Refurbish Your Profits

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The U.S. remanufacturing industry, according to Nabil Nasr of the Rochester Institute of Technology, generates estimated sales of $100 billion annually. The Wall Street Journal recently ran an article describing the challenges and opportunities facing this increasingly attractive industry. Some countries, fearing that remanufactured products such as medical instrumentation are not as reliable as new product, restrict or prohibit such imports. And some U.S. remanufacturers struggle to compete against very low-priced new imports.

Despite these trade-related issues, the prospects for remanufacturing are bright indeed. With commodity prices likely to continue their long-term rise, extending the service life of materials such as steel and copper (already built into products) is a compelling driver. Since labor is frequently the largest component of remanufacturing cost of sales, there are job opportunities for workers at a variety of skill levels.

And finally, the environmental benefits can be dramatic – keeping vast amounts of material in productive service and out of our waste stream and landfills.

The remanufacturing industry is also a uniquely promising sector for applying Lean Principles. First, quick turnaround time is always of the essence, whether product remains the customer’s property, or is taken in by the enterprise for refurbishing and resale. And second, remanufacturing typically includes numerous processes and linkages, many of them poorly-defined. Time and Flow – these are the two areas in which Lean reliably delivers excellent outcomes. Many remanufacturing operations began as small-scale, improvised workshops, and can now benefit enormously from formal Lean Line Design efforts.

A Leonard Group team recently led a full Lean transformation in a remanufacturing company with 200 employees and some daunting issues. The current-state Value Stream Map highlighted a convoluted trail of processes, numerous stacks of work-in-process inventory, and a free-for-all of differing work methods. The upshot was horrendous overtime costs, universal frustration, and a hopelessly crowded 75,000-square foot building. Each order consisted of from 50 to 200 units (remaining as customer property) and took twelve days to make its way from door to door.

This business was perfectly suited to benefit from Lean Line Design principles. The team designed a future state Value Stream to eliminate needless hand-offs and physical transfers, shortening the distance travelled by at least a third. Processes were combined when compatible, cutting out unnecessary handling. By its nature, remanufacturing frequently requires decisions: does a given part need to be replaced, or must this unit take an alternate path for retesting? Our Lean Line Design methodology defined all the criteria and alternate paths needed to handle these issues efficiently and reliably.

Within a few weeks the new layout was installed, from mixed-model final assembly cells all the way upstream to sequenced FIFO lanes for inbound work from the warehouse. Team members took eagerly to the new methods, and throughput time dropped quickly from twelve days to three – a 75% improvement. Volume rose to budgeted levels, and in six weeks labor productivity had improved by 20% – all in a calmer and less chaotic atmosphere.

“But”, you may ask, “doesn’t better labor productivity really mean layoffs?” No, as a matter of fact. At the outset, a Lean project includes a public commitment by management that any and all team members freed up by improvements will be reassigned to high-value activities such as continuous improvement projects and new product development. In the case study described, the rather sudden 20% labor improvement was a non-issue; compulsory overtime went away, fewer temp-agency workers were brought in for peak periods, and – best of all – the company took on additional unbudgeted (and very profitable) business.

So, whatever your industry sector, we’d urge you to look for opportunities to extend the service lives of your products, or add functionality, or recondition them for new owners. This industry is a great fit for today’s economic conditions and value-conscious customers – truly a way to Refurbish Your Profits.


“From Trash Heap to Store Shelf: Refurbished Goods Industry Seeks U.S. Support for Freer Global Trade, More R&D”, by James R. Hagerty and Paul Glader, The Wall Street Journal, January 24, 2011.

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