SCM Basics

Redesigning the Supply Chain Process
Prof Kampan Mukherjee Department of Management Studies & Dean (Academic) Indian School of Mines Dhanbad kampan_m@hotmail.com
National Seminar on REMANUFACTURING organised by ASSOCHAM at New Delhi on 18th September, 2009
Agenda
Background What is Product Recovery Management? Some global initiatives Product Recovery Options Prime motivators Closed loop Supply Chain Indian scenario Outcome of an empirical study Publications
Background
Some fundamentals not to be avoided: Space and natural resources on earth have limitations Development and consumption at any generation should not affect the development and healthy life of subsequent generations Resultant global missions in economic development: Reduction of disposable wastes, meant for landfilling and incineration Lowering of resource use in economic activities Re-use of non-biodegradable and harmful substances Devising mechanism for low-cost production to meet ever-expanding consumer market
Background Answer: Maximum possible recovery of values from any product First significant step in this direction recycling Now an essentially unique field of management Product Recovery Management
What is Product Recovery Management?

Product Recovery Management is management of all activities required for recovery / extraction of used or discarded products / components / parts and subsequent value-addition to convert them to usable items (as-good-as-new). PRM essentially demands redesigning the conventional Supply Chain Process and Management
Some global initiatives

In US there are over 73 000 remanufacturing firms with total sales of $53 billion, employing 480 000 workers and their average profit margins exceed 20%. VW & OPEL started taking back in 1992, BMW & VW introduced DFR. Remanufactured parts of BMW cars sold at 50 to 70 % of original price 75% of discarded metal from car recycled. IBM Europe (Germany, UK & The Netherlands) started product recovery in 1990 5700 tons of mainframe and PCs of Siemens Nixdorf Informatics System (Germany) recovered as 33% of total sales in 1997-98. Since 1991, HP returned & recycled more than 60 million inkjet, cartridges etc.
Product Recovery Options

Thierry et al. (1995) 1. REPAIR to bring a product to working condition (only replacement or fixing of some parts)
2.
3.
REFURBISHING returns are disassembled to the level of modules and critical ones are inspected, fixed or replaced
REMANUFACTURING returns are completely disassembled to parts/ components, thoroughly inspected, defective and worn-out parts are repaired or replaced by new ones and then finally reassembled to build up the remanufactured product. Technological upgradation is possible CANNIBALIZATION recovery of certain parts/components, RECYCLING recovery of material is done and the identity of the original product/parts is lost
4. 5
Prime motivators / drivers

Increasing concern over environment issues, take-back obligations, disposal bans (Guide et al, 2000; Doppelt et al, 2001; Fleischmann, 1997) EU Directive on Waste from Electrical and Electronic Equipment (WEEE) German Recycling and Waste Control Act and End-of-Life (ELV) take-back policy European consumer packing take-back policy Universal Waste rule of US on take-back of rechargeable batteries Extended producer responsibility law for electrical home appliances in Japan

Environmentally Conscious Customers / demand for Green Corporate image Voluntary take-back programs of Fuji Film for its cameras Asset Recovery Program of Xerox Economically attractive Save 40 to 60% of the cost of remanufacturing a completely new product, requiring only 20% of the energy (Guide et al., 1997) Cheaper as it avoids some of the processing and manufacturing expenditures (time, energy, cost, etc.) Cost per bus reduces from $220 000 for a new one to $70 000 for a remanufactured one. (Amezquita et al, 1995). Xerox estimates cost savings of $76 million in the year 1999.

Some other drivers or uses of product recovery process Recovered parts may be used as spare parts, Remanufactured spare parts particularly useful during post-product life cycle and aftermarket GM, Ford and DaimlerChrysler use remanufactured parts exclusively for warranty and after sales service applications. GMs warranty for a new Goodwrench engine or transmission is the same as a remanufactured Goodwrench engine (36 months/ 100,000 miles).
Closed loop Supply Chain a new Supply Chain design

Product Recovery Process = management of product recovery process + related supply chain
Procurement & Supply Production Market
Product Recovery Operation
Disposal
Material Recycling
Comprehensive Framework of Product Recovery System
Closed loop Supply Chain a new Supply Chain design
Unique characteristics of Closed loop Supply Chain management

1. Uncertainty in timing and quantity of returns (used products) 2. Need for balancing demands with returns 3. Uncertainty in materials recovered from returned items 4. Requirements for a reverse logistics network 5. Disassembly operation 6. Materials matching problems 7. Stochastic and highly variable processing time
Key management decision areas in closed loop supply chain

1. 2. 3. 4. 5. Returns Acquisition Management Reverse Logistics Management Remanufacturing Management Inventory Management Sales and Marketing
Remanufacturing activities are managed by five sets of decision areas

Returns Acquisition Management Reverse Logistics
Sales and Marketing
Management of Remanufacturing Activities
Inventory Management
Remanufacturing operations

Sales and Marketing
Modes of Collection Take back; Buy-back; Off-lease/Off-rent; operations Auction; Warranty returns. Agents responsible for collecting OEM himself; Third-party; Take-back centers. Take back period Quantity of returns to be acquired Fixing of buy-back price age and usage
Remanufacturing

Sales and Marketing
Reverse Logistics managed by OEM, Third-party Logistics Providers, Third-party Remanufacturers Remanufacturing Responsibility of the service providers in the logistics chain operations - Gathering , Transportation, Disassembly, Sorting, Cleaning, Inspection of returns. Size and condition of the returns Special methods to transport, handle and store returns Returns flow Transporting in units or batches

Returns Acquisition Management
Uncertain return flow PUSH/ PULL policy Sales and Identification of mandatory parts Remanufacturing Identifications of parts to be procured Process Marketing uncertain recovery rates Shortages of inventory Special storage and handling equipment Serial number specific and matching parts MRP based system
Reverse Logistics
Disassembly
Uncertain recovery rates; Homogeneity of product range; Disassembly sequence; Depth of disassembly; Lot-sizing; Remanufacturing activities areComplexity managed by five sets of decision Corrosion/Rust; Dirt/Oil; in product design; Special tools required; Worn-out fastener areas heads; Size of Products; Availability of disassembly technology; PUSH/PULL strategy; Source of disassembly technology; Cleaning Dirt/Oil/Debris; Corrosion/Rust; Size and Shape of parts/ orifices; Fragility of parts; Material type; Sorting Identification of similar components; Classification and codification; Returns Acquisition Inspection Skill and Knowledge; Defining specifications and tolerances; Reverse Management Identifying defects; Special instruments required; Product Logistics diversity; Repair/Replacement Difficulty in availability of new parts; Expertise; Reassembly Skill of workers; Complexity in design; Product diversity; Fastening problems; Special tooling; Material type: Serial Remanufacturing Sales and number specific/matching Inventory parts; Uncertain demand;
Marketing
Process
Management

Sales and Marketing
Remanufactured product or spare parts Potential customers Remanufacturing Green image as a marketing tool Process Cheaper Price Competition with second-hand market Customers perception on inferiority of remanufactured products
Comparison with traditional SCM

Factors
Logistics
Reman or closed-loop SC environment

Forward and reverse flows Uncertainty in timing and quantity of returns Supply-driven flows
Need to balance demands with returns Material recovery uncertainty Stochastic routing and processing time Manufacturing system has three major components: disassembly, cleaning, testing, repair/replacement and reassembly Forecast both returns availability and end product demand Forecast part requirements because materials recovery rates are uncertain
Traditional manufacturing or SC environment

Open forward flow No returns Demand-driven flows
Production planning and control
No such need Certainty in planning materials Fixed routings and more stable processing times Manufacturing system has two major components: fabrication and assembly
Forecasting
Forecast only end products No parts forecasting needed
Inventory management
Types: returns, remanufactured parts, new parts, new and remanufactured substitute parts, original equipment manufacturer parts
Types: raw materials, work-in-process, finished goods
Indian Scenario
Existing legislation
Environment (Protection Rules), 1986 Rule 3A, Schedule VI, Annexure I encouragement for recycling, reuse and minimization of waste material, recovery of reusable materials. The Batteries (Management and Handling) Rules, 2001- Rule 4 to ensure collection of used lead acid batteries against new ones. Ministry of Environment and Forest is expected to design a tracking system for collection, distribution and reprocessing/ recycling of used batteries. The Recycled Plastics Manufacture and Usage Rules, 1999
CONCLUSION: Not very compulsive/stringent

Indian Scenario
Fast increase in consumption of remanufacturable products penetration rate of passenger car 9 per thousand (growth rate 7%) and of PC 11 per thousand, growth rate of cell phone 18% (500 million subscribers in 2010), etc. Availability of used products used car market growth rate of 20% with every 15% growth of car sales, 2 million PCs ready for refurbishing per annum, PC life reduced to 2 to 3 years etc. High price sensitivity in developing country 1 million additional potential customer for every reduction of 25 to 30% of new car price Remanufacturing is labour-intensive (30% of total cost)
CONCLUSION: Enough scope for remanufacturing in India

Indian Scenario
But still much less corporate houses involved in remanufacturing as organised business sector Some companies involved in remanufacturing
Xerox ModiCorp Ltd. (remanufacturing photocopiers) United Van der Horst Ltd. (repairing, refurbishing and remanufacturing marine, oilfield and industrial products) Soft-AID Computers Pvt. Ltd. (refurbishing printers) Kores Printer Technology Ltd. (refurbishing printers) Transdot Electronics Pvt. Ltd. (refurbishing printers) Timkin India Ltd. (remanufacturing of large industrial and rail bearings)
An empirical study outcome

Factors Attitude and behavior of customers reflected by market response Market competition with disorganized and second-hand market Profitability Feasibility Issues No specific market for remanufactured products Relatively few customers in the market Customers think remanufactured goods to be inferior Mindset of people is not like the western world Disorganized business sector is already active Second hand market is thriving Economically not profitable Technically infeasible Expertise not available in this area
Legislation
No environmental restriction on disposal, so better to dispose than to remanufacture

Uncertainty lies in the timing, quantity and quality of returns Acquisition of remanufacturable products is difficult Reverse distribution of used products is difficult High cost is associated with reverse logistics
Acquisition issues and Reverse Logistics complexity
An empirical study outcome
Key reasons for non-popularity of remanufacturing

Complex and costly reverse logistics system Low acceptability of remanufactured product due to unawareness of its quality and price Economic benefit may be the prime driving force rather than legislative compulsion
Some other findings

Industry
Computers and Electronics Industrial Machinery Automotive
Major reason for unpopularity

Technical infeasibility Complex Reverse Logistics network Customers unacceptability of remanufactured products
Publications
1. 2. 3. Mukherjee, K. Reverse Logistics for Product Recovery Issues and models, Vision (Special issue on Supply Chain Management), Vol 7, Special Issue, 2003, pp 141-149 Mukherjee, K. and Mondal, S., Analysis of issues relating to remanufacturing technology a case of an Indian company, Technology Analysis and Strategic Management, Vol. 21, No. 5, July 2009, pp. 639-652. Mukherjee, K. and Mondal, S. (2008), Some studies on remanufacturing activities in India, In: Environment Conscious Manufacturing, edited by Gupta, S.M. & Lambert A.J.D.(Fred), CRC Press, Taylor and Francis Group, New York, pp. 445-471. Mukherjee, K. and Mondal, S. (2007), Management of remanufacturing business a critical study of a photocopier remanufacturer, Productivity, Vol. 48, No. 1, pp. 80-90. Mondal S. & Mukherjee K., (2006), Buy back Policy Decision in managing Reverse Logistics, International Journal of Logistics Systems and Management, Vol. 2, No. 3, pp. 255-264. Mondal S. & Mukherjee K., (2006) An Empirical Investigation on feasibility of Remanufacturing activities in Indian economy, International Journal of Business Environment, Vol. 1, No. 1, pp. 70-88.
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5. 6.
Thank you for your attention!

SCM Basics

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SCM Basics

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Redesigning the Supply Chain Process

What is Product Recovery Management?

Some global initiatives

Product Recovery Options

Prime motivators / drivers

Prime motivators / drivers

Prime motivators / drivers

Closed loop Supply Chain a new Supply Chain design

Product Recovery Operation

Closed loop Supply Chain a new Supply Chain design

Unique characteristics of Closed loop Supply Chain management

Key management decision areas in closed loop supply chain

Remanufacturing activities are managed by five sets of decision areas

Sales and Marketing

Management of Remanufacturing Activities

Remanufacturing activities are managed by five sets of decision areas

Sales and Marketing

Management of Remanufacturing Activities

Remanufacturing activities are managed by five sets of decision areas

Sales and Marketing

Management of Remanufacturing Activities

Remanufacturing activities are managed by five sets of decision areas

Remanufacturing activities are managed by five sets of decision areas

Sales and Marketing

Comparison with traditional SCM

Reman or closed-loop SC environment

Traditional manufacturing or SC environment

Production planning and control

Forecast only end products No parts forecasting needed

Types: raw materials, work-in-process, finished goods

CONCLUSION: Not very compulsive/stringent

CONCLUSION: Enough scope for remanufacturing in India

An empirical study outcome

No environmental restriction on disposal, so better to dispose than to remanufacture

Acquisition issues and Reverse Logistics complexity

An empirical study outcome

Key reasons for non-popularity of remanufacturing

Some other findings

Major reason for unpopularity

Thank you for your attention!

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