For decades, the focus of OEM remanufacturing has been on cores and core returns - the products and process of exchanging parts as the basis of the auto repair business. This blog explores a two-step process that offers a workable, and potentially more profitable, alternative to core management and internal remanufacturing. Read on for two important steps to long-term ROI growth through proactive remanufacturing.
Step 1: Say Goodbye to Inhouse Remanufacturing
Yes, the short-term picture for auto OEMs might be rosy. Worldwide sales reached 88 million autos in 2016 (a record), up 4.8 percent from a year earlier, and profit margins for suppliers and OEMs are at a 10-year high. However, the longer-term outlook, especially in terms of ROI, is not as positive. In the past 5 years, total shareholder return averaged a 4.8-percent return on invested capital. In 2016, the top 10 OEMs returned an average 4 percent, about half of the industry’s cost of capital.
There are strong relationships between automotive innovation, satisfying customer expectations and revenue growth. This connection has created the need for constant innovation in the auto business, which has led to OEM partnerships with and equity positions in technology companies. Similar needs for time and cost savings have led to partnerships between OEMs and remanufacturing companies.
The need to cut costs and improve ROI has pushed auto OEMs to share platforms and manufacturing between OEMs and redesign distribution models, but there’s another way for OEMs to maximize time and cost savings in the remanufacturing part of their operations: outsource all inhouse core return and remanufacturing processes to a remanufacturing service center.
Step 2: Let Remanufacturers Manage and OEMs Innovate
Outsourcing all internal remanufacturing processes can provide cost-saving benefits to OEMs. After all, reman companies are experts in not just refurbishing parts, but in managing the retooling, testing and other parts-related processes throughout the auto component value chain.
Specific steps in this process would include:
- Trust your remanufacturing partner to be the core management specialist. For decades, they have maintained post-launch products and components by managing the quality as well as location and history (traceability) of components, assemblies and products. Trust in their expertise.
- Let the OEM operation move away from the day-to-day remanufacturing and management of automotive parts already on the market. By avoiding many remanufacturing processes, this departure from traditional management methods could provide OEMs with resources they can use to innovate.
The remanufacturing environment and skill set required might be very different than those of the initial manufacturing facility. “The entire remanufacturing environment for electronics is completely different,” says Doug Wolma, Senior Director Aftermarket Operations at Dana Holding Co. “You have to work in an environment that allows you to solder and weld very small components together. You have to have anti-static floors in the plant, so you don’t damage the electronics as you are taking things apart and putting them back together.”
The Results of Shifting the Focus
Moving internal OEM operations to third-party remanufacturing companies involves a major shift of resources and processes. These changes include:
- OEMs shifting internal remanufacturing operations processes to third-party reman companies. The time and other resources OEMs spent in core return and remanufacturing processes can be directed toward design, engineering and other innovation-related activities.
- Remanufacturers engaging in more business, which was transferred from OEMs. However, remanufacturing companies would also incur additional operations activities of this new business.
- Customers participating in the core return process as before. The only difference is that cores are returned to a different company.
OEM benefits and business value of this new approach include:
- Lower operations and labor costs incurred by avoiding costs of core return and remanufacturing processes. Process- and employee-related costs of delegated core-related activities would be the largest items.
- Reduced capital costs, including the cost of buying equipment and software, incurred in remanufacture and core return processes.
- More potential revenue, enabled by innovation and greater customer satisfaction.
Lower OEM costs and more activity focused on innovation. Taken together, these resources have increased higher customer satisfaction and point to higher ROI. When added to higher reman company revenue, this alternative process can provide the auto industry with more efficient, innovative operation and long-term growth.