When old can be green and gold

SUBRATA MITRA | Updated on January 20, 2018


The debate on whether Apple should or should not sell its refurbished phones in India has captured the attention of many. Is there a strong case for remanufacturing in India?

Product recovery for re-use after its useful life or end of life is an important phenomenon that has attracted the attention of both business and academia in recent times.

The usual way to dispose of discarded products has been to dispatch them to landfills. However, the areas earmarked for land-filling are gradually shrinking. Incineration and non-bio-degradable waste cause serious and irreversible environmental damages, and many developed countries have mandated legislations holding manufacturers responsible for collection, recovery and/or safe disposal of their products after their useful life or end of life.

Bound by legislation, manufacturers are required to redesign their products taking their entire life-cycles into consideration, incorporating more and more bio-degradable and/or recyclable components for easy recovery, re-use and safe disposal at the end of their useful life.

Recovery of products does not only reduce resource and energy consumption, but also leads to a reduction in greenhouse gas emissions, thereby making positive contributions to the environment. In addition, product recovery may prove to be beneficial for manufacturers from the financial perspective. They should endeavour to recover the economic value as much as possible from used products to cater to the needs of more price-sensitive secondary markets.

Consumers’ awareness and their attitude towards recovered products are gradually changing with an estimate of the market size for environment-friendly products being well over $200 billion.

Finally, engagement in product recovery activities boosts manufacturers’ green credentials among their stakeholders.

According to a well-accepted classification, there are six product recovery options – direct re-use, repair, refurbishing, remanufacturing, cannibalisation and recycling – based on the quality of used products and the degree of disassembly for product recovery. In remanufacturing, used products, called “cores”, are disassembled into the component level and all non-functional components are replaced with functional, and sometimes technologically upgraded, components to make the quality of remanufactured products “as-good-as-new”.

Feel-good factors

For a product to be “remanufacture-able”, it must have a reasonably long life-cycle. Otherwise, customers would rather buy next-generation products. The cost of remanufacturing a used product is 40-60 per cent of the cost of manufacturing a new product. Moreover, a remanufactured product is sold with the same warranty as for a new product at a substantially lower price. Therefore, there is a significant value proposition for remanufactured products to both price-sensitive and environment-conscious consumers.

A boost in remanufacturing activities will not only make a positive impact on the environment in terms of material and energy consumption (remanufacturing requires 15 per cent of the energy required to make a new product), and greenhouse gas emission, but also contribute to the national income and generate employment.

According to an estimate, the size of the remanufacturing industry in the US is $53 billion with 73,000 remanufacturing firms employing 480,000 people.

Industries that are primarily engaged in remanufacturing include automobile, auto components, aircraft, machine tools, reprographics, and mining and construction equipment. Firms known for remanufacturing include GM, Ford, BMW, Volvo, Boeing, Bosch, Xerox, Caterpillar, Cummins, Kodak, IBM and HP.

Concept new to India

The concept of product recovery, in general, and remanufacturing, in particular, in India is very new. The definitions are not very clear.

Remanufacturing as an alternative manufacturing sector is still not formally recognised. Indian consumers’ awareness of remanufactured goods is very low. A high non-tariff barrier to the import of remanufactured goods was imposed until very recently – it was seen as dumping second-hand/used goods, which was not in the national interest.

It was felt that importing remanufactured goods and domestic remanufacturing would have different impacts on the natural environment and the national economy in terms of income and employment generation, innovation and protection of domestic industries, especially the unorganised sectors and the SMEs.

However, as talks are going on at the World Trade Organization (WTO) level on opening up the markets in developing countries for import of remanufactured goods, the Indian government recently allowed the import of remanufactured goods under the conditions that they must not be older than a specified number of years and be certified to have a minimum number of years of remaining life.

Overall, remanufacturing presents immense potential for Indian industries and government in terms of providing cost-effective solutions, generating employment and mitigating adverse environmental impacts of manufacturing.

There are research and business opportunities for developing innovative product and process design optimisation tools for remanufacturing.

Growth of remanufacturing would also lead to increased reverse logistics activities in connection with the collection of cores, thereby creating new job opportunities. Therefore, it is just a matter of time before the government realises the economic, social and environmental benefits of remanufacturing, and formulates policies and regulations to facilitate its growth.

The author is Professor, Operations Management, IIM-Calcutta

Published on June 23, 2016

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