In the face of a global recession and a recovery that could take years, minimizing the costs of raw materials and supplies is becoming a higher priority among manufacturing-company executives. “Product reconstruction” in particular—the recovery of used goods, their processing and their resale—looms as an excellent way for a company, perhaps your own, to enhance revenue, profits and market share.
Reconstruction, which covers a continuum of activities from recycling to refurbishing to remanufacturing,1 allows companies to sell goods at lower prices than if they were to assemble nearly identical new products. In most cases, the prices of remanufactured products are 50 to 75% lower than those of new ones.2 Despite lower prices, however, reconstruction provides customers with high-performance goods.
The leading question
Does your company have what it takes to succeed at product reconstruction?
- Product reconstruction—recycling, refurbishing or remanufacturing—allows for higher profit margins (typically, 20%) than the creation of new equipment (3 to 8%).
- The appropriateness of product reconstruction for a company depends on the nature of its customers—six kinds in particular make for the best fit—and its specific core competencies.
- Federal and state governments are encouraging the product-reconstruction trend through legislation and public/private programs.
Product reconstruction also allows for higher profits than the manufacture of new equipment. The average profit margin for product-reconstruction activities is 20%,3 whereas margins in the manufacturing industry typically range from 3 to 8%. By beginning the reconstruction process with components that retain much of their original value, a company eliminates many of the costs that would be incurred if the manufacturing process were to start from scratch.
Additionally, product reconstruction within a larger corporation can provide a new revenue source, allowing the company to profit multiple times from its initial investment. It can use product reconstruction to leverage its knowledge base and manufacturing facilities.
About the Research
The author performed quantitative and case-based research to determine the conditions under which each type of product reconstruction—recycling, refurbishing and remanufacturing—yields its best results. The findings were verified by financial indicators from individual companies and by research conducted by or for various divisions of the U.S. government.
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2.National Center for Remanufacturing and Resource Recovery, “Remanufacturing Industry Timeline,” Rochester Institute of Technology, 2006, www.reman.rit.edu/timeline.aspx.
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ii.“Directive 2002/96/EC of the European Parliament and of the Council” (February 13, 2003), europa.eu.int/eurlex/pri/en/oj/dat/2003/l_037/l_03720030213en00240038.pdf.
iii.“Remanufacturing Industry Timeline,” www.reman.rit.edu/timeline.aspx.
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