Remanufacturing: The Virtuous Cycle
GE does it. Xerox does it. Even Interface does it -- and as BusinessWeek chronicles, Caterpillar does it as well, in a really big way. The $36 billion heavy equipment, industrial giant has jumped into remanufacturing to tune of $1 billion in sales in 2005, with projected growth of 15% for the next few years. It's an interesting way of thinking of a business' value chain -- as not extending from just raw materials to consumers -- but going from raw materials to the garbage dump. Put into that perspective -- and made to take accountability of the end of the cycle, forward thinking businesses suddenly realize there are untold profits to be made. Granted, Caterpillar didn't go into remanufacturing to save the environment -- but the end result is the same.
Caterpillar has taken the value chain and plunked a virtuous, sustainable cycle within it. Remanufacturing -- the process of retrieving goods at the end of their lives and bringing them back into the value chain -- is a big part of the Caterpillar business. So big in fact, that Caterpillar takes remanufacturing as an input into their equipment designs. If for instance, an incremental upfront investment in quality can be made to prolong the life of their product, Caterpillar spends the money. This is counterintuitive for businesses, where having products with a limited lifespan is great, because they're in the business of selling more, regardless of need.
Caterpillar however, sees it differently. An incremental investment in quality could be translated to a product that is could be remanufactured a number of times after its first life has ended. This is great, because Caterpillar invests in managing their customers. Caterpillar knows who has purchased what equipment from them, and where it's at in its lifecycle. With that knowledge, Caterpillar can reclaim end-of-life products, for which it provides customers with a discount to take remanufactured replacements. The incentive for remanufacturing is incredible. 70% of the cost of a product manufactured new is materials -- for remanufactured products, it's 40%. From the nuts and bolts, to the larger parts -- all have already had the upfront cost investment to manufacture. Remanufacturing amounts to mostly human labour, with half materials investment of new products.
Caterpillar doesn't remanufacturing to save the world. That's just an added bonus. Caterpillar does it because it makes money. How long will it take before other businesses realize that they're throwing away money at the end of their value chain?
Caterpillar has taken the value chain and plunked a virtuous, sustainable cycle within it. Remanufacturing -- the process of retrieving goods at the end of their lives and bringing them back into the value chain -- is a big part of the Caterpillar business. So big in fact, that Caterpillar takes remanufacturing as an input into their equipment designs. If for instance, an incremental upfront investment in quality can be made to prolong the life of their product, Caterpillar spends the money. This is counterintuitive for businesses, where having products with a limited lifespan is great, because they're in the business of selling more, regardless of need.
Caterpillar however, sees it differently. An incremental investment in quality could be translated to a product that is could be remanufactured a number of times after its first life has ended. This is great, because Caterpillar invests in managing their customers. Caterpillar knows who has purchased what equipment from them, and where it's at in its lifecycle. With that knowledge, Caterpillar can reclaim end-of-life products, for which it provides customers with a discount to take remanufactured replacements. The incentive for remanufacturing is incredible. 70% of the cost of a product manufactured new is materials -- for remanufactured products, it's 40%. From the nuts and bolts, to the larger parts -- all have already had the upfront cost investment to manufacture. Remanufacturing amounts to mostly human labour, with half materials investment of new products.
Caterpillar doesn't remanufacturing to save the world. That's just an added bonus. Caterpillar does it because it makes money. How long will it take before other businesses realize that they're throwing away money at the end of their value chain?
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