by Ron Giuntini, executive director, OEM Services Inc.
One of the most interesting strategic areas of the remanufacturing market is the impact of original equipment manufacturers (OEMs) not thinking strategically when it comes to controlling, directly or indirectly, the channels of distribution of remanufactured products. The market demands remanufactured products, and if the OEMs “are not in the business,” then the independents supply the market demands. Almost in all economic sectors, it is the independents that have the largest share of the remanufactured product market.
Besides the OEMs losing remanufactured product revenues, they also risk losing some of their new product revenue as well. Why? Because remanufacturers often become the technical experts for a particular product; it is they who have disassembled and analyzed the product many times more frequently than the OEM. As a result, independent remanufacturers often see an opportunity to expand their business by reverse engineering the OEM’s product and manufacturing it for prices, reliability and deliveries that are superior to that of the OEM. This is especially true for components that are no longer in production. Electrical apparatus, automotive, aerospace and other sectors have seen remanufacturers become OEMs.
As long as OEMs define themselves as primarily suppliers of new-condition final assembly products, with warranties, most independents will continue to prosper from the narrow business focus of OEMs. But can OEMs continue to ignore the remanufacturing market when their profit after taxes, as a percentage of revenue, average a paltry 5 percent? I think not. OEM owners will demand higher rewards for the risks being undertaken of product liability, fixed investment in plant and equipment, R&D and others. The remanufactured product market is one of the tickets to grow OEM profits.
When the OEM elephants awake, it will be time for independents to align themselves with OEMs to ensure that they have access to the remanufactured products channels of distribution that will be controlled by OEMs and their partners -- or sell out to the OEMs. How can you tell when an elephant has awakened? Read OEM 10K statements and if they start discussing the size of the installed base, you will know it is time. Right now that is only 10 percent of OEMs. Another way is when OEMs change their performance metric from number of new units produced to [(profits derived from a product during its lifecycle)/(investment in the manufacturing of the product)].
In conclusion, the remanufacturers’ world is changing and will continue to change. Be prepared to adapt as the OEMs inevitably move into the remanufactured product market.
This article was excerpted from Reman E-News, a biweekly newsletter produced by The Remanufacturing Institute (TRI)and the OEM Product-Services Institute (OPI). For more information, contact Ron Giuntini at [email protected], or call him at 570-523-0992.