Production Planning and Control for Remanufacturing: Industry Practice and Research Needs

Journal of Operations Management 18Ž. 2000 467±483 www.elsevier.comrlocaterdsw

Technical Note Production planning and control for remanufacturing: industry practice and research needs

V. Daniel R. Guide Jr. ) A.J. Palumbo School of Business Administration, Rockwell Hall, Duquesne UniÕersity, 600 Forbes AÕenue, Pittsburgh, PA 15281 USA Received 1 December 1999; accepted 11 January 2000

Abstract

Remanufacturing represents a higher form of reuse by focusing on value-added recovery, rather than materials recovery Ž.i.e., recycling . Remanufacturing systems are widespread in the United States and are profitable. However, the management of production planning and control activities can differ greatly from management activities in traditional manufacturing. We report on managerial remanufacturing practices via a survey of production planning and control activities at remanufacturing firms in the United States. Production planning and control activities are more complex for remanufacturing firms due to uncertainties from stochastic product returns, imbalances in return and demand rates, and the unknown condition of returned products. We identify and discuss seven complicating characteristics that require significant changes in production planning and control activities. We also describe the research opportunities that exist for each of the complicating characteristics. q 2000 Elsevier Science B.V. All rights reserved.

Keywords: Environmental issues; Production planning

1. Introduction of $53 billion per yearŽ U.S. Environmental Protec- tion Agency, EPA 1997. . As a point of reference, Remanufacturing is an environmentally and eco- consider that the US steel industry has annual sales nomically sound way to achieve many of the goals of $56 billion per year and directly employs 241,000 of sustainable development. Remanufacturing closes Ž.Lund, 1998 . The EPA cites remanufacturing as an the materials use cycle and forms an essentially integral foundation of reuse activities and reports closed-loop manufacturing system. Remanufacturing that less energy is used and less wastes are produced focuses on value-added recovery, rather than just with these type of activitiesŽ. U.S. EPA 1997 . How- materials recovery, i.e., recycling. There are esti- ever, very few guidelines are available to the practic- mated to be in excess of 73,000 firms engaged in ing manager to aid in planning, controlling and remanufacturing in the United States directly em- managing remanufacturing operation. ploying over 350,000 peopleŽ. Lund, 1998 . Remanu- The evidence suggests that production planning facturing operations account for total sales in excess and control activities are inherently more complex and difficult for remanufacturers. A recent industry- ) Tel.: q1-412-396-6242; fax: q1-412-396-4764. wide assessmentŽ. Nasr et al., 1998 shows that few E-mail address: [email protected]Ž. V.D.R. Guide Jr. . technologies and techniques have been developed

0272-6963r00r$ - see front matter q 2000 Elsevier Science B.V. All rights reserved. PII: S0272-6963Ž. 00 00034-6 468 V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 specifically for remanufacturing, and that the lack of product fails functionally,Ž. 3 the product is standard- these tools may limit the growth of remanufacturing ized and the parts are interchangeable,Ž. 4 the re- as an industry. maining value-added is high,Ž. 5 the cost to obtain Remanufacturing is `` . . . an industrial process in the failed product is low compared to the remaining which worn-out products are restored to like-new value-added,Ž. 6 the product technology is stable, condition. Through a series of industrial processes in andŽ. 7 the consumer is aware that remanufactured a factory environment, a discarded product is com- products are available. Our research findings support pletely disassembled. Useable parts are cleaned, re- these criteria and provide further support for Lund's furbished, and put into inventory. Then the new work. In their recent nation-wide assessment of re- product is reassembled from the old and, where manufacturing, Nasr et al.Ž. 1998 report average necessary, new parts to produce a fully equivalent- profits margins of 20%, showing that remanufactur- and sometimes superior- in performance and ex- ing is also profitable. pected lifetime to the original new product.''Ž Lund, 1983. . Remanufacturing is distinctly different from repair operations, since products are disassembled completely and all parts are returned to like-new 2. Remanufacturing literature condition, which may include cosmetic operations. Remanufacturing is a form of waste avoidance since Previous research on remanufacturing has ad- products are reused rather than being discarded. dressed a variety of problems, and we summarize the These discarded products are usually landfilled, de- efforts relevant to production planning and control in spite any residual value. Remanufacturing also cap- Table 1. A thorough discussion of this literature is tures value-added remaining in the product in the available in Guide et al.Ž. 1999 , so our discussion forms of materials, energy and labor. here will be limited. While a number of topics have Firms based in Europe, or doing business in the been covered in depth by the existing body of European Union, have added incentives to engage in knowledge, significant areas have not been addressed recoverable operations: legislative acts. The German in previous works. A very limited number of case Recycling and Waste Control Act requires that man- studies existŽ Thierry et al., 1995; Ferrer, 1996; ufacturers actively seek techniques and products that Guide, 1996. , and the majority of these studies are avoid waste and the reuse of non-avoidable wastes limited to a specific functional activity, such as Ž.Rembert, 1997 . Additionally, scrapped products scheduling. must be taken back and recycledrreused at the end A number of characteristics that significantly of their life. This act applies to firms doing business complicate production planning and control activities in Germany, as well as German companies. The may be inferred from the research literature. Specifi- European Union is rapidly following the German cally, seven complicating characteristics have been initiative with Austria, Belgium, Finland, France, proposed in various forms by researchers. No re- Italy, The Netherlands, Spain and Sweden all passing searcher identifies more than four of the complicat- stringent laws on reuseŽ. Rembert, 1997 . In the US, ing characteristics, and many of the characteristics several states have passed laws, or are considering are only mentioned in passing. The seven character- laws aimed at reducing waste. Massachusetts now istics areŽ. 1 the uncertain timing and quantity of prohibits the landfilling or incineration of cathode returns,Ž. 2 the need to balance returns with de- ray tubesŽ. CRTs , Minnesota has proposed strict mands,Ž. 3 the disassembly of returned products, Ž. 4 requirements for electronics product stewardship, and the uncertainty in materials recovered from returned California has proposed laws mandating producer items,Ž. 5 the requirement for a reverse logistics responsibility for plasticsŽ. Lindsay, 1998 . network,Ž. 6 the complication of material matching LundŽ. 1998 has identified 75 separate product restrictions, andŽ. 7 the problems of stochastic rout- types that are routinely remanufactured, and has ings for materials for remanufacturing operations and developed criteria for remanufacturability. The seven highly variable processing times. Table 2 shows each criteria are:Ž. 1 the product is a durable good, Ž. 2 the of the complicating characteristics investigated by V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 469

Table 1 Remanufacturing research Forecasting Reverse logistics Production planning and con- Inventory control and man- General trol agement Statistical models Literature review and Disassembly operations Independent demand periodic Ferrer,Ž 1996, ŽŽŽ.Goh and Varaprasad, problem structure Brennan et al., 1994; Guide review systems Inderfurth, 1997a,b , Gungor et 1986.Ž Fleischmann et al., and Srivastava, 1998 . 1996, 1997; Richter, 1996a,b, al. Ž.1998 , Lund 1997..Ž. 1997 1983, 1998 , Thierry et al.Ž. 1995 Reusable container Problem structure Disassembly economics Continuous review systems returnsŽŽ Kelle and Sil- Flapper, 1995a,b, ŽJohnson and Wang, 1995; Ž Muckstadt and Isaac, 1981; ver, 1989. 1996; Sarkis et al., Penev and de Ron 1996; van der Laan, 1997; van der 1995; Driesch et al., Lambert 1997; Zussman et al Laan et al., 1996. 1997. 1994; Veerakamilmal and Gupta, 1998.

Part recoveryŽŽ Krupp, Network design and Aggregate planning Clegg et Mixed remanufacture and 1992..Ž collection strategies al., 1995 new Salomon et al., 1994; ŽKroon and Vrijens, van der Laan and Salomon, 1996; Krikke, 1998; 1997; van der Laan et al., Jayaraman et al., 1995, 1996, 1999. 1999. Scheduling and shop floor Dependent demandŽ Flapper, controlŽ Guide, 1996; Guide 1994; Gupta and Taleb 1994; and Srivastava 1997; Guide Guide and Srivastava, 1997; et al., 1997a,b. Taleb et al. 1997; Inderfurth and Jensen 1998.

Capacity planningŽŽ Guide and General overview Corbey et Spencer, 1997; Guide et al, al., 1998. 1997c.

Table 2 Research literature indentification of complicating characteristic by production planning and control activity Complicating characteristic Production planning and control activity Forecasting Logistics Schedulingrshop Inventory control floor control and management Ž.1 The uncertain timing and UUU U quality of returns Ž.2 The need to balance returns U with demands Ž.3 The disassembly of returned products UU Ž.4 The uncertainty in materials UU recovered from returned items Ž.5 The requirement for a reverse UU logistics network Ž.6 The complication of materials U matching restriction Ž.7 The problems of stochastic U routings for materials and highly variable processing times 470 V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 research in specific production planning and control returns, disassembly operations, and highly variable activities. material processing requirements. We discuss these A part of the purpose of this research is to and other factors in detail in the following sections. identify areas that have not been fully addressed, or A typical remanufacturing facility consists of three that have not been investigated at all. In the research distinct sub-systems: disassembly, processing, and issues section, the current research needs are recon- reassembly, all of which must be carefully coordi- ciled with previous research issues. A shortcoming natedŽ. see Fig. 1 . Disassembly is the first step in of the existing literature is that no research develops remanufacturing operations and provides the parts integrated systems for planning and control of ope- and components for processing. Disassembly is also rational activities, and much of the research fails an important information gateway, as discussed in to consider the interactions between complicating the following section. Remanufacturing operations characteristics. In Section 5, we present empirical layouts are most commonly in a job-shop form be- evidence that supports each the complicating charac- cause of the use of general-purpose equipment, and teristics, and show how production planning and the need for flexibilityŽ. Nasr et al. 1998 . Less than control activities are specifically affected. one-fifthŽ. 17.4% of remanufacturers report using Given the high profitability, growing number of specialized CNC equipment or manufacturing cells legislative initiatives and growing consumer aware- Ž.Nasr et al., 1998 . This may be, in part, from the ness, the time is right for the formal development of diversity in products remanufactured and the low systems for managing remanufacturing processes. At production volumes. Nasr et al.Ž. 1998 suspect that present, these systems exist on a number of scales, the low level of technology is because of a lack of ranging from facilities remanufacturing brake shoes specialized production and control systems. Re- to facilities remanufacturing entire aircraft. However, assembly is the final stage in a remanufacturing they all lack an integrated body of knowledge of system. Because of the high variability of remanufac- how to design, manage and control their operations. turing processing times and the large number of Remanufacturing firms have a more complex shop options for partsŽ new, remanufactured and substi- structure to plan, control and manageŽ Guide and tutable. , the task of scheduling is more complex and Srivastava, 1998; Guide et al., 1997b. . This addi- more likely to be done with simple rule-of-thumb tional complexity is a function of stochastic product techniques. Remanufacturers may carry a variety of

Fig. 1. Elements of a remanufacturing shop. V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 471 inventories: coresŽ. products not yet remanufactured , sponses. . The vast majority of firms responding new parts, spare parts, finished goods, and WIP, and Ž.95% are not original equipment manufacturers this variety requires continuous monitoring. Addi- Ž.OEMs . We believe our sample is representative of tionally, remanufacturers may need to dispose of the population as our respondents were comparable excess parts periodically, and this requires unique on several dimensionsŽ e.g., sales, OEM, product decision making tools. type. with a more general assessment of remanufac- Remanufacturing firms must be able to manage turing technology conducted by Nasr et al.Ž. 1998 . the additional variety inherent in their environment. The survey by Nasr et al.Ž. 1998 reports on a number The nature of multiple product positioning strategies of technical functions, such as cleaning operations, to serve niche markets, and the resulting need for reverse engineering and material handling tech- production planning and control systems capable of niques. Our survey is focused exclusively on produc- managing diverse objectives place significant de- tion planning and control activities and provides a mands on any Production Planning and ControlŽ PP more detailed view of current practice. Firms reman- & C. system. The structure of the remanufacturing ufactured a variety of products ranging from automo- shop and the inventory control problem both add to tiveŽ. 33% of respondents to aerospace, machinery, the complexity of the control problem. office equipment, bearings, gears, pumps and other small items. The majorities of the respondents' posi- tions were in materials managementŽ. 25.6% , and 3. Survey design and overview productionŽ. 28.2% , but several were plant managers Next, we report on the survey instrument devel- Ž.12.8% , or vice presidents Ž. 12.8% . oped and used to assess production planning and control activities, and provide an overview of the 4. An overview of PP & C for remanufacturing production planning and control environment. The survey instrument consisted of 75 questions covering Remanufacturing firms must obtain products that several areas: general company information, demand have failed functionally. Acquiring cores Ð failed management, materials management, production products Ð requires reverse logistics activities, and planning and control, and miscellaneous information. these activities, in turn, require significant modifica- A copy of the survey is available upon request from tions to traditional production planning and control the author. Most of the questions asked managers to systems. Remanufacturing firms commonly serve a provide details on specific applicationsŽ e.g., disas- number of smaller niche markets, and use diverse sembly operations. and required considerable time product offerings and strategies to serve these often on the part of a manager. We used selected industry dissimilar markets. However, even serving smaller experts to provide feedback in a small pilot study of niche markets is profitable; 78% of the firms re- the survey. Their feedback led to additional ques- sponding had sales in excess of $21 M per year. tions and improved responses. The American Pro- Firms reported remanufacturing, on average, over duction and Inventory Control Society Research and 1400 product types and over 50,000 part types per Education FoundationŽ. APICS E&R provided fund- facility. The majorityŽ. 80% of remanufacturing firms ingŽ. Grant a97-14 for the survey and access to the uses a mix of make-to-stockŽ. MTS , make-to-order Remanufacturing Specific Industry Group member- Ž.MTO , and assemble-to-order Ž. ATO strategies, ship list. The membership list yielded 320 firms within a single remanufacturing facility. Only one- actively engaged in remanufacturing. We excluded fifth of firms surveyed reported having pure MTS, consulting firms, academics, and firms that were MTO or ATO strategies. Further, almost a quarter of interested in remanufacturing, but not presently en- the firms report that the mix of MTS, MTO, and gaged in remanufacturing. The response rate was ATO changes based on market conditions. In order 15%, or 48 useable surveys. Multiple responses from to manage this amount of product diversity many the same firms were combined and counted as one remanufacturing firms surveyed reported using hy- responseŽ we had 12 responses from three firms that brid PP & C systems. These systems included cus- we averaged and counted as three separate re- tomized material requirements planningŽ. MRP sys- 472 V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 tems, combined with Just-in-TimeŽ. JIT techniques no core is returnedŽ. 80% . A small percentage of such as Kanbans, Theory of ConstraintsŽ. TOC tech- firmsŽ. 5% use leasing of the item to reduce timing niques such as drum-buffer-rope, and classic inven- uncertainties. However, these activities only reduce tory control techniquesŽ reorder point and economic the quantity uncertainty of returns. Return policies order quantity. ; although not all remanufacturers used do little to reduce the timing aspect of returns since a all techniques. sale generates a return Ð a stochastic event itself. Leased equipment may have the lease renewed or the equipment purchased. Because of these uncertainties 5. The complicating characteristics of remanufac- in returns quantities and returns timing, remanufacturing turing firms report core inventories account for one- third of the inventory carriedŽ. Nasr et al., 1998 . Nasr et al.Ž. 1998 conclude that there is a signifi- Presumably, higher levels of cores are held to buffer cant lack of specific technologies and techniques for against variation in the supply of cores and the remanufacturing logistics. Based on our survey re- variability in demands. sults, we discuss in detail the seven major characteristics of recoverable manufacturing systems that sig- 5.2. Balancing returns with demands nificantly complicate the production planning and CharacteristicŽ. 2 , the problem of balancing re- control activities. The characteristics discussed here turns with demands, is also a function of a product's were developed from the data from our survey, expected life and the rate of technical innovation. on-site facility visits, and a review of the current The goal, in order to maximize profits, is for a firm literature. to be able to balance the returns of items from 5.1. Uncertainty in the timing and the quantity of consumers with demand for remanufactured items. returns This need to balance return and demand rates complicates inventory management and control func- CharacteristicŽ. 1 , the problem of uncertainty in tions, and requires additional coordination between timing and quantity of returns is a reflection of the functional areas to effectively manage. uncertain nature of the life of a product. A number of Remanufacturing firms seek to balance return and factors including the life-cycle stage of a product and demand rates to avoid excessive amounts of inven- the rate of technological change will influence the tory from building upŽ where returns exceed de- rate of returns. mands.Ž , or low levels of customer service where The product returns process is highly uncertain demand exceeds returns. . Almost half of the firms with respect to timing, when cores are available for Ž.46.1% report that they attempt to balance returns remanufacturing; and quantity, how many cores are with final demand. The remaining firms do not available. The problem of core acquisition requires attempt to balance returns with demands, preferring that core availability be forecast for planning pur- instead to dispose of excess inventories on a periodic poses, for both quantities available and the timing of basis. About half the firms base core acquisition on a availability. This forecast should be compared with mix of actual and forecasted demands, but one-third the demand forecast to determine whether sufficient of firms report using only actual demand rates. Firms cores are available to meet demandŽ which we dis- using only demand-based rates to acquire cores gen- cuss in Section 5.2. . Firms report activities that assist erally use MTO or ATO strategies, and commonly in the control of the timing or the quantity of returns, use work-in-process inventory to buffer against but not both. Over halfŽ. 61.5% of the firms report lead-time and demand uncertainty. The MTS firms that they have no control over the timing or quantity relying solely on actual demand rates reported no of returns. Firms reporting some degree of control difficulties obtaining sufficient cores. However, mainly used some form of core deposit system. Core one-quarter of the firms report that no excess of deposit systems are intended to generate a core when cores exists, and their major product acquisition a remanufactured product is sold. Most companies management problem is identifying reliable sources report requiring a trade-in, or charging a premium if of sufficient quantities of cores. The remaining firms V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 473 report several methods of dealing with excess mate- the remanufacturing processes. Products are disas- rials, including using excess parts as sparesŽ. 5% , sembled to the part level, assessed as to their reman- placing the excess cores into a holding warehouse ufacturability, and acceptable parts are then routed to Ž.22.7% , trading excess cores with other remanufac- the necessary operations. Parts not meeting minimum turing firmsŽ. 10% , and selling the excess parts and remanufacturing standards may be used for spares, or cores to scrap dealersŽ. 41% . sold for scrap value. Purchasing requires information The core acquisition problem requires coordina- from disassembly to ensure that sufficient new parts tion amongst the various functional areas to provide are procured. Nasr et al.Ž. 1998 report that disassem- the proper balance of cores and purchased replace- bly is not simply the reverse of assembly, and that a ment parts, and to ensure a balance of return and good design for assembly is not necessarily a good demand rates. Core acquisition activities at a typical design for disassembly. Two-thirds of remanufactur- firm include identifying the potential sources for ing firms must practice reverse engineering to gener- cores, and establishing preferences based on various ate disassembly sequences, and this set of activities criteriaŽ. e.g., quality, cost, etc. . We defer this dis- is time consumingŽ average time 22.7 days per prod- cussion to Section 5.5. uct.Ž and expensive average cost $37k per product . . Secondary effects of this characteristic include Our survey findings indicate that three-quarters of materials management, and resource planning. Mate- products remanufactured are not designed for disas- rials management activities are influenced by core sembly, and this has a significant impact on opera- acquisition activities since replacement lot sizing is tions. Products not designed for disassembly have dependent on the expected volumes and condition of less predictable material recovery ratesŽ. MRRs , cores. In the event replacement parts are not avail- higher disassembly times, and generate more waste. able, excess cores may be cannibalized for needed Parts may be damaged during disassembly, espe- replacement parts. Inventory control and manage- cially on products not designed for disassembly, and ment techniques should be developed specifically for this often increases material replacement rates. cores since many remanufacturing firms report that In general, disassembly operations are highly excess cores require costly storage space, and that variable with respect to the time required. Our re- disposal costs may be high. Finally, production deci- spondents reported that disassembly times ranged sions with respect to staffing and scheduling are from minutes to weeks, with very large variances in dependent on core acquisitions and timing. When required times to disassemble like-units. The average new parts production co-exists with remanufacturing times reported to disassemble a typical product ranges using shared resources, this information becomes from a low of 5.54 h to a high of 300 h. All products even more crucial since resource contention becomes exhibit a wide range of average times for the disas- more pronounced. sembly of identical products. The variances associated with disassembly times may be very high, with 5.3. Disassembly coefficients of varianceŽ. CVs as high as 5.0. This uncertainty makes estimating flow times difficult and CharacteristicŽ. 3 , returned items must be disas- setting accurate lead times almost impossible. The sembled before the product may be restored to full majority of remanufacturers stated that they were use. The effects of disassembly operations impact a under constant pressure to reduce lead times in order large number of areas, including production control, to remain competitive with OEMs. scheduling, shop floor control, and materials and One of the decisions facing a planner is how to resource planning. The disassembly and subsequent release parts from the disassembly area to the reman- release of parts to the remanufacturing operations ufacturing shops. Firms report using pull, push, and requires a high degree of coordination with reassem- pushrpull release mechanisms. Our experience has bly to avoid high inventory levels or poor customer shown that careful coordination is required between service. disassembly and reassembly to provide short, respon- Disassembly is the first step in processing for sive lead times. Disassembly activities are also labor remanufacturing and acts as a gateway for parts to intensive with no automated techniques reported. 474 V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483

This is a function of the current paradigm of design propriate MRRs. Many managersŽ. 32.8% reported for disposal, and as design engineers become more not being aware of material recovery rates, suggest- aware of the problems associated with disassembly, ing a lack of communication between engineers and presumably the outcome of disassembly operations materials managers. will become more predictable. Purchase lot sizing is done using a variety of techniques, and over one-quarter of the managers 5.4. Uncertainty in materials recoÕered reported using multiple lot sizing techniques. The most common purchasing lot sizing techniques are CharacteristicŽ. 4 , materials recovery uncertainty, dynamic lot sizing rules where historical consump- reflects that two identical end items returned may tion patterns, price breaks, and service level require- yield a very different set of remanufacturable parts. ments may be taken into account. Lot-for-lot pur- Parts may be reused in a variety of applications, chasing is also common because of the simplicity depending on their condition. For example, parts and the perception of holding lower amounts of may be remanufactured, used for spares, sold to inventory. Finally, one-fifth of firms routinely use secondary markets, or recycled. This uncertainty fixed purchase lot sizing; the reason most cited being makes inventory planning and control, and purchas- a vendor's minimum purchase requirement. Purchase ing more problematic. lot sizing provides a level of protection against vari- Material recovery uncertainty is measured as the ability in material recovery rates since orders are MRR: the frequency that material recovered off a commonly planned to cover multiple periods. Man- core unit is remanufacturableŽ Guide and Spencer, agers cited a number of concerns with purchasing, 1997.Ž. . The majority 95% of remanufacturing firms the most common ones were:Ž. 1 long lead times use simple averages to calculate MRR, although at Ž.Ž.90% , 2 sole suppliers for a part or component least one firm responding used more sophisticated Ž.Ž.75% , 3 poor visibility of requirements Ž. 65% , and multiple regression models. Firms reported a wide Ž.4 small purchase orders and, as a result, unrespon- range of stability for most MRRs, ranging from sive vendorsŽ. 55% . Purchase lead times reported completely predictable to completely unpredictable. were highly variable; the mean time to receive an Products are equally likely to contain parts with order ranged from 0.5 to 90 weeks. The variation in known predictable recovery rates, as to contain parts lead times is also very high, with coefficients of with no known pattern of recovery. variation as high as 3.0 not uncommon. Purchased Material recovery rates may be used in determin- parts also cause a high percentage Ž.;45% of late ing purchase lot sizes and remanufacturing lot sizes, orders. and may play an important role in the use of MRP MRRs also make lot sizing for remanufactured systems. Firms are almost evenly split with respect items more complex since uncertain recovery rates to incorporating MRRs into purchase lot sizing. Firms may delay release of lots until a batch of parts has must purchase replacement parts and materials to use accumulated from disassembly. Additionally, the when original parts may no longer be returned to problem of stochastic routings makes remanufactur- serviceable condition. Purchased replacement parts ing lot sizing a more complex problem than tradi- account for, on average, one-third of parts on a fully tional manufacturing lot sizing. We defer our discus- remanufactured itemŽ. Nasr et al., 1998 . The average sion of remanufacturing lot sizing until a later sec- purchase lot size for remanufacturing firms is rela- tion. tively small, only 334 units, and the average cost of A final area that merits discussion is the use of a purchase order is $11k. Of the firms using recovery MRP in a remanufacturing environment. The use of rates in calculating purchase lots, three-quarters use MRP is widespread among remanufacturers and the historical rates and the remaining firms report three-fourths report using some form of MRP. A that planners use subjective judgement. This is sur- high percentageŽ. 86.2% of firms report the MRP prising, since if a fixed schedule of end items is system is customized to some extent, and the uses of known in advance, the required replacement materi- MRP vary greatly in this environment. Firms com- als may be calculated with certainty, given the ap- monly use MRP for planning purchase and remanu- V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 475 facturing order releases, maintaining bills of materi- material-recovery operations; further investigation is als, and materials tracking. There was no evidence certainly needed. The other three methods to acquire that firms using MRP systems were less likely to cores were core brokersŽ. 9.2% , third party agencies experience significant problems with purchase or- Ž.7.3% , and seed stock Ž. 1.7% . Core brokers act as ders, inventory control, or due-date performance. middlemen, speculating on cores that have no formal Firms that incorporated MRRs into the purchase market presently and serving as a consolidator for order release calculations were less likely to cite smaller volume core collectors. Managers reported concern with poor visibility of requirements, but still that core brokers charged a premium for their ser- cited visibility as problematic. This poor visibility is vices, and that cores obtained were often very costly a function of the short planning lead timesŽ average to remanufacture due to poor condition. Third party less than 4 weeks. and dependence on actual demand agencies are information brokers that provide infor- rather than forecasts. Few firms report being satisfied mation about cores, arrange for a core exchange, or with their MRP systems, yet few report using alter- connect buyer and seller. These third party agencies native techniques. do not exist for many remanufactured products, but are extensive in the automotive parts industry where 5.5. ReÕerse logistics there is a large established trade organization. Leas- ing is an option that more remanufacturers are taking CharacteristicŽ. 5 , a reverse logistics network is advantage of, but it represents a relatively small how products are collected from the end user and portionŽ. 5% of returned products for the firms sur- returned to a facility for repair, remanufacturing or veyed. It may be worthwhile to note that leasing recycling. This requirement is a very complex one in does reduce timing uncertainty, but it does not elimi- itself. It involves a number of decisions such as the nate it since a lessee has the option to renew. Finally, number and location of take-back centers, incentives in order to provide remanufactured products where for product returns, transportation methods, third- the original products have not been in use long party providers and a number of other decisions. We enough to provide sufficient returns, seed stock may discuss the impact of this characteristic from the be used. Seed stock is composed of products that view that a successful production planning and con- failed OEM specifications at the manufacturing plant trol system must adapt to the additional supply-driven and is purchased by a remanufacturer to provide uncertainties. The management of product acquisi- customers with current product designs or features. If tion activities is a key research issue for this charac- the remanufacturing firm is an OEM subsidiary, seed teristic. stocks may be provided as part of customer service. A large portion of reverse logistics is concerned Core acquisition management controls how products with core acquisition management, which we dis- are acquired and from what sources, in order to meet cussed briefly in a previous section. This area is customer demand. As discussed earlier, balancing responsible for core acquisition and ensuring an ade- return rates with demand rates is a related function. quate supply of cores for remanufacturing. Most firms acquire cores directly from the customer 5.6. Materials matching requirements Ž.81.8% by requiring a trade-in when a remanufactured item is purchased. Since the majority of prod- CharacteristicŽ. 6 , part matching requirements is ucts remanufactured by the firms surveyed were of where the customer retains ownership of the product relatively high valueŽ. $141,000 , customers were and requires the same unit returned. This require- motivated to return the products themselves. This is ment may be customer-driven, e.g., when a customer an important distinction from reuse networks for turns in a unit to be remanufactured and then re- relatively low value itemsŽ. e.g., recycled goods , quests that same unit is returned to them. Xerox where the consumer may require incentives even to offers customer-driven returns as a part of customer provide the products for collection. The design of a service for copier remanufacturing. A unit may also returns network in a value-added remanufacturing be composed of a mix of common parts and compo- system may not be as critical for success as in nents and serial number specific parts and compo- 476 V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 nents. This characteristic complicates resource plan- oped database systems, and manual tagging and ning, shop floor control, and materials management. tracking. Remanufacturing lot sizing, when this char- The requirement for parts matching compels the acteristic is present, is most commonly lot-for-lot firm to coordinate disassembly operations carefully because of the unique requirements of remanufactur- with remanufacture operations and reassembly. This ing operationsŽ. we discuss this fully in Section 5.7 . requirement is common for remanufacturers practic- Priority control of parts to provide a predictable ing a MTO product position strategy where the arrival of parts in the reassembly area is also a customer retains ownership and provides the product common concern among remanufacturers. Firms re- to be remanufactured. A full 15% of firms reported port using a set buffer size for common parts where depending solely on customer-owned assets. This service levels trigger replenishments. Parts that are dependence on customer-owned assets has the ad- more expensive are pushed to the reassembly area by vantage of no risky core acquisitions based on pro- the use of priority dispatch rules, or pulled by a final jected demands. However, the major disadvantage is reassembly schedule. Purchase orders are often prob- a very short planning horizon with very low visibil- lematic for reasons discussed earlier-low volume and ity for replacement parts. Replacement parts and visibility. These two factors are often more pro- components are more expensive for customer-owned nounced in an MTO environment. assets, almost 25% on average, greater than for MTS parts. Remanufacturers report offering customer re- 5.7. Routing uncertainty and processing time uncer- quired returns as a service to customers for a variety tainty of product types, including copiers, network equipment and avionics. CharacteristicŽ. 7 , stochastic routings and highly The other major impacts of this characteristic are uncertain processing times are a primary concern at on scheduling and information systems. In order to the operational level. Stochastic routings are a reflec- provide the same unit back to the customers, parts tion of the uncertain condition of units returned. A Ž.up to 40-k parts on a relatively simple product part will have a maximum set of processes that must be numbered, tagged and tracked, and this should be performed to restore the part to specifica- places an additional burden on the information sys- tions. However, these routings represent a worst-case tems. The reassembly of a unit composed of matched scenario, and the majority of parts will only require a parts may be easily delayed since a specific part sub-set of these processing steps. Highly variable number, not just a specific part type, may delay the processing times are also a function of the condition order. Remanufacturing firms relying on a MTO of the unit being returned. These additional forms of strategy are less likely to use an MRP system for uncertainty make resource planning, scheduling, shop material procurement. The majority of firms used floor control, and materials management more diffi- simple re-order point systems for inexpensive parts, cult than in traditional manufacturing environments. and ordered more expensive replacement parts as- Stochastic routings should not be confused with needed. The purchase lead times for these firms were purely probabilistic routings common in repair shops among the highest of all remanufacturers, averaging or in the modeling of job shops. In remanufacturing almost a full year. Make-to-order firms also reported operations, some tasks are known with certainty, some of the shortest planning horizons, with many e.g., cleaning; however, other routings may be prob- firms planning materials and resources requirements abilistic and highly dependent on the age and condi- only after products are returned from the customers. tion of the part. Routing files are a list of all possible Order release is exclusively one-for-one and this operations, and for planning purposes, the likelihood makes set-up reduction programs popular. However, of an operation being required is maintained. Not all in order to provide reasonable remanufacturing lead parts will be required to route through the same set times, firms routinely carry excess capacity for criti- of operations or work centers, indeed, few of them cal resources. would go through the same series of operations as a Firms report using a variety of methods to track new part. This adds to the complexity of resource materials and parts, including MRP, in-house devel- planning, scheduling and inventory control. Shifting V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 477 bottlenecks are common in this environment because processing being spent in cleaningŽ. Nasr et al., 1998 . material recovery from disassembly will vary from Parts may return for multiple processing at the clean- unit to unitŽ. hence, remanufacturing volumes , highly ing operation, and almost half of remanufacturing variable processing times, and stochastic routings. firms reported additional difficulties in cleaning due This makes resource planningŽ both machines and to part materials and sizes. Parts must be cleaned, labor. and estimating product flowtimes difficult. tested, and evaluated before any decision is made as This characteristic is cited as the single most compli- to remanufacturability. This late determination of a cating factor for scheduling and lot sizing decisions. part's suitability further complicates purchasing and Order release mechanisms are limited to one-for-one capacity planning due to the short planning horizon. core release, except for some common parts for Firms also report that the variability in a parts' which release may be delayed in order to provide a condition creates problems in machine fixturing and minimum batch size. set-ups. These additional sources of variability fur- Remanufacturing lot sizing is complex and there ther complicate the accurate estimation of flow times. is no agreement on the best method. A standard lot size of one unit was reported in over one-third of the firms because of the unique requirements of remanufacturing; that is, unique routings for identical part 6. Research issues types. Only one-quarter of firms reported using a fixed lot size, usually based on the EOQ. Almost The discussion of the complicating characteristics one-half reported using dynamic lot sizing tech- shows that remanufacturing firms must be able to niques based on capacity constraints, projected de- manage complex tasks that are significantly different mand, or service fill-rates. from tasks in a traditional manufacturing environ- Cleaning operations represent a major portion of ment. We find that the complicating characteristics the processing time, with an average of 20% of total must be considered as a whole, rather than consider-

Fig. 2. Remaufacturing processes and information flows. 478 V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 ing the effects of each characteristic separately. Fig. phone interviews with industry experts. In-depth case 2 shows the inter-relations among key decision studies, highlighting the effects of particular charac- points, and process and information flows for a teristics would provide insights into how firms man- remanufacturing production planning and control age these complexities. system. In the following sub-sections, we discuss major research issues for each of the complicating 6.1. Uncertainty in the timing and the quantity of characteristicsŽ. see Table 3 . This section is based on returns information from the survey reported here, as well as the survey by Nasr et al.Ž. 1998 , a thorough review Essential research issues in this area include a of the existing literatureŽ including working papers need to develop strategies that create tools and tech- and workshop presentations. , and follow-up tele- niques to manage both quantity and timing uncer-

Table 3 Research issues by complicating characteristic Complicating characteristic Major research issues Uncertainty in timingŽ. 1 The effectiveness of methods Ž e.g., leasing, deposits . in reducing uncertainty in the timing and quantity of returns and quantity of returns. Ž.2 Forecasting models to predict return rates and volumes. Ž.3 Reliability models to better predict product life-cycles for products with multiple lives. Ž.4 Inventory control models that explicitly consider batch arrivals of returned products. Ž.5 Joint inventoryrproduction models considering dependent return rates. Ž.6 Studies that track rate of technological advances that will influence product returns. Balancing returns withŽ. 1 Methods to examine the benefits of synchronizing returns with demands. demandsŽ. 2 Product positioning strategies to serve multiple markets. Ž.3 Aggregate production planning models that consider returned products. Ž.4 Coordinated efforts by purchasing and inventory managers to plan, manage, and control return rates. Disassembly ofŽ. 1 Models to aid in planning what parts and components to recover in disassembly. returned productsŽ. 2 Models and methods that examine the effectiveness of coordinating disassembly release with reassembly. Ž.3 Models for the design, layout and staffing of disassembly facilities. Materials recoveryŽ. 1 Models that support material recovery planning and prediction, including reliability models. uncertaintyŽ. 2 Studies examining the key differences between traditional purchasing activities and purchasing for remanufacturingŽ. including purchasing lot sizing . Ž.3 Models that can predict amount of recovered materials based on age of product and usage rate. Ž.4 Studies examining the use of MRP, including modificationsrsuitability. Reverse logisticsŽ. 1 Studies highlighting the differences between material reuse logistics and product reuse logistics. Ž.2 Models and systems for core acquisition management and strategies. Ž.3 Studies that can establish product recall strategies and minimize product breakdown. Ž.4 Optimal channel choice for remanufacturers Ž retailers, direct from the remanufacturer, or third party. . Materials matchingŽ. 1 Information systems to aid in materials tracking. Ž.2 Models and systems that provide visibility for materials requirements. Ž.3 Models and systems for shop floor control coordination. Ž.4 Remanufacturing lot sizing explicitly considering materials matching restrictions and Policies. Stochastic routingsŽ. 1 Remanufacturing lot sizing models that consider the trade-off between set-up delays and and highly variable unnecessary processing delays. processing timeŽ. 2 Models that provide for scheduling coordination between disassembly and reassembly. Ž.3 Order release methods that consider the rapidly changing workloads in remanufacturing work centers. Ž.4 Bottleneck scheduling heuristics based on cleaning operations. V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 479 tainty. Forecasting models designed to predict the 6.3. Disassembly availability of returns are needed to reduce some of the uncertainty. Works by Kelle and SilverŽ. 1989 , There are a number of interesting research ques- and Goh and VaraprasadŽ. 1986 develop forecasting tions dealing with disassembly operations. First, dis- models for returns of reusable containers. However, assembly acts as an information gateway, and this these products have very little in common with information is used in a number of decision areas remanufacturable goods, and a careful evaluation is including, purchasing, resource planning, final as- needed. Reusable containers are also referred to as sembly, scheduling, and product design. Our re- refillable containersŽ. e.g., bottled gas , and these search indicates that much of this information is not types of products are simply re-circulated until the being exploited to the fullest extent possible. Disas- container may not be safely re-used. The unsuitable sembly operations provide data on material recovery products are discarded, and replacement units pur- from individual units, and there are often lengthy chased. There is a body of reliability literature ad- delays in data entry into a tracking system. Nasr et dressing repairable productsŽ Ascher and Feingold, al.Ž. 1998 report that although specifications may be 1984. , and the development of models considering changed substantially because of information from multiple product life cycles could provide disassembly, few of these changes are communicated reliability-based models for returns. to engineering. Formal models of information sys- The research literature in this characteristic has tems could help understand the cross-functional in- focused mainly on inventory models that assume that formation requirements and the potential benefits of returns are exogenous variables, and that there is no such information systems. For example, information correlation between sales and returns of products on a product's performance obtained at disassembly Žsee van der Laan, 1997 for a complete discussion of should be fed back to design engineers to provide inventory models in remanufacturing. . More research improved designs. is needed on systems for inventory control and man- Scheduling systems that enable closer coordina- agement since much of the previous research has tion between disassembly and reassembly are also assumed individual, rather than batch arrivals. Addi- needed to provide more predictable lead times and tionally, models and managerial systems that link provide better customer service, while minimizing inventory systems with reverse logistics are needed. the investment in unnecessary inventoryŽ see Guide and Srivastava, 1998. . The research on the release 6.2. Balancing returns with demands policies for materials is inconclusive and better models are needed to fully understand the gating of materials from disassembly operations. The disas- Critical research issues for this characteristic in- sembly process itself is an uninvestigated area; no volve better methods to balance return rates with models or guidelines exist for disassembly center demand rates. There are also very few reports of design or staffing. Alternative structures require in- systems designed to handle the complexity of multi- vestigation, including disassembly line design and ple sources and uses for parts in a dynamic environ- flexible worker allocation schemes. ment. Research regarding the most effective product positioning strategies, and corresponding PP and C systems to serve such diverse markets would also be 6.4. Uncertainty in materials recoÕered welcome. Aggregate production planning models de- tailing alternatives between core acquisition, parts No research has used reliability models to aid in disposal, and purchased parts would be of benefit to predicting material recovery rates. The development practicing managers. This characteristic has mainly of decision models for determining material recovery been addressed by inventory theory modelsŽ see van options would also be of benefit, especially models der Laan, 1997. , but little has been done to integrate focusing on the expected residual value remaining in these models formally into a production planning the partŽ see Penev and de Ron, 1996; Lambert, and control system. 1997. . There is a body of reliability literature spe- 480 V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 cific to repairable productsŽ Ascher and Feingold, sources for cores and to aid the core buying process 1984. and efforts are needed to incorporate these itself. A clear model of how core acquisition man- results into improved predictive models of materials agement activities coordinate between purchasing, recovery. MRRs provide the foundation for other production, and other functional areas would be of decision-making activities, and more accurate predic- benefit to streamlining operations. Information sys- tive techniques are of great interest. tems using electronic commerceŽ. i.e., the Internet There are no models that take into account the could be beneficial in bringing buyers and sellers of added protection from purchase lot sizing, although cores together. The development of value-added reuse preliminary research by the author has shown that reverse logistics networks requires special attention some purchase lot sizing techniques may help pro- since previous reverse logistics network models re- vide more predictable remanufacturing schedules. ported have focused mainly on material recovery The use of purchase lot sizing techniques that pro- Ž.recycling returns. A complete discussion of reverse vide for several periods of coverage buffer against logistics models is available in Fleischmann et al. the likelihood that recovery rates will often be lower Ž.1997 . than expected. However, techniques that allow managers to examine the trade-off between inventory 6.6. Materials matching requirements holding costs and customer service must be developed. Certainly, the complications reported by man- Fundamental research issues include providing re- agersŽ i.e., low visibility of requirements, long lead manufacturers with greater visibility in requirements times. contribute to lower levels of customer service, for very expensive materials, and developing cooper- and all of these areas deserve further investigation. ative relationships with suppliers. Hybrid inventory The use of MRP in this environment, with high control models are commonly used in this environ- amounts of variation and the extensive modifications ment, and there is no research investigating the necessary requires considerable research. A number effectiveness of these tools. The unique requirements of schemes for MRP design and use are reported in for materials tracking and control place a strain on the literatureŽ Driesch et al., 1997; Flapper 1994; current shop floor control systems because of the Inderfurth and Jensen 1998. , but evaluations of these additional need for tight coordination between disas- systems with real data are needed. The use of MRP sembly and reassembly. Models investigating the combined with other forms of materials planning benefits of lot sizing techniques and guidelines for was reported by many firms, but no clear guidelines managerial use are also needed. Customer-driven exist for inventory planners in this environment. returns may be a successful tool for green marketing, Other resource planning activities, such as flexible and help to encourage reconsumption by consumers. worker assignment policies, capacity planning and Cooperative research with marketing would provide machine scheduling should be documented and mod- hard evidence of the potential of this option. eled.

6.7. Routing uncertainty and processing time uncer- 6.5. ReÕerse logistics tainty

Nasr et al.Ž. 1998 report that slightly less than There are no decision-making tools to assist a half of remanufacturers report using the same distri- manager in deciding whether the set-up savings from bution channels as new products providers. How- remanufacturing lot sizing are greater than the added ever, there are no details available as to what chan- processing delays from parts not requiring particular nels are used. This requires further investigation as operations. Other shop floor level decision models to what channels are used, and how these may differ could address scheduling coordination between dis- from traditional manufacturing distribution. Remanu- assembly and reassembly activities, order release facturing executives expressed an interest in deci- mechanisms, and priority control techniques. Bottle- sion-making tools that help evaluate choices among neck scheduling heuristics may be able to exploit the V.D.R. Guide Jr.rJournal of Operations Management 18() 2000 467±483 481 high amount of time spent in cleaning operations, but control for reverse logistics. In: The First REVLOG Summer detailed cases of cleaning operations are first needed. Workshop, July 16±18, Leiden, The Netherlands. Driesch, H.-M., van Oyen, J.E., Flapper, S.D.P., 1997. Control of Daimler-Benz product recovery options. Logistik auf Umweltkurs: Chancen und Herausforderungen. Otto-Von- 7. Conclusions Guericke-Universitat Magdegurg, 20±21 November 1997, 157±165. Ferrer, G., 1996. Product recovery management: Industry prac- Remanufacturing executives were asked to iden- tices and research issues. Working Paper 96r55rTM. IN- tify the greatest threats to industry growth over the SEAD, France. Ferrer, G., 1997a. The economics of tire remanufacturing. Re- next 10 years. The majorityŽ. 60% cited the in- sources, Conservation and Recycling 19, 221±255. creased pressure to reduce remanufacturing lead times Ferrer, G., 1997b. The economics of personal computer remanu- continuously, and manyŽ. 38% others cited the lack facturing. Resources, Conservation and Recycling 21, 79±108. of formal systemsŽ e.g., operations, accounting, lo- Flapper, S.D.P., 1994. On the logistics aspects of integrating gistics. for managing their businesses. Other threats procurement, production and recycling by lean and agile-wise manufacturing companies. In: International Dedication Confer- identified included lack of coresŽ. 50% , products ence on LeanrAgile Manufacturing in the Automotive Indus- designed for disposalŽ. 34% , and rapid technological try, Aachen, Germany. pp. 749±756. changesŽ. 28% . The need for academics to develop Flapper, S.D.P., 1995a. On the operational logistics aspects of new systems and evaluate the applicability of present reuse. In: Proceedings of the Second International Symposium systems is clear. on Logistics, Nottingham, UK. pp. 343±348. Flapper, S.D.P. 1995b. One-way or reusable distribution items? We have identified and described seven compli- Research Report TUErBDKrLBSr95-04, Graduate School cating characteristics of production planning and of Industrial Engineering and Management Science, Eind- control activities for remanufacturing firms. The hoven University of Technology, The Netherlands. characteristics give focus to efforts in developing Flapper, S.D.P., 1996. Logistics aspects of reuse: an overview. In: new systems for remanufacturing production plan- Flapper, S.D.P., de Ron, A.Ž. Eds. , Proceedings of the First International Working Seminar on Reuse, Eindhoven Univer- ning and control. Firms use hybrid production plan- sity of Technology, The Netherlands. pp. 109±118. ning and control systems to control operations cater- Fleischmann, M., Bloemhof-Ruwaard, J.M., Dekker, R., van der ing to diverse markets. Most firms use a variety of Laan, E., van Nunen, J.A.E.E., van Wassenhove, L.N., 1997. product positioning strategies and this further com- Quantitative models for reverse logistics: a review. European plicates the problems of planning, controlling and Journal of Operational Research 103, 1±17. Goh, T.N., Varaprasad, N., 1986. A statistical methodology for managing operations. We also note that remanufac- the analysis of the life-cycle of reusable containers. IEEE turing represents a much larger industrial segment Transactions 18, 42±47. than previously thought, and is deserving of full Guide, V.D.R. Jr., 1996. Scheduling using drum-buffer-rope in a attention by academics from all areas. remanufacturing environment. International Journal of Produc- tion Research 34, 1081±1091. Guide, V.D.R. Jr., Jayaraman, V., Srivastava, R., 1999. Produc- tion planning and control for remanufacturing: a state-of-the-art References survey. Robotics and Computer-Integrated Manufacturing 15, 221±230. 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