MANAGING DESIGN, REMANUFACTURING AND REVERSE
LOGISTICS –
IMPORTANT ISSUES FOR GETTING FUNCTIONAL
SALES AS AN EFFICIENT BUSINESS SYSTEM
Mattias Lindahl, Erik Sundin & Johan Östlin
Department of Mechanical Engineering, Linköping University
Mattias.Lindahl@ikp.liu.se, Erik.Sundin@ikp.liu.se, Johan.Ostlin@ikp.liu.se
1. Introduction
Well known, manufacturing companies around the world are striving to increase their revenues and profitability
through, for example, obtaining a larger share of the market and controlling a larger share of the product value
chain. This can potentially be achieved, in concert with environmental benefits, by a change or at least a move
towards a higher degree of functional sales Lindahl & Ölundh [3]. The business concept of functional sales can
be defined as follows:”To offer from a life-cycle-perspective a functional solution that fulfils a defined customer
need. The focus is, with reference to the customer value (defined customer need), to optimize the functional
solution from a life-cycle perspective. The functional solution can consist of combinations of systems, physical
products and services”[3].
However, in order to get an efficient functional sale, i.e. an efficient business system, it is considered that not
only the remanufacturing is efficient but also the management of the logistic systems is adapted to the concept as
well as the product design. There are many benefits to gain from adapting the products for remanufacturing in
the remanufacturing process see e.g. Jacobsson [9], Sundin and Bras [10]. This fact is especially evident when
the remanufacturing is conducted by the original equipment manufacturer Jacobsson [9]. This research
knowledge is used when obtaining new empirical data from Swedish remanufacturers currently studied.
To be able to produce remanufactured products, and to be successful on the market, a demand is that many
factors have to be managed successfully. When looking on remanufacturing a holistic approach has to be taken.
Focusing on the remanufacturing operations on an existing product is in fact a sub optimization. A correct design
of the product in the first place can provide a more efficient system. By widening the perspective even further to
the way you make your business creates an even more efficient system. For example by combining the business
model of functional sales with correct product design and remanufacturing of the product, creates a state of the
art system, optimizing the life cycle cost of the product.
Remanufacturing is “... an industrial process whereby products referred as cores are restored to useful life.
During this process the core passes through a number of remanufacturing steps, e.g. inspection, disassembly,
cleaning, part replacement/ refurbishment, reassembly, and testing to ensure it meets the desired product
standards.” [8]. Remanufacturing is hereby a value adding recovery activity made on the product. The value
adding of the remanufacturing operation is not only focused on reducing production cost. Other issues as
providing service, image, environmental responsibility, etc, add to the customer value of the remanufactured
product [1].
From a supply chain perspective, the logistical system in product recovery can be referred to as the closed-loop
supply chain. A traditional view on the closed-loop supply chain is that it encompasses two distinct supply
chains: the forward and the reversed chain. These flows are then “closed” by, for example, the remanufacturing
operation [2].
When regarding the marketing decisions for remanufacturing, the center of attention has been on the traditional
4P´s (Product, Price, Place and Promotion). Focusing on issues as: the quality level of the product, convincing
the customer of buying a remanufactured product instead of the brand new product, and the price of a
remanufactured product in relation to the brand new price [2]. By using a more service orientated approach
functional sales can provide additional advantages both for customer and producer. As well as giving attention to
these issues there is also a need to handle the relationship perspectives. Issues, as for example: the relationships
with customers and suppliers (which in the closed-loop often are the same), the environmental relationship and
the relationship with legislative demands are also important.
Aim
The aim of this paper is to describe in what ways, based on empirical data from company case studies from the
ongoing research project as well as previous own and other researchers studies, how and in what way design
could be an enabler for improving the companies functional sale concepts. In addition, potential environmental
benefits related to functional sales are described.
Methodology
A basis for this research has been extensive literature reviews of functional sale and remanufacturing studies.
Several different methods have been used to gather the empirical data, e.g. questionnaires, interviews and study
visits. The data used in this research are both from the ongoing research project about functional sales as well as
from the ongoing research project about remanufacturing. In addition, data from previous and parallel research
studies are used. The studies have been preformed by the authors or our students, mainly from Linköping
University, through e.g. master student projects and course projects. Both, the types of companies covered in
these projects, and the type of products varies making general conclusions easier to draw.
A model to describe the different remanufacturing as well as functional sale concepts is described in Lindahl et
al. [4].
Tentative results
The result from the studies (see e.g. [3-8] has not been fully analyzed yet and therefore we just want to present
some tentative results in this abstract. However, one example is the remanufacturing of a forklift truck that
creates the opportunity to effective functional sales. By providing the function of a forklift truck instead of the
sole product, a service is created. The customer is given the flexibility to use the function of the forklift when
needed by them, and to a certain price known in advance (including for e.g. the service cost). When the demand
for the function decreases in there customers manufacturing, they have the possibility cancel it and return the
forklift. The forklift truck is then remanufactured and shipped to the next customer. By providing regular service
and maintenance operations out at the customer a relationship is established trough the service personnel. At the
same time the service personnel are gaining detailed information whether there is a need for a forthcoming
remanufacturing operation. This information makes the return flow of products easier to control and provides
information on the truck status to the remanufacturing process.
References:
[1]
Toffel M. W., (2004) ”Strategic Management of Product Recovery”, Californian Management Review, 46/2: 120-141.
[2]
Krikke H., I. le Blanc & S. van de Velde, S. (2004) ”Product modularity and the Design of Closed-Loop Supply Chain”,
Californian Management Review, 46/2: 23-39.
[3]
Lindahl, M. and G. Ölundh (2001). The Meaning of Functional Sales. in Life Cycle Engineering: Challenges and
Opportunities: 8th International Seminar on Life Cycle Engineering. Varna, Bulgaria: CIRP
[4]
Lindahl M., J. Sundin, E. Sundin & M. Björkman (2005) Concepts and definitions for product recovery – Analysis and
clarification of terminology used in academia and industry, Proceedings at 2005 International CIRP LCE Seminar,
Laboratorie 3S, Grenoble, France, April 3-5
[5]
Ostlin J. & R. Svensson (2005) Material handling in the remanufacturing industry: a case study of a diesel engine
remanufacturing process, Proceedings at 2005 International CIRP LCE Seminar, Laboratorie 3S, Grenoble, France,
April 3-5
[6]
Sakao T., Y. Shimomura, M. Lindahl & E. Sundin (2005) Applications of service engineering methods and tool to
industries, Proceedings at 2005 International CIRP LCE Seminar, Laboratorie 3S, Grenoble, France, April 3-5
[7]
Sundin, E., O. Tang & E. Mårten (2005) The Swedish remanufacturing industry – An overview of present status and
future potential, Proceedings at 2005 International CIRP LCE Seminar, Laboratorie 3S, Grenoble, France, April 3-5
[8]
Sundin, E. (2004). Product and Process Design for Successful Remanufacturing. Production Systems, Department of
Mechanical Engineering. Linköping, Sweden, Linköping University.
[9]
Jacobsson N. (2000) Emerging product strategies - Selling services of remanufactured products, Licentiate dissertation,
The International Institute for Industrial Environmental Economics (IIIEE), Lund University, Lund, Sweden, ISBN
91-88902-17-X.
[10] Sundin E. and Bras B. (2005) Making Functional Sales Environmentally and Economically Beneficial through Product
Remanufacturing. Accepted for publication in Journal of Cleaner Production.