On Second Thought
Back in the 1940s, the statistician W. Edwards Deming was preaching a gospel of sorts to American industry: the gospel of quality control. But most U.S. business leaders weren't listening. After the war, Deming was invited to Japan by General Douglas A. MacArthur's command to provide management advice about quality control, and there he found a more receptive audience. The rest, as they say, is history. More than any other single individual, Deming was responsible for the management philosophy that turned "Made in Japan" from a joke into a mark of quality.
Today, another industrial evangelist is making the rounds. Like Deming, he has a new faith and a small following of disciples and converts. Also like Deming, he is preaching a gospel that has mostly fallen on deaf ears.
The new preacher is, to be sure, an unlikely revivalist. A sober-voiced engineer named Robert T. Lund, he is a research professor at the Center for Technology and Policy at Boston University. And his religion is remanufacturing, a seemingly pedestrian process that involves the disassembly, cleaning, repair, testing, occasional upgrading, and reassembly of certain dutable goods. Remanufacturing is even less glamorous than the dry statistics of quality control once preached by Deming. It is not even a procedure that can claim the same near-universal appeal.
What remanufacturing offers, however, is a wholly different way of thinking about the production of goods. Finished products, component parts, and capital equipment can all, in many cases, lend themselves to remanufacturing. And that, says Lund, opens up a world of opportunities for businesses. From a producer's point of view, a remanufactured item typically requires one-fifth of the energy and one-tenth of the new raw materials needed to manufacture a new article, leading to savings of anywhere from 20% to 75% of original manufacturing costs. From the buyer's perspective, the remanufactured product works as well, and lasts as long, as a new one, at a retail price of 20% to 60% lower. Put together, these perspectives might allow remanufacturing to reshape more than a few market niches.
"We could be doing so much with it," observes Lund, while admitting that he and his fellow believers haven't had much luck so far in getting the idea adopted in the area of consumer goods. Pausing, he adds, albeit a bit reluctantly, "I'm willing to go to Japan and start a movement there -- if that's what it takes to get the United States off its butt."
Like most interesting concepts, manufacturing is as firmly rooted in experience as it is in theory. It might even be said to have a date of birth: 1929, the year a watchmaker named Albert S. Holzwasser formed Arrow Automotive Industries Inc.
Holzwasser had been repairing clocks and speedometers for Massachusetts automobile dealers. "As he went around, he saw parts for generators and starters lying on the garage floors," explains Harry A. Holzwasser, his son and the current president of Arrow. At the time, dealers repaired whatever units they could and discarded the rest. The watchmaker offered to rework them all. "He filled up his old Packard with junk," says his son. "That was the start of his business and the start of remanufacturing."
During World War II, the shortage of new parts put a premium on Arrow's wares, and the company was awarded vital raw materials, including extra allocations of copper wire, used to rewind generator coils. After the war, as returning GIs bought up every available jalopy, the company continued to grow and to prosper. Its only problem was with automotive original-equipment manufacturers (OEMs), who regarded rebuilders as low-class competition and sometimes declined to provide components. "My dad took on General Motors," Holzwasser recalls with pride, "testifying before Congress on unfair trade practices . . . and won."
The industry Albert Holzwasser had helped to found gained some statute in the process, but not until the 1970s did it finally find its identity. "A customer came up to me at one of the trade association shows where we had a booth," his son remembers, "and said to me, 'Harry, you're not a rebuilder. You've got factories, you've got assembly lines -- you're a remanufacturer.' And I thought, 'Damn it, he's right." The freshly minted description gradually gained currency. Even so, the industry still suffered from public misconception -- misunderstanding as to what the difference was, for example, between repaired, rebuilt, and remanufactured items -- and from a bias against hand-me-downs of any sort.
For the record, repaired items are simply returned to working order, whether that requires the adjustment of a screw or a new component. Rebuilt items are repaired, but worn or aging components are also replaced, thereby extending the unit's life span. Remanufactured items are disassembled as completely as they can be. Each piece is inspected, and may then be repaired, replaced, or even upgraded with new technology before the unit is reassembled. A typical remanufactured product is about 85% salvaged material and 15% new, and may carry a warranty better than that provided by an OEM. Arrow's automotive parts, for instance, now carry 12,000 mile/12 month warranties.
Remanufacturing has become an important and growing segment of the $50-billion-a-year auto aftermarket. It accounts for 10% of overall sales and nearly all sales in some categories: In 1983, Holzwasser points out, 92.2% of distributors, 95.7% of starters, and 97.7% of the clutches installed in cars were remanufactured. Arrow, a $90-million-a-year publicly held company headquartered in Framingham, Mass., is one of the largest as well as the oldest in the business.
The auto aftermarket, however, is not exactly a headline-making industry, and despite its growth there, remanufacturing remained largely invisible elsewhere. In 1976, Lund, who was then teaching at the Massachusetts Institute of Technology, had never even heard the term. Then, in one of those rare juxtapositions of people and interests that make for revelation, remanufacturing found its principal theoretician and champion. Robert A. Holzwasser, Harry's son, enrolled in one of Lund's mechanical engineering courses, and did a case study on his father's company.
Lund, who had spent 10 years each with Raytheon Co. and Polaroid Corp. before joining academia, was fascinated. "I have a natural inclination to want to keep things going," he explains. "I do it myself in my own shop at home." He had already written a paper on recycling -- a process that, unlike remanufacturing, involves a net dollar loss -- and, astounded by the impressive savings promised by remanufacturing, sought U.S. Department of Energy funding for the first comprehensive examination of the subject. That thick study, released in 1980, and subsequent volumes (one prepared for The World Bank), as well as two national conferences on remanufacturing, now constitute the bible and catechism of the new faith.
In the view of its proponents, remanufacturing is simply the next natural step in the evolution of the manufacturing process -- coming, in effect, right after quality control. When the door of a Plymouth fits as well as a Toyota's, and when its engine purrs as predictably, what does Chrysler Corp. do for an encore? Lund's answer is that the company should produce parts -- even, conceivably, entire cars -- that are easily remanufactured. Negligible increases in cost and weight, he argues, would be more than offset by gains in vehicle longevity and customer satisfaction. Automotive Import Recycling Inc., of Belvidere, N.J. (see INC., November 1983, page 41), is already remanufacturing BMWs and Volvos at an average cost to the consumer of from $8,000 to $9,000.
Holzwasser agrees. "What do you think will happen," he asks rhetorically, "when some automobile manufacturer announces that they have a car that will run for 20 years because it was designed to be remanufactured?"
Lund's most recent study, "Start-up Guidelines for the Independent Remanufacturer," details the requirements and opportunities for remanufacturing in general. The ideal remanufactured product, he argues, is a durable good, with a high percentage of recoverable material and a true economic value considerably higher than its scrap value. A remanufacturer of power lawnmowers would not, for instance, target $99 plastic throwaways, but might successfully rework top-of-the-line John Deeres. Core units -- the used parts with which remanufacturers begin -- should be readily available, inexpensive, easily disassembled, and capable of being restored to like-new condition. Finally, a relatively stable technology and knowledgeable customer base help.
Among the products that fit these criteria are major household appliances, including washers, dryers, dishwashing machines, and air conditioners; power tools, from drills to grass trimmers, motorcycles, snowmobiles, outboard engines. . . Lund's list goes on and on. "The applications are endless," he says. "It's an area where there's plenty of room for the imaginative person to do something." One of his studies evaluated the prospect for remanufactured saw chain, not high on most brainstormers' lists, and found that even that lackluster item showed promise.
Lund envisions a day when remanufactured products will not only work as well as they once did, but may look and function like brand-new. Flexible Corp. of Delaware, Ohio, is already dropping new bus shells onto remanufactured engines, chassis, and drive trains, and Lund sees no reason why the same couldn't be done with Maytags. "The basic technology of washing machines hasn't changed in 20 years," he explains. "All that changes is the shroud and the controls. Maytag could remanufacture the guts, update the controls, and slip on a new shroud." That might lead to the final demise of the Maytag repairman, but it would give the consumer a high-quality, like-new product at a fraction of the cost.
Remanufacturing, Lund notes, not only saves most of the energy and raw materials involved in the production of the original item, it also creates jobs for both unskilled and skilled technical workers, and it results in substantially lower prices for the consumer (an Arrow alternator, for instance, retails for $131.05, as opposed to $256.70 for new, while an Arrow starter costs only $69.30, versus $193.85 for new). Remanufacturing also reduces solid waste and air pollution, and tends, in many cases, to be more profitable an opeation than OEM manufacturing. "Not only are the profit margins generally higher," he explains, "they're frequently high enough to survive recessionary periods."
Lund recalls a truck manufacturer who told him, "During the recession, the remanufacturing part of our business was the only part in the black."
Most of these benefits can be seen quite tangibly in auto-parts remanufacturing, particularly at Arrow Automotive. Because of high new-car prices, Americans are holding onto their cars longer (an average of 7.5 years), fueling the demand for parts. Today's smaller autos, moreover, run faster and hotter, and break more easily when they encounter potholes. And vehicles are becoming more complex, increasing the number of replacement parts required. All these factors have fed Arrow's business. The company recently embarked on the remanufacturing of carburetors, crankshafts, rack-and-pinion steering units, and master brake cylinders ("we can sell as many of those as we can produce," Holzwasser observes), and eventually intends to be handling computerized controls for engines. It takes an unusual combination of adverse factors to make an impact on Arrow's sales: "We had a rough time in 1979-80," says Holzwasser, "during the recession and fuel embargo. People were driving less and taking their second and third cars off the road. That reduced the wear-and-tear factor."
Arrow's Spartanburg, S.C., plant -- one of three the company operates -- is overseen by Lawrence G. Szuhy, formerly of Ford Motor Co. and now vice-president of Arrow's eastern operations. "Coming here really opened my eyes," says Szuhy, a short dark man with manic energy. "At Ford, everything was highly specialized and heavily capitalized." The Spartanburg plant, to be sure, is hardly a mom-and-pop operation: It employs 895 people, occupies 250,000 square feet of space (with a 40,000-square-foot expansion in the works), produces 60% to 65% of Arrow's output, and supplies 380 distributors east of the Mississippi River. But in Szuhy's eyes it is much more a nuts-and-bolts kind of place than he was used to.
"What it really boils down to," says Szuhy, "is finding a better way to make something work again."
That process begins with people like John Haney, a tall, muscular man in sneakers, jeans, and a bold red-and-white T-shirt, who stands at the end of a long U-shaped conveyor in the receiving area of the plant. Battered metal drums filled with an assortment of old auto parts -- generators, starters, water pumps -- surround him on every side. Haney reaches into one barrel, lifts out a generator, jots down the number attached to it, and, with a practiced flip, deposits the generator on the line. As the parts move along, other workers sort them, store them, and pull them for remanufacturing as needed.
Because of the unpredictability of supply -- some 80% of Arrow's parts are salvaged -- and the incredible number of models within any given category, scheduling is a herculean task. Arrow primes its flow of raw materials by dealing with core brokers, who remove parts from junked autos. "There's always the problem of getting an adequate supply of cores," says Holzwasser. In a few instances -- specifically in the case of new items that haven't yet made it into the used market -- Arrow even sends out new parts purchased from OEMs and other sources but relabeled "Remanufactured, Endurance Tested, Arrow." The hope is that when the part is eventually replaced, it will find its way back to Arrow for actual remanufacturing.
Parts are generally remanufactured in small batches. "At Ford," says Szuhy, "we'd produce an item for a week; around here, 30 minutes is considered a long run." That cuts down on inventory, which stands nonetheless at a hefty $16.5 million, and enables Arrow to respond more quickly to customers, who also try to keep their inventories lean. More than 90% of all orders are shipped within one week. Such rapid turnaround is a remarkable feat, given the extraordinarily large number of individual items; although there are only 10 major product lines, the 100-page computer printout on Szuhy's desk lists 30 items per page, or a total of 3,000 different parts.
It is also remarkable in light of the fact that Arrow is working not with quality materials, but with defective goods. "You have a serious quality problem throughout the whole process because you're beginning with damaged goods," observes Robert Lund."You have to be on your guard at all times to make sure that nothing defective slips through. . . . That's kind of a though thing to do."
At Arrow, parts are disassembled and each component inspected, a process that may be as casual as thumping a casting on a tabletop to see if it is cracked, or as elaborate as a complete electrical check. Good pieces are put back into inventory, while bad ones are sent on for repair; only with great reluctance are pieces ever thrown out."Our guiding principle," says Szuhy, "is that anything can be remanufactured." Armatures are rewound, bent shift-lever covers reshaped, worn sections of generator field casings filled with powdered metal -- it is an imaginative exercise in resurrecting the discarded. While Arrow buys some new components from OEMs, in many cases it manufactures its own. And it frequently modifies original designs -- it may alter a part so that it fits several cars -- or even improves on existing technology. Szuhy demonstrates, with some pride, a Chevrolet distributor to which Arrow has added an extra bushing, making it function more smoothly.
All parts are cleaned and, if necessary, repainted, inspected, or tested before they go back into inventory. Pulled out as the plant's production schedule demands, they are reassembled into components that look and perform exactly like new. At the Spartanburg plant, a fleet of 16 tractors and 24 trailers then delivers the freshly labeled and boxed goods to warehouse distributors stretching from Maine to Florida. "It's really difficult to distinguish them from OEM parts," says Szuhy.
Although there are an estimated 2,100 auto part rebuilders and remanufacturers in the United States, most are one-or-two-person shops. And aside from auto parts, the applications of remanufacturing have so far been limited. Excluding the tiny operations, Lund's initial survey identified only 450 major remanufacturing companies in the United States. The range of products includes telephone equipment, computers, machine tools, pumps, robots, buses, and locomotives, as well as auto parts. The Department of Defense, which remanufactures a wide range of military items from election tubes to the M48 A-5 tank and the B-52 bomber (see sidebar, page 61), is the largest individual remanufacturer. But the federal government has been slow to recognize or acknowledge the value of remanufacturing elsewhere. The Urban Mass Transportation Administration, which funds cities' purchases of buses, recently revised its percentage formula to give remanufactured buses a fair share of the market, and, last year, the General Services Administration (then headed by Gerald P. Carmen, an ex-auto parts man) changed its procurement requirements, permitting government agencies to buy remanufactured parts. In other areas, the government has done almost nothing.
Nor have Lund and his followers yet had much luck in broadening remanufacturing's relatively narrow base. "There's interest," he says, "but nothing substantial has happened." Harry Holzwasser, one of the most ardent and outspoken of remanufacturing's disciples, has encountered similar apathy: His address before the 1984 International Congress and Exposition of the Society of Automotive Engineers, calling for OEMs to consider remanufacturability when designing products, elicited "no favorable response," and a recent letter he sent to Chrysler Corp. chairman Lee Iacocca produced a form letter asking that Holzwasser sign a release before elaborating on his ideas. "I've signed it, and followed up on it," Holzwasser says, "and I hope to hear back from him." He is not, however, holding his breath.
Another staunch disciple of remanufacturing, David W. Duquette, president of United States Machine Tools Inc. in Hartford (see sidebar, page 60), views American indifference with some alarm. Noting that much of the country's machine-tool base needs replacing, and that remanufactured equipment could do the job for half the cost, Duquette told Manufacturing Engineering magazine, "We're facing a crisis. We need to act now. OEMs need to extend their business -- and the industry's capacity -- by getting into remanufacturing. The government needs to act now to develop an assistance program for both remanufacturers and end-users." Duquette made his remarks in 1981: He, like Holzwasser, is still waiting for a response.
How do the proponents explain remanufacturing's so-far limited appeal? Holzwasser, for one, attributes the fact that more industries haven't made use of remanufacturing to "the arrogance of OEMs," who regard it as alien, threatening, and vaguely declasse. "It requires a monumental shift in their traditional way of doing things," he says. "I don't even like to hire people who worked for OEMs. It takes too long to reshape their thinking." He also believes that consumer education is necessary: Consumers "haven't been told about remanufactured items."
In the long run, Holzwasser is enthusiastic about what he regards as the process's virtually untapped potential, and is convinced that other industries, and other nations, will eventually take note of it. "This is no longer a throwaway society," he avers. The current surfeit of oil and the end of the recession may have Americans thinking differently in the short term, but the lessons of the past 20 years were not empty. Having spent the better part of his life watching Arrow grow -- most recently, a 23% increase in sales this year, following a 15% increase last -- he appreciates, as both producer and consumer, the quality and savings that remanufacturing provides. An inveterate car collector, he owns more than 25 classic automobiles, as well as a '78 Lincoln Continental, a BMW, and an AMC Jeep. Several of his cars are still running thanks to Arrow components.
Holzwasser is also toying with the concept of remanufactured automobiles and of joint ventures involving the makers of consumer goods. "We'd be more than happy," he says, "to work with an OEM appliance manufacturer -- we'd trade our mentality and know-how for their expertise." And Japan, he points out, has recently been showing increased interest.
"To be honest with you," he confesses, "I won't let [the Japanese] inside one of my plants; I'm afraid that I'd lose 55 years worth of experience overnight."
Lund, too, has been convinced beyond a shadow of a doubt by his professional observations and personal experience. A life-long tinkerer, he has remanufactured items in his home shop, including one Rube Goldbergian arrangement of remanufactured pieces that he assembled into an automatic bailing system. "There was a time when it looked as though our basement might be flooded," he recalls. "Everyone else in the neighborhood was up all night hand-bailing. But I switched on my system, my wife and I went to bed, and it worked perfectly all night long. Now my wife doesn't complain about all of my junk in the basement." Still eager to spread the gospel, Lund is considering holding a conference of manufacturers and remanufacturers in Puerto Rico.
If that fails to produce the desired surge of interest among U.S. manufacturers, Lund may look for fallow fields a bit farther from these shores. "I'm prepared to think in terms of going someplace else," he says, not at all cryptically.
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