From PLI’s Course Handbook
Green Technology Law and Business 2010: Legislation, Financing, Carbon Trading and Sustainability
#22737
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key legal and business issues in Remanufacturing as a key to industrial sustainability
Dr. Nabil Nasr
Golisano Institute for Sustainability, Rochester Institute of Technology
Definitions
Sustainability has been defined as: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”[1]
What is Remanufacturing? Remanufacturing (often shortened to “reman”) is commonly described as the process of disassembly of products during which parts are cleaned, repaired, or replaced, and then reassembled to “like-new” or “better-than-new” condition. In some cases, remanufacturing also adds upgraded components that were not available at the time of original manufacture; an upgraded microprocessor would be one such example.
The Remanufacturing Process
In general, there are six process steps required in remanufacturing in order to bring a product back to “like-new” condition:
· Inspection: An examination of the original product is the mandatory first step in remanufacturing. This is necessary to separate the main or “core” components according to the amount and type of rework that will be required to complete their remanufacture. For example, cores that are rusted will require very different cleaning processes than those that are merely dirty or oily. Cores that are too damaged to remanufacture are diverted for recycling or disposal.
· Disassembly: Most often disassembly involves exactly reversing the steps required to assemble the product originally – physically taking the product completely apart and reducing it to its single-component or single-part level. Disassembly is necessary because during remanufacturing every part must later be brought up to like-new standards in order for the final product to be considered “remanufactured.”
· Cleaning: During this step unwanted substances are removed from the surfaces of components in accordance with the required or otherwise agreed-upon standards. The surfaces are then inspected. An estimated 90 percent of all disassembled parts must undergo cleaning, and in some cases cleaning is the most costly and/or time-consuming phase in the entire remanufacturing process.
· Restoration / Replace: Out-of-spec or worn parts are either restored to as-new condition or replaced with as-new parts. Screws, washers, gaskets, wiring, and other minor components are usually treated as one-time use or disposable and are replaced with new items. Rejected or replaced parts are recycled whenever possible.
· Reassembly: This is the process which reconstructs the remanufactured product to operate like a new one. Typically, reassembly mirrors the original product manufacturing assembly line, but on a lesser scale.
· Qualify: Following reassembly, the products are subject to inspections that are the same as or even more stringent than the quality inspections used for original manufacture. The qualification step is used to ensure that all quality objectives have been met. Remanufactured items that pass quality inspections are packed for shipment and distribution.
The Remanufacturing Industry
Remanufacturing is global in scope; however, this section will focus on the domestic sector.
U.S. Remanufacturing Industry
The domestic remanufacturing industry is larger, more diverse, and contributes more to the national economy than most people, even industry experts, realize or appreciate. For example, there are 73,000 estimated total reman firms with $53 billion in annual sales and average annual company sales of $2.9 million. Direct employment is estimated to be approximately 480,000. Reman operations tend to be relatively small firms, with an average of 24 employees per company.[2]
For background, the U.S. Department of Defense is the largest remanufacturer in the world. Commercial (as opposed to military) remanufacturing is concentrated in the following industrial sectors:
· Automotive: Internal combustion engines (often diesel); fluid power cylinders and actuators; motors and generators; motor vehicle parts and accessories; and transportation equipment.
· Electrical: steam, gas, and hydraulic turbines; farm machinery and equipment; power-driven hand tools; electric and gas welding and soldering equipment; pumps and pumping equipment; air and gas compressors; industrial high-speed gears and drives; air-conditioning, warm-air heating, and refrigeration; power, distribution, and specialty transformers; switchgear and switchboard apparatus; motors and generators; relays and industrial controls; electrical industrial apparatus; telephone and telegraph apparatus; electron tubes; motor vehicle parts and accessories; and electromedical and electrotherapeutic apparatus.
· Furniture: Office furniture, with subsectors in wood furniture and furniture made from manufactured products.
· Machinery: Industrial valves; steam, gas, and hydraulic turbines; internal combustion engines (diesel); machine tools (metal-cutting types); machine tools (metal-forming types); textile machinery; printing trades machinery and equipment; food products machinery; special industry equipment; ball and roller bearings; air and gas compressors; industrial high-speed gears and drives; office machines; automatic vending machines; air-conditioning, warm-air heating, and refrigeration; service industry machinery; fluid power cylinders and actuators; scales and balances (except laboratory); industrial and commercial machinery; motors and generators; household vacuum cleaners; motor vehicle parts and accessories; railroad equipment; transportation equipment; industrial instruments for process control; optical instruments and lenses; and photographic equipment and supplies.
· Medical: Computer peripheral equipment; surgical and medical instruments and apparatus; X-ray apparatus and tubes; and electromedical and electrotherapeutic apparatus.
· Tires: tire retreading and motor vehicle parts and accessories.
· Toner Cartridges: printing ink, computer peripheral equipment, and some motor vehicle applications subsectors.
Automotive Products
In the United States, the major market for remanufactured products is the automotive parts market. The following auto components and systems are remanufactured for parts suppliers, repair shops, and the home/do-it-yourself market:
• Air-conditioning compressors
• Alternators
• Engines (includes both “bare” engine blocks and finished engines that are completely equipped and essentially ready for installation into a vehicle)
• Fuel system components
• Rack and pinion steering
• Starters
• Steering gear boxes
• Transmissions
• Turbochargers
• Water Pumps
• Tires (remanufactured tires may also be termed retreaded)
Low-value parts such as plastic expansion tanks, filters, hoses and belts, spark plugs and wires, and bolts, screws and other fasteners are considered disposables (i.e., single use) and are rarely remanufactured unless there is a known and significant commercial demand. Otherwise, reman is not economically viable. In addition, those low-value parts are often recycled in order to reclaim the metal content (in particular, copper) or other materials that can be reused and/or to avoid disposal costs.
Recent Trends
Several ongoing trends have generated major changes in the U.S. remanufacturing industry since the 1990s.
First, remanufacturers are contending with high levels of technology found in the core components of products that are subject to remanufacturing processes. For example, internal combustion engines destined for reman are becoming steadily more sophisticated, with new kinds of materials and electronics steadily replacing conventional metal mechanical functionality (e.g., electronic fuel injection systems have almost completely replaced traditional carburetors). This trend is expected to accelerate in many areas where remanufacturing occurs. For example, current automobiles contain an average of 16 microprocessors per vehicle. Within three years, it is estimated that each new car will average 35 microprocessors.[3]
At the same time, entirely new technologies are being introduced into the products that will become subject to remanufacturing. Examples include large replaceable battery packs and sophisticated charging systems now used in most hybrid vehicles. The wide-spread adoption of such technologies will present new growth opportunities for far-sighted reman entrepreneurs.
Second, multinationals including Caterpillar, Xerox, GE, Delphi, and Hewlett Packard have established remanufacturing facilities around the world to meet market demands for lower-cost OEM products. For example, Caterpillar is opening a large, state-of-the-art reman facility in Singapore to market its own like-new products to meet the growing demand in Southeast Asia for construction equipment.
Increased competitive pressures originating within and outside the reman industry are also driving the steady consolidation of smaller remanufacturers into larger firms that can apply economies of scale to their operations. Consolidation also enables these firms to respond more rapidly to shifts in the marketplace demands due to technological innovation. Consolidation has also helped remanufacturers better cope with economic challenges such as the recent global recession.
Finally, the steady growth in consumer goods is opening up new opportunities for agile niche remanufacturers. For example, the proliferation and rapid introduction/acceptance/obsolescence cycle of cell phone models in the developed nations has spawned a new reman industry segment devoted to refurbishing discarded older phones for resale in third-world countries. And in the developed world there is a ready market for remanufactured versions of current-model high-price, high-value items such as large screen personal and corporate computers and peripherals, major and many smaller appliances, and HDTVs and entertainment system components. Purchasing such remanufactured products allows consumers to maintain or advance their standard of living even when economic conditions would oblige them to curtail purchases of equivalent new-production goods.
The Benefits of Remanufacturing
From the standpoint of sustainable production, the key benefit of remanufacturing when compared with new production is that approximately 85 percent of the energy expended in the manufacture of an original product is preserved in the remanufactured product. An early study conducted at MIT determined that the process of recycling reclaims only the material content of a product, whereas remanufacturing reclaims the:
• Material content of the product
• Energy from casting, machining, packaging, etc.
• Labor expended in the original production processes
• Capital invested in the original design, development, manufacturing, etc.
• Original function and design intent of the product[4]
For the consumer, a remanufactured product can offer the same (or even better) performance, reliability and durability as a newly manufactured product. Why is this? The failure rate of new parts is reduced when using remanufactured products because those parts prone to failure are replaced with durable components as part of the remanufacturing process. In this sense, a remanufactured product is more reliable and may have a longer commercial life than a newly designed product. Put another way, the resulting product has already been burned-in, field proven, and refurbished.[5] One study comparing warranty returns on new original equipment (OE) products with those of remanufactured products found that the remanufactured products were six times less likely to be returned under warranty than OE products.[6]
Economic Benefit
The economic benefit of remanufacturing can be quantified in terms of the recovered value minus the cost to implement recovery. The following economic considerations affect the ultimate benefit of remanufacturing a product:
• The initial part cost, replacement cost, and yield of the original product.
• “Demanufacturing” cost, representing all costs (materials, tools, and labor) required to completely disassemble the original product into its component parts.
• Restoration processing cost, representing all costs (materials, tools, and labor) required to completely restore and reassemble the product from original component parts of verified soundness and condition, plus the costs of all parts required to replace original component parts that are broken, worn, or otherwise incapable of restoration. Note that in some cases the remanufacturer may intentionally substitute better-than-original replacement parts in order to rectify known defects or issues inherent in the original core type or model and/or incorporate additional functionality that will enhance the resale value of the finished remanufactured product. In all of these cases, the additional cost of the substituted parts must be entered into the total cost for restoration processing.
The economic benefit from remanufacturing in terms of Recovered Value is derived from the following equation:
RV = ((UMC – URC) + CRC - CDS)
Where
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URC = å (1/Yi)*Ci
i=1
According to the following variables:
Variable / Description (normalized per design)UMC / Unit Manufacturing Cost (cost of new)
URC / Unit Remanufacturing Cost
Ci / Remanufacturing process i
Yi / Yield of process i
i = 1 / Core cost
i = 2 / Initial inspection and test
i = 3 / Disassembly
i = 4 / Replacement part
i = 5 / Processing
i = 6 / Inventory cost
i = 7 / Reassembly
i = 8 / Final qualification
i = 9 / Amortized reman development
CRC / Recovered material value
CDS / Disposal cost
Ecological Benefit
The ecological benefit of remanufacturing can be expressed as the recovered energy and avoided environmental impact minus the impact of the remanufacturing processes. The positive impact on the environment provided by remanufacturing operations on a worldwide basis is significant. A recent study conducted by the Argonne National Laboratory estimates that annual worldwide energy savings from remanufacturing activities amount to 400 trillion BTUs. This equals the electricity generated by five nuclear power plants, or approximately 10.7 million barrels of crude oil (enough to fill 233 standard supertankers). At the current price of $70/barrel, that represents nearly $750 million in savings. In addition, the energy saved in remanufacturing avoids the generation of 28 million tons per year of carbon dioxide (CO2).
CS130 Example
The potential benefit to the environment offered by remanufacturing vs. new production can be seen in the following example energy/material analysis for the Delco CS-130 100A automotive alternator.
About 61.1 Kwh of energy are required to manufacture one new alternator. During production of the new alternator, 66.6 pounds of CO2 are generated. In contrast, only 23.4 Kwh are needed to remanufacture one alternator and only 15.2 pounds of CO2 are generated. The annualized benefits from remanufacturing 1000 Delco CS 130 100A alternators are an energy savings of 37,700 Kwh and a CO2 savings of 51,357 pounds.
Consumer Products
Eastman Kodak Company One Time Use Cameras
The benefits to the environment offered by remanufacturing apply equally to consumer products. For example, 20 years ago, Kodak set a corporate goal of improving the environmental attributes of their products throughout the products’ life cycles. The company’s Film Products Group focused on removing as much as possible of the waste generated by their One Time Use Cameras (OTUC) through remanufacturing and recycling. Since 1990, the total number of OTUCs collected by Kodak reached 1.2 billion units. In 2007, Kodak collected 120 million single-use cameras.
Since 1990, 800 million Kodak OTUCs have been remanufactured and the balance sent back to other manufacturers. By 2007, the company was approaching 100 percent of Kodak OTUCs manufactured from recycled bodies and/or parts. Not only did this divert millions of pounds of plastic waste from landfills, Kodak achieved $1.968 billion in revenue of which OTUCs are a significant contributor.[7]