7.2.1 The United States

The United States is undisputedly the leader in terms of producing, consuming and exporting remanufactured goods, where estimates suggest that remanufactured goods account for nearly two percent of all product sales [2]. In 2011, the value of U.S. remanufacturing production reached $43.0 billion, growing 15 percent since 2009, with international exports accounting for $11.7 billion of that amount. Canada, the European Union (EU), and Mexico were the leading destinations for U.S. exports. In addition to the major OEM remanufacturers, small- and medium-sized enterprises (SMEs) generated 25 percent ($11.1 billion) of remanufacturing productivity, and are responsible for 36 percent of the more than 180,000 full-time jobs in U.S. remanufacturing, illustrating the importance of supporting remanufacturing in a variety of business contexts. This vitality is based on the prevalence of remanufacturing business models in key industrial sectors, including aerospace, consumer products, electrical apparatus, heavy-duty and off-road (HDOR) equipment, information technology (IT) products, locomotives, machinery, medical devices, motor vehicle parts, office furniture, restaurant equipment and retreaded tires [3]. Among these, aerospace, HDOR, and motor vehicle parts sectors account for 63 percent of total remanufacturing production (Table 7.1) highlighting both their viability within and criticality to the success of circular industrial systems.

7.2.2 Europe

Europe is also a major player in the global remanufacturing industry, with a strong focus on aerospace, automotive and HDOR sectors. Estimates suggest that European remanufacturing productivity generated approximately $42 billion, accounting for nearly 1.9% of product sales and employing 190,000 people in 2011. Germany, the United Kingdom & Ireland (UK), France, and Italy are four key nations that hold critical roles in this region as top producers and leaders in technology. The collective value of their remanufacturing industries was estimated to account for 70% of the total European remanufacturing market. Most EU members view remanufacturing as both a sustainable business model and a means to protect the environment. Accordingly, several mandatory legal directives have been issued to foster the growth of remanufacturing in Europe. Examples include management directives for End-of-Life Vehicles (ELV) and Waste Electrical and Electronic Equipment (WEEE), which set targets for recycling and reuse in automotive and electrical/electronic sectors respectively, and thus encourage remanufacturing activities through economic incentive. With proper governmental support and promotion, the European remanufacturing industry is expected to grow to approximately $120 billion per year and add nearly 65,000 jobs by 2030.

7.2.3 China

The total value of the remanufacturing industry in China was estimated to reach $20 billion in 2015 [5]. The growth of the Chinese remanufacturing industry is primarily fostered by government regulation that aims to reduce environmental pollution and promote sustainability. In this pursuit, the State Council of China officially supports for remanufacturing industry as a key element of the Chinese economy. Since their original endorsement in 2005, more than 20 laws have been passed to expand the applicability of remanufacturing. Pilot programs in this pursuit aim to explore the potential for integrating remanufacturing as an aspect of new good production. For example, some motor vehicle parts manufactures can remanufacture engines, transmissions, generators, starters, drive shafts, compressors, oil pumps, water pumps, and other components that may be incorporated into effectively new cars [6]. As remanufacturing activates have only begun over the last decade in China, there are still many barriers that limit its growth. Definition and standards for remanufacturing, for example, are still lacking. As a result, remanufactured or remanufacturable goods are often classified as “old” or “scrap” products, causing international trade in goods and cores to be restricted or prohibited.

7.2.4 Other Countries

Remanufacturing in other countries is relatively limited scope and value. Relevant progress is identified in in Table 7.2 [4].

7.3.1 Aerospace

Aerospace remanufacturing is driven by the demand for continuous maintenance and overhaul service often widely regulated and required by aircraft in commercial, private, and military fleets. Systems and subsystems frequently remanufactured include airframes, engines, avionics, hydraulics, and interior furnishings. Smaller system components with measurable wear characteristics, called “rotables,” are often subject to defined service periods after which they must be remanufacture. These products include wheels, brakes, auxiliary power units, fuel systems, flight controls, thrust reversers, landing gear assemblies, and electrical systems.

Remanufacturing in this context covers a wide range of activities, including repairing used components, replacing worn components with virgin (new) parts, and upgrading product performance maintain parity with current technologies. In fact, the terms “overhaul,” “rebuild” and “repair” are more frequently used to denote “remanufacturing” in the aerospace industry. In many, if not most cases, the parameters of remanufacturing efforts—from the duration of use until remanufacturing is required to the functional performance requirements after processing—are defined by tightly-controlled safety and quality regulations. Traditionally, OEMs have little involvement in the maintenance, repair and overhaul market, and independent remanufacturers are therefore often left struggling to efficiently obtain design and performance information to ensure remanufactured products adequately meet regulated specifications. As the maintenance and repair market grows, however, OEMs are increasingly offering service-based purchasing agreements to gain advantages in aftermarket. Airbus, for example, offers Flight Hour Services in which an airline can select the level of support it needs to complement its own maintenance, reducing reliance on independent parts remanufacturers.

Aerospace remanufacturing is also challenged by the availability of skilled and certified technicians. The pool of qualified workers is still relatively limited. Meanwhile, advances in technology that require advanced skills—such as new composite materials or fuel cell power systems—hold great potential to generate drastic impact on the aerospace sector (and thus, inherently, its remanufacturing industry) but are struggling to gain traction due to this deficit.

7.3.2 Automotive Parts

Automotive parts remanufacturing is reported as the world’s largest remanufacturing sector [7]. Frequently remanufactured products include engines, transmissions, starter motors, alternators, steering racks, and clutches. With the gradual increase in vehicle longevity, the average life of vehicles on the road is now over seven years. Thus, because cars are on the road longer, the demand for spare parts is increasing, creating opportunity for growth in the automotive remanufacturing sector. In Europe, the End-of-Life Vehicle (ELV) Directive has further buoyed the remanufacturing industry in this sector by dictating a percentage of end-of-life (EOL) vehicles that must (or, rather, should) be reused or recycled, providing economic incentive for both OEMs and remanufacturers to circularize business models and reduce the amount of waste generated when vehicles reach their end-of-use stage.

The challenges faced by automotive parts remanufacturers come from high labor cost (due to product complexity), scarcity of quality and adaptable cores, and increasing design complexity in which electrification and electro-mechanical integration are making vehicles more difficult to cost-effectively assess, diagnose, disassemble, and repair. Compared to virgin (new) part manufacturing, the disassembly, separation, cleaning, and repair operations required in remanufacturing involve three times as much labor [4]. This creates high labor costs that, combined with competition from low-cost virgin alternatives, have made remanufacturing an economically unattractive option in some cases.

The availability of quality cores also hampers the growth of remanufacturing. Estimates suggest that the cost of core can represent anywhere from 19 to 59 percent of a remanufactured product, implying that the benefit of remanufacturing operations is largely affected by the quality of the core collected. Because the use environments, intensities, and conditions of vehicles are so widely variable, this creates a degree of unpredictability in core quality, subsequently requiring remanufacturers to constantly adjust and limiting the potential for standardized, streamlined processes that achieve greater cost efficiency. In addition, driven by ever-evolving emissions regulations, engine technology is changing every two to three years. As a result, engine designs are becoming increasingly complex and integrated with electronics, adding to the complexity of remanufacturing operations and requiring more advanced skillsets.

7.3.3 Heavy-Duty and Off-Road (HDOR)

Remanufacturing is particularly prevalent in the HDOR sector, as large, complex, capital intensive, and durable products are well-suited to repeated service and life cycle extension rather than outright replacement. Remanufacturing activities in this sector focus on vehicles such as trucks, bulldozers, excavators, backhoes, asphalt pavers and rollers, farm tractors, combines, rock cutters, tunnelling machinery, and oil and gas drilling machinery. The high-value industries in which such equipment operates often means that downtime can be detrimental; as a result, repair and remanufacturing in the field are emerging as cost-effective strategies. Similarly, due to the high capital costs of new HDOR equipment, remanufactured products may cost 70% less than new products. Accordingly, recognizing the potential appeal of remanufacturing to customers (and thus its economic opportunity), an estimated one third of OEMs in the HDOR sector produce both new and remanufactured equipment.

Similar to automotive remanufacturing, the HDOR sector also faces challenges in high labor cost, competition from cheap raw materials for new product manufacturing, and increasing electrification of vehicle systems. In addition, because HDOR equipment and its components are expectedly diverse in design (as a natural result of a multi-competitor market), the relative non-standardization and/or interchangeability of parts and components often necessitates the maintenance of part inventories to cover all potential replacement scenarios. In some ways, this creates a challenge for remanufacturers, who may have difficulty both finding replacement parts for legacy equipment and meeting demand for contemporary replacement parts with existing inventories. In this sense, much technical alignment and organization is needed.

7.3.4 Information Technology (IT)

Information technology (IT) is perhaps one of the most challenging sectors for remanufacturing. Commonly remanufactured products include personal computers (PCs), servers, motherboards, circuit packs, modems, and office technologies such as printers and toner cartridges. In this field, “refurbished” is a more common word than “remanufacturing” and involves disassembly, cleaning, inspection, and replacement of faulty components with functioning parts. Units are then tested to ensure electrical safety and functional performance. Comparing with independent remanufacturers, OEMs are reported to account for a larger share of this activity due to the highly complex and proprietary nature of most IT products. Despite this, remanufacturing only accounts for a small portion of OEM revenues. Third party remanufacturers may still acquire, remanufacture, and sell products independently (and thus pose some small degree of direct competition with OEMs), but few, if any, independent remanufacturers are certified by the OEM, often impacting customer perceptions of quality and performance.

Compared to other sectors, electronics and IT products face a unique set of challenges. The rapid advancement of electronic and digital technologies renders many products effectively obsolete in as little as two to three years. In many cases, such older products cannot support upgrades that achieve parity with contemporary market offerings, and thus do not fulfil the potential to compete with current virgin (new) products. In addition, because of this rapid turnover, consumers typically seek to balance the most advanced functionality with the most economical solutions, creating difficulty forecasting supply and demand for remanufactured products. Beyond this, many consumers either do not know how or are reluctant to send their IT products for remanufacturing, due either to a lack of knowledge about options or concerns regarding data security. As a result, experts find that the supply of quality cores is insufficient to support widespread and viable remanufacturing in this industry [8]. In response (at least in Europe) the Waste Electrical and Electronic Equipment (WEEE) Directive has extended producer responsibility for managing the product wastes at EOL and set targets for recovery and recycling, which has further encouraged remanufacturing. Troublingly, in cases where technology does not advance as rapidly, OEMs worried about remanufacturing cannibalization of new product sales often deliberately hamper remanufacturing activates by discrediting the quality of third-party remanufactured products, promoting the use of new products, or even designing the product to more complex specifically to complicate or inhibit remanufacturing.

7.3.5 Other Sectors

Remanufacturing also has its presence in other sectors. Their respective challenges are explained in Table 7.3.

7.4.1 Standards & Legislation

The absence of a commonly accepted legal definition for remanufacturing and associated certifications for remanufactured goods is cited as one of the most prevalent barriers for remanufacturing [3]. In many cases, remanufactured goods are frequently classified, in terms of international trade, as “used.” The impacts of this poor distinction are more than simply semantic; many nations restrict the import and export of “used” products in effort to minimize the trade of EOL products that are effectively waste material, and thereby avoid the economic and environmental costs of managing that waste. In some cases, such restrictions reflect efforts to protect domestic markets for secondary life cycles. In precluding the trade of remanufactured or remanufacturable goods, however, such policies constrain the growth of remanufacturing at larger scales. This barrier is especially apparent in China and India, where population growth and, therefore, market potential are both immense and growing.

At a smaller scale, the lack of definition and standards for remanufacturing has also led to inconsistency across markets in the quality and performance of remanufactured products as compared to virgin (new) counterparts. Some companies sell products as “remanufactured” in effort to capitalize upon the term’s connotation of performance even though the products are in fact only reused or repaired. Customers purchasing such falsely-branded products and quickly finding malfunction may thereafter perceive remanufactured products in general as “low quality.” This inconsistency, then, creates variable—but often negative—consumer trust in remanufactured products as a whole, putting companies engaged in true, high-quality (i.e. new-equivalent) remanufacturing at significant disadvantage. In this regard, a widely accepted definition of remanufacturing, a standard for inspection, restoration and testing, and a model for new-equivalent performance certification is needed [3].

Over the decades, there have been a number of laws and regulations to support EOL product disposition, such as the End-of-Life Vehicles Directive, the Waste Electrical and Electronic Equipment (WEEE) Directive, and Restriction of the Use of Certain Hazardous Substances (RoHS). However, the impact of these regulations varies. While they set realistic targets for reuse, recycling, and recovery and extend producer responsibility more completely over the product life cycle, they can also limit remanufacturing in some ways. For example, RoHS regulates the amount of lead (Pb) that may be used in electronics and electronic components in the EU market. While the environmental and human health intentions are clear, this may stop remanufacturers from reusing components that contain lead, forcing them to dispose of such components (which creates environmental exposure anyway) and replace them with lead-free parts (driving up remanufacturing cost and creating even further economic barriers). As another example, specific performance standards for remanufactured devices in the medical industry are necessary, but impose additional costs that discourage remanufacturing in favor of repair, which does not require recertification [8]. This not only stifles the growth of remanufacturing, but also means that healthcare providers often settle for equipment that functions only repair-to-repair, creating frequent downtimes that affect both human health and economic efficiency.

7.4.2 Design

Design plays a critical role in determining the potential for remanufacturing a product. The lack of specific design considerations for remanufacturing creates many of the challenges encountered during remanufacturing processes today. For example, use of permanent joints will add complexity to disassembly process, sometimes requiring destructive disassembly methods that can cause unnecessary damage to neighbouring parts, ultimately creating losses in the product’s recoverable value. Another example is the non-standardization of part and component designs across manufacturers, and even across different products from a single manufacturer. While this is often a natural result of multi-player competition within a market, it often creates diversity that requires extra effort during parts assessment and sorting processes.

Currently, few companies (except for major players such as Xerox, Caterpillar and Kodak) have desire to actively enhance product remanufacturability through design. In some cases, companies simply lack awareness of the potential benefits of designing for remanufacturing. In others, companies often fear that designing for remanufacturing may benefit independent remanufacturers, who ultimately become strong competitors in the aftermarket, more than the OEM itself. In fact, some OEMs even deliberately design products to inhibit or complicate remanufacturing explicitly to combat the loss of business to third-party remanufacturing. Some printer ink cartridge OEMs, for example, have implanted microchips in their products that render them inoperable if ‘tampered’ with. Though the intention of this was apparently to prevent counterfeiting, such features also—and probably not accidentally—effectively destroy all functional value if disassembled for remanufacturing.

Compared to other strategies such as design for manufacturing or performance, design for remanufacturing is usually not an issue for a typical designer because the corporate philosophy driving the design either ignores or specifically excludes it. Due to this lack of consideration and an over-emphasis on cost-effectiveness, remanufacturers often struggle to process returned products due to their poor quality, or have difficulty finding economic justification because the potential recoverable value does not sufficiently outweigh the extensive work required to remanufacture a product designed for a single life cycle. Thus, there is a strong necessity to move towards life cycle design and encourage quality over quantity in the design of products.

7.4.3 Market Demand

The demand for remanufactured products is affected by customer perceptions of the quality and value of remanufactured products. Ultimately, however, interest in remanufactured products depends heavily on the price of competing new products. Because most customers are neither aware of workmanship that goes into a remanufactured product nor convinced that remanufactured products can perform at as well as their virgin counterparts, they often expect remanufactured products to be sold at a lower price, substantially reducing the margin of remanufacturing and thereby discouraging the growth of remanufacturing industries. A general preference for new products for these reasons reduces the economic viability of remanufacturing despite functional opportunity. This is especially true in electronics and IT product sectors, where rapid innovation and shorter product life cycles create strong competition from new goods that may indeed be technologically superior, with recently-outdated but still advanced “last-generation” new models consistently declining in price [4]. Even though, there is a ‘green’ and environmentally-conscious customer base that currently supports remanufacturing, reliance on this ‘green’ customer base alone will not sustain the remanufacturing industry, let alone allow it to grow [3].

7.4.4 Core Supply

Current product supply chain models almost exclusively reflect one-way movement of products from the point of raw material extraction to the point manufacture, and therefrom to customers and ultimately to landfill or incineration. This linear model poses challenges for both OEMs and third party remanufactures in accessing cores at end-of-use (EOU) or EOL because the infrastructure for getting whole products back—rather than simply their constituent materials as in post-disposition recycling—is severely underdeveloped [8]. These challenges create uncertainty in the quantity, quality, and timing of core return, making remanufacturing less predictable and thus leading to difficulties in planning remanufacturing operations. For example, when the volume of core return is insufficient, remanufacturers sometimes will have to salvage lower-quality cores or even use new products to meet demand requirements, which can drive up both costs and environmental impacts [9]. Conversely, a surplus of cores creates a need to inventory, adding cost increasing the risk of interim product obsolescence.

Another issue that has been relatively underexplored is the frequency and impacts of damage to cores during transportation processes. In some cases, transport parties perceive cores for remanufacturing as EOL or scrap materials, and their handling practices thus reflect their perception of low value. This can result in increased scrap and fallout rates, as cores were once suitable for remanufacturing become unviable—ultimately damaging the remanufacturer’s bottom line. An example of this is the business-to-consumer (B2C) printer cartridge market, where different cores are sometimes collected in a single stream, creating mixed batches that increase the risk of cross-contamination [8].

7.4.5 Skills, Technology, and Data of Remanufacturing

Compared to conventional manufacturing, remanufacturing is considered more labor intensive because, in contrast to highly-automated forward assembly, EOL disassembly and diagnostic processes are overwhelmingly manual. In this context, many decision made in remanufacturing processes rely on engineering experience and intuition, and thus require engineers and technicians whose technical skills extend beyond the norm of controlling forward production systems. However, a lack of skilled talent in a number of remanufacturing sectors is becoming an increasingly prevalent becomes a barrier to the development of remanufacturing. In addition, with the development in materials and manufacturing process, remanufacturers must likewise constantly keep their assessment, repair, and upgrading technologies advanced in order to provide products that can compete with contemporary market offerings. Another concern, particularly relevant with independent remanufacturers, is the availability of product design specifications. In most cases, OEMs are reluctant to share product design and performance data with any party that use it to create competing products, severely limiting the capability of independent remanufacturers to ensure their products achieve the parity that consumer markets expect. A particular challenge in this regard, any regulatory change forcing OEMs to share data may create the risk of encouraging OEMs to offshore production in effort to avoid legislation [8]. Therefore, there is a need to develop a marketplace for the transfer of design specifications and performance data between OEMs and independent remanufacturers to improve information flow on an equitable basis.

7.5.1 Connecting With New Business Models—The Product Service System

Every single night, over 500,000 guests rent accommodation as a service from a single company that offers two million room listings in over 57,000 cities worldwide [12]. Product owners (i.e. homeowners) shared their excess resources—a room—with customers seeking a defined service period, and consequently generated revenue without ever selling or transferring ownership of the physical product. Customers, on the other hand, chose the features and service duration for which they had demand and completed all transactions and communications online. Matching of the product owners and their customers was facilitated by Airbnb, third-party platform and itself a service, that earns revenue by creating successful matches.

Though not a manufacturer in its own right, Airbnb is the most prominent example of a huge new “sharing economy,” and the business model upon which it is based is the future of the industrial economy. In this model, the life cycle utility of assets is maximized via collaborative use models, and the life cycle period over which value may be extracted from that utilitiy is similarly maximized through remanufacturing. From sharing bikes to power tools, swapping clothes to leasing unused parking spaces, the sharing economy has gained unprecedented momentum over the past decade, and will soon become the foundation of our everyday life, as graphically shown in Figure 7.2. Indeed, analysis from consultants PricewaterhouseCoopers (PwC) highlights that revenues derived form a sharing economy could rise from $15 billion to over $300 billion by 2025 [13].

In the industrial economy, the growth of these sharing models will be driven by the recognition of mutual social, economic, and environmental benefits for both consumers and OEMs. From an economic standpoint, collaborative use models allow asset owners to make profit by simply finding ways to utilize the functional capacity of their products in times when they would otherwise be sitting idle, providing no value. Conversely, such models enable consumers to access to the product/service only as much as they need, reducing the burdens of high capital costs and the loss of value when the need is fulfilled before the functional capacity reached. From environmental point of view, both resources and assets are used in a more efficient and sustainable manner, reducing the unused excess and unnecessary depletion created when customers must purchase much but only need a little. In terms of social impact, connections between people—between asset owners and customers whose roles may constantly swap or merge—is deepened by demanding collaboration communication in the interest of cost, material, and time efficiency.

Currently, there are three types of systems under sharing economy: (1) Redistribution Markets, (2) Collaborative Lifestyles Platforms, and (3) Product Service Systems (PSS). While each are balanced with benefits and challenges, the Product Service System model is the only structure in which consumers are actively involved with producers in a reflection of traditional commercial relationships [14]. By definition, the PSS is “a pre-designed system of product, services, supporting infrastructure, and necessary prearranged network” aimed at fulfilling consumer needs while simultaneously minimizing detrimental economic, social, and environmental impacts [15]. In this, the Product Service System is particularly relevant to the circular economy transition, and is likewise considered as a key enabler of a successful remanufacturing business model.

This model provides an innovative means to cope with the unique complexities that currently inhibit the growth of remanufacturing. Consider, for example, the widely cited challenge of reverse logistics in core return [16]. Traditionally, selling products transfers ownership to the buyer, who is thereafter free to decide the fate of that product after their need is met. In such an ownership system, coordinating product return without well-developed infrastructure requires effort on behalf of the owner that exceeds the effort required in traditional linear disposal pathways. As a result, owners must typically be incentivized to return the product with some benefit at the expense of the remanufacturer. In contrast, the PSS model allows manufacturers to retain ownership, meaning that core return becomes an inherent condition of use rather than a non-mandated and therefore uncertain user decision. Further, the PSS model makes services such as condition monitoring or regular maintenance part of the use agreement rather than an additional service the user may or may not choose to buy. Thus, by ensuring proper maintenance and developing a continuous understanding of condition, the PSS model allows remanufacturers to develop a platform expectation of core quality upon return, reducing the difficulty of diagnostic processes and minimizing the intensity of required remanufacturer interventions. This also increases product longevity and durability, ultimately enabling it to maintain performance over multiple life cycles and thereby extending the period for which value may be derived. Together, these advantages create a degree of stability and predictability in the quantity, quality, and timing of core return, mitigating three of the most significant barriers that currently inhibit the growth of remanufacturing.

Take tires as an example. In traditional ownership-consumption models, consumers use the tires for an undetermined amount of miles until they are effectively unsalvageable, and thereafter purchase replacements at significant economic and environmental cost. In a theoretical PSS, consumers could purchase a defined mileage of use through leasing at fixed rate and subsequently return used tires to nearby workshops for re-treading. If tires fail before the defined use mileage, consumers could have them repaired directly in order to fulfil the remaining expected life if the tire. Within this system, previously under-used but highly valued assets can be greater utilized rather than replaced, driving down the associated operating cost per unit of use. Service providers could also have a better control of the material, component and product, which lowers maintenance cost and increases product longevity, enhancing the margin for revalorizing products after each usage cycle. Importantly, such a system would be viable for deployment by both OEMs and independent remanufacturers, providing equitable market opportunity.

PSS comprises both tangibles (products) and intangibles (services) to fulfil specific customer needs. Based on the weight combination of tangibles and intangibles, three classes of PSS have been identified (Figure 7.3).

1. Product-Oriented: the product is sold to the customer together with additional services contract (e.g. maintenance) to ensure the functionality of the product. Value proposition is still primarily based on selling (i.e. transferring ownership) of the product.
2. User-Oriented: the product is made available to consumer through various contractual agreements, such as sharing, pooling, and leasing. As ownership of the product remains with service provider, the value proposition will rely on both product and service.
3. Result-Oriented: selling the product is replaced completely by selling service; both supplier and consumer agree on the service delivered. This is considered the most widely-applicable definition with greatest potential for a PSS model.

Several big market players have identified the potential economic benefits of PSS and incorporated the PSS model to increase their competitive advantages. For example, Fuji Xerox sells the service of copying paper based on the number of copies instead of selling entire copy machines. Similarly, Volvo Aero engine providers charge for maintenance, repair, and overhaul services per engine flying hour rather than selling complete replacement aircraft engines. Likewise, Philips lighting provides a defined level of illumination in a building, charging based on a per-lux (unit of illumination) model rather than simple selling light bulbs.

For OEMs to offer PSS model, they must have intrinsic motivations to extend product lifetime as long as possible. In the context of remanufacturing, this typically stems from an ability to continue deriving value from the product’s function as long as it continues to perform, which encourages recovery and remanufacturing as a means to minimize the material, energy, labor, and opportunity costs of new product manufacturing. In addition, because ownership remains with the OEM, companies are better enabled to keep track of product performance during use, predict core supply, and thus plan remanufacturing operations efficiently. Recognizing the potential economic opportunity in this structure will likely encourage decision makers to design products for longer life cycles and for remanufacturing, making it easier and more economically attractive compared to constant virgin production in pursuit of unit sales. From the consumer perspective, the utility of ownership itself will decrease, as the value for which consumers pay is inherently in the service rather than the physical components of the product. As a result, the “need” to own a new product will decrease, and acceptance of remanufactured goods will increase based on their provision of valuable function, subsequently supporting the growth of remanufacturing business models. In this system where service is the product and asset health serves the interest of the OEM as well, consumers could be guaranteed access to service either as a component of use or at competitive price, without worrying about the maintenance and/or repair cost that might be incurred for user-owned products which, in traditional systems, OEMs have little interest in preserving [18]. Moreover, research suggests that economic advantages in leasing are available to both OEMs and consumers based purely on the avoided incurrence of high capital costs for either producing or purchasing a virgin (new) product.

Interestingly, firms show more interest in remanufacturing as a necessary component of a PSS model, than in offering remanufacturing services alone as a complement to sales-based businesses. Indeed, a survey of 625 senior manufacturing decision-makers in 13 countries found that 86-percent of them view the transition from product-oriented to service-oriented revenue models as a core strategy for development, reflecting immense opportunity for the uptake of remanufacturing [19]. For now, more than 50-percent of respondent manufacturers include service as a part of their product-based business model. This population may serve as a sound potential target for initially promoting PSS models as a means by which to achieve natural dissemination of remanufacturing as a competitive business practice.

7.5.2 Setting Up Global Reverse Supply Chain

Driven by the growing emphasis on environmental issues, resource scarcity, and ongoing economic volatility, many OEMs are increasingly interested in extending their involvement in the product life cycle past the point of delivery. To achieve this requires advanced networks for tracking and handling products at the EOU or EOL back from the user to the manufacturer. Such networks, known as reverse or closed-loop supply chains, necessarily depend on reverse logistics activities, “a specialized segment of logistics focusing on the movement and management of products and resources after sale and delivery to the customer” [20]. Reverse logistics systems are not presently well-established in most industries, but are continuously undergoing development. Based on the geography and leakage of material post-use, three archetypes of circular or partially-circular supply chain organization have been identified: (1) global/regional closed loop, (2) partially open local/regional loop, and (3) open cascade, as summarised in Figure 7.4 [10].

Ideally, the closed-loop supply chains will stay within regional or local areas in order to minimize transportation costs and international trade logistics. While this is desired in the classical sense, increasing raw material prices and the efficiency of transportation and logistics systems have created great opportunity for a large-scale arbitrage economy that extends product and material recycling to global scale. Ricoh, for example, captures this opportunity by shipping low-value recycled plastic from recovery sites in Europe to Asia, where it holds greater value as a feedstock for manufacturing their new products. While this global scale does not fit the classical definition, it is still effectively closed-loop; even accounting for transportation costs, Ricoh is still able to achieve 30% savings in material cost over purchasing virgin plastic feedstocks [21]. In this sense, it is expected that as trade is increasingly globalized and access to resource becomes more constrained, reverse logistics and closed-loop supply chains may benefit from economies of scale in much the same way as their linear predecessors. One reflection of this is the launch of the world’s largest container ship, Triple-E, in 2013, which surpassed the capacity of the previous record holder by 16% while reducing CO2 emissions by about 35-percent per container moved [21]. As the economic and environmental costs if transportation decrease, the representative portion of transportation in total cost will similarly decline, better enabling companies to explore globalized reverse logistics as a triple-bottom-line serving measure.

It must be recognized, however, that reverse logistics is not necessarily a symmetric picture of forward supply chain; rather, it demands unique operations of its own [22]. Remanufacturing, of course, starts with collecting cores from users and transporting them back to the remanufacturing facility. However, variations in use contexts, product life durations, owner retention, and change in technology often creates uncertainty in the quantity, quality, and timing of this return [21–23]. An absence of developed return infrastructure compounds this uncertainty, as users are typically most inclined to choose the easiest route of disposition. Handling this uncertainty is critical to creating profitable remanufacturing business models, as it will directly change the inventory and operation planning obstacles that inhibit growth.

To reduce this uncertainty, remanufacturers can actively manage the process of core collection and strategize the acquisition process. Beside leasing models in which OEMs retain ownership, other strategies include the deposit-based approach, in which customers pay a deposit upon purchase that incentivizes them to return the product at the EOU to reclaim that fee; an exchange-based model, in which customers are obligated to return similar used products as a prerequisite to purchasing a replacement remanufactured product; the credit-based approach, in which customers receive credit for returning cores; and the buy-back approach, where remanufacturers simply purchase cores from brokers or scrap yards [9]. Caterpillar Inc., for example, has adopted a credit-refund policy with their customers to ensure the quantity and quality of the returned cores. When customers return the used components, Caterpillar will inspect their condition and determine variable credit amounts based on quality [24]. Companies seeking to build successful reverse supply chains for remanufacturing must properly choose and/or design the types of core acquisition relationships that best match their product profile.

Besides core acquisition model, the next challenge is to design and plan the actual transport networks to get components from the point of use back to the remanufacturing facility. Distribution shipments in forward logistics usually involve high volume and relative homogeneity in product type, transporting goods from manufacturers to a few local clients or dealers. In a reverse supply chain, however, cores available for collection at any given time are markedly lower in volume and unavoidably diverse in type, both of which may vary considerably. This creates significant challenges in achieving cost-effectiveness [25]. In this regard, sophisticated reverse network management capabilities comprised of both hardware (e.g. the collection points/channels) and software (e.g. condition monitoring of used component, inventory management, sorting standards, network planning, and core forecasting capability) must be established. Further, companies must also design product packaging systems carefully to ensure the quality of core return—an often overlooked consideration. If cores are not packaged well, they are more susceptible to damage, which may reduce their recoverable value.

Building effective reverse logistics channel is essential for the success of remanufacturing business. Observation of current practices suggests that while recycling of raw materials can be conducted at a global scale, core collection networks for remanufacturing are likely to function best at local or regional scales due to the notably variable volume and type factors, as well as the physical complications of transporting complete products. However, the economy-of-scale effect emerging in global closed-loop supply chains, as described above, haw to some extent introduced opportunity to expand the viability of remanufacturing core collection networks to broader scales. Companies must carefully evaluate the particularities of their industries to create new opportunities and prepare for the global uptake of remanufacturing.

7.5.3 Innovative and Enabling Technology from Industry 4.0

The term industry 4.0 refers to the fourth stage of industrialization which aims for realizing a high level of automation in manufacturing through electronics and Information Technology. As this becomes a reality, the boundaries between the real world and the virtual world are increasingly blurred, leading to the development of integrated cyber-physical production systems (CPPSs). In other words, mechanical and electronic elements of production systems—and even products themselves—are linked by IT and communicate with each other [26]. In the Industry 4.0 environment, machines, products, ICT systems, stakeholders, and decision-makers across the entire value chain and the complete product life cycle are linked with each other, through smart networks (Figure 7.5). The development towards Industry 4.0 has not only presented a substantial opportunity for the traditional manufacturing industry, but also brought along opportunities for closing material loops and catalysing the development of remanufacturing. New enabling technologies can be best classified into three key areas:

7.5.4 Design for Remanufacturing

The decision to include remanufacturing as a part of product life cycle considerations should be made early in the business-case stages of product development that inform design choices, as about 80-percent of a product’s costs are determined by its design [30]. Thus, if proper consideration is given to design products deliberately to enable and encourage remanufacturing, many of the barriers that presently inhibit its growth can be mitigated [2, 31–34]. The underlying philosophy in this pursuit, however, depends on the understanding that product designers are not independent actors. That is to say, designers create product concepts that meet a defined set of parameters for cost and performance that are themselves based on business goals, market need, and manufacturing infrastructure. Thus, designing for remanufacturing must be a systemic decision in which remanufacturability is highlighted as a necessary product parameter, rather than an optional, nonconsequential design choice. In this light, every stage of product development must be informed with a base of remanufacturing knowledge so that features of remanufacturability may be integrated fundamentally into the product concept, and thereby ease the EOL remanufacturing process. An important consideration in this regard is that contracted and independent remanufacturers—perhaps the largest portions of the industry—have no control over these upstream stages, and are only able to remanufacture products that already exist. It is essential to recognize, therefore, that the power to inhibit or unlock remanufacturing ultimately lies with the OEMs responsible for product design and development, regardless of whether or how much they engage in remanufacturing themselves.

From a holistic level, design for remanufacturing comprises two levels of design activities: designing the business model and designing the product.

In terms of designing the business model, the opportunity for remanufacturing must be carefully evaluated to determine whether remanufacturing should be included in the product support portfolio. Factors that must be evaluated and analyzed usually include:

1. Laws and regulations, which examine the impacts of and restrictions created by environmental legislation with respect to remanufacturing
2. Market demand/acceptance, which evaluates the extent to which the product is expected to occupy a competitive position in the market after being remanufactured
3. Return potential, which predicts the likelihood that a product will be successfully returned to the remanufacturing site at the end of its useful life
4. Remanufacturing capability, which analyzes the technology and information required to remanufacture a product
5. Economic incentive, which predicts value that may be recovered by remanufacturing
6. Organizational support and consideration, which aim to understand whether remanufacturing decisions will be understood and supported by upper management

In terms of designing the product for remanufacturing, product developers must aim first and foremost to increase the value that can be recovered from remanufacturing. Usually, this is accomplished through “Design for X” strategies, where X may be any post-use process—such as disassembly, core recovery, cleaning, or upgrading—that can be made easier with proper choices upstream in the product life cycle. The prioritization of these design activities may vary according to the requirements and capabilities of the remanufacturers themselves. Usually, design guidelines—simplified, directional, and qualitative frameworks for design decision-making—are the most straightforward and commonly used approach to Design for Remanufacturing [33, 34]. Examples include broad objectives such as reducing the number of joins and fasteners, using durable materials, avoiding using permanent joints, etc. Following such guidelines in any particular pursuit (be it disassembly, durability, or anything else) inherently steers designs toward greater remanufacturability.

Xerox Corporation is perhaps one of the most well-known practitioners of design for remanufacturing. For many years, the company has developed assessment tools to carefully evaluate the feasibility of remanufacturing their industrial printers, and strategized the business model for remanufacturing through initiatives such as leasing machines rather than selling them. Once the economic and technical opportunity were clear, Xerox began to deliberately design their printers with modularity and with fewer parts, aiming to ease the disassembly process and enable component replacement rather than complete asset disposition. The designers also used a common platform approach, especially for the main engine of the machine and peripheral equipment, in which the same central technologies are used across different product models, minimizing amount of unique parts across their product range and reducing the vulnerability to differential obsolescence. Research focusing on Xerox as a case study suggests that by incorporating remanufacturing as a central principle of product and business model design, the company effectively unlocked seven additional revenue streams from products remanufactured to serve second through seventh useful life cycles [35].