing” accepted for
International Journal of Production Economics
 Importance of Closed-Loop Supply Chain Relationships
for Product Remanufacturing

Johan Östlin*, Erik Sundin and Mats Björkman

Division of Production Systems, Department of Management and Engineering,
Linköping University, Sweden.

Abstract
Remanufacturing is an industrial process where used products are restored (remanufactured) to useful
life. In comparison to manufacturing, remanufacturing has some general characteristics that
complicate the supply chain and production system. For example, a company must collect the used
products from the customers, and thus the timing and quality of the used products is usually unknown.
Remanufacturing companies are dependent on customers to return used products (cores). In this paper,
seven different types of closed-loop relationships for gathering cores for remanufacturing have been
identified. The relationships identified are: ownership-based, service-contract, direct-order, deposit-
based, credit-based, buy-back and voluntary-based relationships. Building theory around these
different types of relationships, several disadvantages and advantages are described in the paper. By
exploring these relationships, a better understanding can be gained about the management of the
closed-loop supply chain and remanufacturing.

Keywords: Product Recovery, Reverse Logistics, Relationship Marketing

*Corresponding author: Johan Östlin, email: [email protected], Address: Linköping University, 581
83 Linköping, Telephone: + 46-13-281164,

1 Introduction
Remanufacturing is an industrial process where worn-out/broken/used products referred to as cores are
restored to useful life. During this process, the core passes through a number of remanufacturing
operations, e.g. inspection, disassembly, component reprocessing, reassembly, and testing to ensure it
meets the desired product standards. This could sometimes mean that the cores need to be upgraded
and modernized according to the customer requirements [1], [2], [3].

During the Second World War the remanufacturing industry spawned, especially in the United States
since many manufacturers were focusing on military production. Remanufacturing is still a rather
large business in the United States [2], but also in Europe, where the industry has been growing lately
due to its profitable business and environmental legislative pressure from the European Union (EU),
such as the launching of the WEEE (Waste of Electric and Electronic Equipment) and ELV (End of
Life Vehicle) directives. These directives are currently being implemented in the EU member
countries in either an “industry collective” or “company individual” manner. From an institutional
viewpoint, the effects of theses directives can become a significant driver for the remanufacturing
industry. How these directives are implemented will have a significant effect on the remanufacturing
industry. According to Webster and Mitra [4] a collective implementation, the specific industry branch
are collectively responsible, would make a structural change to the industry – creating an environment
where remanufacturing becomes profitable if not already profitable without a take-back law. On the
other hand if these directives are implemented company individually, i.e. each company will be
responsible for their own products, the companies will get better control of their own remanufacturing
business.

1
There are various motives for product remanufacturing e.g. increased profitability, ethical
responsibility, legislation, secured spare part supply, increased market share and brand protection [5].
Furthermore, remanufacturing has also been shown to be environmentally preferable in comparison
with other end-of-life treatments, since the geometrical form of the product is retained and its
associated economic and environmental values preserved [3],[6],[7].

Material flows are an important factor for the overall remanufacturing system [8]. A traditional view
on these closed-loop supply chains is that they encompass two distinct material supply chains: the
forward and the reverse. Generally, the forward chain concerns the flow of physical products from
manufacturer to customer, while the reverse chain describes the flow of used physical products from
customer, then acting as supplier, to the remanufacturer. These flows are then “closed” by, for
example, the remanufacturing operation. One of the major differences between the “forward” and the
“closed” supply chain is that the customer frequently acts both as a customer for remanufactured
products and as a supplier of cores to the remanufacturing company [9].

Compared to manufacturing, remanufacturing has some general characteristics that complicate the
supply chain. For example, a company retrieves used products (a.k.a. cores) from the suppliers of
cores, these suppliers are normally the end customers but it can also be scrap yards, core brokers or
incurrence companies. As for end customers there is a major difficulty to assess the number and the
timing of the returns. Another complicating issue is that the quality of the used products is usually not
known. [8],[10],[11],[12].

For the performance of the remanufacturing system, the question of acquiring cores is an important
issue for the remanufacturer in order to be able to satisfy the demand for remanufactured products.
“The challenge within the industry is not just how to manage irregular reverse flows, but how to
obtain them in the first place” [5]. To illustrate the importance of a close relationship, Seitz et al gives
an insight from a vehicle manufacturer:

For vehicle manufacturers, a crucial issue is to maintain a relationship with customers so

that when an engine fails, the customer returns to the retail network for a replacement. If
the customer goes elsewhere, then the loop will not be closed and the manufacturer will
not get access to the cores they need. Unfortunately, loyalty to OEM service schemes
decreases noticeably over time.

Here, the management of different types of relationships with the customer and suppliers is an
important factor for the performance of the remanufacturing system. As Seitz and Peattie put it,
“reverse logistics and remanufacturing are a customer relationship management challenge” [5]. A
main conclusion form their study is that remanufacturing is typically discussed as a production and
logistical challenge added on to a conventional system of consumption. To develop further,
remanufacturing also needs to be considered in a customer perspective. For example, customers who
demand remanufactured engines are typically car users who generate high mileage during short
periods, such as those who drive taxis or vehicles for mail-order firms. These are customers who
depend on their vehicles and are unlikely to accept delays in obtaining a replacement engine. These
may also be longstanding and loyal customers.

1.1 Aim
The aim of this research is to identify what kind of relationships exist between remanufacturers and
their customers/suppliers of cores, and how these relationships can be managed. Furthermore, in this
paper we will explore how customer/supplier relationships perspective can support product take-back
for remanufacturing with focus on the supply of cores. When considering the supply of cores to the
remanufacturing process, the focus is on the relationships with the customers/suppliers of cores and
how the supply of cores to the remanufacturer can be managed in the remanufacturers’ perspective.

2
This research also aims at contribute to previous research by theory building. This aim is pursued
through case study research at remanufacturing companies; this is further elaborated on in the next
paragraphs called “previous research” and “research methodology”.

2 Previous Research
Previous research has reported different systems and techniques for gathering cores for
remanufacturing. A common observation is that off-lease and off-rent products are an important
source of used products for remanufacturing. Thierry et al. have come to the conclusion that this type
of return is more predictable than other types of returns due to the additional information that is
available to the remanufacturing company [13]. In the automotive industry, there is widespread use of
“exchange cycles” where products are only sold if a core is given back [5]. In this scenario you first
have to act as a supplier of a core in order to become a customer of a remanufactured product. Other
reported systems are voluntary systems where the supplier freely returns the used products/cores to a
remanufacturer, or where the cores are bought from core brokers or end customers. The company
Lexmark uses a “prebate” program giving a discount on a product if the customer agrees to the return
the product after use; this program prohibits the customers from returning or selling their used
products to other companies. Guide et al. present a number of management propositions on what to
focus on when trying to balance the supply and demand for remanufacturing. Regarding core
acquisition, one of the most important issues is to focus on identifying different sources of cores and
rating them according to their characteristics. Forecasting core availability is critical in order to
balance supply and demand. This reduces the need to purge the system of excess cores and reduces
stock-outs of unavailable units. Managers should also try to synchronise return rates with demand
rates, since doing so will lower the overall uncertainties in the system and lead to lower overall
operating costs [11].

According to Geyer and Jackson, there are three crucial limitations that a remanufacturing firm needs
to overcome: limited access of cores leaving the use phase, limited feasibility of product
remanufacturing, and limited market demand for the secondary output from remanufacturing [12].
Furthermore, a challenge that remanufacturers need to tackle is the fact that market demands for
remanufactured products and the disposal of used products does not always overlap. This is often
referred to as, the problem of balancing supply of cores suitable for remanufacturing and the demand
for remanufactured products. These issues have been further studied by Umeda et al. [14] (see Figure
1).
Number of Potential remanufacturing volumes
products
Production distribution (Sales over time)

Disposal distribution (Disposal rate over time)

Time

Figure 1: An example of production and disposal distribution for same type of product [14]

The reasons for returning used products are many. In theory, there are four basic types of returns: (1)
End-of-Life Returns. These are returns that are taken back from the market to avoid environmental or
commercial damage. These used products are often returned as a result of take-back laws. (2) End-of-
Use Returns. These are used products or components that have been returned after customer use.
These used products are normally traded on an aftermarket or being remanufactured. (3) Commercial
Returns. These returns are linked to the sales process. Other reasons for the returns include problems
with products under warranty, damage during transport or product recalls. (4) Re-Usable Components.

3
These returns are related to consumption, use, or distribution of the main product. The common
characteristic is that they are not part of the product itself, but contain and/or carry the actual product;
an example for this kind of return is remanufactured toner cartridges. [9]

The issue of forecasting for used product returns has proven to be a difficult challenge for the
remanufacturing industry. The return of mainly mechanical products is dependent on factors such as
age and use of the product, whereas electrical products tend to have a more random pattern of failure.
van Nunen and Zuidwijk report that different IT-based systems are used for keeping control over the
products during use; two examples of these technologies are remote monitoring devices that
communicate usage data and RFID (Radio Frequency Identification) tracking systems used for
keeping track of the installed base [10]. Rogers and Tibben-Lembke characterise good gate-keeping as
“the first critical factor in making the entire reverse flow manageable and profitable” [15].

Another important characteristic in the closed-loop supply chain is the need for a well functioning
reversed logistic network [8]. For example, reversed logistic networks for product recovery have been
modelled by Kara [16], with the aim to calculate the total collecting costs in a predictable manner.
Kim et al. also presents a closed-loop supply chain model for remanufacturing to minimize the total
cost of remanufacturing [17]. To estimate the effects of return complexity for capacity in the
remanufacturing operations, Vlachos et al. presents a dynamic model for capacity planning [18].

Furthermore, the reverse supply chain and remanufacturing processes are dependant on what type of
relationship the remanufacturer has with the original equipment manufacturer (OEM) [19].
Remanufacturers are often categorized into three categories; original equipment remanufacturers
(OER), contracted remanufacturers (CR) and independent remanufacturers (IR) [19],[20]. OEMs are
in fact manufacturers that perform their own remanufacturing as a part of their company group,
whereas CRs have a contract with OEMs to perform remanufacturing for them. In the last category,
remanufacturers work independently from the manufacturers, and often as competitors in the same
market. The type of remanufacturing category has a major impact on the supply of spare parts and
cores [19].

The relationship perspective has the starting point that the important issue is the mutual exchange of
value that occurs during an existing relationship between different parties. In a relationship perspective
it is not the individual transactions that are considered the most important. Instead the important thing
is the relations that are considered to aid and support the transactions [21]. These relationship and
transactional perspectives are not mutually exclusive and there is no need for a conflict between them.
However, one approach may be more suitable in some situations than in others. Transactional
marketing can be considered most appropriate when marketing relatively low value consumer
products, when switching costs are low, when the product is a commodity, when customer
involvement in production is low and when the customer prefer single transactions to relationships.
When the reverse of all the above is true, as in typical industrial and service markets, then relationship
marketing can be more appropriate. [22]

In a relationship, many different characteristics or dimensions influence how successful a relationship

can be. Studies have shown that there are up to as many as 45 characteristics that influences the
overall relationship. Some of the most important characteristics for a successful relationship are:
cooperation, commitment, trust, power, consistency, adoption and attraction. [23]

3 Methodology
The purpose of the design of a research methodology is to support the purpose and the research
questions of a study [24]. The research made for this study is based on empirical data gathered linked
to several case studies of different remanufacturing companies as well as previously documented
research in the area of remanufacturing. The research has its foundation in empirical data and links are

4
made to the existing theoretical base. Hence, it follows an inductive reasoning. Inductive reasoning is
based on a transition from specific observations to broader generalizations and ultimately theories.
This is also called a bottom-up approach. In inductive reasoning, one begins with specific observations
and measures, begin to detect patterns and regularities, formulate some tentative hypotheses that one
can explore, and finally end up developing some general conclusions or theories. [25]

3.1 Case Study Methodology

Case studies are particularly feasible in situations where the issues that are under investigation cannot
be easily separated from their context or environment [24]. By using case studies, one can gain a
complex and holistic view of a specific issue or problem. A case study can be described as “problem-
focused, small scale and entrepreneurial” [26]. Some specific abilities can be linked to case studies.
According to Merriam, case studies can; give guidance to the reader in to what can be done, and what
that should not be done, in a similar situation; regard specific situations and still conclude to a general
problem; illustrate the complexity of a situation, e.g. the fact that not a single but a multiple of
variables affects a given situation. [26]

As this research aims at building theory from case studies, some previous methodology research has
been studied. Eisenhardt provide a suitable process of building theory from case studies according to
Figure 2. The research for this paper has followed the process shown in Figure 2 in general [27]. No
hypotheses have been stated for this study since this was not suitable for the task.

Getting
Started & Crafting Entering Analyzing Shaping Enfolding Reaching
Selecting Instrum’s the Field Data Hypothe’s Literature Closure
Cases

Figure 2. The process of building theory from case study research [27].

According to Eisenhardt theory building from case study research is particularly appropriate when
little is known about a phenomenon because theory building from case studies does not rely on
previous literature or prior empirical evidence. In the remanufacturing literate not much research about
the importance of customer/supplier relationships has been found. Also, according to Voss et al. the
theory building purposes with its unspoken research questions is facilitated by multi-site case studies
[28]. Hence, case study methodology was chosen since it is suitable for qualitative research and theory
building.

3.2 Empirical Investigations

The empirical data for this study are linked to an research project “REKO” [29] employing an
explanatory multiple-case study concerning multiple types of products. The main source of data
collection was semi-structured interviews with remanufacturing companies. The questions formulated
for this type of study are normally open and give the respondents a chance to go in to detail regarding
the answers, i.e. the questions were prepared without specific sequence or answering options [30].
Prior to the interviews, a theoretical literature review was performed; this review was the basis for the
formulation of the interview questions [31]. The formulation of the interview questions were reviewed
and given feedback on by the research group linked to the REKO-project. After the formulation of the
questions a pilot study was made to verify the validity of the questions. The main source of data for
the case studies where interviews, these interviews were recording and the length of the interviews
varied from 1 to 4 hours depending on how much information that the interviewees had to contribute
with. Typically, the interviewees were facility managers, production managers, controllers and
technicians. Other sources of data were direct observations made under the study visits to the
companies, as well as documentation in the form of photographs, brochures and information from the

5
Internet (independent as well as issued from the case companies). These sources were mainly used for
data triangulation.

The case company selection was made from companies that were found in the study of the
remanufacturing industry in Sweden [32]. In this study, a multitude of potential companies was found.
The choice of case companies was made based on variables concerning their annual remanufacturing
volumes, as well as product complexity and remanufacturing process.

According to Eisenhardt there is no ideal number of cases, though a number between 6 and 10 is good
for theory building [27]. Empirical data was gathered primarily from different Swedish
remanufacturing companies. The companies selected for the case studies were:

Case Company Remanufactured Company Relation to OEM

Products Size
BT Industries Forklift trucks Large OEM
Scandi-Toner Toner cartridges Small Independent
Swepac International AB Soil compactors Medium OEM
Tetra Pak Filling machines Large OEM
Volvo Parts Engines Large OEM
UDB Production Automotive components Medium Contracted and
independent

Other companies that can provide examples of the proposed relationships, on which no in-depth case
studies were carried out.

Company Remanufactured Company Relation to OEM

Products Size
Greenman Toners Toner cartridges Small Independent
Scania Engines Large OEM
Turbo Tech Turbo chargers Smal Indipendent

It was found that these case companies were enough for this study since it provided us with good in-
depth knowledge to fulfil the purpose of the study. Further cases would take to much time to
investigate and this is according to Voss et al. an important skill in theory building from case studies
to know when to stop [28].

4 Closed-loop Supply Chain Relationships for

Remanufacturing
In the remanufacturing industry there are many different types of relationships with customers and
core suppliers. Some relationships are very close, such as where the amount of trust, commitment and
collaboration is high; in other relationships, the linkage is rather weak. Even in the latter case, the
relationship still exists and constitutes an important issue for the remanufactures as well as the
customers. In this study, seven different types of structural relationships have been identified. These
relationships are:

• Ownership-based. This type of relationship is common when the product is owned by the
manufacturer and operated by the customer, as for example in a rental, lease or product-
service offer. Here, the control of the installed base is high and often regulated by contracts.
• Service-contract. This type of relationship is based on a service contract between a
manufacturer and a customer that includes remanufacturing.

6
 • Direct-order. The customer returns the used product to the remanufacturer, the product is
remanufactured and the customer gets the same product back (if it is possible to perform a
remanufacturing operation)
• Deposit-based. This type of relationship is common in the automotive industry. When the
customers buy a remanufactured product, they are obligated to return a similar used product,
thus also acting as a supplier to the remanufacturer.
• Credit-based. When the customers return a used product they receive a specific number of
credits for the returned product. These credits are then used as a discount when buying a
remanufactured product.
• Buy-back. The remanufacturer simply buys the wanted used products from a supplier that can
be the end user, a scrap yard or similar, or a core dealer.
• Voluntary-based. The supplier gives the used products to the remanufacturer. The supplier
can also be a customer but do not have to be.

Concerning these different types of relationships, some disadvantages and advantages can be
identified. As will be shown, these relationship structures are not used individually but are rather
integrated (Table 1). For example, the deposit-based relationship will have to be complemented with
another alternative, due to the inevitable fact that not all cores can be remanufactured.

Table 1: The use of supply chain relationships in relation to the companies studied for this research.
BT Tetra UBD Volvo Scandi-
Swepac
Industries Pak Production Parts Toner
Ownership-based X
Service contract X X
Direct-order X
Deposit-based X
Credit-based X
Buy-back X X X X X X
Voluntary-based X

The following paragraphs describe the seven identified customer take-back relationships for
remanufacturing companies.

4.1 Ownership-Based Relationships

An ownership-based relationship is often related to a leasing, rental or a product-service offering as in
the forklift truck (BT-industries) case. The basis for the ownership-based relationship is that some sort
of ownership is still present for the seller, and that the product is given back to the seller after the end
of use; it is also in this point that the remanufacturing operation is undertaken. Frequently, the seller is
also responsible for maintaining the operation of the product. The seller can also be the manufacturer
of the product as in the BT case. BT is also a remanufacturer of the used products. Because the offer is
based on a contract, different levels of control and involvement can be used. In this type of
relationship, the linkage between the customer and seller is strong. The time range of this type of
relationship makes commitment an important factor. A respondent puts it like this: “for a successful
relationship the customer has to feel that our products and services are reliable”.

In a product-service offering, the seller is directly responsible for the product in use by the customer.
Naturally, the management of the relationship becomes increasingly important. Issues like
cooperation, trust, power and long-term commitment comes in to play. When a customer decides to
enter in a relationship by signing the product-service offering contract, he becomes “locked in” by the
seller and thus dependent on the same [33]. “Customer lock” is when a customer becomes dependent
on a seller for after-sales support. A practical example of this comes from TetraPak, which used to
give away its filling machines and profit from the packaging material. In an ownership-based
relationship, there is normally a high level of interaction between the customer and the seller, due to a

7
high amount of after-sales service. For the relationship to be successful over a longer timeframe, the
seller has to consider these issues.

The intensity can also vary dependent on the situation of the customer. In some cases, the product is
rented to a customer for many years providing with regular servicing; other times, the products are
rented for shorter periods, following for example seasonal demands. BT Industries, which provides
many of its forklift trucks through rental programs, explains it to its customers as follows [34]:

“Think of the advantages. You avoid all the risks of ownership. You don’t consume
capital – not even a deposit is required. We take care of the equipment and make sure it’s
always reliable, and we work with you to manage your fluctuating need – we call it
capacity management. Rental from BT means flexibility for the future and all of your
costs are predictable.”
(BT Industries, 2004)

During the use phase, the seller is responsible for maintenance and repairs of the product; the
maintenance technicians handle this commitment. By providing regular service and maintenance
operations at the customer’s location, a relationship is established through the service/maintenance
personnel. Maintaining the relationship is an important factor of the BT policy of basing its service
technicians at its major customers.

Another effect of a close relationship such as found in the BT case is that the service/maintenance
personnel gain detailed information as to whether or not there is a need for a future remanufacturing
operation. This information can make the return flow of products easier to control and provide
information on the forklift truck status to the remanufacturing process. A high degree of control can
for example be gained by high control of the products that are in operation at the customer, also called
the installed base. By using information gathered from the installed base, the supply chain can be
effectively coordinated. This information can be gathered by, for example, service/maintenance
personnel as in the BT case or by software solutions integrated in the product (used by for example
Xerox in photocopiers).

The installed base of a rental/lease or functional provider is often called the “fleet”, and this term is
also used at BT. The products in this fleet are either in operation at the customer (in use fleet) or
waiting for a customer (buffer fleet) as shown in Figure 3. High use of the installed base leads to a low
size of the buffer fleet; vice versa, a low degree of use will indicate a larger buffer fleet. If the use of
the installed base is too high (i.e. a small-sized buffer fleet), the company tends to have problems in
supplying the demanded products and only the unneeded products are available. If the use of the
installed base is too low, there are too many products in the buffer fleet. This leads to inventory
holding costs such as value loss over time, obsolescence, cost of tied-up assets, etc. It is, therefore,
important to have an optimal size for the buffer fleet, making correct sizing of the buffer fleet a crucial
issue for management. From a remanufacturing point of view the size of the buffer fleet also has a
major impact on remanufacturing capacity. In some situations the buffer fleet can work as an
inventory providing a hedge against sudden demand peaks.

Products needed by
New products customers

Products returning
Buffer fleet from use In use fleet
Products final sold (cores and (products located at
or recycled/scrapped remanufactured customer sites)
products)
Figure 3: The product flows between customer and remanufacturer in an ownership-based
relationship.

8
As illustrated in Figure 3, the size of the buffer fleet is dependent on the inputs (the return of used
products (cores) and new products) and the output (the need for products and the number of products
that are sold or recycled/scrapped). Information about incoming products can enable more accurate
fleet management. To balance the size of the buffer, has proven to be a difficult task due to the high
number of variables that influence the need for the buffer. Some important variables are:

Uncertainty in returns – A close relationship between the customer and the seller can reduce this
insecurity. Still, there are situations where the customer wants to prolong the contract; this, however,
will delay the return of the products. Furthermore, sometimes the used products are not returned
immediately after the contract has ended. This also increases the delay of returning cores (product
take-back).

Uncertain demand for products – Accurately forecasting the needs for products is always a difficult
task. This uncertainty can be reduced if the buffer fleets are coordinated in a wider perspective – for
example on an international or national level as opposed to a regional level. By distributing products
between regions and countries according to demand, the total buffer size required can be reduced. This
is especially true for seasonal demands where a large number of specific products are needed for a
limited period.

A high number of customized products that target a specific segment of customers – When dealing
with leasing or product-service offerings, the physical product tend to remain at the customer for a
long period. This first customer carries the major part of the finance for the product. For this reason,
the sales department tends to be willing to customize the product, the result being that the product can
become ill-suited for other applications. For example, a customer might want a specific reach height
for their forklift truck. This makes the mast of the forklift truck taller than normal and unusable for
other customers because it will not fit into their environment, limiting the forklift to a narrower range
of customer. Here remanufacturing can provide a solution by changing the specifications of the forklift
truck in the remanufacturing process, either to a standard or according to another customer’s
specification. Having this in mind, a standardization and/or modularization of product types would
facilitate the downstream remanufacturing processes. Remanufacturing provides an opportunity to
modify the specifications according to the customer’s needs, given that the design of the product
allows for modification.

Gaining control of the installed base provides more than just support for fleet management issues. By
the information gathered from the customer provides detailed information about the life cycle of the
products in use by the customer. In this way the company can plan its sales activities according to the
needs of the customer.

To operate product-service offers, the product needs to be combined with services. The development
of a service system, as in the BT case, demands a high investment. Many of these investments are
needed because a producing company must transition from traditional manufacturing to also becoming
a service provider, something which affects the entire structure of a company and increases
requirements for administration. The transition from making products to services has been
documented by e.g. Olivia and Kallenberg [35]. Also, when offering integrated, total or bundled
solutions, the risk for maintaining the operations of the product is transferred from the customer to the
seller. In this case, it is very important for the manufacturer to have a positive cost structure for the
complete lifecycle of the product.

Furthermore, there are some challenges in product development that need to be tackled in a rigorous
manner in order to achieve products that are adapted for integrated product and service offerings (see
e.g. Sundin and Bras [36]). If this is conducted successfully, the risks for product obsolesce will be
reduced and the potential for a successful product service operation will increase.

9
According to BT, remanufacturing volumes have been doubled during the last few years and they
currently exceed the number of forklift trucks being newly produced in the ordinary manufacturing
facility. This means that for companies like BT, the remanufacturing business has recently become a
very important part of their overall business.

4.2 Service Contract Relationships

This type of relationship has a high degree of similarity with the ownership-based relationship. The
main difference is that the ownership goes over to the customer, thereby reducing the level of control
over the products. This type of relationship is based on the formulation of a contract for aftermarket
service. In the Swepac case, this contract contained clauses for repairs and maintenance as well as
remanufacturing after a set period of time. The main difference between a service contract relationship
and an ownership-based relationship is the ownership of the product; a major similarity between the
cases is that the offers are still regulated by a contract that has the major influence on the relationship.
Given these similarities, the characteristics of the ownership-based relationships is still valid, although
the lack of ownership and the characteristics of a service contract add some difficulties for the
producers.

For Swepac, coordinating returns for remanufacturing has proven to be a difficult task, mainly because
of the unwillingness to return products at a specified date. This problem is rooted in the reduction in
the customer’s capacity when a product is being remanufactured. When a product is sent for
remanufacturing, it is unusable by the customer; consequentially, this leads to unwillingness to return
the product for remanufacturing at a specific time. As a result, the timing of the returns becomes
unpredictable.

In this type of relationship, it is important to manage the remanufacturing activity. If the

remanufacturer pushes the remanufacturing operation according to a contract, this can result in a
negative response from the customer, dependent on if the customer needs the product at that time. This
can result in a negative perception of the relationship in a customer perspective. One way to reduce
this risk is to plan remanufacturing at a time when the utilisation of the product or the fleet of products
is low. For example, Swepac performs its remanufacturing operations during the winter, when demand
for compactors is less due to the ground frost. This is fundamentally the same problem as the
companies that have a direct-order relationship, which is further described in the following section.

4.3 Direct-Order Relationships

In this situation, the customer gives an order for the remanufacture of a used product, as in the Turbo
Tech case. Generally in the eyes of the customer, there is a problem in determining if there is a
technical possibility to remanufacture the used product (core). Another uncertainty is what the price of
the remanufacturing will be. The cost of the remanufacturing is dependent on the quality of the core
and how much new material and labour will be needed in the process, and this is difficult to determine
before the remanufacturing is undertaken. Regarding the pricing of the remanufacturing operation,
there are different practises from company to company, and pricing can be variable to fixed. If fixed
prices are used for remanufacturing, these risks of sending the used product to remanufacturing will be
transferred to the remanufacturer.

In a case where the customer orders the remanufacturing, there is not normally a need to keep an
inventory of cores; this is because the cores are supplied directly by the customer. Using a make-to-
order system also reduces the need for a finished goods inventory.. In some cases, remanufacturing to
a direct order is the only alternative due to for example a lack of spare parts (normally due to the age,
and consequentially the low volumes of the product).

In the situation of a direct-order, the cores from a customer have to be sent away for remanufacturing.
Say, for example, that the core for remanufacturing is a component of a product; the result will be that
the product will be non-usable for the time when the component is being remanufactured. This is not

10
preferable for many situations; for example, a truck that needs to replace its turbo charger would have
to stand still for a significant time while the turbo is being remanufactured. Most surely, the expenses
for not using the truck are greater than the gains for the (potential) lower cost for remanufacturing.
Still, this does not have to be the situation for someone that can wait for the remanufactured
component while it is being remanufactured. Similar situations emerge when whole product is
remanufactured. For example, if a filling machine such as those described in the TetraPak case were to
be sent to remanufacturing, the result could be that e.g. the complete process in a dairy would become
inactive. In these types of cases other relationships can be more effective.

4.4 Deposit-Based Relationships

In this situation, the customer is obligated to return the core when buying a remanufactured product,
thus becoming the supplier of cores. This system is common in the automotive industry, where the
remanufacturer normally supplies a product to a sort of “middle man”, for example, an automotive
part retailer as in the UBD example. The retailer pays a price and a deposit for the remanufactured
product. When the retailers sell the product, they collect the used core from the customers; later, they
return the core to the remanufacturer and their deposit is refunded, resulting in a one-for-one (1:1)
take-back relationship, see Figure 4.

Remanufactured Remanufactured
products are supplied products are supplied

Customer
A deposit is given until a Cores are supplied to
Cores and core is supplied Cores and the retailer
remanufactured remanufactured
products at products at
remanufacturer retailer
Figure 4: Illustration of core/deposit flow in a deposit based relationship

This system creates a theoretical match between the supply of cores and the demand for
remanufactured products due to the one-for-one link. An example of this is in the case of the brake
calipers in a car (UBD case). In this case, the customer returns a number of brake calipers that directly
correspond to the remanufactured products needed by the same customer according to the 1:1
principle. This system also creates a win-win situation for both the customer and the remanufacturer:
the customer gets a low cost option by supplying, from their perspective, a low-value core, while the
remanufacturer gets a supply of cores. However, in practice UBD reports that the 1:1 link is not valid.
In reality, some of the cores are still not being demanded due to many random actions, for example
sales clerks failing to demand the take-back of the core. Another factor that reduces the theoretical 1:1
relationship is that a percentage of the cores that are retuned cannot economically be remanufactured
due to extensive damage that would require extensive reprocessing. The result of this mismatch is that
the company must use alternative systems to gather the lacking cores. A common solution used by
UBD is to buy back cores from different kinds of scrap yards and core dealers.

In relation to the direct-order relationship, the deposit based relationship enables the customer to get a
remanufactured product back at the same time as the used product is given back. This has proven to be
a strategically important ability, especially for business-to-business relations where maintaining
functionality is a critical factor. Another important issue not to be neglected is that this type of
relationship is common when dealing with warranty claims. To be able to provide a remanufactured
product immediately once a product breaks down during warranty can help to create a positive
relationship with a potentially unsatisfied customer.

11
Even though a perfect correlation can exist between supply and demand, there is always a lead-time
for a single product to be remanufactured. For UBD, this means that the market introduction of a
remanufactured product demands an investment in cores. These cores have to be gathered in another
way. Due to the lack of cores in the market introduction, the system frequently has to invest in newly-
produced products.

Another issue and strategic question is the level of the deposit; if the price of the deposit is too low,
the cores tend to disappear and a supply problem arises. A practical example can be taken from an
auto repair shop were the repair staff throws away the core and charges the customer for the deposit,
or the core is sold to someone who pays a higher price. Vice versa if a higher price is paid for the
deposit the greater the chance that the core will be returned. At the same time, the retailer is forced to
tie up capital in deposits. This type of problem can be solved with, for example, an extended credit
note.

With a deposit-based system, no consideration is taken about the quality of the core that is supplied to
the remanufacturer. The result may be that the perceived cost of remanufacturing, according to the
customer, becomes too high if a high-quality core is supplied. Vice versa, the value of
remanufacturing for a customer supplying a low-quality core becomes higher.

4.5 Credit-Based Relationships

This type of relationship is similar to the deposit-based relationship, but provides a higher level of
sophistication (Volvo Parts case). Instead of a deposit fee, the customers receive credits for what they
supply to the company. The number of credits the customers gain from the supplied cores is dependent
on the state of the core. The credit they have acquired gives them a discount when ordering a new
remanufactured product, see Figure 5. This credit system, however, does not have the same 1:1
relationship as the deposit-based system. This enables the customers to return as many cores as they
wish.
Credits are supplied to be used as
discounts for future purchases
Customer
Cores are supplied to
Cores and remanufactured the remanufacturer
products at remanufacturer

Figure 5: Illustration of core/credit flow in a deposit based relationship

In the deposit-based system, no considerations are taken to the quality level of the returned core; it
also does not motivate the customer to return more cores than the one-for-one principle. With a credit-
based system, these considerations are taken in account. Credits are given according to two factors: 1)
the quality level of the core, and if any of the specific components in the core are missing. 2) the
amount of credits given is also variable between different types of products; highly demanded cores
are given a higher credit; vice-versa a low credit is given for unwanted cores. In this way, the
remanufacturer gets a high variety of cores and can practice some level of control by the credit system,
while the customer can return cores for credits. This type of system enables the remanufacturer to
some extent control the balance been supply and demand. The credit system can also function as a
method for assessing the incoming quality level of the cores according to the amount of credits given
for returned cores.

This credit system can be proven ineffective as well. This type of system provides the customer with a
high degree of flexibility to return cores, but the control and predictability will be more complex then
with the deposit-based system. The system can also be taken advantage of by the customer, for
example if the credits given are unbalanced. Respondents have reported cases when customers have

12
given back twenty cores of low value (e.g. a water pump) and used the credits to order a high value
item (e.g. a remanufactured engine) that results in a major loss for the remanufacturer. In this situation,
there is a lack of long-term commitment and cooperation that is needed for this system. One major
disadvantage with this system is also that it creates a higher administrative cost for the remanufacturer.
The customers will also be given an uncertainty in the number of credits they will receive for a
specific core; this can result in a situation where price-sensitive customers hesitate to remanufacture,
due to the uncertainty in price.

4.6 Buy-Back Relationships

Buy-back is as simple as it sounds; the remanufacturer simply pays out money for the cores. The
sellers of a core, or multiples of cores, can be core brokers/dealers that specialize in the trading of
cores, scrap yards, or end customers. This type of relationship is present in most cases of
remanufacturing, and it is used as a compliment to some other type of relationship. It is common that
the cores that are difficult to find are acquired in this way.

In many cases, buy-back is considered to be the last resolution if no other alternatives are present. For
example, buying a product on a spot market is one way of buying cores; other more advanced systems
are also used. One way is through core brokers, who have a close relation with their suppliers, often
scrap yards. They are specialized in what they do and they have their own channels for acquiring
cores. Maintaining a relationship with the suppliers is a strategically important issue. These core
brokers are relatively frequent in the toner and automotive industries; the disadvantage can be the
higher price paid (UBD and Greenman Toners).

Scrap yards can also be a good source for cores. Different levels of sophistication exist in scrap yards;
in the UBD example, the company frequently visited a number of scrap yards to inspect their
inventories and buy cores. Some scrap yards have sophisticated database systems, and online ordering
is possible. In some situations, the OEMs have their own facilities for cannibalisation of components.
The company Scania has a facility that buys Trucks that are in some way damaged, and cannibalise
them for valuable components for reuse and remanufacturing. The main source of trucks in this case is
those that have been damaged and are supplied by insurance companies.

When communicating with the customers in a buy-back relationship, UBD supplies its demands for
cores to the customers, which in turn respond to the need of UBD. The suppliers of cores frequently
also communicate concerning the types of cores available. In other situations, as in the Greenman
Toner case, the cores are simply sent back to the remanufacturer, and the customer receives a refund
according to a specified list.

Buy-back of products mainly results in customers getting money for their cores, although other
systems do exist. Toffel reports a case where Lexmark uses a “prebate” program giving a discount on
a product if the customer agrees to the return the product after use [37]. This program prohibits the
customers to return or sell products to other companies. According to Lexmark, this program has
boosted their return, although no reports about the efficiency of the program are given. The ability to
gather “hard-to-get” cores is especially important when there are many independent remanufacturers
that want to retrieve cores for their business.

4.7 Voluntary-Based Relationships

This sort of system is common in the recycling of different types of material such as newspapers. It
also exists in the closed-loop supply chain with remanufacturing (Scandi-Toner case). As for
recycling, this system is based on the idea that the customer will voluntary give back the core. This
system can also be forced on the customer and the original equipment manufacturer. This is done for

13
example through take-back laws stimulated by EU directives like the waste electrical and electronic
equipment directive (WEEE) [38] and the end-of-life vehicles directive [39].

One example of this is the toner business that is regulated under the WEEE directive; as a result, toner
cartridges cannot be treated as ordinary office supplies since they have been previously used. This
creates a recycling problem for the customer. Scandi-Toner recognizes the embedded value in the
discarded product that can be realized through remanufacturing. A recycling service is provided to the
customer free-of-charge, and results in the access to used toner cartridges. The relationship is
established by providing a take-back system that is realized with a return box that is (when full) sent to
the company free-of-charge. The boxes are sent to the company randomly and can contain multiple
cartridges. According to Scandi-Toner, the take-back system also motivates customers to remain
customers, and provides a sales opportunity since a customer is more likely to purchase
remanufactured cartridges when they are supplying the used ones through the take-back system.

The cores are supplied for free; the cost for the company is the transportation and material handling
costs. According to Scandi-Toner, a key issue for profitability is to acquire the cores to a low cost. The
environmental advantages of remanufacturing are strongly promoted as a motivational factor due to
the lack of financial stimuli. This is done both to acquire cores and for use in motivating sales. Of
course, the environmental issues count as a sales motivation in the other types of relationships as well,
and not just in the Scandi-Toner case, but it is here where this issue is most actively marketed to the
customer. A strong relationship with the customer is important; if possible, the integration with the
customer should be as high as possible. An example of this is the free-of-charge return box used by
Scandi-Toner.

The voluntary takeback relationships can generate a high supply of cores that in many situations have
low demands for remanufacturing this can lead to high levels of obsolete cores in inventory. A key
issue is to keep this tendency at a minimum, continuously reviewing core inventory according to long-
term forecasted needs. This type of relationship can also lack the ability to motivate the return of
valuable cores that have a high demand for remanufacturing. The cores that are the most valuable do
have a value and are subject for buy-back from competitors. A challenge here is to make the customer
long-term committed to the company.

5 Discussion
Previous research has highlighted that there is are some major difference between the “normal –
forward” supply chains and the closed-loop supply chain with remanufacturing [40]. In previous
research the characteristic of the closed-loop supply chain are explained and the implications of these
characteristics have been modelled. Although in a management perspective it is important to go one
step further, not only to realise that it is a problem to be handled but also on how to reduce the source
of the problem. By applying a relationship perspective to the area of remanufacturing and the closed-
loop supply chain, important insights can be gained. The importance of managing relationships has
also been proven a prosperous and important issue in the supply chain management literature.
Christopher adapt the following definition of supply chain management [41]:

“The management of upstream and downstream relationships with supplier and

customers to deliver superior customer value at less cost to the supply chain as a whole”

In a closed-loop supply chain the management of relationships becomes even more important as the
supplier of cores and the customer often are the same person or company.

In this paper, seven different customer/supplier relationships have been identified in the closed-loop
supply chain. Each company has different resources and abilities that limit them to some specific
relationships. For example, the ownership-based and the service-based relationships are mainly linked

14
to original equipment manufacturers, and are less common among the independent remanufacturers.
As a result, none of these relationships is suited for every company. Another important issue is that
these relationship structures are not used individually; in reality some of these relationships are used
simultaneously to compliment each other. One general observation from this study is that buy-back
relationships are generally present in all companies that are involved in remanufacturing. Although
buy-back is normally not the major source of cores, and it is used only for the “hard-to-get” cores. The
buy-back of cores also serves other strategic issues. For example, the buy-back of a product can both
provide a sales opportunity as well as protect sales in the aftermarket [36]. The ability to adapt a
specific type of relationship is dependent on multiple factors. Issues such as the type of product and
the interest from the customer to have a relationship will influence the success of a specific type of
relationship. A summary of these different findings is given in Table 2.

Table 2. A summary of the relationship characteristics in a remanufacturer perspective

Relationship Core control Relationship focus Characteristics
High, long term
Used by OEM with a high degree of
High, returns are often relationships, focus on
Ownership regulated by contracts integrating products and
interactions with customers that focus on
the function (e.g. reliability) of products
services
Medium high, return High, long term
Used by OEM with a high degree of
Service probability are relationships, focus on
interactions with customers that want to
contract dependent on different adding services to the
own the products
contracts products
Suitable in situations when:
Low to medium according the product can be sent off for a longer
High, cores are to importance of the product period of time - no new parts are available
Direct-order supplied to an order in respect to customer - the price of remanufacturing is an
operations important issue - the customers want the
same product back as sent in.
Can provide a remanufactured product
immediately once a product breaks down,
e.g. during warranty.
Medium, a theoretical
Deposit-based 1:1 relation exists
Low, transactional focus No considerations about the quality of the
core is needed
Commonly used in the automotive
industry
Medium, enables some
Medium to high, based on Considers and compensates for different
Credit-based control opportunity, no
long term cooperation quality levels of the core
strict 1:1 relation
Low to high, ranges from Used manly as compliment to some other
Medium, one can type of relationship.
buying cores at spot price to
Buyback control what you want
long time collaboration with
to buy or not Used especially for acquiring hard to get
e.g. insurance companies cores
Low to high, focus on
Low, the company gets
providing the customer with
Voluntary what the customer is
a positive environmental
Minimising the cost for acquiring cores
willing to give
profile

Regarding the different types of relationships, the ownership and the service-based relationships have
the highest control over the installed base, and have a favourable position in gaining information about
the installed base The higher degree of control gained by the detailed information can decrease
uncertainty in the quality level of the incoming product (core). This information, combined with
detailed contracts about the duration of the contracts and the point of return, makes the remanufacturer
able to predict the timing and quantity of the returns and ease the need to balance returns with demand.
In an earlier study, Thierry et al. comes to the same conclusion when they write that “companies that
lease their products are generally in a more favourable position than companies that only sell
products. Lease companies usually have more information on the quality and return of used products”
[13].

15
With the information about the status of the installed base gained from the customer, the seller can be
one step ahead, realising the needs of the customer before the customer themselves. In a sense, a seller
can control timing of different activities according to its ability to perform at its best. For example,
sale advantages can be gained when the products that are close to their end-of-use are to be replaced.
This information can then initiate a proactive sales activity. Another example is when an innovation
pushes the product’s usage out of its economic lifetime. According to Holmlund, the actions in these
sequences have great influence on the perception of the relationship [42]. Without the information
about the customers installed base, this advantage would not be possible. As a compliment, the
information about the customer also gives an information advantage over the competitors.

In the ownership and service-contract types of relationships, there is an increased focus on delivering a
function. With the increased focus on functions, the downside is that the perceived risks of the
customer can increase. During the time that the product is remanufactured, the customer loses the
functionality of the product, which can cause a negative sequence in the relationship. By minimising
the loss of functionality, the perceived costs of the relationship can also be reduced. The company
Swepac solves this challenge by performing remanufacturing when utilisation of its products is low.
Other solutions can be to compensate the loss of function with another product; this is a strategy
frequently used by, for example, auto repair shops.

In direct-order relationships, the risk of loss of function becomes especially apparent. From the
perspective of the customer, this system generates a high risk, as well as lack of functionality when the
product is away for remanufacturing. In addition, the way the pricing of the remanufacturing service is
undertaken is a source of risk. Pricing of a remanufacturing service can be variable or fixed resulting
in different levels of perceived risk in the eyes of the customer. These disadvantages make this type of
relationship only suited for a limited range of situations, mainly when:

• The product can be sent off for a longer period of time

• When no other type of spare parts are available
• When the price of remanufacturing is an important issue
• When the customers want the same product back as they sent in (e.g. customized products
with high value).

A deposit or credit-based system would be more appropriate in situations where it is critical for the
customer to maintain functionality of a product. This is due to the importance of being able to provide
a remanufactured product/component as soon as possible. The advantage with these relationships is
that they can provide a replacement right away. One important aspect of this system is that it demands
an initial investment in cores when a new product type is starting to be remanufactured. The main
implications are that this system is preferable for rather standardised products with a high volume, e.g.
toner cartridges.

Regarding deposit and credit-based relationships, the major difference is the level of sophistication.
The credit-based system has an additional function of stimulating the customer to return specific cores.
From a customer-relationships perspective, this system will be most fair. This system also stimulates
cooperation between the parties. The accumulation of credits also stimulates a long-term commitment
to the remanufacturer. Overall, the credit-based system relies on commitment, trust and the win-win
situation, compared to the more transaction-based and deposit-based relationships. In this type of
relationship, the gate-keeping function is very important. Gate-keeping in this context means the
screening of the cores that are coming back to the entry point of the reversed logistic network. The
foremost important issue of the gate-keeping function is inspecting cores and giving the appropriate
number of credits.

Voluntary-based relationships are based on the idea that the customers will voluntarily give back the
core. This relationship system can also be forced on the customer and the OEM with take-back laws.
To stimulate customers to give back their used products, relationship management becomes important.
Some negative effects of this system are that it can generate a high supply of cores that in many

16
situations have a low demand for remanufacturing. It can also lack the ability to motivate the return of
valuable cores that have a high demand for remanufacturing. The environmental advantages of
remanufacturing are strongly promoted as a motivational factor due to the lack of financial stimuli.

5.1 Result Validation

Building theory from case studies attempts to reconcile evidence across cases, types of data, and
different investigators, and between cases and literature increase the likelihood of creating reframing
into a new theoretical vision [27]. The triangulation by using other data collection methods rather than
only interviews and comparisons with other companies made the results of this study more valid.

A drawback of theory building from case studies is that the intensive use of empirical data can yield
theory which is overly complex [27]. Hence, the result can be theory which is very rich in detail, but
lacks the simplicity of overall perspective. Having this in mind – the different closed-loop supply
chain relationships presented in this paper should only be seen as important factors in the management
of reverse supply chain management.

Strong theory-building research should result in new insights. Theory building which simply replicates
past theory is, at best, a modest contribution [27]. Furthermore, replication is appropriate in theory-
testing research, but in theory-building research, the goal is new theory, as in this research study.

6 Conclusions
This research has been building theory based on case study research. By identifying the closed-loop
supply chain relationships, a higher understanding can be gained about the structure of the
remanufacturing industry and the characteristics of the relationships. The identified relationships are
ownership-based, service-contract, direct-order, deposit-based, credit-based, buy-back, and
voluntary-based relationships. These individual relationships have different characteristics and are
suitable in different situations as described in the previous section. The more general conclusions
about how the relationships can be managed are:

Firstly, one should understand that these relationship structures are not used individually; in reality,
some of these relationships are used simultaneously to complement each other.

Secondly, a proposition is that the more important a product is for the customers operations, the higher
is the will to have a closer relationship as in an ownership or service contract relationship. Also, the
perceived risk of the remanufacturing operation has a strong influence on the willingness to become
involved in a closer relationship. Issues like cooperation, trust, and long-term commitment are
important in these types of relationships. When managing these types of relationships, the focus
should be on reducing risk and the perceived relationship costs.

Thirdly, a higher degree of control over the installed base can enable the OEM remanufacturers to
control the timing of activities in the relationship (as in an ownership or service contract relationship).
The information can enable a seller to be one step ahead, realising the needs of the customer before the
customer themselves. In a sense, a seller can control timing of different activities according to its
ability to perform at its best.

Fourthly, remanufacturing can be a source of negative responses in the relationship. This is especially
apparent when the remanufacturing operation results in a loss of functionality in the customer’s value-
adding process. One way of reducing the risk of a bad response is to plan remanufacturing at a time
when the utilisation of the product or the fleet of products is low and thus reduce the perceived cost of
the relationship.

17
Fifthly, one proposition is that remanufacturing becomes more effective when there is a clear win-win
situation for both the customer and the remanufacturer. In the sense that the customer enables the low
cost option of remanufacturing by supplying, from their perspective, a low-value core, in the same
time as the remanufacturer gets a supply of cores.

Sixthly, take-back systems can be taken advantage of by both customers and suppliers, for a long-term
successful relationship there is a need to have mutual commitment and trust.

To conclude this paper, the success of a remanufacturing business is very dependent on the
relationship between the remanufacturer and the customer, since the customer can both act as a
supplier and a customer to the remanufacturing company. Since the retrieval of used products is
crucial for the remanufacturer, the management of these supplier/customer relations are very
important. The companies studied in this paper all recognise that the management of the relationship
with their suppliers/customers has contributed to their business success.

7 Acknowledgements
The authors wish to thank the companies that have contributed to this knowledge of this paper.
Furthermore, the authors would like to give gratitude to the Swedish Governmental Agency for
Innovation Systems (VINNOVA) for partly sponsoring this research.

8 References
[1] Seaver W.B. (1994) “Design Considerations for remanufacturability, recyclability and reusability
and reusability of user interface modules”, Proceedings of IEEE International Symposium on
Electronics and the Environment, (IEEE-94), San Francisco, CA, USA, pp 241-245.
[2] Lund, R. (1996) “The Remanufacturing Industry: Hidden Giant”, Boston, Massachusetts: Boston
University.
[3] Sundin E. (2004) “Product and Process Design for Successful Remanufacturing”, Linköping
Studies in Science and Technology, Dissertation No. 906, Department of Mechanical Engineering,
Linköpings Universitet, SE-581 83 Linköping, Sweden.
[4] Webster S. and Mitra S. (2007) “Competitive Strategy in Remanufacturing and the Impact of
Take-Back Laws”, Journal of Operations Management.
[5] Seitz M.A. and Peattie K. (2004) “Meeting the Close-Loop Challenge: The Case of
Remanufacturing”, California Management Review, Vol. 46, No.2, winter 2004.
[6] Bras B. and Hammond R. (1996) Design for Remanufacturing metrics, Proceedings of First
International Working Seminar on Reuse, Eindhoven, The Netherlands, pp 35-51.
[7] Kerr W. and Ryan C. (2001) Eco-efficiency gains from remanufacturing - A case study of
photocopier remanufacturing at Fuji Xerox Australia, Journal of Cleaner Production no.9, p 75-81.
[8] Guide Jr., V.D.R. (2000) “Production planning and control for remanufacturing: industry practice
and research needs” Journal of Operations Management 18: 467-483.
[9] Krikke H., le Blanc, I, and van de Velde, S., (2004) ”Product modularity and the Design of
Closed-Loop Supply Chain”, Californian Management Review, 46/2: 23-39
[10] van Nunen J.A.E.E. and Zuidwijk R.A. (2004) E-Enabled Closed-Loop Supply Chains,
California Management Review, Vol.46, No.2, Winter 2004, p40-54.
[11] Guide Jr., V.D.R and Jayaraman V. (2000) “Product acquisition management: current industry
practice and a proposed framework” International Journal of Production Research 38/16: 3779-
3800.

18
[12] Geyer R. and Jackson T. (2004) “Supply Loops and Their Constraints: The Industrial Ecology of
Recycling and Reuse”, California Management Review, Vol. 46, No. 2, Winter 2004, p.55-73.
[13] Thierry, M., Salomon, M., van Nunen, J. and van Wassenhove, L., (1995) “Strategic issues in
product recovery management” Californian Management Review, 37/2: 114-135.
[14] Umeda Y, Kondoh S, and Sugino T, (2005), Proposal of “marginal reuse rate” for evaluating
reusability of products, Proceedings of International Conference on Engineering Design, Paper
247.81, ICED-05, Melbourne, August 15-18, 2005.
[15] Rogers D. S. and Tibben-Lembke R. S. (1999) “Going Backwards: Reverse Logistics Trends and
Practices” Reverse Logistics Executive Council,
[16] Kara S., Rugrungruang F. and Kaebernick H. (2007) ”Simulation modelling of reverse logistics
networks” International Journal of Production Economics, Vol. 106:1 p. 61-69.
[17] Kibum Kim, Iksoo Song, Juyong Kim and Bongju Jeong (2006) “Supply planning model for
remanufacturing system in reverse logistics environment” Computers & Industrial Engineering,
Vol. 51: 2 p.279-287.
[18] Vlachos D., Georgiadis P. and Iakovou E. (2006) “A system dynamics model for dynamic
capacity planning of remanufacturing in closed-loop supply chains” Computers & Operations
Research, Vol. 34: 2 p. 367-394
[19] Jacobsson N. (2000) Emerging product strategies - Selling services of remanufactured products,
Licentiate dissertation, The International Institute for Industrial Environmental Economics
(IIIEE), Lund University, Lund, Sweden, ISBN 91-88902-17-X.
[20] Lund R. (1983) Remanufacturing: The Experience of the United States and Implications for
Developing Countries. CPA/83-17, The World Bank, Washington, D.C
[21] Grönroos C. (1997) “Value-driven Relational Marketing: from Products to Resources and
Competencies” Journal of Marketing Management, vol 13 pp. 407-419.
[22] Egan, J. (2001) “Relationship marketing : exploring relational strategies in marketing”. Harlow :
Financial Times Prentice Hall.
[23] Gummesson E. (1994) “Making Relationship Marketing Operational“ International Journal of
Service Industry Management, 5: 5-20
[24] Yin R.K. (1994) Case Study Research Design and Methods, 2nd Edition, Applied social Research
Methods Series, Volume 5, SAGE Publications, Inc. 2455 Teller Road, Thousand Oaks,
California 91320, U.S.A.
[25] Hartman, J. (1998) ”Vetenskapligt tänkande – Från kunskapsteori till metodteori”
Studentlitteratur, Lund, Sweden.
[26] Merriam, SB (1994). “Fallstudien som forskningsmetod”. Studentlitteratur, Lund, Sweden.
[27] Eisenhardt K.M. (1989) Building Theories from Case Study Research, The Academy of
Management Review, Vol. 14, No. 4, (October 1989), pp. 532-550.
[28] Voss C., Tsikriktsis N. and Frohlich M. (2002) Case research in operations management,
International Journal of Operations & Production Management, Vol. 22, No. 2, pp. 195-219.
[29] REKO, (2006) REKO- project homepage, available online, 18 of June 2006,
http://www.ikp.liu.se/ps/projects/reko/index_e.asp
[30] Jacobsen J.K. (1993) Intervju – konsten att lyssna och fråga, Studentlitteratur, Lund, Sweden.
[31] Östlin J. (2006) “On Remanufacturing Systems – Management of Material Flows and Process
Organisation”, Linköping Studies in Science and Technology, Thesis No. 1242, Department of
Mechanical Engineering, Linköpings Universitet, Sweden
[32] Sundin E., Tang O. and Mårtén E. (2005) The Swedish Remanufacturing Industry - An Overview
of Present Status and Future Potential, Proceedings of CIRP Life Cycle Engineering Seminar -
12th edition- 2005, Laboratoire 3S, Grenoble, France, April 3-5.
[33] Borenstein S. MacKie-Mason J. K. and Netz J. S (2000) “Exercising Market Power in
Proprietary Aftermarkets” Journal of Economics & Management Strategy, 9/2: 157-188
[34] BT-Industries, (2004) “Don’t Buy Trucks” Information brochure, Mjölby, Sweden.

19
[35] Oliva, R and Kallenberg, R. (2003). "Managing the transition from products to services."
International Journal of Service Industry Management 14/2: 160-172.
[36] Sundin E. and Bras B. (2005) Making Functional Sales Environmentally and Economically
Beneficial through Product Remanufacturing. Journal of Cleaner Production, Vol. 13(9), p 913-
925.
[37] Toffel, M. W., (2004) ”Strategic Management of Product Recovery”, Californian Management
Review, 46/2: 120-141.
[38] EU, Directive 2002/96/EC of the European Parliament and the Council of 27 January 2003 on
waste electrical and electronic equipment (WEEE). Official Journal of the European Union,
2003.
[39] EU, Directive 2000/53/EC of the European Parliament and of the Council of 18 September 2000
on end-of life vehicles. Official Journal of the European Communities, 2000(L269): p. 34-42.
[40] Guide, V. D. R., Harrison, T. P. and Van Wassenhove, L. (2003), The challenge of Closed Loop
Supply Chains, Interfaces, Vol. 33, No 6, pp. 3-6
[41] Christopher M. (2005) “Logistics and Supply Chain Management: Creating Value - Adding
Networks” Financial Times, Prentice Hall, UK
[42] Holmlund, M. (1997). “Perceived Quality in Business Relationships”, Doctoral Dissertation,
Swedish School of Economics and Business Administration, Helsinki.

20
 PAPER IV

Östlin, J. (2005) “Material and Process Complexity – Implications for

Remanufacturing” in Proceedings of EcoDesign-05, 4th International
Symposium on Environmentally Conscious Design and Inverse Manufacturing,
Tokyo, Japan, 12-14 December.
 Material and Process Complexity – Implications for Remanufacturing

Johan Östlin
Division of Production Systems, Department of Mechanical Engineering,
Linköping University, Sweden.
[email protected]

Abstract In the remanufacturing process, there can be major

differences in material handling and the remanufacturing
Remanufacturing is a complex business. Many different process from case to case [1]. In the research reflected in
factors and decisions affect the performance of a this paper, some of the complexities that influence the
remanufacturing process. In this paper, four different remanufacturing process have been addressed, and done
remanufacturing cases are analyzed in how they manage so from a generic remanufacturing process perspective
these complexities.
Based on the generic remanufacturing process, 2. Aim
remanufacturing can be divided into the five phases of
pre-disassembly, disassembly, reprocessing, reassembly In this paper, the complexity of material handling and
and post-assembly. In each of these phases, a discussion process control in remanufacturing is described. This
is made regarding the specific factors and decisions that complexity is based on a number of factors and decisions.
influence the order and purpose of the individual A discussion is presented on how different factors and
operations. decisions affect the process, and how they are managed in
four different industrial cases. Comparisons to existing
theory and empirical investigations are also made.
Keywords: Decisions, Disassembly, Reassembly,
Remanufacturing, Reprocessing, 3. Methodology
1. Background The research conducted for this paper is a part of a
larger research project called the REKO-project:
Remanufacturing is “an industrial process whereby “Sustainable Systems and Products for Remanufacturing
products referred to as cores are restored to useful life. and Refurbishment”. Today, the project encompasses
During this process the core passes through a number of three Swedish case companies (BT-Industries, Scandi-
remanufacturing steps, e.g. inspection, disassembly, Toner and UBD Production). In each case, eight semi-
cleaning, part replacement/refurbishment, reassembly, structured interviews, ranging from 30 minutes to four
and testing to ensure it meets the desired product hours, were performed. The interview respondents
standards” [1]. consisted of management staff (e.g. manufacturing and
Compared to ordinary manufacturing, the process of logistics managers) as well as operational staff. During
remanufacturing is affected by a number of additional the course of the research, one master’s thesis was
complexities. Some of these presented by Guide [2] are: completed that analyzed material handling at Volvo Parts
(1) the uncertain timing and quantity of returns, (2) the [3]. A workshop has also been conducted in collaboration
need to balance returns with demand, (3) the disassembly with the Linköping Re-Group research group, Volvo Parts
of returned products, (4) the uncertainty in materials and UBD Production. In total, four Swedish companies
recovered from returned items, (5) the requirement for a were investigated.
reverse logistics network, (6) the complication of material
matching restrictions, and (7) the problems of stochastic 4. Theoretical framework
routings for materials for remanufacturing operations and
highly variable processing times. In the literature, there are a number of different models
for the different processes in remanufacturing. Some are
specific for different cases (see e.g. [4]), while others are Scandi-Toner (independent from Original Equipment
more generic. Sundin [1] is one researcher who presents a Manufacturer (OEM)); forklift trucks at BT-Industries
generic model of processes in remanufacturing (see (OEM); engines at Volvo Parts (OEM); and automotive
Figure 1). This generic model encompasses seven generic parts at UBD Production (Independent/Contracted). Each
processes that can be a part of a remanufacturing process. of these cases will be briefly described in the following
These are: inspection, cleaning, disassembly, sections.
reprocessing, reassembly, testing and storage, although all
of these processes do not have to be included to make a 5.1. Scandi-Toner
remanufactured product.
Regarding the production planning in remanufacturing The remanufacturing process at Scandi-toner is as
environments, the focus has been on quantitative models follows. The toner cartridges are sent randomly to the
for disassembly and calculating optimal inventory levels, company in boxes from the customer. Each box can hold
order quantities, etc. For an overview, see Guide [2] and multiple cartridges. When the box arrives, it is unpacked
Inderfurth et al. [5]. Inderfurth et al. present a report on and undergoes a combined manual operation where the
production planning in the closed-loop supply chain product is simultaneously identified, inspected and sorted.
focusing on disassembly and possible disassembly The cartridges are sorted according to a preset standard
strategies, determining the best strategy (through a net based on whether they have been used only one time
profit analysis), and disassembly scheduling. Regarding (virgin) or have been remanufactured before (non-virgin).
material planning, the same authors present a model for They are also sorted after the status of the core; an
material requirement planning (MRP) in a example here would be if the cartridge was damaged in
remanufacturing environment. For the operations in the some way.
disassembly system, Bröte [6] presents a generic The sorting is also done because of an over-supply of
disassembly model, with more then 20 different cores, and the best (i.e. virgin) are designated for
operations. remanufacture, while the remaining are placed in reserve.
When considering complexity in remanufacturing, the Another reason is for capacity management: when there is
relationship with the customer also needs to be considered a demand peak, it is only the virgin cores that can be
in the closed-loop supply chain. Different types of used, enabling more rapid remanufacturing and thereby a
relations provide different characteristics for the higher remanufacturing volume. Non-virgin cartridges are
remanufacturing process, such as ownership-based used in situations of over-capacity, due to the increased
relations, deposit-based relations, credit-based relations, time it takes to remanufacture the cartridges.
buy-back relations and take-back relations [7]. After the sorting operation, the cores are stored in
inventory while waiting for a remanufacturing order.
5. Four different remanufacturing When the order arrives, the cores are sent to a
processes disassembly operation.
From this point, some of the parts are sent to a cleaning
The analysis from this paper is based on empirical data operation, while others are sent to machining operations
from four different case companies: toner cartridges at to be reprocessed and, in some cases, cleaned. Some of
the parts are also sent to recycling/landfills, and new
Incoming
Cores Remanufacturing
Process
Cleaning Reprocess

Inspection Disassembly Testing

Storage Reassembly

Remanufactured
Products
Figure 1: The generic remanufacturing process [1]
components are used to replace the discarded. The reason 5.3. Volvo Parts
for the discarding is either that the components are
broken, or due to a policy at the company to always This case presents a remanufacturing process for heavy
replace the components. diesel engines. The company uses a credit-based supply
After all parts have gone through reprocessing chain where the customers receive credits for what they
operations, they are reassembled with the new supply to Volvo. The credits are then used for obtaining
components. After reassembly, they are tested and packed discounts when ordering a remanufactured product. This
before they are placed in the finished goods inventory. makes the balance been supply and demand relatively
For the production planning, a make-to-stock re-order even. When the cores arrive at the facility, some of the
point system is used. Order quantities are set to the external components from the core are disassembled and
remanufacturing of a specific number of cores. In the sent, for example, to remanufacturing. The cores are
process, a percentage of the cores are found non-usable thereafter placed in an inventory until a remanufacturing
(about 10%, but this figure varies from product to order is received. The core is then disassembled. It is in
product), and the number of remanufactured products this operation that the components are also visually
gained from the process varies. One of the problems in inspected. After this, the components from the original
the process is the availability of the cores to be core are kept together as they move between the
remanufactured. The availability can be uncertain due to reprocessing operations in a sequential manner, in
the characteristics of the take-back system. In the toner contrast to the flow in the Scandi-Toner and UBD cases.
cartridge remanufacturing business, the availability of However, some of the components are separated from the
products is a key success factor, and therefore the out-of- core to be sent away for reprocessing. The reason for this
stock costs can be seen as high. In this environment, the is that they require higher batch numbers due to, for
company’s main focus is on the remanufacturing lead- example, higher set-up costs. The engine is reassembled
time. with reprocessed components from the original core, new
components and reprocessed/ cannibalized components
5.2. UBD Production from inventory1. Following reassembly, the
remanufactured product is tested and then (if it passes the
This company remanufactures car components. The test) painted. There is also a difference in the level of
main product is brake calipers, but it also remanufactures remanufacturing in the process: the processes may be the
products such as steering racks, steering pumps, master same, but the level of replacement of components and the
cylinders, etc. UBD uses a deposit-based supply chain level of reprocessing of the components are different. The
system. This creates a theoretical match between the purpose of this is to provide different solutions for
supply of cores and the demand for remanufactured different customer needs.
products. Although this is not the case, and spare cores The engines are produced in a make-to-stock
have to be acquired by other means. UBD has two environment with delivery to a central inventory. The
different facilities, one in Poland and one in Sweden. The orders are based on MRP, but re-order point systems are
incoming cores arrive at the plant in Sweden where they also used for some low-value components (See [5] for
are inspected and sorted into “UBD numbers” – a details). Overall, there is a 1:1 relation of a core to a
company-specific code system that is car manufacturer- remanufactured engine in the process, although there are
independent. No consideration is taken for the quality times when spare cores are disassembled to be
level of the core; only those that are clearly non- cannibalized for parts.
remanufactureable are sorted out from the system. After
sorting, the products are held in stock awaiting a 5.4. BT-Industries
remanufacturing order. When an order is taken, the
products are sent to Poland for disassembly. As in the In the forklift truck cases, the cores are controlled by a
Scandi-Toner case, the components are sent to different take-back system that is ownership-based. In the BT case,
reprocessing operations: repairing, cleaning, blasting and the forklift trucks are linked to a functional sales contract,
painting. When the components from a batch are which gives the company a high degree of control
reprocessed, they are sent to Sweden for reassembly with regarding the closed-loop supply chain. When the
complementary new parts that have been discarded. remanufactured products arrive, they are inspected and
In this case, the remanufacturing is conducted sorted into different status levels. When a need arrives,
according to a make-to-stock policy for the independent they are sent to a remanufacturing shop for disassembly.
market, and a make-to-order one for the contracted orders. The forklift always has a fixed position during the
In the make-to-stock policy, the order release is made by
re-order points. The focus in the remanufacturing process 1
Further details of the reassembly operation can be found in the
is on operational and transportation costs. study by Svensson et al. [3] or Östlin et al. [8].
remanufacturing process, and this is also when o Pre-disassembly phase
components are replaced. Some simpler reprocessing of o Disassembly phase
components is also performed, but the components are for o Reprocessing phase
the most part replaced with new ones. After functionality o Reassembly phase
testing, the product is painted. o Post-assembly phase
In this case, the remanufacturing is done in a make-to-
order environment. As in the Volvo Case, there is a 1:1 A general overview of the relationships between the
relationship been the core and remanufactured product in phases is shown in Figure 2. In the following paragraphs,
the process. The components are replaced when needed, each of these remanufacturing phases will be described in
and to a certain degree according to the different detail.
functional sales solution.
6.1. Pre-disassembly phase
6. The Five Remanufacturing Phases –
Decisions and Factors that Effect the This phase can be described as a preparatory phase –
Process before the remanufacturing process begins.
When a core is returned from a customer, the state of
the core must be considered. This is important in order to
Judging from the experiences gained in the previously
decide whether to remanufacture, cannibalize components
described remanufacturing process, there are many
or recycle the core (see Figure 3).
different ways to organize one.
In the UBD case, there is no need to rank the quality
Even though there are some general characteristics that
level of the core; there, only the type of core is identified
appear to be valid in all cases – such as disassembly being
due to the fact that there is a higher demand of products
conducted before reprocessing, and reprocessing being
than the supply of cores, and thus all of the cores are
done before reassembly – the order of the other operations
used.
in remanufacturing, such as inspection, testing, cleaning
In the Scandi-Toner case, in contrast, the cores are
etc., are case dependent.
inspected to maintain better control of the process.
The specific order and purpose of the operations that
In the BT case, the inspection is important to make a
define the process is dependent on a number of factors
correct valuation of the market value of the core and to
and decisions, which will be described in the following
obtain an estimate of the costs for remanufacturing. This
sections.
is then considered in regard to the market value of a
Based on the generic remanufacturing process,
remanufactured product. In the BT case, some of the
remanufacturing can be divided into the following five
information regarding the state of the product is known in
phases:
advance, due to a specified service record.

Core Components Remanufactured

Product
NC
Reuse
Can
C EInfo ReP
1 2 3
Rem
Info

ReC ReC ReC

Pre-Disassembly Disassembly Reprocessing Reassembly Post-
Phase Phase Phase Phase Assembly
Phase

C = Cores Can = Cannibalize components from core

Info = Information Rem = Remanufacture the core = Decision Point
EInfo = Extended information ReP = Reprocess
ReC = Recycling NC = New Components = Inventory

Figure 2: An Overview of the Five Remanufacturing Phases

 Extended Core Information:
Information from: Core Identification, Quality
Customers, Service Level, Core Value, Fault Cannibalization
Records, etc. Diagnosis, etc of Components
Pre-Disassembly Decision
Point 1 Remanufacturing
Cores of the Core
Inspecting, Sorting,
Testing, Cleaning, Valuation

Recycle
Inventory the Core
Figure 3: The Process in the Pre-Disassembly Phase

In this phase, inspection and testing are made to o Quality level needed by the customer
identify the product, the quality level of a product or the o The need to keep the product in the list of offered
market value. Sorting is performed to be able to control products
the process in later phases, for example by using high o etc.
quality cores when free capacity is low, as in the Scandi-
Toner Case. Sorting is also done in order to determine All of these factors add to the complexity of the
what economic potential a core has for remanufacture. process. By gaining information about the core, the
When information about the core is retrieved, there is a decision can be simplified. Therefore, making it easy to
decision point concerning what to do with the core. The retrieve this information can aid in making a correct
alternatives are to remanufacture, cannibalize decision.
components, recycle the core or keep it in inventory for Another important factor is that the design of the
future needs. The decision about what to do with the core product to be remanufactured also influences the
is based on a number of different factors. processes (for further details of this factors se e.g. [1]).
To be able to motivate remanufacturing, for example, For the decision to cannibalize the core for
the resources that are put into the remanufacturing of a components, the inventory levels and the need for
core should be less than then the market value. Here, the individual components later in the disassembly and the
information about the cores can be of great use when reassembly process need to be put in relation to the costs
deciding to remanufacture the core or not. In this associated with disassembly. Another important factor
situation, there are many different contributing economic when cannibalizing for specific components and keeping
factors that influence the choice to remanufacture a core, the core in an inventory is that one needs to “remember”
such as: what parts that are taken from what core; if not, this can
create problems in the future.
o Costs for acquiring the cores Deciding whether to recycle the core is a question of,
o Potential costs for disassembly, reprocessing and for example, whether it can be useful in the future. This
reassembly as well as the cost for new components depends on if there are other cores available to be
o Inventory levels and values of components (new, remanufactured/cannibalized, as well as the status of
used and reprocessed components) in the these cores in respect of the present core.
disassembly and reassembly phases
o Minimal order quantities in relation to future needs
o Cost for logistical and marketing activities
Reuse the
Core to be Component
Status of the
Cannibalized
Components: Decision Reprocess the
Disassembly Point 2
reusable, Component
Core to be
reprocessable,
Remanufactured Separating, Inspecting, not reprocessable
Sorting, Testing, Cleaning,
Valuation
Recycle the
component
Figure 4: The Process in the Disassembly Phase Inventory
6.2. Disassembly phase disappeared due to the earlier decision in the pre-
disassembly phase. In this case, the status of the
When the decision is made to remanufacture a core or component is important; for example, a component might
cannibalize a core for components, the cores are sent to be reusable, but not appropriate. Take, for example, a
disassembly. After the component has been disassembled battery from a forklift truck in the BT case. Here, the
from the core, another important decision must be made battery is in working condition, although it has only 30 %
regarding the state of the components: if they are of its normal capacity. Installing this battery in a
reusable, reprocessable, or not reprocessable for a remanufactured product will mean that the customer must
reasonable cost. Depending on the state of the component, change it in a short period of time, potentially creating a
there is an option to reuse it as is, to reprocess it or to warranty claim or badwill. Alternatively, the battery could
discard it (See Figure 4). go through a reprocessing activity that, for example,
The disassembly can possibly involve a number of would change out a cell of the battery and return the
different activities where different separating operations battery’s work capacity to 60 %, or the battery could be
are the most prevalent. In the Volvo Parts case, the recycled. Some customers might demand the highest
complete core is disassembled. In the disassembly standard; in that case, a new battery would be the only
operation, the components are inspected to determine if option. As for the core, this question depends on many
they are reusable or reprocessable; if not, they are sent to different aspects, such as:
recycling. Some of the components may be reusable or
reprocessable, but are still recycled. For example, all of o Potential costs for reprocessing as well as the cost
the case companies have policies in place to always for new components
exchange certain components. These policies can be o Inventory levels and values of components in the
driven by reliability or security reasons, for example. reassembly phases (new, used and reprocessed
Some of the components, however, might be out of date components)
when a product is being upgraded to a higher innovation o Lead-time to reprocess or to purchase new
level, as in the Volvo case. components
In the BT case, the forklift truck is disassembled o Minimal order quantities in relation to future needs
according to the need of replacement/reprocessing of and the risk for obsolescence
individual components. This implies to that the entire core o Quality level needed by the customer
does not have to be disassembled; the level of o Availability of an upgraded version of the
disassembly also depends on the status of the individual component
components.
If it has been determined that some components are to 6.3. Reprocessing phase
be reused after disassembly, no reprocessing is done.
Depending on the material handling solution, the The components that are planned to be reprocessed can
components can be stored in an inventory before undergo a variety of different operations that aims to
reassembly (as in the Scandi-Toner case) or be kept in a repair or raise the quality of a component. Although in
“reassembly kit” with the components that are to be some cases, the component might be found non
reprocessed (as in the Volvo Case). reprocessable, and it is recycled. An example of this is a
Regarding the decision of what to do with the hidden crack in the housing of a brake caliper.
components, the same type of reasoning as with the core In some cases, the reprocessing activities might make
is applied, although some of the insecurities have changes in the component that makes it incompatible with

Reused Components

Disassembled Decision
Reprocessing Reassembly
Components Point 3

Cleaning, Machining, Gather components,

Painting, Inspection, Set up for reassembly
Testing New
Recycle Components
Inventory
Figure 5: The Process in the Reprocessing and Reassembly Phase
its former core or a component. An example would be long, meaning that components might not be available in
when a cylinder in an engine is damaged and can be time. Some components can also be cannibalized from
reprocessed by expanding the diameter, with the result cores if the new component cost is too high.
that another diameter for a piston has to be used. When One of the major obstacles in controlling the
doing so, the complexity of the process increases since the remanufacturing is that it is not possible to know how
bill of material (BOM) is changed (due to the difference many components can be used again or reprocessed.
in piston diameter). The changes made demands some Purchasing and storing new components can solve this
sort of documentation and administration. For this reason, problem; if the need arises, they are accessible and can be
UBD chooses not to remanufacture a product if it changes used directly. This solution, however, is not ideal for all
its BOM, as this creates excessive administration. This is components, because it demands inventories, and herby
not the case for all cases. Volvo uses “over dimensions” capital, and it could create obsolescence problems. To
as in the cylinder example. The difference between Volvo order all the new components in the reassembly phase
and UBD is that an engine has a higher value than a brake means that the lead-time would be very long if a
caliper, and thereby the additional cost is compensated component takes a long time to arrive. One solution
for. made by Volvo is to “forecast” the “material recovery
The extent of component reprocessing varies rate” of each component; this is set by experience. Based
significantly between the different cases. The trend is that on this, a percentage of the components are ordered for a
the more value in each component, the more feasible it is specific order. An example of this can be when 12
to reprocess; this depends, however, on the desired level engines are to be remanufactured and 40% of the 12
of quality demanded by customers. camshafts are predicted to be recycled; in this case, the
company would order 5 new ones. This, of course,
6.4. Reassembly phase depends on the volume, the value of the product and the
lead-time for an order of new components (for a detailed
In the reassembly operation, the individual components discussion, see [8]).
that have been separated from the core need to be
reassembled. This can be done in four ways: with a 6.5. Post-assembly phase
reprocessed component, with the replenishment of a new
component, with a reused component or with a When the core is reassembled, it is ready to become a
component taken from a cannibalized product by ordering finished remanufactured product. In this phase, the
a disassembly operation. The new component can be an products are put into working order. For example,
exact copy of the original component or an upgraded one, software might be upgraded to the latest standard (as in
depending on the customer needs. the Volvo case). The functionality might also be tested.
In the UBD case, all the components that are to be Other operations can include painting and preparations to
reused and have been reprocessed are stored together. send the remanufactured product to the customer
Here, the challenge is to have the right number of each
component. The missing components are replaced with 6.6. Decisions in the Process
mostly new components, but in some cases with used
ones. Another alternative used by Volvo is that new, used From the different phases described earlier, three clear
and reprocessed components are stored together, and the decision points exist:
specific amount is gathered from this common inventory.
The advantage of the UBD scenario is that some material 1. Whether to remanufacture, cannibalize
handling is avoided. In the Volvo case, the gathering components or recycle the core
process is easier. 2. Whether to reuse, reprocess, or recycle the
Regarding the decision of what components to use in individual components
the reassembly of the remanufactured product, the used 3. Which components are to be reassembled into a
components should be used in first hand, because, ideally, product
they should have the lowest cost (if not, they should have
been recycled in earlier phases). Even so, some of the For the planning of the process, however, there is
components might need to be replaced with a new another important decision to make:
component due to differences in customer needs (as, for
example, in the battery case presented earlier). The gaps 4. Whether to plan according to the need for
in the product that lack components need to be filled with products or the availability of cores
other components; here, the first priority are the
reprocessed components, if they are available. It is From a planning perspective, this can be approached in
possible that the lead-time for reprocessing may be too two different ways: from the reassembly point of view
(plan according to the need of products) and from the 7. Conclusions
disassembly point of view (plan according the availability
of cores). Remanufacturing is a complex business. When
In the Volvo and BT cases, planning was done controlling a remanufacturing process, there are many
according to the need for products, whereas UBD and factors and decisions that must be considered. This paper
Scandi-Toner planned according to availability. In the has presented solutions and ideas that can aid in the
planning according to the need for products, the focus was management of the remanufacturing process.
on the number of remanufactured products to be
produced. In the planning according to availability, the
8. Acknowledgement
number of cores that would enter the remanufacturing was
the focus.
This research has been conducted within the project
“Sustainable Systems and Products for Reuse and
6.7. Planning for the need of products Remanufacturing”, and it funded by VINNOVA, the
Swedish Agency for Innovation Systems. Special thanks
In the Volvo and BT cases, each product had a low to research colleagues Mats Björkman, Jörgen Eklund,
volume and a high value. The supply and demand of cores Mattias Lindahl and Erik Sundin at the Department of
and remanufactured products was also quite even, due to Mechanical Engineering (Linköping University) and
the supply chain characteristics. Inga-Lill Engkvist and Rickard Svensson at the
The planning focus is on the number of Department of Health and Society (Linköping
remanufactured products to be produced; this means that University).
the number of cores to enter the process is variable.
However, in both the Volvo and BT cases, there was more
or less a 1:1 relation between cores entering and products
References
[1] Sundin, E., (2004) Product and Process Design for
exiting the process. In both of these cases, a MRP Successful Remanufacturing, in Production Systems,
environment was used where the cores were sent for Department of Mechanical Engineering. Linköping
remanufacturing and the components that were recycled University: Linköping, Sweden.
were exchanged with new components or cannibalized [2] Guide Jr., V.D.R. (2000) “Production planning and control
ones. These components were taken from an inventory or for remanufacturing: industry practice and research needs”
ordered depending on the situation. Some of the Journal of Operations Management 18: 467-483.
components were also reprocessed, but that depended on [3] Svensson R., Östlin J., (2004) “Material control in the
if there was capacity in the reprocessing operations. In all, remanufacturing industry: a study of the inventory system
this can prove to be an expensive process, especially if the at Volvo Parts in Flen” MSc. Report. Linköping
core to be remanufactured requires a great number of new University, Department of Production Economics, LiTH
components. Here, cannibalization can prove to be an IPE Ex arb 2004:691, (in Swedish).
attractive solution to decrease the cost for components, [4] Steinhilper, R. (2001) “Recent Trends and Benefits of
especially when considering the cost of cannibalization. Remanufacturing: From Closed Loop Businesses to
Synergic Networks” in Proceedings of EcoDesign 200,1
6.8. Planning according to availability of cores Second International Symposium on Environmentally
Conscious Design and Inverse Manufacturing, pp 481-488
UBD and Scandi-Toner both had high volume and low [5] Inderfurt, K. and Teunter R., H., (2001) “Production
planning and control of closed-loop supply chains”
value, which was the opposite of the Volvo and BT cases. Ecometric Institute Report EI 2001-39.
Both UBD and Scandi-Toner use a reorder-point system
[6] Bröte, S. (1998) “Disassembly systems – Process Analysis
for initiating remanufacturing orders. The order is
and Strategic Considerations” Licentiate Thesis, in
dependent on the number of cores that are available in Production Systems, Department of Mechanical
inventory when the order arrives. These are then sent Engineering. Linköping University: Linköping, Sweden.
through the process, and the number of remanufactured
[7] Östlin, J (2005) “Effectiveness in the Closed-Loop Supply
products that exit the process are variable, but this Chain: A Study Regarding Remanufacturing” in
variability is not that important from a control perspective Proceedings of IEEE International Engineering
since the use of this reorder point system is connected to a Management Conference (IEMC 2005), St Johns, Canada
make-to-stock policy. However, if the demand for [8] Östlin J. and R. Svensson (2005) Material handling in the
remanufactured products is high, it is important to get as remanufacturing industry: a case study of a diesel engine
many cores out from the system as possible; if the supply remanufacturing process, Proceedings at 2005
is stronger, then the opposite is true. International CIRP LCE Seminar, Laboratorie 3S,
Grenoble, France, April 3-5.
 PAPER V

Östlin, J., Mähl M., Sundin, E and Björkman, M (2007) “Lean Remanufacturing
– a Study Regarding Material Flow” to be submitted to a scientific journal
Lean Remanufacturing – a Study Regarding Material Flow

Johan Östlin, Maria Mähl, Erik Sundin and Mats Björkman

Division of Production Systems, Department of Management and Engineering,
Linköping University, Sweden.

1 Introduction
Sustainability is an important issue in most of today’s economies, as product take-back and product
recovery laws have been implemented in many nations (Pyke et al., 2002). Together with these
legislative demands from governments 1 and a growing interest for a “green” image and environmental
care, there are many economic incentives for companies to take interest in product recovery and the
after-market. Remanufacturing, the focus of this paper, has evolved as a great business opportunity,
especially given the European market’s enormous growth potential. In the USA, the remanufacturing
industry is a major business sector. The automotive industry in the US sells approximately 60 million
remanufactured automotive products, compared to 15 million products in Europe for an equivalent
stock of vehicles (Seitz et al., 2004). However, volumes and revenues for remanufacturing are
characterised by high variability and are difficult to forecast, since the demand could be described as
low-volume with immense fluctuations (Ashenbaum, 2006; Guide, 2000; Dowlatshahi, 2005;
Steinhilper, 1998).

In remanufacturing, worn-out, discarded or broken product/components, referred to as “cores”, are

being restored to a condition with the same performance as a new product, but produced at a lower
cost (Amezquita et al., 1995). Compared to manufacturing, the remanufacturing batch sizes are
normally smaller, the degree of automation is lower and the amount of manual labour is higher
compared to that in a manufacturing plant (Steinhilper 1998). Remanufacturing is a complex business
due to the high degree of uncertainty in the production process (Guide, 2000; Seitz et al., 2004), which
is primarily caused by two factors: the quantity and quality of returned products, i.e. cores (Atasu et
al., 2005; Umeda et al., 2005). This uncertainty also creates variations regarding capacity
requirements as well as the yield of the process. Guide (2000) defines these factors in greater detail
and presents altogether seven characteristics of remanufacturing that are found in the current research
literature and which increase complexity. These characteristics are: the uncertain timing and quantity
of returns; the need to balance returns with demand; the disassembly of returned products; the
uncertainty in materials recovered from returned items; the requirement for a reverse logistics
network; the complication of material matching restrictions; and the problems of stochastic routings
for materials for remanufacturing operations and highly variable processing times.

Just as for manufacturing companies, the remanufacturing industry is also subject to increased
competition in markets and pressure from customers and suppliers. World-leading manufacturing
companies are in a state of change towards a different view of manufacturing. The pressure on a
company can be observed from its customers, who demand customized, cost-reduced and quality-
enhanced products enabled within short lead-times, and from its suppliers, who demand reduced
inventory levels and increased demand variability (Mentzer et al., 2001). To respond to these
demands, Lean Production, which is said to increase productivity, decrease lead-time and costs and
enhance quality, is widely adopted (Sanchez et al., 2001). The concept of Lean Production, developed
by Toyota, is in its most basic form the systematic elimination of waste - overproduction, waiting,
transportation, inventory, motion, over-processing, defective units - and the implementation of the
concepts of continuous flow and customer pull (Womack et al., 1996). In a study made by Sundin

1
Examples of legislative take-back laws are derived from different EG directives such as the Waste Electrical
and Electronic Equipment Directive (WEEE), Directive 2002/96/EC, and the End-of-life Vehicles Directive
(ELV), Directive 2000/53/EC.

1
(2004) using a Rapid Plant Assessment (RPA) ranking methodology investigating how lean
remanufacturing companies are compared to classic manufacturing companies, it was found that the
additional complexities regarding material flows in remanufacturing may be a limiting factor for
remanufacturing companies in the application of Lean production principles. Seitz and Peattie (2004)
concluded the same results in a study where differences in comparison to manufacturing were
observed. Further research is desired by both academy and industry. (See e.g. Dowlatshahi 2005)

The previously presented research clearly shows that remanufacturing companies generally perform
poorly in material flow and material handling issues. One reason identified for this was that the
remanufacturing process is subject to uncertainties in many different forms. The objective of this
paper is to identify How lean principles for material planning and production planning can be applied
for remanufacturing?

2 Previous Research
2.1 Previous research of Lean Production in Remanufacturing
The previous research in applying lean production principles in remanufacturing is scarce. The only
known previously reported study in this area is a case study by Amezquita et al. (1998) that focuses on
the remanufacturing of an automotive clutch. The main results from this case study were the
development of techniques for lean automation and different methods for reduction of setup times.
Another conclusion from this study is that different reprocessing technologies – e.g. additive
technologies – need to be developed to be able to apply several lean principles, e.g. a one-piece flow.

Remanufacturing research is relatively young; one of its pioneers was Robert Lund, who conducted
one of the the first studies in 1978 in the USA. In 1994, Brennan et al. observed that the technical
literature was scarce and existing articles only dealt with those topics on a general level. Guide &
Srivastava (1997) recognized a growing demand for extended research in the remanufacturing
production planning and control area. Resent findings by Seitz & Peattie (2004) and Dowlatshahi
(2005) state that research is still conducted on a general level. Although said to have a promising
future, studies by for example Nasr (1998) show that the remanufacturing industry’s growth possibility
is threatened and limited by the few techniques and technologies specially developed for
remanufacturing.

2.2 The Remanufacturing Process

The process within which the used product is remanufactured is called the remanufacturing process. It
is an industrial process where the core (defined here as a used/broken product suitable for
remanufacturing) is returned to the remanufacturer, where it passes through the typical steps of the
remanufacturing process - inspection, disassembly, component reprocessing, reassembly and testing -
to ensure it meets desired product standards (Sundin, 2004). Alternatively, Steinhilper (1998) arranges
the process in the order of disassembly, cleaning, inspection, reconditioning, reassembly and testing.
Disassembly and cleaning of used products/components can be viewed as new technologies on the
industrial level, where industry itself has a pioneering role in setting new standards and creating new
solutions. In disassembly, the product is disassembled to the single component level. The components
are first identified and inspected, and the decision is made whether the individual components are
reprocessable, can be reused in their current state or if they should be scrapped or recycled. Oil, dirt
and rust can complicate disassembly operations and call for new solutions to be developed.
Automation is rare, even though some experiments with robots have taken place in recent years. In the
disassembly processes, the cores can also be cannibalized for components. Component cannibalization
is when components are separated from the core and used to repair or rebuild another unit of the same
product (Rogers et al., 1998). Thereafter, during inspection, it is decided if and how the components
should be reprocessed. The uncertainty of the quality of a core, i.e. how many of its components can
be recovered, is measured using the metric Material Recovery Rate (MRR) Equation (1) below (Guide
2000).

2
 Number of reusable components
MRR = (1)
Number of total components

According to (Steinhilper, 1998), the cleaning operation is the most time consuming, and entails much
more than just removing dirt; it also means de-greasing, de-oiling, de-rusting and freeing components
from paint. For this complex task, several methods have been developed for both subsequentl and
concurrent execution, including sand blasting, steel brushing, baking ovens, cleaning petrol, chemical
and hot water baths, etc. Following the cleaning operation, reprocessing has the aim of repairing or
increasing the quality of core. Geometrical change of the components through metal cutting like
grinding will change the dimensions. Sometimes after reprocessing, for example, a highly worn-out
product will not match the standard tolerance, such as the diameter of a crankshaft, and must be
scrapped. In the reassembly operation, the separated components are assembled. Reassembly can be
done with components that are either reused, reprocessed, taken from previous cores (i.e. cannibalised
components) or new components. The reassembly of components is often done with power tools and
assembly equipment as in new product assembly. Thereafter, the final testing of the product is
executed. During the reprocessing and operations, the component’s quality is continuously assured
through applied measurements. (Steinhilper, 1998)

Bras and Hammond (Sundin 2004) use an aggregated categorization of cleaning, damage correction,
quality assurance (inspection and testing) and component interfacing (disassembly and reassembly).
Arranging the steps in a standardized order, however, could be misguided, since every
remanufacturing process is unique. For example, inspection should be performed before disassembly
and cleaning in order to prevent cores with too many fatal errors to enter the production flow;
conversely, inspection could be performed with greater detail after the core has been cleaned (Sundin,
2004). Östlin (2006) divides the remanufacturing process into the five phases of pre-disassembly,
disassembly, reprocessing, reassembly and post-reassembly. Within these generic phases, there can be
multiple operations where the order and the active operations in the process are dependent on the
characteristics of the individual product. For example, inspection is an operation that can take place in
the pre-disassembly, disassembly and reprocessing phases.

2.3 Lean Production

Taiichi Ohno is often regarded as the founder of the Toyota Production System (TPS). TPS evolved
out of need, as the marketplace in post-war Japan required small quantities of cars to be produced in
many varieties, and this created a new type of production system at Toyota Motor Company. It was
essentially the further development of the Ford principle of mass-producing the same automobiles in
large production runs. Womack et al. (1990) coined the phrase Lean Production to describe TPS when
they printed the results of a five-year study in the automotive industry in the book “The Machine That
Changed the World”. Lean is in its essence an approach that eliminates waste by reducing costs in the
overall production process, in operations within that process, and in the utilization of production
labour. The focus is on making the entire process flow, not the improvement of one or more individual
operations. According to these authors, “waste” can be categorized as anything that the customer is not
willing to pay for (Womack et al., 1996).

2.4 Material Flow in Lean Production

The principle of Lean Production is to target these wastes in different ways with the aim of reducing
them. Figure 3 illustrates an implementation plan of different Lean Production methods covering a
vast number of issues in a manufacturing business. As the focus of this paper is not targeted towards
Lean Production in general, but rather specifically towards material flow, the forthcoming analysis
will address only the relevant aspects of Lean Production that have the greatest impact on the material
flow. These methods can be grouped in the following generic groups: (1) production to customer
orders (customer pull); (2) create a levelled workload; (3) one-piece flow; (4) reduced setup times
(costs for order preparation); (5) takt time; (6) just-in-time deliveries; and (7) stable production
processes.

3
Figure 3: A roadmap on how to accomplish Lean production using Lean production methods. Adapted from
Jacobs et al. (2006).

3 Methodology
3.1 Empirical Investigations
The empirical data for this study is linked to an ongoing research project, “REKO 2 ” (2006), which is
an explanatory multiple-case study concerning various types of products. The research conducted for
this paper has two distinct phases: the first is a larger scale qualitative study; the second, a more
detailed, quantitative study. The main source of data collection for the first phase was semi-structured
interviews. Prior to the interviews, a theoretical literature review was performed; this review was the
basis for the formulation of the interview questions (Östlin, 2006). The questions formulated for this
study were semi-structured, and the respondents were given a chance to go in to detail regarding the
answers, i.e. the questions were prepared without specific sequence or answering options (Jacobsen,
1993). After the formulation of the questions, a pilot study was made to verify the validity of the
questions. The main source of data for the case studies was interviews, each of which was recorded,
and the length of which varied from 1 to 4 hours depending on how much information the respondents
had to contribute with. Typically, the interviewees were facility managers, production managers,
controllers and technicians. Other sources of data were direct observations made during the study
visits to the companies, as well as documentation in the form of photographs, brochures and other
information (independent as well as issued from the case companies). These sources were mainly used
for data triangulation.

The case company selection was made from companies that were found in the study of the
remanufacturing industry in Sweden by Sundin et al. (2005). In this study, a number of potential

2
The REKO project was sponsored by VINNOVA, the Swedish Governmental Agency for Innovation
Systems. (See www.vinnova.se for additional information.)

4
companies were found. The choice of case companies was made based on variables concerning their
annual remanufacturing volumes, as well as product complexity and remanufacturing process.

According to Eisenhardt (1989) there is no ideal number of cases, though a number between 6 and 10
is good for theory building. Empirical data was gathered primarily from different Swedish
remanufacturing companies. The companies selected for the case studies were:

Case Company Remanufactured Company Relation to original equip-

Products Size ment manufacturer (OEM)
BT Industries Forklift trucks Large OEM
Scandi-Toner Toner cartridges Small Independent
Swepac International AB Soil compactors Medium OEM
Tetra Pak and Filling machines Large OEM
Wahlquists Verkstäder
Volvo Parts Diesel Engines Large OEM
UDB Production Automotive components Medium Contracted and independent

It was found that this selection of case companies was suitable, since it provided good in-depth
knowledge to fulfil the purpose of the study. It was determined that additional cases would take too
much time to investigate; this is, according to Voss et al. (2002), an important skill in theory building
from case studies – knowing when to stop.

The second phase of the study was an in-depth quantitative study of a car engine remanufacturer. To
assess material flow, five major components in a car engine were assessed. For the collection of data, a
validated Value Stream Mapping (VSM) methodology has been used (Rother & Shook, 2002).
Supplementary interviews, both semi-structured as well as unstructured, were carried out with
operators, production planners and management. The analysis of the remanufacturing process was
based on the analytical framework developed by Östlin (2005). The analysis of the collected data
explored what characteristics of remanufacturing resulted in waste in the phases of pre-disassembly,
disassembly, cleaning, reprocessing, reassembly and testing, as well as what hindered the
implementation of any lean principle in each of the phases.

4 Lean Remanufacturing Implementation

The analysis in this study regarding the material flow is focused on two categories: material and
production planning. In this study, material planning is referred to as the coordination of incoming
material, both cores and new replacement components, with the customer demand of output.
Production planning is defined as the coordination of the different processing phases (pre-disassembly,
disassembly, reprocessing, reassembly and post-assembly).

4.1 Material Planning on a Aggregated Product Level

In the remanufacturing environment, one of the characteristics is that the demand for remanufactured
products (output) and the returns of cores (input) do not always correlate. The rate of product returns is
dependent on the characteristics of the product life cycle. The balance between product returns and
demands for products is a function of many variables, where the rate of technological innovation and
the expected life of a product are the major influencing properties. For further details regarding the
research about balancing supply and demand, see Guide) 2000 and Umeda et al. (2006).

There are principally two ways to plan material flows: (a) planning for the demand of products and (b)
planning according to availability of cores. This is illustrated in Figure 2.

5
 Remanufacturing Remanufacturing
Input Process Output Input Process Output

? X X ?

(a) Planning for remanufactured (b) Planning according to

product demand the availability of cores
Figure 2: The aggregated planning perspective

Planning for remanufactured product demand

In the Volvo, Tetra Pak, Swepak and BT cases the planning focus was on the number of
remanufactured products to be produced; this means that the number of cores that exit the process are
fixed and the number of products that enter the process are variable. For example, the production
planning might demand four products to be remanufactured, but six cores enter the process. Hence, the
extra two cores that enter the process are cannibalized for components instead of being
remanufactured. However, in the observed cases there was more or less a one-in and one-out (1:1)
relation between cores entering and products leaving the process. This was especially true when the
products were new on the market; that is, when the supply of cores suitable for cannibalization was
low. Later in the lifecycle, when cores where easier to find and less expensive, the companies used
cannibalization as a planning option.

Planning according to availability of cores

Both UBD and Scandi-Toner used a reorder-point system
for initiating remanufacturing orders. The planned All components
remanufacturing orders were dependent on the number of
cores that were available in inventory when the order
arrived. These were then sent through the process, and Yes
Component Order according to
the numbers of remanufactured products that exited the always replaced? confirmed needs
process were dependent on the number of products that
could be remanufactured economically. This variability
was not that critical from a material control perspective, No
since they were used to fill up an inventory (although
variation in capacity usage does influence production Yes
Reusable or re-
planning, as discussed in the next section). Hence, a processable within Reuse
proposition is that material planning according to lead-time?
availability of cores can be preferred in make-to-stock
situations, or when cannibalization of components from a No
core is a viable solution for component sourcing.
Yes
Can needs be Order after
4.2 Material Planning on confirmed within inspection
lead-time?
Component Level
On the aggregated level, the material planning problems No
were focused on balancing demand for remanufactured Components need to
products and the supply of cores. On the component be ordered according
level, the problems addressed the uncertainty in the to forecasts
number of components recovered from the returned Figure 3: Material planning categories
items. The components that were broken or faulty needed on a component level
to be reprocessed or exchanged by a new component.
From the material planning perspective, the components can be separated into different planning
categories. These categories are: (1) components that are always replaced; (2) components that can be
reused or reprocessed; (3) components that are found unusable, but can be ordered before the

6
reassembly due-date; and (4) components that are found unusable, but have to be ordered according to
forecasts (see Figure 3).

Components that are always replaced

Some components in a remanufactured product are always replaced with a new component. Normally
these components are wear-and-tear components, for example, pistons and roller bearings in an
engine. The components in a remanufactured product can also be upgraded to the latest standards; one
example are the electronic control units in the filling machine (Tetra Pak) case that are replaced by
components of the latest standard. When components are always replaced, there is no need to consider
the specific characteristics of remanufacturing, as for example variations in the material recovery rate
(MRR), since no components in this category are reused. As a result, all of these components can be
sourced independently of what happens in the forthcoming remanufacturing process. Material
planning of this category of components is the most predictable. When the customer orders for
remanufactured products are issued, the exact demand for components can be calculated without any
need for disassembly or inspection, just as in a manufacturing situation. Still, some complicating
factors might cause planning problems. One practical example of this is that ordering lead-times for
new components can be longer then the time between confirmation of a remanufacturing order and the
reassembly start date. In these situations, the components have to be ordered according to forecast and
placed in inventory. Minimal order quantities accepted by vendors can also pose disadvantages when
being higher than the confirmed demand for components (confirmed demand of products refers to the
orders from customers opposed to orders generated by forecasts); as a result, some of the components
are ordered according to forecasted demands. The different planning horizons for each of the
component categories are illustrated in Figure 4.

Pre-disassembly
Disassembly
Reprocessing
Reassembly Post-
reassembly

Reassembly Remanufacturing
Forecasted orders Confirmed orders due-date due-date

Components that are always

replaced
Components that possibly can be
reused or reprocessed
Components that possibly can be
ordered within the lead-time
Components that can not be
ordered within the lead-time
Figure 4: Planning horizons for the different component categories

Components that can be reused or reprocessed

These are the components that in some situations can be reused or reprocessed; this decision is
dependent on the quality of the single component. An example of these components is broken
housings for the brake callipers (UBD case) that can be reprocessed is some situations. The ratio
between reusable and non-reusable components is described as the material recovery rate (MRR), as
shown in Equation 1. For these components, the confirmed demands are not known until the
components have been inspected and approved for reuse/reprocessing. For some types of components,
the status of the component can be assessed before disassembly is undertaken (pre-disassembly phase).
For other components, the components might need to be disassembled from the core before
inspection/testing can be done (disassembly phase). From the planning perspective, the result is a
shorter planning horizon for the components inspected in the disassembly phase. For the components
that are being reprocessed, the reprocessing operation has to be done within the timeframe between

7
disassembly/inspection/testing and the reassembly is undertaken; this can be referred to as the
reprocessing window. If the components can be reprocessed before reassembly is undertaken, they can
be reused in the same core; otherwise these components need to be sourced in a different manner, e.g.
from a reprocessed component inventory or as new components. Therefore, performing inspection as
soon as possible can increase the timeframe for both ordering new components and the time available
for reprocessing.

An example of the impact of the reprocessing window is taken from the remanufacturing of engines at
Volvo Parts, as illustrated in Figure 5. In this case, the engines are remanufactured according to
customer orders. The lead-time for customer delivery is three weeks. Hence, all customer orders
within a timeframe of three weeks before the remanufacturing due date are confirmed. This three-week
timeframe with confirmed customer orders is referred to as the “freeze window” in the lean literature.
Customers also provide demand forecasts that consider future demands outside of the freeze window.
The needed cores are delivered to the facility before the 3 weeks of freeze window, according to
customer forecasts. Reassembly of one weeks’ production (deliveries to customers are performed once
a week) are then planned to start about 1.5 weeks before the delivery due date. The disassembly of
cores is planned to begin three weeks before the remanufacturing due date. As a result, the
reprocessing window becomes less than 1.5 weeks, depending on how soon the disassembly operation
can be performed. In the Volvo study, a value stream mapping investigation showed that some of the
components could not be reprocessed within the reprocessing window, mainly due to high amounts of
work-in-process. The main reasons for the high amount of work-in-process were unmotivated high
batch sizes in combination with sequential operations with long throughput times, for example
cleaning and drying operations (see the forthcoming section about production planning for additional
details.)

Cores delivered to the facility Waiting time for

delivery, used as
Waiting for disassembly security lead-time
Reprocessing
Disassembly window
Reassembly
Weeks to due-date

5 4 3 2 1 Due-date
Forecasted orders Confirmed orders
Figure 5: An example of the remanufacturing lead-time and the effect on the reprocessing window

Components that can be ordered within the lead-time for reassembly

This category of components is the components that have been inspected/tested and found faulty, and
which are not economically viable to reprocess. In this situation, the preferable situation is to order the
lacking components and have them delivered before the reassembly due date. If the inspection can be
performed as early as possible, the chance to order according to confirmed need of components is
higher. The information about confirmed component demands can be used to create a customer pull
for this category of components.

Components that cannot be ordered within the lead-time for reassembly

The components in this category are the most difficult components to plan. The lead-time of these
components is longer than the time available before reassembly. The components in this category can
also be divided in to two sub-groups. The first group is the components that that are ordered according
to the forecast of remanufacturing orders. In the Volvo example, this would be components that have
to be ordered three weeks before the due date (outside of the freeze window). The second group is the
components that can be ordered as a result of confirmed remanufacturing orders (within the freeze
window); in the Volvo example, these are the components that can be ordered three weeks before the
remanufacturing due-date and delivered before the reassembly is undertaken. Ordering components
according to demand forecast for remanufactured products is, in comparison, a less favourable option

8
since this group of components is sensitive to both uncertainties in future demand for remanufactured
products as well as uncertainties in the number of recovered components (those subject to MRR).
When ordering according to confirmed demand of remanufactured products, the uncertainties in future
demand are reduced. From a lean perspective, ordering components without confirmed customer
demand can result in unwanted waste.

4.3 Lean Implementation Solutions for Material Planning

In the previous section, four different component categories were presented, each of which had
different characteristics that complicate material planning. From a lean perspective, it is important to
actively adapt to these characteristics and to develop lean principles that are specific to the
remanufacturing characteristics. Among the categories of components, the one with the worst
implications for lean practice are the components that cannot be ordered within reassembly lead-time
and have to be placed in inventory according to forecasts. One solution to make the remanufacturing
process leaner is to try to transfer these components into the other “better” planning categories. A
company can for example invest in reprocessing technologies and reprocess the component instead of
manufacturing or purchasing it. The result of a reprocessing activity is that components can be moved
to the reprocessable component planning category. The alternatives for adapting lean principles to the
remanufacturing environment found in this study include:

• Reprocessing technologies
• Component inspection as soon as possible
• Cannibalization of components
• Reduction of sourcing lead-time for new components
• Reduction of minimal order quantities
• Expanding the freeze window

Table 2: Proposed solution for material planning and the effects on different component categories
Components that Components that
Components
Components that can can be ordered are ordered
that are always
be reused within the lead- according to
replaced
time forecasts
Can lower the need
Can increase MRR
Reprocessing More components can be for placing
resulting in lower
technologies reused components in
purchasing costs
inventory
More components can Can lower the need
Inspection as be ordered according for new component
soon as possible to confirmed demands inventory
Is a source for reusable
components. Can lower the need
Decreases the need for
Viable for components for new component
Cannibalization with high MRR
purchasing of new
inventory.
components.
Can also generate
unwanted components
Reduction of More components
More components can Can lower the need
ordering lead- can be ordered
be ordered according for new component
time and minimal according to
to confirmed demands inventory
order quantities confirmed demands
The reprocessing
More components
window is increased. More components can Can lower the need
Expanding the can be ordered
More components can be be ordered according for new component
freeze window according to
reprocessed and reused to confirmed demands inventory
confirmed demands
in the original core
Have to be used for Have to be used for Have to be used for Have to be used for
components with components that cannot components with high products that cannot
Inventories high minimal be reprocessed within minimal ordering be ordered within
ordering quantities the reprocessing window quantities ordering lead-time

9
In Table 2 a summary is given regarding these different ways of implementing a more lean material
flow and the effects on the individual component categories.

Reprocessing technologies
Reprocessing aims to process broken or worn components back to original specifications or better. By
doing so, the costs for new components can be reduced. Reprocessing is generally an advantageous
strategy for components with high purchasing/manufacturing prices, long purchasing lead-times and
when there is low annual demand for new components to be kept in inventory. One disadvantage with
this solution is that the possibilities for using reprocessing technologies are limited to some specific
areas. Most of the reprocessing technologies that have been observed are additive technologies that
add new material to broken or worn-out materials; these components are then machined to original
specifications. The use of additive technologies is frequent in, for example, the automotive industry,
with many mechanical components (as seen for example in the UBD and Volvo cases).

Inspection as soon as possible

One of the major sources for instability in material planning is the effect of insecure material recovery
rates (MRR). Planning according to a preset MRR is a frequent practice at remanufacturing
companies, but from a lean perspective, preset MRR should be avoided. The main reason for using
preset MRR is that components cannot be inspected before replacement components have to be
ordered (due to e.g. long sourcing lead times). Therefore they have to be ordered in beforehand
according to a preset MRR. If components can be inspected earlier, the time gap between inspection
and reassembly can be extended. The earlier inspection can be undertaken, the more components can
be ordered according to confirmed demands on a component level. The result of this is a higher
opportunity to generate a customer pull. One major obstacle in many cases is that the status of the
individual components cannot be inspected until disassembly is undertaken. Different techniques, such
as on-line monitoring and other monitoring devices, can be used to communicate faulty components
and therefore ease the material planning.

Even though the inspection operation gives information that is useful for the forthcoming material and
production planning (see the following section), the studies at the companies show that this
information is not collected and used as wildly in practice (e.g. as in the Volvo case). The main reason
for this is that there are no efficient ways of gathering and analyzing the information, and that the cost
for administration is perceived as greater than the gains. One reason for this is that the use of MRR
calculations for future new component demand shows a “good enough” result. Another important
insight is that even if inspection can be performed earlier, the sourcing lead-times will still be too long.
Another limiting factor is the minimal ordering quantities that force the remanufacturer to order
batches of components that also cover forecasted demands. As a result, the category of components
that can gain the most planning advantages from inspection operations are components with low
sourcing lead-times and low minimal order quantities, which instead of being kept in inventory can be
ordered just-in-time.

Cannibalization
Cannibalization of components from a core is a debated subject. The principle of cannibalization is
based on the two scenarios. In the first scenario, a demand for some components arises and all of the
components from a core are disassembled. If the entire core is disassembled it generates a lot of
components with no demand that have to be put in inventory for future demands or scraped. In the
second scenario, the cores are kept in inventory and when the demand for component arises a specific
component is disassembled from the core. After the disassembly of the component, the core is placed
in the core inventory again. When specific components are taken from a core it generates an
administrative problem of keeping track of what components that have been taken from what core.

For cannibalization to be an option, it must first be an economically viable solution for product
recovery, meaning that the cost savings of cannibalizing a core for components is higher than the gain
from other product recovery options. These options can e.g. be remanufacturing the core or selling the
core on the second-hand market. In practice, this means that for cannibalization to be a viable option

10
there has to be an excess of cores on the market compared to the demand of remanufactured or
reusable products. This situation is mostly common when the product has been on the market for a
while and the product is in the later phases of its life cycle. However, under specific characteristics
cannibalization is a viable solution. This is especially true for components with a high chance of
retrieving a reusable component from a core (high MRR). In the case of components with a low MRR
the opposite is true; in many cases, several cores have to be cannibalized before a reusable component
can be found. For components with a high MRR, the general demand for new components is generally
low – simply because the component seldom breaks. The low demand for new components will also
generally have a negative impact on the ability to purchase new components at a competitive price and
lead time for sourcing.

Reduction of ordering lead-time and minimal ordering quantities for new components
The long purchasing lead-times for new components are a hinder for employing a just-in-time
principle. If the sourcing lead-times can be lowered, the possibilities for ordering more according to
confirmed demands will increase. Guide et al. (2000) report that the main reasons for long lead-times
are that: 1) components no longer are in production; 2) the component has a sole supplier; and 3) the
purchase orders are small (resulting in unresponsive vendors). Another issue for many components is
that the minimal order quantities force the remanufacturer to order batches of products that are greater
than the actual demands. A result of the minimal ordering quantities is that a part of the order will be
made according to forecast. To be able to reduce ordering lead-time and minimal ordering quantities,
remanufacturing companies have to work together and develop relations with their suppliers.

Expanding the freeze window

To compensate for long ordering lead-limes and long reprocessing throughput times, one solution is to
expand the freeze window. The result is that more components can be ordered according to confirmed
demands. There is also a greater chance that reusable components can be reprocessed within the
reprocessing window and be used in the same core as from which it was disassembled. Negative
impacts are that the ordering lead-time in a make-to-order case will be extended. In a make-to-stock
environment, the amount of safety stock will have to be increased due to an increase in
remanufacturing lead-time.

Inventories
Some components simply have to be put in inventory. Generally, components with long ordering lead-
times have to be ordered and put in inventory according to forecasts. A negative impact on lean
practice is that components are pushed forward instead of being pulled according to confirmed
customer orders. The result is a need for keeping components in inventory, something that also results
in additional costs. Components with long lead-times are normally components that no longer are in
production and with generally low annual demands; as a result, these components become sensitive to
obsolescence. Another reason for storing new components in inventories concerns minimal order
quantities, where orders have to account for future forecasted demands. Still, keeping components in
inventory is a key cost driver in many remanufacturing companies (Guide et al., 2000). In the research
there has been a strong focus on adapting different rule-based optimization models (e.g. heuristics for
determining economic ordering quantities) for inventory management; for an overview, see e.g. van
der Laan (2006).

4.4 Production Planning

To analyse the remanufacturing process from a lean perspective, an analytical framework has been
used that divides the process into five phases: pre-disassembly, disassembly, reprocessing, reassembly
and post-assembly (Östlin, 2006).

4.4.1 Pre-Disassembly Phase

This phase can be described as a preparatory phase before the disassembly process begins. Normal
activities in this phase include inspection, testing and sorting of the cores. The major purpose of this
phase is to receive information about incoming cores in order to control the forthcoming process. One

11
important aspect of this information is decision support in order to decide whether to remanufacture,
cannibalize components or recycle the individual cores.

By inspecting cores and sorting them into quality categories, a capacity control mechanism can be
created. Through the use of different quality categories, “hard” or time-consuming cores are
remanufactured when the capacity utilisation is low; when capacity utilisation is high, “easy” cores are
remanufactured. By sorting cores into different quality categories, a solution for levelling the
workload is created. These quality categories can be used to control the effects of the uncertainty in
MRR as well as the stochastic routings and variable processing times in the forthcoming phases. The
variability cannot be reduced per se, but the information helps to balance the remanufacturing capacity
on an aggregated level.

4.4.2 Disassembly Phase

After the decision is made to remanufacture a core or cannibalize a core for components, the cores are
sent to disassembly. The disassembly phase can involve a number of different operations where
separating is the most prevalent. Other operations in this phase are e.g. inspection and sorting. This
phase is highly exposed to stochastic processing times due to different quality levels of the incoming
cores. Broken, dirty, and rusty cores can be very hard to disassemble, and as a result, the cycle times
for disassembly operations can be highly variable. This variation in cycle time strongly limits the
possibility to introduce lean principles of a fixed takt time and a levelled workload, and it limits a
stable production process. The main reason for not being able to employ a takt time is mainly due to
the waiting time that is generated due to variations in cycle times, resulting in major risk for balancing
losses. Still, the possibilities for a levelled workload are not excluded due to the possibility of sorting
cores into quality categories.

During disassembly, the majority of components can be inspected and the defective components are
scrapped or sent to recycling. The remaining components are then reused or reprocessed. Information
concerning the recovered components can potentially aid in both material and production planning. In
material planning, this will confirm demands of replacement components, as discussed in the previous
section. For production planning, information regarding confirmed reprocessing demands can be used
to balance capacity in forthcoming process phases. Still, just as for material planning, the use of MRR
calculations for capacity planning can be sufficiently shown. One reason for this is the short planning
horizon between inspection and the reprocessing operations that limit the planning possibilities (see
Figure 5 regarding planning horizons in the Volvo Parts case).

4.4.3 Reprocessing Phase

After that the components have been disassembled they are reprocessed (or reused) if the quality level
of the components is sufficient. The reprocessing phase aims to raise the quality of a component. The
components can undergo a variety of different operations in this phase, such as testing, cleaning,
different machining operations, painting, etc., all depending on the type of component.

From a planning perspective, the ideal situation is that the reprocessing operations of each component
should be performed within the reprocessing window (time between disassembly and reassembly). If
components cannot be delivered to reassembly before reprocessing has been initiated, a component
from the inventory must be used (if available). Taking a lean perspective, this will constrain the use of
a customer pull; thus, it is important to design the reprocessing phase so that the highest degree of
components possible can be reused in the same core.

The reprocessing of components can be organised in two principal ways: either in parallel or in
sequence. In the parallel situation, the components from a core are separated and reprocessed
independently of each other. In the sequential situation, all of the components from a core are kept
together and operations are undertaken one at a time. In the observed cases, none of the companies
used purely sequential or parallel strategies; normally, they applied a mix of both. The choice of

12
reprocessing organisation has a substantial impact on important variables such as lead-time and
material-handling efficiency, as illustrated in Figure 6.

Disassembly Reassembly
Disassembly Reassembly
Parallel reprocessing Sequential reprocessing

Figure 6: Differences in accumulated lead-time in the reprocessing phase with a parallel and sequential flow.

Parallel reprocessing
When applying a parallel reprocessing organisation, the minimal theoretical reprocessing lead-time of
the operations becomes equal to the throughput time of the longest component, as shown in Figure 6.
From a material flow perspective, parallel reprocessing has the potential for a low throughput time and
low levels of work-in-process (WIP). The negative aspects are that when separating components from
a core it can create non value adding activities in the form of extensive administration and complex
material handling. Normally, when the individual components are separated from the core they are
placed in material holders that often are specialised according to the type of components. The
components are then transferred to different reprocessing workshops. The possibility to apply a one-
piece flow in a parallel material flow can be limited by material handling. The major limiting factor to
employ a one-piece flow in the Volvo Parts case was the transportation costs between disassembly
cells and the specific reprocessing workshops. The transportation between the workshops generated
material handling costs, which in turn generated a need to batch components from multiple cores
together to reduce the material handling costs. Other material handling activities that result in
“ordering costs” can be the need to switch between specialised material carriers in between product
categories. The reduction of material handling between disassembly and reprocessing workshops is
therefore important to work against a one-piece flow; this is the same logic as when reducing setup
times in machining operations. In practise, high material handling cost can result in material carriers
that contain several days of production before transferred to reprocessing operations. In fact, cases
have been observed with even higher levels, accounting for several weeks of production. Overall, this
has a major impact of the lead-time of the system. The parallel material flow can also generate a lot of
non-value adding activities. When separating the components, the natural link to the bill of materials
(BOM) of the original core is lost and several inspections might have to be done during the
reprocessing operations just to keep track of the components. One solution to avoid multiple
inspection requirements is to attach different types of labels that ease identification, although the
labelling itself becomes a non-value adding activity. Another difficulty with inspection is that cores
with material matching restrictions, meaning that the components from a core need to be used in the
same remanufactured product, will demand additional administration.

Sequential reprocessing
Instead of separating the components, a second solution is to have components from the same core
stored together on a material carrier that is transported through reprocessing in a sequential manner.
The employment of such a strategy poses a number of advantages with respect to the parallel
organisation. Firstly, it reduces the need for identification, sorting and handling in the disassembly
operation. Secondly, it enables a one-piece flow. Thirdly, it reduces setup times in the disassembly
operation because of a reduction in the material carriers needed. Fourthly, it solves the problems with
material matching restrictions. A disadvantage of keeping components together in a material carrier
proceeding sequentially between different reprocessing cells for different components is that the
theoretical throughput time becomes the sum of the throughput times of all components.

For some components, the only opportunity from a lean perspective is to use a sequential material
flow, especially when applying takt time. To apply a takt time, the demand for remanufactured

13
products is broken down into needs for component reprocessing, allowing takt time to be calculated.
This is then compared with the average reprocessing operation times, and the number of workstations
needed is given. The problem arises when the total reprocessing time of a component is lower or
higher than the takt time, as seen in Figure 7. If the reprocessing time of a component is low it will
have to be grouped together and reprocessed sequentially with other components in one workstation. If
a component requires longer reprocessing, the reprocessing will have to be shared among several
workstations if possible. When applying a takt time, one major prerequisite according to lean practise
is to have a stable production process. If not, the risks for balancing losses are high.
Total operation time of the first
Total reprocessing operation times for 4 components component broken down into 3
workstations

3 components
reprocessed sequentially
in 1 workstation
Takt time

Figure 7: Reprocessing of four components and the resulting design of workstations according to a
fixed takt time.

Variation in processing times and effect of the material recovery rate (MRR)
The quality level of the incoming cores has a major impact on the reprocessing phase of the
remanufacturing process, resulting in variances in processing times for example in the cleaning and
machining operations. The variances in quality levels also have an impact on the material recovery
rate. An example of this can be taken from the reprocessing of crankshafts at Volvo. To make the
crankshafts reusable there is a need to smoothen specific surfaces which is done by grinding the
surface material. Depending on the amount of surface unevenness, there will be different processing
times according to the amount of material that has to be removed. In the case of crankshafts, there is
also a limitation of how much material that can be removed. For instance, if the unevenness of the
surface is too high, the component cannot be reused.
Outcome
Variation in
processing times Effect of the material
recovery rate
Processing time

1 2 3 4 5 6 7 8
Component number

Figure 8: Simulation of a operation time outcome of 8 cores in a one-piece flow.

In a situation applying a one-piece flow through the reprocessing operations, the impact of the
variations in processing times and the MRR can be illustrated as in Figure 8. This figure illustrates the
case of a component from eight cores entering one workstation in a one-piece flow. The figure

14
illustrates the unevenness in processing times for the individual objects as well as the effect when the
object has previously been rejected (e.g. in the disassembly phase). From a lean perspective, these
characteristics have a negative impact on the possibilities of implementing principles like a stable
production processes and a levelled workload. The MRR will create a waiting time when the
component from the (scrapped) fourth and the sixth cores are supposed to be reprocessed; this will
then demand WIP buffers. When applying a takt time, the takt is calculated according to the maximum
processing times, resulting in balancing losses when components requiring shorter processing times
are processed. From a lean perspective, the possibilities of implementing principles of a one-piece
flow and takt time are constrained.

Lean implementation solutions for reprocessing operations

In the reprocessing phase, highly variable processing times and stochastic routings imply limitations of
the flow. The effects of the characteristic uncertainty in materials recovered add additional
complexity. These two characteristics can be derived from the quality of the core and have to be
considered, although division of cores into quality categories can partly mitigate the effects of
uncertainties in MRR. From a lean perspective, it becomes important to try to reduce the effects of the
MRR and the variations in cycle time. Some solutions that can be used to reduce the effects are:

• Reprocessing technologies
• Work-In-Process buffers
• Solutions for a levelled workload
o Cannibalisation
o Compensating low capacity with new components
o Quality categories
o Work organisation

Reprocessing technologies
The use of reprocessing technologies can possibly increase the MRR – reducing balancing losses in a
one-piece flow. Taking a one-piece flow perspective, the use of reprocessing technologies can also
result in some negative effects. For example, the use of additive technologies will demand additional
operations where material is added on to the component before machining can be undertaken. These
additional operations are not used on every reprocessed component, thus adding variations in
processing time and the introduction of stochastic routings. Still, the reprocessing activity addresses
the wastes of scraping reusable components and is a value-adding process.

Work-In-Process buffers
Using a one-piece flow with a takt time can create a large amount of waiting time in workstations due
to balancing losses. If the use of a takt time is discarded and buffers of work-in-process can be placed
between workstations, then the buffers can work as a hedge against both variations in processing times
as well as MRR. The negative effects with adding WIP is that it prolongs the throughput of the
components and ads inventory carrying costs. The use of batches in production can be positive for the
components with high variations in MRR or processing times due to the balancing losses that
otherwise can occur.

Cannibalisation
Using cannibalised components as a replacement for scraped components can reduce the effects of
variations in MRR. This will enable the use of a takt time in this respect. It would also provide a
solution for maintaining a levelled workload, at least in the sense that capacity is utilised. The
disadvantage with this solution is that it does not reduce the variations in processing times.

Compensating low reprocessing capacity with new components

When the reprocessing capacity becomes scarce, as for example at remanufacturing volume peaks or
when incoming quality is low (resulting in additional reprocessing demands), there is always the
possibility to source new components or to use cannibalised components that have been previously
reprocessed and put into inventory. The existing inventory of components ready for reassembly (new

15
or cannibalised components) can then serve as security against fluctuations in capacity requirements.
The components that cannot be processed due to lack of reprocessing capacity are then rescheduled to
periods with lower capacity utilisation. The negative effects of this practise are that components are
placed in inventory. Hence, one important question is to decide which components are to be
rescheduled. This is mainly a question of balancing costs for carrying inventory and the costs for
capacity utilisation. Components that are well-adapted for rescheduling can, for example, be low-value
components, with a low risk of obsolescence, high turnover and that also has a high strain on
reprocessing capacity.

Quality categories
The effects of the MRR and variable processing times could partly be suppressed by inspection and
quality categorization, making the capacity demands predictable. Sorting of cores enables a capacity
control, i.e. when there is available production capacity, remanufacturing “hard” or time-consuming
cores, and when capacity utilisation is high, remanufacturing “easy” cores. The negative impact when
applying this principle is that there has to be an inventory of cores available. Therefore, this option is
only suitable in situations where the supply chain characteristics results in a core inventory.

Work organisation
In situations where capacity demands can be increased by increased man hours, a possible solution is
to rearrange operators in the flow according to actual demands. Another solution is to reorganise the
work content so that operators can perform value-adding tasks when waiting time arises, e.g. perform
setups when switching between orders. This can reduce balancing losses and therefore also reduce the
effects of an uneven workload

4.4.4 Reassembly and Post-Assembly

In the reassembly phase, the components are assembled. The components to be assembled can be
taken from four sources: reused components, reprocessed components, new components or
cannibalized components. In this phase, processing (assembly) times are not variable as in the
disassembly and the reprocessing phases. When all components are available for reassembly, the
remanufactured products can be reassembled in a procedure similar to manufacturing. Hence, the
foundations for applying lean principles are equal to manufacturing environments, given that all
components are available for reassembly. Although a general difference is that many more (different)
products and versions are to be handled in the flow, this especially true for the independent
remanufacturers which remanufacture many different brands of products.

Complications in previous phases can result in not all of the required components being available for
reassembly, which in turn will negatively influence stability in this phase. When demands for a new
component are calculated using MRR, problems can occur if the estimated MRR is false. The result in
a false MRR is either component shortage or excess inventories of new components. Therefore, a
correct estimation of the MRR will have a great impact on the inventory management.

The possibility to create a customer pull for new components is also limited, mainly due to long
purchasing lead-times and high minimal order quantities from suppliers. If a purchase lead-time
extends the freeze window for orders, the products must be ordered according to forecasts or kept
stocked, thereby hindering a just-in-time material flow. If just-in-time deliveries and contracts could
be used the principle of customer pull could be realized, although, according to management, the
negotiation position for remanufacturing companies is not high when forming purchase contracts with
suppliers.

5 Discussion and Conclusions

In this paper, the focus has been on the material flow and how different solutions specific to
remanufacturing can make the process and the material flow leaner. In the previous section, the
material and production planning are addressed independently, but the linkage between the two is
strong. For example, one factor that has a major impact on the material flow is the setup of customer

16
order to delivery process, and especially the time between fixed order deliveries for the
remanufactured product. This puts major limitations on the organisation and planning of the
remanufacturing process in general, and sequentially also on the material planning horizons.

Applying lean principles in a remanufacturing environment can be difficult. One foundation for
implementing lean principles is the existence of standardised processes that are stable and predictable.
In the remanufacturing process, the possibilities to realise such a predictable process is limited by the
“normal” variations in quantity and quality of returned cores. The main conclusions that can be drawn
from this study are that the inherent characteristics of variable processing times and uncertainty in
materials recovered have the major negative impact for implementing a lean production process. Vice-
versa, given an accurate supply of cores for reassembly, all the principles of a lean material flow in
normal manufacturing can be implemented in the phases of reassembly and testing.

The analysis section of this paper presents different solutions that can be used to reduce the hindering
characteristics of remanufacturing. Each of these solutions has different effects to different process
phases and categories of components. To summarise, the proposed solutions for making the material
flow lean can be a source of inspiration to the lean practitioners in their daily task of reducing different
types of waste.

References
Amezquita, T., Hammond, R. and Bras, B.A., 1998: Issues in the Automotive Parts Remanufacturing Industry:
Discussion of Results from Surveys Performed among Remanufacturers. International Journal of Engineering
Design and Automation – Special Issue on Environmentally Conscious Design and Manufacturing, Vol. 4, No.
1, pp. 27-46.

Ashenbaum, B., 2006: Designing the Supply Chain for Production and After Market Need 2006. Critical Issues
Report. CAPS Research.

Atasu, A. & Van Wassenhove, L. N., 2005: Outsourcing Remanufacturing under Finite Life Cycles: Operational
and Tactical Issues. ZfB-Special Issue. No.3, pp. 77-94.

Baudin, M., 2002: Lean Assembly – The Bolts and Nuts of Making Assembly Operations Flow. New York:
Productivity Press.

Brennan, L., Taleb, K. N. and Gupta, S. M., 1994: Operations planning issues in an Assembly/Disassembly
Environment. International Journal of Operations and Production Management. Vol. 14, No. 9, pp. 57-67.

Davis, M. M. and Heineke, J., 2005: Operations Management – Integrating Manufacturing and Services. New
York: McGraw Hill.

De Brito, M. P. and Dekker, R. 2003: A Framework for Reverse Logistics. ERIM Report Series Research in
Management Erasmus Universiteit Rotterdam

Dowlatshahi, S., 2005: A strategic framework for the design and implementation of remanufacturing operations
in reverse logistics. International Journal of Production Research, Vol. 43 No. 6, pp. 3455-3480.

Fargher, J. S. W. Jr.: Lean Manufacturing and Remanufacturing Implementation Tools. Missouri Enterprise.
Rolla. Available at The Remanufacturing Institute, www.reman.org (available online: 2006-12-04)

Guide, V. D. R. Jr., 2000: Production planning and control for remanufacturing: industry practice and research
needs. Journal of Operations Management. Vol. 18, No. 4, pp. 467-483.

Holme, I. M. and Krohn Solvang, B., 1997: Forskningsmetodik: kvalitativa och kvantitativa metoder. Lund:
Studentlitteratur.

Jacobs, F. R. and Chase, R. B., 2006: Operations and Supply Management – The Core. Boston: McGraw Hill.

17
Kiesmüller, G.P., 2003: A new approach for controlling a hybrid stochastic manufacturing/remanufacturing
system with inventories and different leadtimes. European Journal of Operational Research. Vol. 147, No. 1,
pp. 62-71.

Martinez Sanchez, A. and Perez Perez, M. 2001: Lean indicators and manufacturing strategies. International
Journal of Operations and Production Management, Vol. 21, No. 11, pp. 1433-1451.

Mentzer, J. T., DeWitt, W., Keebler, J. S., Soonhoong, M.,, Nix, N. W., Smith, C. D., and Zacharia, Z. G., 2001:
Definition of Supply Chain Management. Journal of Business Logistics, Vol. 22, No 2, pp. 21-26.

Merriam, SB., 1994: Fallstudien som forskningsmetod. Lund: Studentlitteratur.

Olhager, J. 2000: Produktionsekonomi. Lund: Studentlitteratur.

Pyke, F., Mahadevan, B. D., and Fleischmann, M., 2003: Periodic review, push inventory policies for
remanufacturing. European Journal of Operational Research. Vol. 151, No. 2, pp. 536-551.

Rother, M. and Shook, J., 2002: Att lära sig se – Att kartlägga och förbättra värdeflöden för att skapa mervärden
och eliminera slöseri. Göteborg: Lean Enterprise

Sapsford, R. and Jupp, V., 2006: Data Collection and Analysis. 2nd ed.. London: Sage Publications.

Seitz, M. A. and Peattie, K., 2004: Meeting the Closed-Loop Challenge: The Case of Remanufacturing.
California Management Review. Vol. 46 No. 2, pp. 74-89.

Stanfield, P.M., King, E. R. and Hodgson, T.J., 2006:Determining sequence and ready times in a
remanufacturing system. IIE Transactions. Vol. 38, No. 7, pp. 597–607.

Steinhilper, Rolf, 1998: Remanufacturing: The Ultimate Form of Recycling. Stuttgart: Frauenhofer IRB Verlag.

Sundin, E., 2004: Product and Process Design for Successful Remanufacturing in Production Systems,
Dissertation No. 906, Department of Mechanical Engineering. Linköping: Linköpings Universitet.

Toffel, M. W., 2004: Strategic Management of Product Recovery. California Management Review, Vol. 46 No.
2, pp 120-141.

Umeda Y., Kondoh S. and Takashi S. 2005: Proposal of “Marginal Reuse Rate” for Evaluating Reusability of
Products. International Conference on Engineering Design, Melbourne August 15-18, 2005.

Van der Laan, E. A., and Teunter, R. H., 2005: Simple heuristics for push and pull remanufacturing policies.
European Journal of Operational Research. Vol. 175, No. 2, pp. 1084-1102.

van der Laan, E., Salomon, M. and Dekker, R., 1999:An investigation of lead-time effects in manufacturing/
remanufacturing systems under simple PUSH and PULL control strategies. European Journal of Operational
Research. Vol. 115, No. 1, pp. 195-214.

Wiedersheim-Paul, F. and Eriksson, L. T., 1999: Att utreda, forska och rappoprtera. 6 uppl. Malmö: Liber
Ekonomi.

Vollmann, T.E., Berry, W.L., Whybark, D.C. and Jacobs, R.F., 2004: Manufacturing planning and control
systems for supply chain management. Boston: McGraw Hill.

Womack, J. P. and Jones, D. T., 1996; Lean Thinking – Banish Waste and Create Wealth in your Corporation.
New York: Simon & Schuster.

Womack, J. P., Jones, D. T. and Roos, D., 1990: The Machine that changed the World. New York: Rawson
Associates.

Yamashina, H., 1982: Japansk tillverkningsfilosofi och Kanban-systemet. Stockholm: IVF-resultat

18
Yin, R., 1994: Case study research: Design and methods. 2nd ed.. Beverly Hills: Sage Publications.

Östlin, J., 2006: On Remanufacturing Systems - Management of Material Flows and Process Organisation. Lic.
Thesis No. 1242, Department of Mechanical Engineering,. Linköping: Linköpings Universitet.

19
 PAPER VI

Östlin, J. and Ekholm, H. (2007) “Lean Production Principles in

Remanufacturing – A Case Study at a Toner Cartridge Remanufacturer” in
Proceedings of IEEE International Symposium on Electronics and the
Environment, 2007. Orlando, USA
 Lean Production Principles in Remanufacturing –
A Case Study at a Toner Cartridge Remanufacturer

Johan Östlin and Helene Ekholm

Department of Management and Engineering, Division of Production Systems,
Linköping University,
SE-58183 Linköping, Sweden.

Abstract— Scandi-Toner AB works with remanufacturing of general do, compared to ordinary manufacturing, have some
toner cartridges; both color cartridges and black cartridges The specific characteristics that might limit the possibilities to apply
company Scandi-Toner and the remanufacturing industry in lean production principles. One example of this can be limited
general do, compared to ordinary manufacturing, have some possibilities for just-in-time deliveries of spare parts [2].
specific characteristics that might limit the possibilities to apply Working in a remanufacturing environment do also leads a
lean production principles, due to the high degree of uncertainty high degree of uncertainty in the production process, mainly
in the production process. These uncertainties are mainly caused caused by two factors: the quantity and quality of returned
by two factors: the quantity and quality of returned cores. cores, which is a reflection of the uncertainties in a products
Overall, these characteristics make the remanufacturing material use and length of life. This uncertainty also creates variations
flow harder to control. Hence the purpose of this paper is to
regarding how long the process will demand and the products
analyze if lean productions principles for material flow can be
applied in a remanufacturing environment, and especially at the
recovered in the remanufacturing process. Guide [3] defines
Swedish remanufacturer Scandi-Toner AB. these factors in greater detail and present altogether seven
characteristics of remanufacturing that are found in the current
The analysis shows that lean production principles can be applied research literature that increases the complexity in the
in remanufacturing environments, with some constraints. For the
remanufacturing process. These characteristics are the
case company the study showed that for example the workshop
layout could be improved significantly according to lean
uncertain timing and quantity of returns, the need to balance
production principles. returns with demand, the disassembly of returned products, the
uncertainty in materials recovered from returned items, the
The one major conclusion that can be drawn from this analysis requirement for a reverse logistics network, the complication of
are that the inherent characteristics of variable processing times
material matching restrictions, and the problems of stochastic
and uncertainty in materials recovered have the major negative
impact for implementing a lean production process. Vice versa,
routings for materials for remanufacturing operations and
given an accurate supply of parts for reassembly, all the highly variable processing times. The rate of returns and when
appropriate principles of a lean production material flow can be is influenced by many factors such as the life-cycle-stage of a
implemented in the phases of reassembly and testing. product and the rate of technological change. Overall,
compared to manufacturing, remanufacturing batch sizes are
Keyword: Lean Production, Value stream mapping, Rapid Plant
Assesment, Remanufacturing
smaller, the degree of automation is lower and the amount of
manual labor is higher compared to a manufacturing plant [5].
I. INTRODUCTION One reason for this is the vast variation of different products
and versions that tend to accumulate over time. The number of
Remanufacturing is an industrial process whereby products different kinds of toner cartridges on the market has increased
referred to as cores are restored to useful life. During this quickly because of technical innovations. To keep track with
process, the core passes through a number of remanufacturing the trends in the market Scandi-Toner AB needs a more
operations, e.g. inspection, disassembly, component flexible and high-speed production to be able to stay on the
reprocessing, reassembly, and testing to ensure it meets the Scandinavian market as one of the leading companies. This has
desired product standards. [1] lead to a request for a more flexible, well-planned
The business concept of remanufacturing is based on the remanufacturing at the company.
idea that resources that were used in the new production of the In a study made by Sundin [1] investigating how lean
product are reused and can therefore be profitable. [4] The remanufacturing companies are compared to classic
reused resources consist of the material in the product, energy, manufacturing companies, using mainly a Rapid Plant
machine time, labor and other costs that have been Assessments (RPA) ranking methodology (see Figure 1). One
accumulated in the new production process. Remanufacturing main conclusion is that remanufacturing companies are
is in many cases superior to material recovery due to additional performing below average regarding the material flow issues of
reused resources. lean production. This indicates that the additional complexes
Scandi-Toner AB works with remanufacturing of toner regarding material flows in remanufacturing may be a limiting
cartridges; both color cartridges and black cartridges, and they factor for remanufacturing companies to apply lean production
are one of the leading companies in Scandinavia today. The principles.
company Scandi-Toner and the remanufacturing industry in
 RA TING S
Poor
Below
average A verage
Above
Average Excellent
Best
in class
The principle of Lean production is to target these wastes in
CA TEGO RIE S (1) (3) (5) (7) (9) (11) different ways with the aim to reduce them. Lean production
1. Customer satisfaction methods - covering a vast number of issues in a manufacturing
2. Safety, environment, business. As the focus of this paper is not targeted on Lean
cleanliness & order
3. V isual management system
production in general, but specifically on material flow, the
4. Scheduling system
theoretical framework will address only the relevant aspects of
5. U se of space, movement of 24
24Hour
HourToner
Toner
Lean production that have the greatest impact upon the material
materials, and product line flow Electrolux
Electrolux flow.
6. Levels of inventory and
MMKG
KG Clearprint
work in progress
7. Teamwork and motivation Scania
Clearprint
To make Lean production generate an effective material
Scania
8. Condition and maintenance
Cummins
Cummins flow there are some specific methods and goals that especially
of equipment and tools Scandi
ScandiToner
Toner targets the material flows. These methods can be grouped in the
9. Management of complexity
and variability
following generic groups: (1) production to customer orders
10. Supply chain integration (customer pull), (2) create a levelled workload, (3) one-piece
11. Commitment to quality flow, (4) reduced setup times, (5) takt-time, (6) just-in-time
deliveries and (7) a stable production process. [8]
Figure 1. RPA scoring sheets of the companies in the Sundin study. [1] Case studies of implementing Lean in a remanufacturing
environment have been performed (see [1] and [12])
The same results were concluded in a study by Seitz and
Peattie [6] where big differences in comparison to
manufacturing were observed. Further research is desired by III. METHODOLOGY
both academy and industry. (See e.g. [7]). The research methodology for this paper is a case study
methodology limited to one individual company – Scandi-
The purpose of this paper is to analyze if Lean Productions
principles for material flow can be applied in a Toner an independent1 remanufacturer. Scandi-Toner has a
product mix of about 50 different toner cartridges that are
remanufacturing environment, and especially at the Swedish
remanufacturer Scandi-Toner AB. remanufactured today. Remanufacturing of a toner cartridge
follows some general steps but a certain number of operations
By adapting Lean Production principles in a are different between cartridges, depending on which type is
remanufacturing environment Scandi-Toner AB wants to see if: being produced. In an analysis of these cartridges the result is
that 75 % of the toner cartridges can be categorized in to three
• The overall remanufacturing lead-times can be groups (A, B and C) according to similarity in design,
shortened operation times and the remanufacturing process. These groups
• Setup times can be reduced form the basis for the forthcoming analysis. After sorting out
these groups there has been an analysis of the current state in
• The production can become more flexible the remanufacturing process using a “value stream mapping”
methodology.
• The workshop layout can be rearranged
The results of the value stream mapping regarding the
II. PREVIOUS RESEARCH current situation was then analyzed to identify possible actions
that could make the remanufacturing process “leaner”. In a
Taiichi Ohno is regarded as the founder of the Toyota remanufacturing environment there might be some
Production System (TPS) that was first developed in 1950. TPS characteristics that will make these principles harder to
evolved out of need, as the market place in post war Japan implement. According to Guide (2000) the complicating
required small quantities of cars to be produced in many factors in remanufacturing are: (1) the uncertain timing and
varieties, and this created a new type of production system at quantity of returns, (2) the need to balance returns with
Toyota Motor Company. It was very different to e.g. the Ford demand, (3) the disassembly of returned products, (4) the
principle of mass-producing the same Automobiles in large uncertainty in materials recovered from returned items, (5) the
production runs. Womack and Jones [9] coined the phrase Lean requirement for a reverse logistics network, (6) the
Production to describe TPS when they printed the results of a complication of material matching restrictions, and (7) the
five-year study in the automotive industry in the book “The problems of stochastic routings for materials for
Machine That Changed the World”. Lean is an approach that remanufacturing operations and highly variable processing
eliminates waste by reducing costs in the overall production times. The effects of these characteristics has been analysed
process, in operations within that process, and in the utilization according to the impact on the possible implementation of the
of production labor. The focus is on making the entire process seven lean production methods presented earlier.
flow, not the improvement of one or more individual
operations. [10] A "waste" can be categorized as anything that
the customer is not willing to pay for. Typically, the types of
waste considered in manufacturing are: (1) making defective
products, (2) waiting, (3) transportation, (4) processing waste,
(5) excess inventory, (6) motion and (7) overproduction. [11]
1
Independent in regard to the Original Equipment
Manufacturer (OEM)
 IV. ANALYSIS
In the current process for category A and B cartridges there 2) Disassembly
are teen different individual operations undertaken in the Depending on the quality of the cartridge; dirt etc, the cycle
remanufacturing process, see Figure 2. The remanufacturing time for disassembly step can be highly variable. This limits
process at Scandi-Toner follows a classical remanufacturing the possibility to introduce the lean principles of a takt time, a
process that starts with disassembly of the cartridge in to two levelled workload and it limits a stable production process. The
parts, the Hopper Section (HS) and the Waste Bin Section main reason for not being able to employ a takt time and a one-
(WBS). After separation the two parts are sent to different piece flow is mainly due to the waiting time that is generated
parallel workgroups where the HS and the WBS are cleaned, when the cycle times of the operations is variable resulting in a
reprocessed and reassembled. In the remanufacturing process major risk for balancing losses. Although, the possibilities for a
there are mostly manual stations, but some machining is levelled workload is not excluded due to the possibility of
undertaken in the process. These operations have the following sorting cores in to quality categories
setup and operation times considering a batch of 20 toner
cartridges, see the Gantt chart in Figure 3. During disassembly, defective components are scrapped or
sent to recycling. The effects of the uncertainty in materials
recovered have an impact on the profit for the remanufacturing
Separating the cartridge of the individual cartridges because of the need to replace
components. Although this characteristic has no additional
impact when applying lean principles in this particular step, it
Disassembling and cleaning Disassembling the WBS
the HS will strongly influence the forthcoming process
Assembling the Cleaning the WBS Cleaning the PCR The operation of disassembling cartridges require a sorting of
transportation seal on HS the different separated component into different material
Assembling the WBS
holders, this is done mainly to keep track of all the
Filling toner in HS
components. This practice might limit the possibility of a on-
Assembling the HS piece flow due to the need of batching components together for
storage and transportation.
Assembling the HS and WBS together
Number Workstation
Quality control 1 Separating the cartridge
Figure 2. Overview of the remanufacturing process operations in the current 2 Disassembling and cleaning the HS
situation 3 Assembling the transportation Seal on HS
4 Filling toner in HS
A. Implications of the remanufacturing characteristics 5 Assembling the HS
6 Disassembling the WBS
The remanufacturing process has been divided in to six
different steps for analysis. These steps are: inspection, 7 Cleaning the WBS
disassembly, cleaning and reprocessing, reassembly and 8 Cleaning the PCR
testing. Each of these steps is analyzed in the forthcoming 9 Assembling the WBS and assembling the
sections. HS and WBS together
10 Quality control
1) Inspection
The major purpose of the inspection step should be to
receive information about incoming cores to control the 1 Setup time
forthcoming process. By inspecting cartridges and sorting the 2
cartridges in categories is done to suppress the effects of the Operation time
3
uncertainty in materials recovered as well as the variable
processing times in later phases. The variability cannot be 4
reduced per see, but the information helps to balance 5
production on aggregated level. This realized by the division of 6
used cartridges into different categories based on its quality. 7
The inspection and the sorting of cores enables a capacity 8
control, when there is available production capacity, 9
remanufacture “hard” or time-consuming cores, and when 10
capacity is scarce, remanufacture “easy” cores.
Time (min)
Detailed inspection and sorting of cores in to different
quality categories can mitigate the effects of the characteristic Figure 3. Gantt chart illustration of current setup and operation times in the
current remanufacturing process
of stochastic routings and highly variable processing times in
the forthcoming phases of the remanufacturing process and
enable implementation for a (more) levelled workload.
 3) Cleaning and reprocessing 4) Reassembly and testing
Depending on the type and the quality of the core, the After being cleaned and reprocessed the components are
cleaning operations as well as reprocessing operations will reassembled as a mix of purchased and reprocessed
result in different cycle timed of the operations. Generally there components. In this phase the setup times as well as the cycle
are two characteristics of remanufacturing that has a major times, are not as variable and fluctuating as in the reprocessing
effect on these steps of the process. These are variation in and the cleaning phase. Some variations exist in between
processing lead-times and variations in materials recovered. An product families depending variations in design of the
illustration of a visual simulation of these effects in a one-piece cartridge. Since these variations in between different cartridges
flow using a takt-time is illustrated in Figure 4. When applying are known with certainty – they are not stochastic – this is not
a one piece flow the variations in the process yields a major per se a hindrance for an implementation of Lean principles.
risk for balancing losses. This limits the possibilities of
implementing principles like a stable production process, When demands for cartridges are known, the material
recovery rate (MRR) is used to estimate the need for purchased
levelled workload and takt time. The risk of balancing losses is
today managed by using batch sizes up to about a 100 components. If the estimated MRR is false, component
shortage or excess inventories of new components might occur
cartridges that on an aggregated level makes the production
more stable and less sensitive. in this phase, with in turn can cause waiting. Another result can
be that a stable production process cannot be reached due to
Outcome this uncertainty. The possibility to create a customer pull from
this phase is also variable, mainly due to different contracts
Variation in processing Effect of the material with suppliers for purchases of new components. If a purchase
lead-times recovery rate lead-time extends the freeze window for orders the products
has to be ordered according to forecasts or kept stocked and
thereby hinder a Just-in-Time material flow. If just-in-time
deliveries and contracts could be used, the principle of
customer pull could be realized. Although, according to
management, the importance of the remanufacturing companies
needs are not high on the agenda when forming the purchase
Cycle time

contracts with suppliers. When all parts are available for

reassembly, the remanufactured engine can be reassembled in a
procedure similar to manufacturing. The difference is that a lot
more different products and versions are to be handled in the
flow. Besides the effects of the non-eradicable characteristic
uncertainty in recovered materials no additional constraint of
implementing all the methods of a lean production material
1 2 3 4 5 6 7 8 flow has been identified in this step.
Cartridge number 5) Balancing demand with returns
As mentioned there can be a problem in linking demand of
a specific cartridge with an appropriate used cartridge. The
Figure 4. Simulation of a cycle time outcome of 8 cartridges in a one-piece
flow
return of cartridges is dependent of the amount and types of
cartridges retuned from customers. Scandi-Toner bases its
The effects of the inherent characteristic of uncertainty in system on voluntary take-back. The cartridges are collected in
materials recovered and stochastic routings and variable boxes (see Figure 5) that are distributed to the customers.
processing times could partly be suppressed by inspection and These boxes are based on a standard transporting format,
quality categorization, enhancing the possibilities of a levelled enabling cost-effective transportation. According to the facility
workload and a stable production. The operation with the manager, the cost of acquiring the cores is an important
largest cycle time will set the pace for the flow, thereby causing strategic question. The environmental advantages provided by
waiting. Re-arranging operators in the flow could balance this the remanufacturing are strongly promoted as a motivational
waste but the possibility to introduce takt time is still factor for the take-back system, as seen for example in the
constrained. However, the main impact for the processes is recycling logo on the return box in Figure 5.
variations in the material recovery rate that results in loss of
components to be reprocessed, which creates instability and
reduces the possibilities for a levelled workload and takt time.
If the one-piece flow is to be efficient operators have to be
flexible and able to perform other tasks when waiting time
arise, e.g. perform setups when switching between orders.
Another alternative is to reprocess cannibalized components
left over from previous cartridges or as a last resolution, build
up buffers between operations so that if a component is lacking
from a cartridge the operator can continue strait away with one
from the buffer of cartridges.
 costs for order preparation and transportation is illustrated in
Figure 6.
The workshop layout has been rearranged so that there is
space for storage with material next to workstations and also
have the tools needed for every station near by (see point “G”
in Figure 6). As for the placement of workstations it has also
been rearranged in to and placed in a straighter route. This aims
to bring down the transportation time and it also enables better
quick overview of the production
A Disassembling and G Supply store
Cleaning Cartridges
B Milling H Cleaning PCR
C Disassembling HS and I Assembling
Figure 5. Examples of take-back boxes from Scandi-Toner WBS
D Place for wagons and J Testing
Scandi-Toner collects cartridges in the Scandinavian cases
region, specifically Sweden, Norway and Finland. Each of E Transportation seals K Printers for testing
these countries has a central point where the boxes are storage
collected and sent together in large volumes to the F Filling toner
remanufacturing plant in Sweden. Within the Scandi-Toner
group, there is collaboration with three manufacturing plants in
Sweden, England and Italy, where used cartridges are sent
between the facilities depending on the local needs and A A
inventory levels. By coordinating demands of different markets B B
can be one way of decreasing inventory levels, although the
possibility for a Just-In-Time delivery is especially hard to F
realize for the delivery of used cores, due to the dependency on
customers to return products. C

6) Economic order quantities and layout considerations E D E

D
As described in the theoretical framework the existence of a
C
one-piece flow and reduction of inventories are highly
dependent on using small batches of products. To identify the H
E F
possibilities to use low batch sizes in the current
remanufacturing process, the current EOQ has been calculated.
K G
The EOQ for the different cartridges ranges between 20 to 140.
H
One main critic by the lean practice when using economic
order quantities to calculate batch sizes is that the cost for order
preparation (setup costs, etc) is considered fixed. The analysis
on the reasons for the order costs are not found linked to the I
setup of machines as commonly found is traditionally
manufacturing. The main difference between the two is the low
automation level of the remanufacturing process at Scandi-
Toner. Instead the main reasons for the existence of order costs J
I J
are the costs for material handling, as for example bringing
cannibalized and spare parts from storage to the assembly lines.
In a transportation perspective the layout is not optimal.
Generally the components are moved back and forward
between workstations, this makes the transportation time long
and it is more difficult to control where different products are K
located inside the plant. Another waste is the time it takes to
collect different tools needed for an operation in a workstation.
Tools are used in several workstations and materials are stored
in different places in the plant. The reasons for the unnecessary
material handling are mainly an issue of the layout of the Figure 6. The previous layout of the remanufacturing process is presented in
facility and the limitations that constrains the process layout. the right figure and the new layout in the left figure.
By rearranging the layout of the process theses wastes has been
targeted. The new layout of the facility after an analysis of the
 V. RESULTS AND CONCLUSIONS Swedish Agency for Innovation Systems. Special thanks to
The study also shows that some of the lean production research colleagues Mats Björkman, Jörgen Eklund, Mattias
principles are harder to implement in the remanufacturing Lindahl and Erik Sundin at the Department of Mechanical
system. Some of the main hindering issues can be summarized Engineering (Linköping University) and Inga-Lill Engkvist at
to; a lack of systems for just-in-time deliveries in both used Department of Health and Society (Linköping University).
products suitable for remanufacturing and for spare parts,
uncertainties in the material recovery rate and a variable VI. REFERENCES
processing time. In a normal manufacturing environment the [1] Sundin, E., (2004) “Product and Process Design for Successful
processes are relatively stable but in remanufacturing there is Remanufacturing”, in Production Systems, Dissertation No. 906,
Department of Mechanical Engineering. Linköping University:
characteristics that limits the possibilities for a lean material Linköping, Sweden.
flow that can result in unstable operating times, resulting in [2] Guide Jr., V.D.R and Jayaraman V. (2000) “Product acquisition
build-up of work-in-process as well as balancing losses, etc. management: current industry practice and a proposed framework”
International Journal of Production Research 38/16: 3779-3800.
The main conclusions that can be drawn from this analysis
[3] Guide Jr., V.D.R. (2000) “Production planning and control for
are that the inherent characteristics of variable processing times remanufacturing: industry practice and research needs” Journal of
and uncertainty in materials recovered have the major negative Operations Management 18: 467-483.
impact for implementing a lean production process. Vice versa, [4] Smith, V. Keoleian, G, (2004) “The Value of Remanufactured Engines:
given an accurate supply of parts for reassembly, all the Life Cycle Environmental and Economic Perspectives” Journal of
appropriate principles of a lean production material flow can be Industrial Ecology, MIT Press, Cambridge, MA, 193-221
implemented in the phases of reassembly and testing. [5] Steinhilper, Rolf, 1998: Remanufacturing: The Ultimate Form of
Recycling. Stuttgart: Frauenhofer IRB Verlag.
The analysis shows that lean production principles also can [6] Seitz, M. A. and Peattie, K., 2004: Meeting the Closed-Loop Challenge:
be applied in remanufacturing environments, with some The Case of Remanufacturing. California Management Review. Vol. 46
constraints. For the case company the study showed that for No. 2, pp. 74-89.
example the workshop layout could be improved significantly [7] Dowlatshahi, S., 2005: A strategic framework for the design and
according to lean production principles. The work-stations did implementation of remanufacturing operations in reverse logistics.
not have a straight flow, which means they where not logically International Journal of Production Research, Vol. 43 No. 6, pp. 3455-
3480.
order according to the factory layout. Another point of issue
[8] Jacobs, F. R. and Chase, R. B., 2006: Operations and Supply
was that most of the tools and material where not placed in Management – The Core. Boston: McGraw Hill.
close proximity to the workstations. Recommendation was to [9] Womack, J. P., Jones, D. T. and Roos, D., 1990: The Machine that
organize the workshop to a straight flow and place material changed the World. New York: Rawson Associates.
storages nearby resulting in decreased set-up-times as well as [10] Womack, J. P. and Jones, D. T., 1996; Lean Thinking – Banish Waste
lowering batch sizes. This would shorten the lead time and the and Create Wealth in your Corporation. New York: Simon & Schuster.
production would be easier to keep an eye on as well as making [11] Baudin, M., 2002: Lean Assembly – The Bolts and Nuts of Making
the remanufacturing process more flexible. Assembly Operations Flow. New York: Productivity Press.
[12] Amezquita, T., Hammond, R. and Bras, B.A., 1998: Issues in the
Automotive Parts Remanufacturing Industry: Discussion of Results from
ACKNOWLEDGEMENT Surveys Performed among Remanufacturers. International Journal of
This research has been conducted within the project Engineering Design and Automation – Special Issue on Environmentally
Conscious Design and Manufacturing, Vol. 4, No. 1, pp. 27-46.
“Sustainable systems and products for reuse and
remanufacturing”. This project is funded by VINNOVA, The
 PAPER VII

Östlin, J. and R. Svensson (2005) “Material handling in the remanufacturing

industry: a case study of a diesel engine remanufacturing process” in
Proceedings of CIRP Life Cycle Engineering Seminar -12th edition- 2005,
Laboratorie 3S, Grenoble, France, April 3-5
 Material handling in the remanufacturing industry:
a case study of a diesel engine remanufacturing process

J. ÖSTLIN1 AND R. SVENSSON2

1
Division of Production Systems, Department of Mechanical Engineering,
Linköping University, SE-581 83 Linköping, Sweden
2
Division of Physiotherapy, Department of Health and Society,
Linköping University, SE-581 83 Linköping, Sweden

[email protected]

Abstract
In this paper a remanufacturing plant for diesel engines is evaluated mainly from a material handling point
of view. The analysis is concentrated to the reassembly of the engines. A framework for material handling
is developed using replenishment strategies of spare parts, movement and storage options. An ABC
analysis is used to create a base for differentiated material control. Different material control principles
are proposed, like Material Requirement Planning (MRP), reorder point (ROP), and visual systems as the
two-bin system. After that are material movement and storage methods proposed, either using line
storage solutions or material kits.

Keywords: Remanufacturing, material handling, material control, replenishment

1 INTRODUCTION The purpose of this project was to improve the material

The field of product recovery management encompasses handling in the case company and develop a framework
the management of all used and discarded products, for material handling, focusing on the reassembly
components and materials [1]. The product recovery operation.
consists of several sequential activities: collecting Similar frameworks have been developed for
products; determining the potential for the products reuse, manufacturing environments. What this framework aims
disassembling the product, and segregating valuable to do is to adapt a new framework to the remanufacturing
components; remanufacturing components; recycling environment.
materials; and disposing of waste [2]. The focus on the reassembly operation is made due to the
In product recovery management some general driving increasing complexity when dealing with a complete
forces can be identified as: economics (indirect and remanufacturing process, although the complete
direct), legislative and corporate citizenship [1],[2],[3]. In remanufacturing process must be kept in mind when
this paper the main concern is addressed to direct developing the framework.
economical gains. Some direct economic gains 2 CASE COMPANY
associated to product recovery are [3]: input materials,
cost reductions and value added recovery. The case company is a major original equipment
manufacturer (OEM), which produces diesel engines. The
Some indirect gains can also be identified [3]: remanufacturing process is located within the OEMs
anticipating/impending legislation, market protection, service and spare parts division, and treated as its own
green image and improved customer/supplier relations. unit. The company produces about 1500 remanufactured
In this case, the product recovery option of engines annually, which mostly are sold to the service
remanufacturing is analysed with the focus on material company, to later be distributed to the costumer. The
handling and how it economically affects the remanufacturing unit also procures spare parts from the
remanufacturing facility. According to the Material service organisation. In the company’s responsibility there
Handling Industry of America [4] “material handling and are about ten different groups of engines, divided by cubic
logistics is the movement, protection, storage and control capacity. Within each group there can be as many as 15
of materials and products throughout the process of their different versions, due to the 15 year service policy for
manufacture and distribution, consumption and disposal.” engines set by the OEM for marketing issues. After the
The process of remanufacturing is the rebuilding of a remanufacturing process the engines are shipped to a
product. “During this process the product is disassembled, central inventory held by the service division. The
defective components are replaced and the product is remanufacturing unit has responsibility for the
reassembled, tested and inspected to ensure it meets replenishment of the inventory and forecasts the demand
newly manufactured product standards”. [5] for each engine.
Earlier studies of remanufacturing companies have shown 2.1 Management Issues
that the cost of material handling and holding inventory is Low volumes combined with a vast number of engine
one of the largest cost drivers in the remanufacturing versions complicate the material handling. The material
process [6]. The reason for high cost levels can be control, movement and storage are especially
associated to low inventory turnover, which creates high complicated. The results from insufficient material
inventory levels. The low inventory turnover can also handling can create insufficient service levels and
increase the risk of obsolescence for items [7],[8]. unwanted expenses that can lead to lost revenues. There
In this case there is a focus on the reassembly activity and is a need for simple and effective solutions due to the
how it affects the: material control and replenishment limited control recourses in the organisation.
strategies for spare parts, material movement and storage
for both spare and reprocessed parts.
3 METHODOLOGY highly variable processing times. [9]
In this case study the data collection was based on both 4.2 Replacement Material
qualitative and quantitative material. Regarding the
qualitative information, semi-structured interviews were Another complicating factor to the production planning is
held with people working in different workshops as well as the coordination of replacement material that can come
in the management. The interviews with management from both remanufactured and manufactured parts. In the
were concentrated to people working in the case when parts can not be remanufactured they have to
manufacturing, logistics and economics departments. For be purchased. This leads to some problems, due to
the quantitative study a questionnaire was used to reasons like: (1) long lead times for purchased products,
estimate the time spent on material handling activities. (2) single supplier for parts or components, (3) poor
Data regarding characteristics of the different items in the visibility of requirements, (4) small purchase quantities
product as: demand pattern, value and price were also lead to unresponsive vendors, (5) parts no longer in
gathered. production, (6) vendors´ minimal purchase requirements.
Even though purchase of material can be complicated,
4 THEORETICAL FOUNDATIONS some protection can be gained against variability in
For the following analysis of the case company, some material recovery as well as more predictable
experiences from both manufacturing and remanufacturing schedules. [10]
remanufacturing aid the understanding of the problems at
hand. Existing theoretical models regarding 4.3 Product Recovery Options
remanufacturing issues and applicable models used in The product recovery options are important issues in
manufacturing environments are presented. remanufacturing and have strong influence on the
To gain a general understanding for remanufacturing a profitability. The major recovery decisions are generally
simple remanufacturing process is presented, and a connected to disassembly and inspection of the product
discussion of the problems regarding the remanufacturing and its assemblies. Some parts are always recycled or
environment. The problem to coordinate replacement shredded, some are always remanufactured if possible,
material is also presented as well as the decision and others demand inspection or further disassembly to
regarding product recovery options. Then relevant find the best option. Optimal disassembly models have
material control issues in remanufacturing and been developed (see e.g. [11]). Due to the complexity of
manufacturing are presented. The basics of the ABC the operation a heuristic approach can be more feasible,
analysis are then presented as well as the specialised AC especially if the product consists of a large number of sub-
analysis for material control. Issues in spare part assemblies and parts [12].
management and obsolescence are also taken into 4.4 Material Planning in Manufacturing
account.
In the field of material planning the focus in this study is
4.1 Remanufacturing Process replenishment policies. Today, there are some general
The case factory uses a typical job-shop layout with three ideas and methods how to handle these issues and the
distinct sub-systems: disassembly, reprocessing and most common are: reorder point, order-up- to-S, Kanban
reassembly, as illustrated in Figure 1. and Material Requirement Planning. For an overview see
e.g. [13].
Compared to ordinary manufacturing, production planning
and control for remanufacturing are influenced by some Reorder Point (ROP)
additional complicating factors. These factors are: (1) the As mentioned before, ROP policies are one of the most
uncertain timing and quantity of returns, (2) the need to common principles, and one reason for its popularity can
balance returns with demand, (3) the disassembly of be its simplicity. The policy implies that when an inventory
returned products, (4) the uncertainty in materials position of an item falls below a reorder point (r), then a
recovered from returned items, (5) the requirement for a new lot-size (Q) is ordered [14].
reverse logistics network, (6) the complication of material
Reorder point policies can take the form of both
matching restrictions, and (7) the problems of stochastic
installation stock (Q,ri)-policy and echelon stock (Q,re)-
routings for materials for remanufacturing operations and
policy. In the case installation stock is each installation, n,

WC1 WC2

WC3 WC4

WC5 WC6

Disassembly Reprocessing Reassembly

Shop Shop Shop

Figure 1: A remanufacturing job-shop with work centers (WC) [9]

 i
controlled by a (Qn,rn )-rule and based on the installation these items are instead spread to either the A or C group.
stock position, i.e. stock on hand plus outstanding orders The use of AC analysis as a tool when choosing
e
minus backorders. The echelon (Q,r )-policy works in the replenishment polices has been documented by
same way. The difference is that the downstream stock at Hautaniemi and Pirttilä [16] (in a make-to-order case).
each installation is included as well as items in transit. [14] First the value of usage is used to find items with low
value of usage. Then the items that have a shorter lead
Two-bin System time then the final assembly schedule (FAS) are identified.
The two-bin system for material replenishment is based on The items with a longer lead time than the FAS are then
visual control. The principle of the system is a creation of divided up depending on the demand pattern. The groups
two bins, where one bin becomes the working bin and the are then associated to different MRP and ROP systems
other a spare bin. When the working bin is empty, an for control. One of the reasons to identify C-items is that
order request is created and the spare bin becomes the the use of MRP creates higher administrative costs and
working bin and the former working bin generates a refill therefore can other control methods be more feasible. [16]
order. [15]
4.7 Obsolescence
The two-bin system is actually a visual reorder point
system with fixed reorder points (r) and order quantities When the demand of an item decreases and finally no
(Q). Today are normally ROP systems integrated in longer is desired or out of date, it is considered as
computerised systems; however, the two-bin systems are obsolete [7]. Obsolete items are no longer usable, and the
not. All the items in a two-bin system are not registered in remaining items have no value and results in a cost for the
the system and therefore invisible. [16] company, both in value and disposal. Obsolescence can
occur either through an expected pattern or a sudden
Material Requirement Planning (MRP) decrease in demand (also referred to as sudden death).
This method is a little bit more complex compared to the [8]
ROP-policies. In a fixed planning horizon of periods, a Some lot sizing and replenishment options for
production plan is generated based on: the external manufacturing have been created for both sudden death
requirements of items for each period, the lead time of [7] and expected decrease in the final phase of the
items, safety stock of the item and the order quantity [14]. products life cycle [8]. To our knowledge there is no model
For a more detailed description see e.g. [17]. that considers obsolescence in remanufacturing
environments.
Performance in Serial and Assembly Inventory Positions
A comparison between different replenishment polices in a 4.8 Spare Parts Inventory Management
serial and assembly environment shows that the MRP- One main difference between ordinary inventory control
e e
policies outperform (Q,r )-policies, and that (Q,r )-policies and the control of spare parts is the (usually low) demand
i
outperform the (Q,r )-policies. The dominance of the MRP- pattern for spare parts. In an ordinary situation an ABC
system can be based on that any reorder point policy can analysis is an appropriate tool, due to the fact that the
be duplicated by an MRP-system. [14] products are more or less homogenous. However, the
4.5 Material Control in Remanufacturing inventory control of spare parts differs, due to the more
complex situations. For an effective analysis the
The research on material control in remanufacturing characteristics of: criticality (process and control),
environments has been focused on inventories and the specificity, demand patterns and value are good criterions
connections to issues as: setup costs, setup times and when classifying spare parts. [20]
economies of scale. These issues address the underlying
problem of batching and lot sizing models. Models have 4.9 Line Storage and Kitting
been created for both constant production and recovery Material movement in the line storage solution is the
lot sizing as well as for dynamic lot sizing. However, even transportation of an item from a warehouse position to a
the simplest models tend to be very complex. [18] storage position in connection to the assembly operation.
A distant gap exists between material control in academic The kitting operation is when the items of a specific
literature and in practise [10]. In industry the use of assembly are collected, often on a specific part carrier,
Material Requirement Planning (MRP) is frequent [11]. and brought to one or more assembly operations. [21].
Today there are some proposed frameworks that consider Some pros and cons can be identified with each option. In
MRP in a remanufacturing environment [11]. an assembly situation some advantages with kitting can
4.6 ABC Analysis be identified as: a liberation of space connected to the
assembly operation, a simplification of the material
Controlling a valuable product, assembly or part with a movement (especially in the case when items are stored
major effect on the total result must be given more at multiple positions, as in a parallel flow) and an improved
attention than the invaluable parts. But what is valuable control and visibility in the system. [22] Another advantage
then? Differentiated control must always have a purpose. is a reduction in lead time for the assembly operation [21].
One tool to classify different objects is the ABC (Pareto) The disadvantages of kitting instead of line stocking are:
analysis. The traditional ABC analysis is based on (1) the the operation does not add any value to the product, it
value of the item and (2) the demand for the same item. creates an extra need for space in the warehouse,
Multiplied they create the value of usage. In normal cases increased need for control and an increased risk of errors
10 % of the items constitute to 60 % of the value of usage in the handling of items due to human errors [23].
(A-items). These items are especially important and
demand good control. C-items are less important and The kitting operation can be done in many ways using
represent about 60 % of the items and only ~ 5 % of the different picking techniques. Some factors that influence
total value of usage. [19] the kitting activity are: the storage solution of the
inventory, number of items in a kit, the number of common
The ABC analysis can be a valuable tool when the need to items between kits, lead time for the kitting operation, the
categorise items arise. resources demanded by the process and the type of items
AC Analysis to be picked. For an overview see e.g. [23].
In respect to the ABC analysis, the AC analysis simply do
not consider the B items in a control perspective and
5 ANALYSIS items. We also make a distinction between the C-items
As mentioned earlier the focus in this case is the based on the demand pattern. Items with a higher and
reassembly activity and how it affects the: material control more stabile demand rate on an aggregated level could be
and replenishment strategies for spare parts, material treated as independent.
movement and storage for both spare and reprocessed Framework for Replenishment
parts. A framework for material replenishment is created
using material control theories integrated with proposed After the identification of the characteristics, a framework
material movement and storage solutions. is created. According to our criterions for differentiated
The analysis is made by a combination of existing theory control, four groups have been identified, see Figure 2.
and experience from the case company. The method for using the model are: First identify Group I
(by the criterions: Value > A and Demand < B), then
5.1 Material Control Group II items are identified of the remaining items that
Compared to ordinary manufacturing, remanufacturing in are not associated to Group I items. The remaining groups
this case suffer from low inventory turnover and large are also sorted out in the same manner. How the practical
amounts of tied up inventory. One reason for the inventory sort-out is made between the groups and why are
levels is the obsolete items that have been accumulated presented below.
over the years. Another is the relatively high amount of Group I:
items with a low demand. For the replenishment of items a All the items in this group have a low demand, often as
crucial decision is if there is a need to balance demands low as 1 item annually and a high value. The
for the end item and the returns of items as well as on- obsolescence problem is severe and different lot sizing
hand-stock of recoverable items. Items that are always problems can be adopted, but can be shown irrelevant
replaced can and should be handled by normal control due to procurement difficulties as mentioned earlier. Ad
policies. Items that undergo some sort of repair and are hoc solutions are frequent and understandable, due to the
associated to a yield or material recovery rate (MRR) complexity of the problem. The items are often specific
demand special attention. and the use of cannibalisation and reprocessing can be a
In this case the use of spare parts is actually used as a solution, given that cores are available. The extra cost for
tool to handle fluctuations in the MRR. cannibalisation of another engine for items might be valid
if storekeeping and obsolescence costs can be kept at a
Criterions for Differentiated Control minimum. A goal should also be to try to minimise the
To get a foundation for the framework some criterions are least order quantity and use stock out costs in the control.
needed to sort out the different key groups that are to be Both quantitative and qualitative considerations are taken
controlled in different ways. The AC analysis theory is into account to set the values of the variables A [price]
used as foundation for these criterions [16]. Later in this and B [demand]. A minimum, sufficient price of the item
paper we will see that the value and demand are used as should be chosen. The item should also have a relatively
separators for the items (they are also used in low demand. Also the number of items in this group
combination, which result in the value of usage). For an should be adapted so that they can be practically
overview, see Figure 2. But first a presentation is made managed, due to the fact that the control can take some
regarding the important criterions. time and be quite expensive. In this case about 5 % of the
First the valuable items with a low demand are identified. number of items is controlled by this method, although in
These are referred to as problem items. This group should reality the need to control this group is very limited, since
try to capture the items that have a large risk for the demand is so low for many items (less then 1
obsolescence and have a control criticality to the item/year).
assembly (long lead time, high price, etc). Group II:
Secondly the focus is on the items that need to be In this group the items are valuable and have a high
controlled more carefully and those that can be controlled demand. The control becomes most important here. Lot
easily. Here we use the value of usage to sort out the sizing decisions and safety stock levels are important. A
important items, and we add a constraint that the value of simple customised MRP program, developed by an ERP
the item should be sufficient. These items are referred to software company, is used to handle the material control.
as A-items and the remaining items are referred to as C- Due to the lack of developed tools using sophisticated
Prob.-Items

Group IV
Group III
Group II

C-Items

C-Items
A-Items
Group I

Value > A
Demand < B
Value of usage > C
All Value > E
Items
Demand < D

Demand > D

Figure 2 : Criteria for differentiated control. (A-E are constant variables)

models for remanufacturing, this control principle has to demand pattern an easy and cheap ROP approach is
be used, even if a MRP method adapted to feasible.
remanufacturing would be preferred. Using sophisticated
manually methods outside the MRP system could be 5.2 Material Movement and Storage
feasible for some key products but not for the thousands The analysis of the material movement and storage is
of items that could need it. Basically it takes to much time concentrated to the reassembly activity, hence involving
and effort compared to the effect it makes. the inventory of remanufactured and spare parts. For the
For choosing the appropriate control variables C movement of items from the inventory to the assembly
[value*demand] and E [value] the well known ABC facility there are two major options: transportation of items
analysis is used. Here we see that 10 % of the items make to a designated location (line storage), and the kitting
out about 80 % of the value of usage. See Figure 3 for an operation that transports unique sets of items to be
overview. Due to the need to adapt material movement combined in the assembly operation. The choice of
and storage to the model another condition is needed. material movement and the material control principles
Some items that have a really low value and a high together affects the appropriate solution storage.
demand can pass the C criteria. But the material handling Two-bin System Control
should be completely different, more about this in the
The two-bin system is a common tool for material
material and storage section. Therefore, these items are
movement and storage in assembly situations. The
sorted out by applying a minimal value condition E.
method is cheap and easy to use. The system is used in
Group III: situations where there is a high demand for the items and
These items are of low value and have a low demand. For in many situations where the turnarounds in the bins are
this type of items one wants to minimise the cost of high. In the remanufacturing situation this type of control is
material handling, stock outs and stock keeping. feasible for Group IV items with a high demand and low
Obsolescence is also an issue here, although due to the value. Typical items in this group can be screws and
low value of items the effects are not as severe as for plugs. The items are stored in a central warehouse and
Group I. The demand patterns for these items are often then refilled when the refill order arrives. The inventory
lumpy or singular. Using current complex control methods position in the central storage is known, but not in the two-
adapted for remanufacturing is not feasible here and more bin system. This gives us an installation stock type of
simple options are recommended instead. Due to inventory, although an echelon inventory including the
uncertainties in demand in a remanufacturing environment two- bin system would be preferred. To increase the
a MRP approach is not feasible [16]. Therefore a reorder visibility of the system, the second reserve bin could be
point (ROP) approach is proposed. minimised due to the short lead time for replenishment
The remaining items to be sorted into Group III and IV are from the central warehouse. A complete elimination of a
of low value and hereby the control is made in regard of second bin would be impossible due to the fact that there
the demand pattern. The main objective to separate them is a lead time and that a trigger has to make sure that the
is also here made in regard to material movement and order for new items really is released when the first bin is
storage options. empty. If the safety stock in the second bin is drastically
reduced to a small part of the order quantity, the safety
Group IV: stock can be moved to a central inventory, thus ensuring
The low value and the relatively high demand make these better performance. The effect of this method is enhanced
items relatively easy to control. if the different locations an item can be stored in is high
Like Group III items, the value is low and the cost for and the total amount of items in the system is high
material handling should be minimised. Due to the compared to the amount in the central inventory, as for

Table 1: A summary of the framework

Group I Group II Group III Group IV
Type Problem A C C
Price >A >E
Demand <B <D >D
Value of Usage >C
Manually influenced,
Control MRP based on forecast Reorder point Reorder point
based on MRP
Movement Kitting Kitting Kitting Two-bin system
Two-bins and
Storage Depending on situation Central storage Central/automated storage automated/central
storage
High control of processes,
Minimise material handling
Minimise obsolescence, Correct order quantities, Stock out costs,
Control and storekeeping costs,
Order quantities, Effective safety stocks, Safety stock,
Priorities Cost effective control,
Cannibalisation Forecasting, Cost effective control
Stock out costs
Supplier collaboration
Dividing storage into high Stored in connection
Storage
Cost effective storage and low flow zones Easy accessible with the assembly
Comments
according to demand operation
this case. current demand situation. For example an item with two-
For Group III items the use of a two-bin system could bin control needs to be transferred to kitting policy if its
sound feasible. However, the low demand, the high demand decreases.
inventory levels, the invisibility and the obsolescence risk By implementing the proposed framework it is easier to
make the two-bin system infeasible for Group III. handle this type of problems, by continually applying the
most appropriate control methods during the whole
Two-bin Storage product’s life cycle.
The area of the two-bin system is limited and the amount
of space for items is hereby also limited. Some items in 6.1 Product examples
Group IV that are suited for the two-bin control can be To give some examples how to apply the model, some
unsuitable for two-bin storage, due to that they are too examples from the case study are presented. The items
large or demand a lot of space. The items in the two-bin are: belt pulley, fuel injection pump, screw and a camshaft
system are in our case quite small and take up limited
amounts of space. As mentioned earlier, a central Belt Pulley
inventory exists. The reason for this inventory is that the First check for Group I: the value is medium high and the
order quantity is larger than the quantity in the bins. There demand low, although not low enough to be a problem
could be cases when the order quantity is less than the item. Then check Group II: the value of usage is low and
order quantity in the bin, then the order could be initiated hereby we check the demand pattern to decide between
directly without passing through the central inventory (if Group III and IV. The demand is low and singular
lead time for replenishment is shorter than the time for therefore group III is appropriate for the belt pulley.
usage of a order quantity) or handled by a kitting policy. Regarding the material handling a reorder point option is
For the central storage of two-bin items an automated preferred. The item should also be kitted and stored in a
storage is used. The automated storage is feasible mainly central storage.
because that the flow of material is high and the amount Fuel Injection Pump
of space that it saves.
This is an expensive item with a low demand. Therefore it
Kitting and Storage Keeping is to be considered as a problem item and should be
For items that demand more control and total visibility the controlled as a Group I item. This item should be under
use of a kitting system is superior to the two-bin solution, tight observation and controlled by MRP. Regarding
especially for items with low demand. Group I, II and III material movement and storage it should be: kitted and
are hereby most suitable for this type of material stored preferably in a cost-effective way.
movement. Screw
The parts that are most suitable for picking into kits are This item is of low value and has a high demand. After
the ones which are ordered to be picked the most times. checking the criterions for Group I, II and III we see that
The number of times depends on the demand of the item this item should be a Group IV item. This item should be
but also on the “normal” order quantity of an item. There controlled by the two-bin system in connection to the
are a number of different practical storage solutions for reassembly operation, and in our case an upstream
inventory see e.g. [24]. The system used today is ordinary automated storage solution using an echelon inventory. In
storage shelves at ground level with up to 12 different order to create a cost effective material handling and
types of items in each. The items are picked in one minimising the stock out costs
specific route through the warehouse.
Camshaft
Some items can not be picked from storage due to some
practical issues, for example they can be too spacious or Regarding this item the value is high; although, not as
too heavy. These items have to be moved to the assembly high as the fuel injection pump, and the demand is
operation and using line storage, for example by a forklift. medium high. This makes the value of usage quite high
When moving a single unit from the inventory to the and the item is linked to Group II. This item should be
assembly operation a cost arises and that has to be closely watched by using the MRP system. Close attention
minimised. One way is to minimise the time to find and should be given to: correct order quantities, effective
retrieve an item based on the input/output position in the safety stocks, forecasting, and good supplier
inventory. collaboration. This item should be kitted and compared to
the other items in Group II, be put in a high or a low flow
The use of an ABC divided inventory where the most
zone.
frequent items (A-items) are placed closest to the ground
and the input/output point can be used as a tool to create 6.2 Potential Improvements
a cost effective material storage and movement. The characteristics of today’s inventory applied on the
Generally, the Group I items are placed far away from the proposed framework are presented in Figure 3. From this
input/output point and Group II is placed close to the figure some potential improvements can be made by using
input/output point, due to its demand pattern. the framework:
6 RESULTS For Group I there is potential for reduced obsolescence
A short summary of the proposed framework for material risk, and decreased inventory levels due to better control
handling in a diesel engine remanufacturing environment as well as possible cost reductions by using cannibalised
is presented in Table 1 parts. In Group II the proposed framework enables a
Today a similar system is used for the material movement stronger focus on the important items. For Group III
and the storage solutions. The main difference between substantial effects can be made on the inventory levels,
the proposed framework and the system used today is the due to a changed material handling from two-bin to kitting
control methods. A structured way of working with material policy. The proposed framework leads to a more cost
handling issues has been lacking in the company. The effective and appropriate material control for items in
work made on material handling has been mostly reactive. Group IV.
The demand for different engines varies through the 7 CONCLUSIONS AND FURTHER RESEARCH
product’s life cycle, usually with a decreasing pattern. Earlier studies have developed similar frameworks for
Therefore, it is feasible to adjust control principles to the manufacturing. In this framework a solution is presented
that specialises in a remanufacturing environment. Models Production, In Press, Corrected Proof, Available
for different areas in material handling, in both online.
manufacturing and remanufacturing have been studied [7] Cobbaert, K. and Van Oudheusden, D. (1996)
earlier by different authors, although partly separated from “Inventory models for fast moving spare parts subject
each other. This paper proposes a framework that can to ‘sudden death’ obsolescence”, International
help to bridge the gap between industry and practise by Journal of Production Economics, 44: 239-248.
combining theories and solutions in an engine
remanufacturing case. [8] Teunter, R. H. and Klein Haneveld W. K. (2002)
“Inventory control of service parts in the final phase”
The framework presented could also be applied to other European Journal of Operational Research 137: 497-
remanufacturing cases. The framework is feasible for 511.
environments similar to this case where the cost for stock
keeping and material handling is high. For cases with low [9] Guide Jr., V.D.R. (2000) “Production planning and
expenses for material handling other issues as production control for remanufacturing: industry practice and
and operations analysis could be regarded as more research needs” Journal of Operations Management
important. 18: 467-483.
During this project a number of different research [10] Guide Jr., V.D.R and Jayaraman V. (2000) “Product
questions have risen. Regarding the problem of balancing acquisition management: current industry practice
capacity of the plant, a solution might be found in the and a proposed framework” International Journal of
coordination of purchasing and manufacturing of spare Production Research 38/16: 3779-3800.
parts and the reprocessing activity by using cost control [11] Indenfurth, K., Flapper, S.D.P., Lambert, A.J.D,
principles. Another problem regarding the material Pappis, C.P and Voutsinas, T.G. (2004) “Production
handling is how in an effective and economic way handle Planning for Product Recovery Management”
the movement and storage of cores and items from the Reversed Logistics Quantitative Models for Closed-
core storage through the disassembly, reprocessing and Loop Supply Chains, p. 250-274, Springer, Berlin
to the inventory, before the product is ready to be [12] Ferrer, G., (2001) “On the widget remanufacturing
reassembled. operation” European Journal of Operational
Research 135/2: 373-393
80 [13] Waller, D. L. (2002) “Operation Management a
70 supply chain approach” 2nd edition, Thomson, Italy
[14] Axsäter, S. and Rosling, K., (1994) “Multi-level
[% of total]

60 production-inventory control: Material requirements

50 planning or reorder point policies?” European
Journal of Operational Research, 75:405-412.
40 [15] Chaneski, W.S. (2002) “Back to basics with the
simple two-bin system”, Modern Machine Shop, 74:
30
50-51.
20 [16] Hautaniemi P. and Pirttilä T., (1999) “The choice of
replenishment policies in an MRP environment”,
10
International Journal of Production Economics 59:
0 85-92.
[17] Browne, J., Harhen, J. och Shivnan, J. (1996)
I II III IV
Production Management Systems – An integrated
Group Perspective, 2nd edition, Addison-Wesley.
Number of items Value of usage Inventory value
[18] Minner, S. and Lindner G. (2004) ”Lot Sizing
Desitions in Product Recovery Management”
Figure 3: Characteristics of today’s inventory. Reversed Logistics Quantitative Models for Closed-
REFERENSES Loop Supply Chains, p. 157-179, Springer, Berlin
[1] Thierry, M., Salomon, M., van Nunen, J. and van [19] Partovi, Y. och Anandarajan, M., (2002) ”Classifying
Wassenhove, L., (1995) “Strategic issues in product inventory using an artificial network approach”,
recovery management” Californian Management Computers & Industrial Engineering, 41: 389-404.
Review, 37/2: 114-135. [20] Huiskonen, J., (2001) “Maintenance spare parts
[2] Toffel, M. W., (2004) ”Strategic Management of logistics: Special characteristics and strategic
Product Recovery”, Californian Management choices“ International Journal of Production
Review, 46/2: 120-141. Economics, 71 :125-133
[3] De Brito, M. P., and Dekker, R., (2004) “A [21] Brynzér, H. and Johansson M. I., (1995) “Design and
framework for Reversed Logistics” Reversed performance of kitting and order picking systems“
Logistics Quantitative Models for Closed-Loop International Journal of Production Economics
Supply Chains, p. 3-27, Springer, Berlin 41:115-125
[4] Material Handling Industry of America, [22] Bozer Y. A. and McGinnis L. F., (1992) “Kitting
http://www.mhia.org/about/, (20 September 2004) versus line stocking: A conceptual framework and a
descriptive model “ International Journal of
[5] Seaver W. B., (Xerox) (1994) “Design Production Economics, 28:1-19
Considerations for remanufacturability, recyclability
and reusability of user interface modules”, IEEE [23] Brynzér, H. (1995) “Evaluation of kitting systems:
International Symposium on Electronics and the implications for kitting system design” Report -
Environment. San Francisco, CA, USA, p. 241-245 Chalmers University of Technology, Department of
Transportation and Logistics, 26.
[6] Sundin. E. and Bras. B., (2004). “Making functional
sales environmentally and economically beneficial
through product remanufacturing” Journal of Cleaner
[24] Pareschi, A., Ferrari, E., Persona, A. och Regattieri,
A. (2002) Logistica integrata e flessibile, Societá
Editrice Esculapio s.r.l., Bologna.