Remanufacturing, the process of restoring used parts to give them a second life, has been propelled into the spotlight in recent years by attempts to mitigate supply chain shortages, reach new customers through affordability, and search for high-margin alternatives for parts.

Both independent remanufacturing companies and remanufacturing arms within OEMs have proved essential for efficiently restoring parts and creating a way to lower expenses while making operations more efficient. These players provide value across multiple industries, from the well-established space in the automotive sector to more emergent opportunities across sectors such as medical devices and electronics. All of these sectors can benefit from reduced dependence on raw materials, extended product life cycles, and more.

But remanufacturing is an inherently complex process, and the industry faces unique challenges. For example, remanufacturers grapple with the unpredictable availability, quantity, and quality of incoming used parts (referred to as “core”), complex pricing due to the volume and long tail of SKUs, and a high volume of unstructured, text-based data generated by product warranty claims.

In this article, we provide an overview of remanufacturing and discuss its benefits and challenges for OEMs and remanufacturing companies.

What is remanufacturing?

Remanufacturing is the process of restoring core to give it an entirely new life.

The core, the starting point for the remanufacturing process, is typically a high-value part that requires technical expertise to be restored to its original function. Within the automotive and industrials industry, parts that can be remanufactured include engines, transmissions, hydraulic components (such as bucket lifters), and drivetrain components (such as clutches and axels), as well as turbochargers and superchargers. Historically, the automotive and industrial equipment industries have had the most use cases for remanufacturing, but a growing number of use cases are emerging in industries such as medical devices, furniture, electronics, and aircraft components.

The remanufacturing process typically involves seven primary steps (exhibit).

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A flowchart with icons depicts the product value chain for the remanufacturing process. Prior to the remanufacturing process, raw materials travel through the product process, which begins with the extraction of raw materials, followed by product manufacturing, and product use. The product can then travel onto one of the three final phases: the end of its life cycle in a landfill, recycling, refurbishment or repair, or the remanufacturing process. The remanufacturing process is comprised of seven steps: disassembly, cleaning, inspection and sorting, reconditioning, replacement, reassembly, and testing. Once the product is remanufactured, it enters back into produce use and cycles through the three final phases.

1. Disassembly. A worn part is completely disassembled into its subcomponents.

2. Cleaning. Sandblasting, hot water treatments, ultrasonic cleaning, and other methods are used to thoroughly clean each component.

3. Inspection and sorting. All parts are inspected to determine which are reusable and sorted.

4. Reconditioning. Reusable parts are reconditioned through processes such as grinding or galvanizing.

5. Replacement. If a component does not meet quality standards, it is replaced with a new part.

6. Reassembly. The part is reassembled to meet or exceed the original specifications for function.

7. Testing. The part is rigorously tested for performance so that it meets or exceeds the original quality standards.

What are the benefits of remanufacturing?

Remanufacturing offers several benefits for OEMs and remanufacturing organizations, including the following:

Cost-effectiveness. Remanufacturing can reduce costs by 40 to 60 percent, directly boosting margins versus newly manufactured parts.

Faster availability. From 2020 to 2023, 33 percent of players across industries had “very significant” supply chain disruptions due to material shortages, according to McKinsey analysis, though disruptions have begun to improve. Remanufacturing makes parts available more quickly by using less raw material than new product manufacturing.

Reaching new customers through affordability. By extending product life cycles, product prices can be 45 to 65 percent lower, giving remanufacturers the opportunity to grow organically and, in many cases, reach a new set of customers.

What are the challenges of remanufacturing?

Remanufacturers face a unique set of challenges, including the following:

Complex product pricing. Remanufacturing players manage substantial volumes of SKUs (sometimes over a million), which complicates SKU pricing. In addition, remanufacturers often manage a long tail of SKUs with low volumes, making it difficult to measure elasticity and arrive at an appropriate price. Furthermore, each product may have a wide variety of different product vintages, status codes, and life cycles. Remanufacturers also need to balance the dynamics of different tiers of product (for example, OEM-grade, tier-two, and remanufactured parts).

Variable core availability and difficulty in core forecasting. Several factors make it difficult to predict when players will receive core, including the varying lifespans of different parts and macroeconomic conditions that may cause companies to keep their old equipment running longer. Because remanufacturers cannot always predict the arrival and condition of the core, they sometimes incur excess operating costs, such as overtime shifts or expedited shipping for urgent orders.

Warranty management. Warranty claims often include high volumes of unstructured text data for every product in the portfolio, causing OEMs to struggle with identifying patterns of information, making improvements to their products, or reducing warranty costs. Without a way to synthesize this valuable information, companies often let it go to waste.

Remanufacturing undoubtedly makes logistics, pricing, and operations more complex. But companies that pursue it reap the benefits of lower costs and prices, new customers, and supply chain resilience. In “Powering the remanufacturing renaissance with artificial intelligence,” the next article in our remanufacturing series, we will explore how advanced analytics techniques can ease the challenges of remanufacturing and help players win share in the marketplace.

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