Year Q u a n tity - (POMS) is

Abstract Title: Automotive remanufacturing: The challenges
European remanufacturers are facing
Abstract Number 007-0271
Author Contact Details:
Margarete A. Seitz
Consultant
Capgemini Deutschland GmbH
Supply Chain Management
Löffelstraße 44-46
70597 Stuttgart
Germany
T: +49 (0) 711 50505 865
F: +49 (0) 711 50505 333
E-Mail: margarete.seitz@capgemini.com
POMS 18th Annual Conference Dallas, Texas, U.S.A. May 4 to May 7, 2007

Automotive remanufacturing: The challenges European remanufacturers are
facing
Seitz, M.A 1
1 Capgemini Deutschland GmbH – Consulting. Technology. Outsourcing. Löffelstraße
44-46, 70597 Stuttgart, Germany. Margarete.Seitz@capgemini.com
Abstract
Remanufacturing has been branded as the process of transforming used, worn out or
broken parts, components or products into an ‘as good as new’ condition. However,
for decades, remanufacturing has been undertaken by generally small and independent
automotive remanufacturers in Europe. This research shows that larger, European
remanufacturers have struggled to set up large-scale and automated remanufacturing
operations. As a matter of fact, there are only a handful of large automotive
remanufacturers in Europe, trying to replicate mainstream manufacturing processes
within their recovery plants.
This article outlines the major issues and obstacles European remanufacturers are
facing, hereby focusing on large-scale, OEM remanufacturers. The research
demonstrates that high product variation and high scrap rates contribute to parts
management issues. Further obstacles arise in the form of return forecasting and
engine pricing. This article explains the causes of these issues, their effects and how
they might be overcome.
Keywords:
Automotive sector, remanufacturing, Original Equipment Manufacturer (OEM)
2

Introduction
Over the past decade, the increasing interest in product return, recovery and the
distribution of recovered products has led to a number of contributions in the areas of
reverse logistics, product recovery and closed-loop supply chain management. While the
earliest contributions (e.g. Pohlen and Farris, 1992, and Stock, 1992) have focused on
reverse logistics, the field has developed into the investigation of the whole supply chain
for recovered goods, the closed-loop supply chain (e.g. Seitz and Peattie, 2004).
There are various product recovery operations in the automotive sector, including
recycling, reconditioning and remanufacturing. This article investigates remanufacturing
only, which is defined as the transformation of an end-of-life product into a product
with an ‘as good as new’ condition.
This article outlines the major issues and obstacles European remanufacturers are
facing. The research demonstrates that high product variation and high scrap rates
contribute to parts management issues. Further obstacles arise in the form of return
forecasting and engine pricing. In the following, the author will explain the causes of
these issues, their effects and how they might be overcome.
Methodology
This article is based on a three-year research project on automotive remanufacturing,
taking a case-study approach. More than one hundred and thirty interviews were
conducted within the facilities of vehicle manufacturers and remanufacturers.
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Interviews were semi-structured and structured. Interviewees came from all functional
levels, including executives (centre manager; head of department), middle management
(planners; administrators) and workers (assembly-line staff; warehouse operators).
Interview data was supplemented with (process) observation, business process mapping
and secondary data gathering.
The European Remanufacturing Market
There are three main types of players in the European automotive remanufacturing
market. These will be outlined in the following.
OEM Remanufacturers
According to Lund (1984), OEM remanufacturers are original equipment
manufacturers, whose focus is on the production of new parts and for whom
remanufacturing is an added business. Applied to this research, OEM remanufacturers
are the vehicle manufacturers. With regard to the size of the businesses, OEM
remanufacturers tend to be larger in terms of sales and employment (Sherwood and Shu,
2000; Schwarck, 2003a).
Sherwood and Shu (2000) have observed that OEM engine remanufacturing working
practices differ from remanufacturing procedures undertaken by independents.
According to Sherwood and Shu (2000), independents’ priority is the saving of a
particular part, whereas OEMs tend to scrap parts that are uneconomical to repair or
would take longer than average to remanufacture. In fact, independent engine
remanufacturers have developed special repair methods in order to utilise as many parts
from a used product (the ‘core’) as possible. This observation has been confirmed by
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Szuhy, who claims that, within the independent sector, “[…] only with great reluctance
are pieces ever thrown out” (in Waters, 1984, no page given).
Guide (2000) claims that in the United States, original equipment manufacturers remain
largely disengaged and account for only 5% of the total industry. In the European
automotive sector however, car manufacturers possess a larger market share than US
remanufacturers (Schwartz, 1995). This relatively higher share of OEM remanufacturers
in Europe may be a result of the increase in European take-back laws, in which OEMs
are responsible for product take-back, recovery and covering all the costs (Fleischmann
et al., 2000). “In the USA, OEMs are often not formally responsible and product
recovery is driven by private, commercial initiatives” (Fleischmann et al., 2000, p.661).
Independent Remanufacturers
Lund (1984) defines independent remanufacturers as those businesses, which focus on
the remanufacturing of products produced by others. According to Schwartz (1995)
these remanufacturers do not have any connection to the vehicle or the original
manufacturer. Lund (1984) claims that the typical independent remanufacturer is a
private, small corporation, “[…] usually operating on a hand to mouth basis competing
in a complex and uncertain environment” (Ferrer and Whybark, 2001, p.113).
Independent remanufacturers not only need to acquire design information from the
OEMs, but also depend on new parts to be included in the remanufacturing operation. In
some cases, these parts are only available from the original manufacturer or the supplier.
This is particularly true for parts in over- or undersizes, such as bearing shells. This
dependency can be critical with regard to delivery times and prices. Hence, some
independent players manufacture their own new parts. They frequently incorporate
5

modifications of the original design or upgrade existing technology (Waters, 1984).
Moreover, a whole business sector has developed around remanufacturers, providing
them with new parts such as cylinder liners, new pistons or bearing shells, since vehicle
manufacturers have tried to exclude their independent competitors from access to (new)
replacement parts (Waters, 1984). In the United States, these practices by OEMs have
been declared as ‘unfair trade practices’ and have since ceased (Waters, 1984).
However, as this research will show, new parts procurement has also proven to be a
challenge for OEM remanufacturers, who often compete for parts with the ‘new
assembly line’.
Subcontracted Remanufacturers
Within this research, a subcontracted remanufacturer is defined as a business
contractually bound to an original equipment manufacturer. This may be a business
which provides services to a vehicle manufacturer or an original equipment parts
manufacturer. Generally, subcontracted remanufacturers provide services for an OEM
while remanufacturing for their own purposes as independent players. A major
advantage of subcontracted remanufacturers is the access to specification sheets and
design information which is provided by the OEM, so that quality levels and product
specifications can be met. “In some cases, the independent remanufacturer may be
operating under a franchise from a major OEM such as Ford or General Motor’s Detroit
Diesel/Allison Division, in which case technical assistance and parts are available from
the OEM” (Lund, 1984, p.12).
However, not just technical specification sheets but also equipment and machinery is
provided by the OEM. Mostly, this machinery comprises the equipment of the
6

production line on which the products were originally made. In addition, the OEM may
also take care of the core collection, too. Moreover, a subcontracted remanufacturer may
provide further services such as the machining of engine parts, low volume assembly,
warranty investigation or dynamometer testing (Autocraft Industries UK, 2003).
A Typical Engine Remanufacturing Process
Every remanufacturing process consists of several phases. This section briefly outlines
the specific engine remanufacturing process as it was observed within the case
companies. While the manufacturing process of new engines is a highly automated
process (e.g. the machining of parts) and characterised by high volume outputs, engine
remanufacturing is largely manual throughout the process.
Figure 1 shows the process steps, typically involved within engine remanufacturing.
First of all, engines are moved from the core warehouse to the disassembly and cleaning
process, in which they are completely disassembled. In the next step parts are manually
identified and sorted. Very rusty or greasy parts are chemically cleaned before they can
be thoroughly inspected. After having been cleaned, parts undergo a quality check. Only
parts of good quality will be recovered during the next step, all other parts will be
recycled. Certain parts will be recovered by external remanufacturers. However, after
recovery all parts are stored in the parts warehouse, where new parts are stored.
According to assembly schedules they are put together to form a remanufactured engine.
The cold and/or hot test completes the remanufacturing process. Hereby, engines
undergo either a leak test (with liquids) or are started and run for a certain time (hot
test).
7

Core
Warehouse
Disassembly
and Cleaning
• 50 engines per day
• Complicated by grease, dirt, rust
• High throughput times
Identification
and Control
• Manual inspection
• Time-consuming
Chemical
Cleaning
• Deeper chemical cleaning
process for very oily or rusty parts
• Cylinder head and oil filter
Quality Control
Parts
Recovery
• Recovery includes boring,
machining, grinding and honing
• Single workstations
• Highly manual work
• Weighing and gauging to ensure
that parts meet specifications
• Stock amounted to 13,000 engines, which equals the average
remanufacturing output of one year
• Core inflow is larger than outflow due to new parts added to the process
• Stock value: €32.5 million
Material
Recycling
Legend:
Cores / used parts
Remanuf. parts
Scrap / recycling
Scrap if…
• Part heavily damaged
• No demand (check in PPS system); excess stock
• Recovery technically not feasible
• Part has been replaced by improved version
• Piston and piston pins always discarded
Packaging and
Shipment
Figure 1: Typical Engine Remanufacturing Process
(Source: adapted from Seitz and Peattie, 2004, p.79)
External
Remanufacturing
Parts
Warehouse
• Stores used, remanufactured & new parts
• 31 million parts
• New parts in engines: 27% for diesel;
35% for petrol
Engine Re-
Assembly
• 16 main process cycles
• Small batches
• High product variation
Cold Test/ Hot
Test
Rework
1% to 5%
• Testing for leaks
• Dynam. testing for 20% of
regular runners
• Dynam. testing for all irregular
runners and strangers
8

Main Challenges to European Automotive Remanufacturing
Delivery times for parts
Within the case companies, a typical remanufactured engine consists of three types of
parts: parts remanufactured within the same plant, parts that are remanufactured
externally, and completely new parts. At the time of the research, OEM engine
remanufacturing facilities tended to remanufacture just 30% (on average) of the engine
parts within their facilities. Hence, more than two thirds of the engine parts were
obtained externally. This included completely new parts (such as pistons and bearing
shells that were purchased from suppliers), externally remanufactured parts (from a
remanufacturer outside the company) and internally remanufactured parts
(remanufacturing service within the group/company). These are examples for OEMs
while observations within independents have shown that the smaller the facility and the
more independent a remanufacturer, the more parts the company will remanufacture or
produce within their own facilities.
During the research it was observed that delivery times for externally remanufactured or
new parts, such as turbochargers or nozzle holders, can take up to 12 weeks. As a result
the case companies were forced to keep high inventory levels in order to prepare for
bottlenecks in the supply of certain parts.
Other case companies, particularly the subcontracted (i.e. partly independent
remanufacturers that, for example, undertake services for vehicle manufacturers), found
themselves competing for parts with their client’s current serial engine production. The
difficulty hereby is to acquire spare parts in the right quantities and on time, since ‘the
line comes first’. In other words, vehicle manufacturers request that their suppliers give
9

priority to the assembly line for brand-new engines. It therefore seems as if
remanufacturers only come in second place in the ‘order fulfilment hierarchy’.
A third obstacle many remanufacturers are facing is them missing out on price benefits
for high ordering quantities, since remanufacturing plants tend to order small quantities
of new parts for their remanufacturing processes, or even have parts custom-made.
Scrap rates
In academic remanufacturing literature, there has been a distinction between ‘failure
mode’, the nature of the failure, and ‘scrap mode’, the cause for parts not being
recovered. As a result, within engine remanufacturing, one can find failure modes
including ‘wear’, ‘burn’, ‘bent’, ‘crack’, ‘corrosion’, ‘holes’, ‘fracture’ and ‘handling
damage’. Scrap modes include the over- or undersize of parts or simply overstock (for
further information, see Sherwood and Shu, 2000).
In this research no particular emphasis was put on the identification of failure and scrap
modes for certain parts, but on scrap rates in general. Cores do not represent a very
reliable source of ‘raw material’. The timing of return often is uncertain and the quality
of returned parts and components can range dramatically. The research found that
generally, OEM remanufacturers, and also large independent remanufacturers, tend to
have higher scrap rates than small independents. During one company visit the owner of
a small engine remanufacturing firm demonstrated how they cut their own seals from
rubber sheets, whereas larger firms bought the seals ready-made. On the other hand,
during visits to OEMs, scrap rates of up to 42% were found for cylinder blocks in one
facility, levels unheard of in small remanufacturing firms. Hence, there is an overall
high uncertainty of the quality and re-usability of parts in a core.
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Product Variation
This research has found that in larger remanufacturing facilities, and particularly in
OEM remanufacturing facilities with high remanufacturing volumes, managing engine
variety can be a big challenge. This is based on the fact that a specific car model might
be produced for an average of six to ten years. However, within this time, engines are
continuously upgraded due to construction and design errors, or the implementation of
new technologies. External constraints such as governmental regulations (exhaust
norms), further increase the amount of engine variants in each model, or type, of engine.
While small independents often easily deal with engine variety (due to their flexible
approach to remanufacturing), OEMs and very large engine remanufacturers strive to
replicate serial engine production in their remanufacturing facilities (flow production).
As a result, high engine variety has many impacts on batch sizes within the re-assembly
process, and also on inventory management and labour, such as the range of skills for
various engine variants.
There have been assumptions that by creating many variants of the product, original
manufacturers aimed at complicating remanufacturing for ‘outsiders’. But this
assumption seems far-fetched, since it is mostly the OEMs that seem to struggle with
product variation. Within this research, most independents claimed product variety did
not pose any problems in the remanufacturing process. However, a general issue
resulting from engine variety are overall high inventory levels of engine cores, new
parts as well as finished goods.
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Forecasting of Engine Demand
Forecasting future demand for a product is always a challenge, not just in a
remanufacturing environment. However, here it is even more difficult, given the fact
that the demand for remanufactured engines is generally linked to unpredictable engine
failure. Within the research, none of the case companies used demand forecasting tools.
One interviewee at a large OEM owned engine remanufacturing plant even stated: “we
used to request a forecast from our two major customers. These figures however, never
matched the subsequent orders and we therefore ceased to forecast future demand for
remanufactured engines.”
However, some indications can be gained if looking at specific car engines individually.
Figures 1 to 4 give an indication of how the two product life cycles, new and
remanufactured, relate. This information may assist in forecasting future demand, but it
has to be said that life cycles differ very much between engine models. The following
graphs show four examples of engine lifecycles. The new engine lifecycle (serial
production) is compared to the remanufacturing lifecycle of the same engine model.
12

Quantity
240.000
220.000
200.000
180.000
160.000
140.000
120.000
100.000
80.000
60.000
40.000
20.000
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year
Figure 2: Product life cycles Petrol Model 1
(Source: Seitz, 2006, p.236)
Petrol Model 1 New
Petrol Model 1 Reman

Quantity
140.000
130.000
120.000
110.000
100.000
90.000
80.000
70.000
60.000
50.000
40.000
30.000
20.000
10.000
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year
Figure 1: Product life cycles Petrol Model 2
(Source: Seitz, 2006, p.237)
Petrol Model 2 New
Petrol Model 2 Reman

Quantity
140.000
130.000
120.000
110.000
100.000
90.000
80.000
70.000
60.000
50.000
40.000
30.000
20.000
10.000
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year
Figure 2: Product life cycles Diesel Model 1
(Source: Seitz, 2006, p.238)
Diesel Model 1 New
Diesel Model 1 Reman

Quantity
140.000
130.000
120.000
110.000
100.000
90.000
80.000
70.000
60.000
50.000
40.000
30.000
20.000
10.000
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year
Figure 3: Product life cycles Diesel Model 2
(Source: Seitz, 2006, p.239)
Diesel Model 2 New
Diesel Model 2 Reman

A comparison between all figures in the research database showed that in the past,
and on average, remanufacturing of an engine model begins five years after the
beginning of serial production. However, it was discovered that this time span has
reduced over time. Nowadays, remanufacturing of engines might start as soon as the
first new engines become available on the market.
Summary and Conclusion
This research has outlined the issues and obstacles European engine remanufacturers
are facing. These include long delivery times for parts, high scrap rates within the
used product (core), as well as high product variation and the issue of forecasting
demand for remanufactured engines. As a result, the research observed high stock
levels, long turnaround times and small batch sizes in a rather rigid remanufacturing
environment. Larger remanufacturers have been trying to replicate high volume
engine manufacturing processes onto their remanufacturing activities, but struggle
with the issues identified in this article.
One way of overcoming these issues might be the application of lean manufacturing
principles onto remanufacturing processes. This idea has only just gained attention in
recent years. The Lean Remanufacturing Workshop at the ReMaTec in 2003, for
example, aimed at raising ‘lean awareness’ among remanufacturers, by introducing
them to the benefits of the application of lean principles (Fargher, 2003a). According
to Fargher (2003b), lean remanufacturing is the identification and elimination of non-
value-added activities through continuous improvements within a remanufacturing
environment. He has outlined various benefits of lean remanufacturing, which are
listed in the following.
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� Reduction of remanufacturing turn-around-time 1
� Improved on-time shipments
� Reduced work in progress
� Improved quality
� Reduced floor space
After solid research and documentation of the remanufacturing processes of gas
turbine compressors, helicopter rotor blades and hydraulic components (Fargher,
1997), Fargher presented a comprehensive introduction to lean remanufacturing at
ReMaTec 2003 (Fargher, 2003a). He discovered that a clear sense of urgency and
willingness to change are essential elements to ensure the success of applying lean
principles to a remanufacturing environment. Research efforts have also been made
by Amezquita and Bras (1996). However, there is the need for more empirical
research in this direction.
This research has discovered that there are a large number of ‘wastes’ and thus, there
should be an urgency for change within OEM engine remanufacturing. However,
remanufacturers seem to be rather reluctant to changing their working practices. This
phenomenon has been confirmed for the overall engine remanufacturing sector by one
interviewee during the research who argues that engine remanufacturers are loath to
adopting fundamental changes to their current practice:
There are many more variants of each engine now because with electronics it
is easier to produce these variants. The problem of the aftermarket is to
identify the common features of engine families and hold stock to this level
1 Fargher (1998) defines the turn-around-time as the specific amount of time (in working days) which
is required “to progress from induction to acceptance and packaging for storage or shipment to the
customer” (p.x). This term is also called ‘flow time’ or ‘repair lead time’.
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until the very last minute and finish it off to order. I have discussed this with a
number of engine re-manufacturers who see this proposal as a fundamental
change to their current working practices and are loath to adopt it. 2
Future research should therefore closely examine the overall remanufacturing process
of one product, produce a map of the current state and improve the process by the use
of lean tools and techniques (e.g. Bicheno, 2000). Should the results prove that the
processes significantly improve, a suitable production system for remanufacturing
might have been identified. This is particularly necessary, since the application of
mainstream engine manufacturing onto a remanufacturing environment was found as
unsuitable for high-volume remanufacturing processes.
2 Quoted from personal communication (E-Mail) with Edward J. Hadingham, the Managing Director
European Operations of Power Systems Research in Brussels, Belgium, September 2003.
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Acknowledgements
The author would like to thank Capgemini Deutschland GmbH, and particularly
Michael Schlenker for supporting the dissemination of these research results at the
POMS 2007 conference.
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