building contingency planning for closed-loop...

Journal of Operations Management 21 (2003) 259–279

Building contingency planning for closed-loop supplychains with product recovery

V. Daniel R. Guide Jr.a,∗, Vaidy Jayaramanb, Jonathan D. Lintonc,1a Department of Management Science& Information Systems, Smeal College of Business Administration,

The Pennsylvania State University, University Park, PA 16802, USAb Department of Management, School of Business Administration, University of Miami, Coral Gables, FL 33124, USA

c Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, NY 12180, USA

Received 10 May 2001; accepted 23 September 2002

Abstract

Contingency planning is the first stage in developing a formal set of production planning and control activities for the reuse ofproducts obtained via return flows in a closed-loop supply chain. The paper takes a contingency approach to explore the factorsthat impact production planning and control for closed-loop supply chains that incorporate product recovery. A series of threecases are presented, and a framework developed that shows the common activities required for all remanufacturing operations.To build on the similarities and illustrate and integrate the differences in closed-loop supply chains, Hayes and Wheelwright’sproduct–process matrix is used as a foundation to examine the three cases representing Remanufacture-to-Stock (RMTS),Reassemble-to-Order (RATO), and Remanufacture-to-Order (RMTO). These three cases offer end-points and an intermediatepoint for closed-loop supply operations. Since they represent different positions on the matrix, characteristics such as returnsvolume, timing, quality, product complexity, test and evaluation complexity, and remanufacturing complexity are explored.With a contingency theory for closed-loop supply chains that incorporate product recovery in place, past cases can now bereexamined and the potential for generalizability of the approach to similar types of other problems and applications can beassessed and determined.© 2002 Elsevier Science B.V. All rights reserved.

Keywords:Case study; Production planning; Closed-loop supply chain management

1. Introduction

Attempts at production planning and control forproduct recovery has been complicated by differencesin a number of critical dimensions (Guide et al., 2000).We consider these differences and develop a frame-work that aligns product recovery (reverse flows) with

∗ Corresponding author.E-mail addresses:[email protected] (V.D.R. Guide Jr.),[email protected] (V. Jayaraman), [email protected] (J.D. Linton).

1 Tel.: +1-518-276-2612.

existing research on forward flow. This is an importanttopic, since product recovery is driven by both eco-nomic (Lund, 1983; Porter and Van der Linde, 1995)and political forces (EU, 2000; President’s Councilon Sustainable Development, 1996). Legislation in theUnited States tends to encourage rather than mandatereuse activities. The recycling industry in the UnitedStates is an example of such a system where legislationencourages reuse via tax credits, or municipalities as-sume collection responsibilities. Individual states havealso banned the landfill of products such as cathoderay tubes and some electronics equipment. Further,

0272-6963/02/$ – see front matter © 2002 Elsevier Science B.V. All rights reserved.PII: S0272-6963(02)00110-9

260 V.D.R. Guide Jr. et al. / Journal of Operations Management 21 (2003) 259–279

the number of states banning certain other types ofproducts from landfill is expected to grow rapidly.

There are numerous examples and cases availableof products that are being reused via remanufactur-ing, or recycling, or combinations of reuse activities.Examples include:Toktay et al. (2000), Fleischmann(2000), Linton and Johnston (2000), Krikke et al.(1999), and Thierry et al. (1995). Guide and VanWassenhove (2002)observe that these products andtheir closed-loop supply chains often differ with re-spect to a number of critical dimensions including:product acquisition, returns volume, return timingand quality, test, sort and grade, reconditioning, anddistribution and selling.

The paper has three objectives. We posit that thereare a common set of activities required for success-ful planning and control of remanufacturing opera-tions within the context of a closed-loop supply chain.However, the managerial focus and concerns withinthese common activities will change from scenario-to-scenario.

Our first objective is to clearly identify the problemsin dealing with current descriptions of remanufactur-ing. Remanufacturing is a foundation of closed-loopsupply chains where products and/or components arerecovered, returned to like-new quality standards, andreturned to the market (for a detailed discussion referto Guide et al., 2000). Our second objective is to takea contingency approach to build upon the observa-tion that not all closed-loop supply chains (includingremanufacturing processes) are the same and thateach type of system offers different characteristicsand managerial concerns. Because remanufactur-ing is a rich complex area with limited knowledgeand theory base, the case method is ideal for initialstudy (Yin, 1994). The third objective is to applythe Hayes and Wheelwright’s product–process ma-trix framework to examine three cases representingRemanufacture-to-Stock (RMTS), Reassemble-to-Order (RATO), and Remanufacture-to-Order (RMTO).In doing so we extend the Hayes and Wheelwright’sproduct–process matrix to include insights and guid-ance on production planning and control for opera-tions involving product recovery.

Three different cases are chosen specifically forthe differences they offer. These cases are exemplarof different types of remanufacturing processes. Thethree cases cover important aspects and characteristics

of remanufacturing. Consequently, they offer satura-tion, which is key to the selection of cases for bothcase-based and qualitative research (Yin, 1994). Depthinterviews (McCracken, 1988) and archival data werestudied for each of the three cases. Through consider-ation of multiple different sources for each case, con-cern over the validity of data is addressed (Denzin,1978). Any apparent contradictions identified duringstudy of archival data, were discussed, addressed, andresolved during the depth interviews.

The three cases we present focus on the character-istics of the environment that influence the design ofthe closed-loop supply chain systems with product re-covery. Each of these cases represents a different pointalong a continuum. After each case, we summarize anddiscuss the distinguishing features that exist for eachof the three remanufacturing environments. We alsopresent the managerial needs and concerns for eachof the three cases. Finally, we present a frameworkfor understanding the key dimensions and informationrequirements for designing a successful closed-loopsupply chain system that considers product recovery.

We build on the survey results reported byGuide(2000)and note that these cases fill gaps in the earlierresearch.Guide (2000)notes that many remanufac-turing firms use “. . . hybrid production planning andcontrol systems to control operations catering to di-verse markets.” Our case studies strongly support thiscontention and we provide for a richer understandingof how the approach used for planning and controlshould fit with the characteristics of the market. Wealso observe thatGuide (2000)calls for research thatconsiders the complicating characteristics as a whole,and that is precisely the aim of this case-based re-search. We provideAppendix Athat defines our termi-nology, such as closed-loop supply chains, for readersunfamiliar with this research area.

2. Background and relevant literature

In this section, we identify the problems with cur-rent descriptions of remanufacturing and their plan-ning and control systems. As observed byVolmannet al. (1997), an aggregate production plan shouldprovide as close a match as possible between themodel and the real world. Management must clearlydefine key objectives in order to develop advanced

V.D.R. Guide Jr. et al. / Journal of Operations Management 21 (2003) 259–279 261

manufacturing systems. The development of formalproduction planning and control systems for remanu-facturing is still in its infancy. Many firms simply usetools and techniques designed for traditional man-ufacturing operations (Nasr et al., 1998). Previousresearch has shown that the production planning andcontrol requirements for remanufacturing are unique(Guide et al., 2000). Consequently, planners mustconsider a variety of complicating factors. Examplesof the research addressing various aspects of reman-ufacturing are shown inTable 1. A complete reviewof this research stream is offered in bothFleischmann(2000)andGuide and Jayaraman (2000).

Currently, there is a relatively small but growingbody of literature devoted to production planningand control for remanufacturing. Many of the modelsdeveloped are based on a specific product type ora hypothetical scenario. InTable 1, we can see thatmuch of the research has been grounded in actual re-manufacturing systems. However, with the exceptionof Thierry et al. (1995), the past research addressesa single aspect of remanufacturing using a singleexample, e.g. models for inventory control based onautomotive parts remanufacturing. Further, the pastwork has been focused on producing operations re-search models and there have been a very limitednumber of attempts to structure the field. Our purposein Table 1is to show that the research efforts to datehave been focused primarily on analytical modeling.

van der Laan (1997)discusses independent demandinventory control policies as it relates to automotiveparts. The independent demand inventory models canbe classified as periodic and continuous review mod-els.Kelle and Silver (1989)considered the forecastingof returns of reusable containers in which the planner

Table 1Recent remanufacturing research

Author Product type Research focus

van der Laan et al. (1999) Photocopiers Inventory control policiesToktay et al. (2000) Single-use cameras Inventory control policiesGuide and Srivastava (1998) Jet engine components Short-term scheduling policiesJayaraman et al. (1999) Cellular telephones Product returns managementvan der Laan (1997) Automotive parts Inventory control policiesKelle and Silver (1989) Refillable containers Forecasting returnsThierry et al. (1995) Photocopiers Case studyKrikke et al. (1999) Photocopiers Facility location and network design

must forecast the core availability (a core is an itemavailable for repair or remanufacture) that depends onthe product’s stage in its life cycle. In this paper, theauthors formulated a model for purchase quantities ofnew containers in a returnable network.van der Laanet al. (1999)discusses a number of options for inde-pendent demand inventory control models using auto-mobile part and photocopiers for examples.Guide andSrivastava (1998)report on scheduling policies for re-manufacturing shops using information from turbinejet engine remanufacturing.Jayaraman et al. (1999)develop a location model for remanufacturable prod-ucts and ground the model with information providedby a mobile telephone remanufacturer.Krikke et al.(1999)consider a number of alternatives for the designof a reverse logistics network for photocopiers in West-ern Europe.Toktay et al. (2000)consider the problemof predicting return flows for single-use cameras.

As the previous research shows, many studies haveconsidered specific portions of the remanufacturingprocesses to support the development of a detailedoperations research model. There is a clear gap in richdescriptive reports of remanufacturing systems from aplanning and control standpoint.

The work byThierry et al. (1995)examines sev-eral examples of product reuse and provides a seriesof managerial insights. Their research examines theoperations of a number of firms engaged in productrecovery management. One of the key managerialimplications identified byThierry et al. (1995)isthat product recovery management has the potentialfor large influences on production and operationsmanagement activities. We build on this observationby providing detailed studies of three firms in thisremanufacturing environment.


Before presenting the case studies we must com-ment on the fact that the field lacks a framework thatcategorizes the various dimensions of production plan-ning and control problems for remanufacturing firms.Guide et al. (2000)discuss a number of characteris-tics that managers must account for when designingsupply chains with remanufacturing, but this researchprovides only general observations. These observa-tions must be further evaluated in the specific contextin which the system is operating.

Most manufacturers struggle to ensure a smoothflow of the returned goods through the supply chainand to recover maximum value from these products.Because product life cycles are getting shorter andshorter, an efficient closed-loop supply chain can savelarge amounts of money for manufacturers. Productreturns are indeed a relevant issue for many indus-tries ranging from carpets to computers. In order tocope with the complexities involved in product re-turns for any reason, a closed-loop supply chain isneeded. Closed-loop supply chains have traditionalsupply chain structures for forward movement of goodto the consumer and also have a number of special-ized activities required for the reverse supply chainactivities as well.

Some of the major characteristics of reverse supplychains activities in a recoverable manufacturing sys-tem that complicate management and planning of sup-ply chain functions include: the uncertain timing andquantity of returns; the need to balance demands withreturns; the need to disassemble the returned products;the uncertainty in materials recovered from returneditems; the requirement for a reverse logistics network;the complication of material matching restrictions; andthe problems of stochastic routings for materials forrepair and remanufacturing operations and highly vari-able processing times.

These activities include refurbishing returned prod-ucts and remanufacturing is an economically attrac-tive option for many firms. In our present research,we identify the critical characteristics that influencemanaging production planning and control remanu-facturing from a closed-loop supply chain perspective.

Guide (2000)reports that remanufacturing firmsmay employ a Manufacture-to-Stock, Assemble-to-Order, Manufacture-to-Order, or a hybrid mix product-positioning strategy. This classification is familiar,since it has been proposed for planning and con-

trol in forward flow environments. By incorporatingsuch a framework for forward flows and consideringexemplar cases of reverse flows in closed-loop sup-ply chains, it is possible to explore the differencesthat remanufacturing operations have from tradi-tional manufacturing—with respect to a number ofdimensions.

Hayes and Wheelwright (1979), in their seminalwork on manufacturing planning and its link to strat-egy, consider manufacturing along the dimensions ofproduct volume and flow type (seeFig. 1). They linkthe product life cycle to the specific manufacturingprocess used. Product volume ranges from low to highvolume and flow type ranges from jumbled flow tocontinuous product flow. They suggest that efficientmanufacturing is possible when one is positionedalong the diagonal.

At the top-left extreme, this suggests that a highlyjumbled flow corresponds to low volumes. At thebottom-right extreme, this suggests that a continuousflow corresponds to high volumes. They recognizedthat firms may not operate along the diagonal, but sug-gest that they are most efficient when they do. (There-fore, a firm should have a clearly thought out reasonfor deviating from the diagonal.) Their framework issupported through the use of a series of case studies.The Hayes and Wheelwright framework suggests thatthe spectrum they advocate can best be described asManufacture-to-Stock at the high volume extreme andManufacture-to-Order at the low volume extreme. Inbetween the two extremes is the Assemble-to-Orderinvolving large volumes of products that are similarin some respects and are customized on other dimen-sions. This spectrum is consistent withGuide’s (2000)observation of remanufacturing environments. Conse-quently, for remanufacturing we consider the follow-ing terminology: Remanufacture-to-Stock (RMTS),Reassemble-to-Order (RATO), and Remanufacture-to-Order (RMTO).

Three case studies are presented detailing closed-loop supply chains with remanufacturing representingRemanufacture-to-Stock (RMTS), Reassemble-to-Order (RATO), and Remanufacture-to-Order (RMTO)to exemplify the similarities and differences to theforward flow framework ofHayes and Wheelwright(1979). We further discuss the critical dimensionsof such supply chains and show how their produc-tion planning and control activities involves a variety


Fig. 1. Product–process matrix.

of tasks that differ from traditional manufacturingproduct-positioning strategies. We begin with a casestudy of the single-use camera developed by Kodak—an example of Remanufacture-to-Stock (RMTS).Prior to the cases, we present a research methodologyoverview.

3. Research methodology

As discussed briefly inSection 1, we use a casemethodology here for a number of reasons. The ma-jor strength of the case method is theory buildingand identifying new variables and relationships notenvisaged in the original research (Meredith, 1998).There are few research studies reported that use a casemethodology and our goal here includes providing agreater depth of understanding of the effects of theremanufacturing environment on the aggregate pro-duction planning environment by examining differentfirms using a variety of remanufacturing product-positioning strategies. We also compare inSection 7how our research findings compare with the compli-cating characteristics identified byGuide (2000).

Since our research is the first to consider the processof building a contingency planning for closed-loopsupply chains with product recovery from an empiri-cal perspective, we use a single case for each type of

closed-loop supply chain with remanufacturing, sincethis is, in essence, an exploratory investigation. Asobserved byMeredith (1998), the depth of the under-standing provided is more crucial and important thanthe actual number of cases. We discuss some of thespecifics used in the case studies in the subsectionsthat follow.

3.1. Case background

For each of the three cases (Kodak for RMTS, XeroxEurope for RATO, and US Navy Depot for RMTO),we used a variety of methods to obtain the information.In the Xerox Europe and the US Navy Depot cases,both primary and secondary collection methods wereused. Senior managers (anywhere from two to five)in both organizations were interviewed multiple timesin a free form, face-to-face, setting where they wereencouraged to discuss their operations in general, andthe production planning and control system in specific.Since very little was known about the operations priorto the interviews, we believed allowing the managersto discuss the business issues would provide the mostinsightful discussions. In the case of Kodak, only onemanager was interviewed via telephone and archivaldata (see the references listed in the Kodak case) wasconsulted to provide an in-depth understanding of theenvironment.


3.2. Dimensions for differentiation

The dimensions that we use in the case sectionswere developed from these conversations and archivaldata. We compare these measures with the complicat-ing characteristics reported byGuide (2000)followingthe case studies. The dimensions used to characterizethe environments are: returns volume, returns timing,returns quality, product complexity, test and evalu-ate complexity, and remanufacturing complexity. Webriefly discuss each of these characteristics.

Product returns quantities and timing are both aconcern of product acquisition management activities(seeGuide and Jayaraman, 2000). Product acquisitionmanagement activities are concerned with, in part,with the process of obtaining sufficient used productsto meet demand for remanufactured products. Returntiming concerns how much time elapses between thesale of the item and the return of the item to a dis-position center. Since this is often completely outsidethe control of the firm, there is no set or standardtime frame. Some products may be returned within ashort period of time due to the normal period of timeto consume the product, e.g. toner cartridges maybe used on average in 2 months but some users in aheavy printing environment may use one cartridge perweek, low traffic users may use one cartridge every6 months. Different products may have very differentlifetimes, e.g. single-use cameras compared to mobiletelephones. Product quality is a nominal measure ofthe condition that a product is returned in. These twomeasures are simply more in-depth consideration ofthe complicating characteristics of uncertainty withrespect to quantity, quality, and timing proposed byGuide (2000). Product complexity is a measure of thenumber of parts and the interaction of the parts in anend-unit. Testing and evaluation complexity is a mea-sure of how difficult it is to determine if a part or com-ponent is reusable. These two measures are furtherrefinements on the complicating characteristics ofdisassembly, and uncertainty in materials recovered(Guide, 2000). The final complexity dimension isremanufacturing complexity. Remanufacturing com-plexity is a measure of how difficult the remanufac-turing operations are to plan and control. Difficultyrefers to the number of routing steps required for pro-cessing and the number of separate machine centers.This dimension is a refinement of the complicating

characteristic of stochastic routing and processingtimes (Guide, 2000). All of these dimensions were de-veloped after collecting the data for the cases and ex-amining the information to find richer ways to explainthe complexities of planning and control. For forwardflows the discussion of flow types has focused onproduct variety. Product variety suggests the numberof different models or options for a product. This dif-fers from complexity as it is just discussed, since thesedifferences are not planned for. However, it is similarin other respects in that complexity is a function ofcertain types of products that must be planned for(just as product variety must be planned for) and prod-ucts with high levels of complexity or variety requiremore flexible production planning and control sys-tems than products that lack high levels of variety andcomplexity.

4. Kodak single-use cameras

In 1990, Kodak began a program to completely re-design their single-use cameras to make possible therecycling and reuse of parts. This effort involved across-disciplinary effort of business development, de-sign, and environmental personnel. The closed-loopproduct recovery program consisted of a two-stage im-plementation. The first stage featured new designs thatfacilitate the reuse of parts and components. The en-tire line of single-use cameras may be remanufacturedor recycled, and the amount of materials per camerathat are reusable range from 77 to 80%. The secondstage forged agreements with photofinishers to returnthe used cameras to Kodak. Kodak now reports a re-turn rate of greater than 70% in the United States andalmost 60% globally. Since 1990, programs in over 20countries have resulted in Kodak reusing over 310 mil-lion cameras. The Kodak single-use camera programis now the centerpiece in Kodak’s efforts in recycling,reuse, and product stewardship.

The process flow for the reuse of cameras beginswith the consumer returning the camera to a photofin-isher to develop the film. The photofinisher placesthe cameras into specially designed shipping contain-ers and sends each batch to one of three collectionscenters. Kodak has entered into agreements withother manufacturers (Fuji, Konica, and others) so thatsingle-use cameras are sent to common collection


centers. At the collection center, the cameras are sortedaccording to manufacturer and the camera model.

After the sorting operation, the cameras are shippedto a subcontractor facility. The subcontractor removesall packaging, the front and back covers, and bat-teries. The cameras are then cleaned and transferredto an assembly line for disassembly and inspection.Some parts are routinely reused, others are replaced(e.g. batteries). The frame and flash circuit boardare carefully tested using rigorous quality testingprocedures.

These sub-assemblies are shipped to one of thethree Kodak facilities that manufacture single-usecameras. At the Kodak facility, the cameras are loadedwith film and a fresh battery (flash models only), andfinally new outer packaging. The final product is nowdistributed to retailers for resale. Kodak has leveragedexcellent and longstanding customer relationshipswith photofinishers around the world and establisheda variety of marketing and promotional programs tohave the camera shells returned to the company oncethe customer’s film had been removed. For a Kodaksingle-use camera, the time from collection to reman-ufactured product on the store shelf can be as shortas 30 days.

Fig. 2. Reuse process for single-use cameras.

The final product containing remanufactured partsand recycled materials is indistinguishable to con-sumers from single-use cameras containing no reusedparts.Fig. 2 illustrates the reuse process network forreusable cameras (based onKodak, 1999).

Toktay et al. (2000)report on an inventory man-agement system developed for the case of reusablecameras and discusses the specific difficulties in-volved in managing such a system. Having consideredan example of Remanufacture-to-Stock, planning forthis environment is now discussed.

4.1. Planning for Remanufacture-to-Stockenvironments

The key dimensions in aggregate planning for aRemanufacture-to-Stock situation are summarized inTable 2. These dimensions are derived from unpub-lished case accounts of remanufacturing operationsand from data collected from a survey (Guide, 2000)of production planning and control practices of reman-ufacturing firms.

Product returns volume is the number of unitsreturned for disposition. Kodak reports that over310 million cameras have been returned since 1990


Table 2Key dimensions of aggregate planning for RMTS products

Dimension Remanufacture-to-Stock(RMTS)

Returns volume HighReturns timing UncertainReturns quality LimitedProduct complexity Low to moderateTest and evaluate complexity Low to moderateRemanufacturing complexity Low to moderate

(Kodak, 1999). In the Kodak case, returns timingrepresents how long before a customer returns thecamera/film for processing. This period of time is notin Kodak’s direct control. Therefore, we consider thetiming of returns to be uncertain. While Kodak mayestimate the time-lag between sale and return for pro-cessing (Toktay et al., 2000), the time-lag is a randomvariable and may not be scheduled with certainty. Inthe context of Kodak’s single-use cameras, distin-guishing characteristics of the system are the uncer-tainty and unobservability associated with the returnflows of used cameras. Although there have been sub-stantial efforts to accurately predict the returns timing(Toktay et al., 2000) via statistical models, there stillremains a high degree of uncertainty. This is differentfrom many other products, where the scheduling ofthe timing of returns with near certainty is made pos-sible through lease contracts or service agreements.

Quality testing is quite limited, since a camera musthave retained its structural integrity to be a candidatefor return. In such cameras, all parts are either reusableor recyclable. Kodak has found that it is easy to dif-ferentiate between a part that may be reused versusa part that is only adequate for recycling. Single-usecameras typically are composed of approximately 30parts making them a low to moderately complex prod-uct. Mechanical parts from the single-use cameras aresubject to visual inspections for flaws. No specializedtesting equipment is necessary. Borderline parts arerecycled. The electronic circuits for flash camerasrequire testing to ensure that the flash is functioningcorrectly.

The complexity of Kodak’s remanufacturing opera-tions is very limited. The new design uses simple, easyto reuse parts, and all borderline parts are recycled.Having addressed planning, the managerial concerns

and needs associated with the Remanufacture-to-Stockof Kodak single-use cameras are now discussed.

4.2. Managerial concerns and needs

Managers planning and controlling inventories,production, and staffing in a Remanufacture-to-Stockenvironment have specific information needs. Aneffective aggregate planning tool must adequately ad-dress these needs. In production planning and inven-tory management decisions, the lead-time, the yield,and the on-hand inventory associated with a givenproduct at a certain stage are all critical pieces of in-formation. In the case of Kodak’s single-use cameras,products that are currently in use by the customer con-stitute the raw materials inventory—an important partof the supply chain. However, the inventory at the cus-tomer is unobservable by the manufacturer (Kodak).The lead-time that is random in nature (with respectto returns) equals the length of time the product iswith the customer and the length of time it takes theproduct to travel along the reverse supply chain backto the manufacturer via a photo finishing laboratory.Furthermore, the uncertainty inherent in this systemis not limited to the proportion of cameras that areeventually returned. The quality and quantity of com-ponents recovered from each camera are also uncer-tain. Product volume, return probability, procurementdelay, and product life cycle are all important con-siderations that impact the return streams along thereverse supply chain. These uncertainties in supplyare an additional concern not usually faced in plan-ning for forward flows. Simultaneously increasing thecomplexity of the product and decreasing the volumeleads us to an example of Reassemble-to-Order—theremanufacture of photocopiers by Xerox.

5. Xerox Europe2

Xerox Europe accounts for 25% of Xerox’s world-wide business reporting US$ 53 billion in revenuefrom sales, leasing and service. Xerox Europe serves600,000 customers, has a base of 1.5 million installedmachines, and makes over 1 million deliveries (of

2 C. Joineault of Xerox Europe in Venray, The Netherlands,provided the information in this section.


Table 3Product recovery grades and recovery option

Grade Description Reuse alternative

1 Dust-off Repair2 Good Remanufacture3 Good Parts remanufacture4 Dispose Recycle

units, components and parts) per year through distri-bution channels. In 1991, the Xerox Corporation seta goal for the company to become waste-free. Xeroxcites a number of benefits of a waste-free company:financial, competitive advantage, compliance withlegislative regulation, and meeting customer require-ments. Proactive leadership is Xerox’s stated goal inits environmental programs. All Xerox products arerequired, at a minimum, to comply with governmentstandards and meet Xerox’s internal environmentalstandards. Xerox’s internal standards are frequentlymore stringent than existing legislative requirements.

The product recovery process is as follows. Prod-ucts are collected from Xerox customers and returnedto one of centralized logistic return centers. These arereverse flows of goods from the end-user to Xerox.Reverse flows represent the movement of goods fromthe end-user to Xerox for disposition and reuse. Re-manufactured flows are the movement of remanufac-tured goods from Xerox to customers. The customersfor remanufactured products are often not the samecustomers as for new equipment. The flow of remanu-factured goods is a forward flow of materials, not a re-verse flow. Returned units are inspected and assignedto one of four graded categories. These categoriesrepresent the most economically attractive use of thereturned product. The grades are the basis for thereuse alternative (seeTable 3). Category 1 productsare virtually unused machines requiring only minorservicing. Category 2 machines are in good condi-tion. These machines require parts and components

Table 4Reuse options and volumes (number of copiers and percentages) for photocopiers in 1999

Photocopier Repaired Remanufactured Stripped for parts Materials recycled

Units (number of) 2500 8209 13,935 91,664Percentage 2.15 7.06 11.98 78.82

to be replaced during the remanufacturing process.Category 3 machines are in good condition, but noteconomically fit for remanufacturing. Therefore, partsand components are stripped off the frame of the ma-chine and enter the reused parts inventories. Machinesare classified as category 2 or 3 based, in part, on thedemand for remanufactured machine and the levelsof reused parts inventories. Category 4 machines areeconomically fit only for materials recycling. The cat-egorization decision is based on a variety of factors,including: the overall condition of the machine, theage of the machine, the demand for reused parts, andcurrent inventory levels of reused parts.

Xerox has developed a program of design for theenvironment (DFE) that explicitly considers the logis-tics activities required for an active product take-backand asset recovery program (seeFig. 3). The foun-dation of this asset recovery program is value-addedremanufacturing operations. Xerox Europe will takeback all products (photocopiers, commercial printersand supplies) they sell or lease. The current returnrate for all products is 65% (seeTable 4), where re-turn rate is measured as the number of units returneddivided by the units sold. Xerox Europe’s reverselogistics activities include: transferring Xerox equip-ment from the end-user to regional distribution cen-ters, testing and grading of returned copiers, repairingand remanufacturing equipment and parts, recyclingand disposal. Disassembly and testing are some of themost important phases in Xerox’s remanufacturingprocess. Here, a lot of uncertainty exists with regard tonumber of operations, the quality, the inspection andrepair processes as well as the fulfillment of demandfor spare parts. Hence, the product recovery process issupported by three European repair centers. This assetmanagement program resulted in a savings to Xeroxof over US$ 76 million in 1999. Equipment remanu-facture and parts reuse is a fundamental component ofXerox’s strategy to achieve Waste-Free Product goals.By incorporating easy disassembly, durability, reuseand recycling into product design, Xerox maximizes


Fig. 3. Reuse process for photocopiers.

the end-of-life potential of their products and com-ponents. Today, 90% of Xerox-designed equipmentis remanufacturable. Equipment remanufacture, reuseand recycling of parts diverted more than 145 millionpounds of waste from landfills in 1998. Parts reuse hasreduced the use of raw materials and energy neededto manufacture new parts. The financial benefits ofequipment remanufacture and parts reuse amount toseveral hundred million dollars a year.

Repaired and remanufactured copiers are distribu-ted to customers through Xerox’s traditional forwardlogistics channel. Parts and components are dis-tributed in machines containing reused components,via the traditional forward channel and as spare partsvia the service supply network. The service networkis responsible for repair and maintenance activitiesand rely on a flow of quality remanufactured parts andcomponents.

The major barrier to the success of Xerox’s equip-ment remanufacture and parts reuse program has beenthe misperception among some customers that prod-ucts made with recycled-part content are inferior tothose built from all-new parts. Xerox’s unique pro-cesses and technologies ensure that all of the products

regardless of recycled-part content, meet the samespecifications for performance, quality and reliability.This is achieved through the use of methods suchas Signature Analysis to determine the usable life inparts. Signature Analysis involves testing new partsto determine a signature—an acceptable range for thenoise, heat or vibration the parts produce while inuse. Only returned parts whose signature match thoseof new parts are approved and processed for reuse.

Xerox tracks leases to enable the forecasting of therate of product returns. Unfortunately, product returnsfrom leasing, for non-OEM remanufacturers, representless than 5% of total returns. Consequently, forecast-ing product returns is difficult due to the uncertaintyassociated with non-leasing returns. This forecastingproblem manifests itself as product imbalances (a dif-ference between supply and demand). Matching re-turn rates and sales rates is difficult. The volume ofreturns in the case of value-added remanufacturing issignificantly less than for container reuse.

Marketing is more complex for the remanufacturedproducts, since customers may require significant ed-ucation and assurances to convince them to purchaseremanufactured products. (Market cannibalization is a


Table 5Key dimensions of aggregate planning for RATO products

Dimension Reassemble-to-Order (RATO)

Returns volume ModerateReturns timing Forecast with some certaintyReturns quality UncertainProduct complexity Moderate to highTest and evaluate complexity Moderate to highRemanufacturing complexity Moderate to high

significant concern, but little is known about how re-manufacturing sales affect new products sales so theimpact on sales of remanufacturing cannot be esti-mated.)

5.1. Planning for Reassemble-to-Orderenvironments

The key dimensions in aggregate planning for aReassemble-to-Order environment are summarized inTable 5. The returns volume for photocopiers is muchlower than for Kodak’s single-use cameras consideredin the previous example. Returns volume often limitsthe amount of customer demand that is satisfied withremanufactured goods, since the quantity of returneditems is generally smaller than the number of replace-ment items and new purchases (seeGeyer and VanWassenhove, 2000for a complete discussion). XeroxEurope reported a total of 116,308 copier returnedin 1999. The majority of these units were returnedfrom lease agreements. Lease agreements provide forgreater certainty regarding the timing of the returnof photocopiers to the manufacturer. The quality ofthese returns is difficult to predict, because not onlyare copiers complex but the condition of a photo-copier is dependent on the intensity of its use and itsage. Through the use of the nominal grading system,Xerox is able to determine the most economic use ofa copier—after the condition of the copier has beendetermined. The inspection, grading, and sorting ofcopiers involves visual and mechanical/electrical test-ing. The use of Signature Analysis profiles aid the ex-aminer in determining the reusability of a component.

Copiers are composed of a large number of differ-ent components and parts. Although Xerox uses com-mon components and parts wherever possible, perfectcomponent and parts substitutability between different

models does not yet exist. The newer digital copierswill eventually reduce the number of parts and com-ponents, but in the medium-term add to the numberof different parts and components to be tested andgraded. The complexity of the remanufacturing pro-cesses is directly related to not only the number of partand components, but also the number of operations re-quired to return each component to usable status. Theneed for high quality levels in reused components fur-ther complicates the remanufacturing task (for a com-plete discussion of the impact on design choices andproduct recovery, seeKlausner et al., 1998).


Xerox Europe does not make remanufacturedcopiers to stock and have chosen to reassemble therequired components and parts per each customer or-der. End-items are rarely held and the majority of theremanufactured stock is held at the component andpart level. Xerox uses a Reassemble-to-Order (RATO)policy because Xerox’s products are based on mod-ular design principles. This facilitates Xerox beingable to custom configure a remanufactured productat the reassembly stage based on customer needs andpreferences. Xerox also has a program requiring thatdesigners consider the consequences of design choiceson end-of-life recovery of the product. Managers ina Reassemble-to-Order (RATO) environment havegreater information needs, since the products, testing,and remanufacturing processes are significantly morecomplex than in a Remanufacture-to-Stock (RMTS)environment. In RATO there are a larger numberof items to track, monitor and control. Products arecomplex (hundreds of components and thousandsof parts). The products, their components and parts,often require complex testing and evaluation proce-dures. Further, these products are more expensive;therefore units awaiting disposition and inventoriedcomponents may represent a sizable investment. Itis important to note also that there may be multi-ple economic uses for a remanufactured component(e.g. spare or on a remanufactured unit), so inven-tory planning must take this into account. As productlines age and models become obsolete, fewer compo-nents and parts may be needed for service and sparepart replacement networks. However, at the sametime returns volume will peak. The management of


remanufacturing product and components must takeinto account the life cycle of the product in the field(likely demand for spare parts and consumables) andthe market life cycle (likely demand for product in thefuture). The process of balancing supply and demandis critical for success/profit maximization in this en-vironment. A successful production planning systemmust be capable of coping with the inherent complex-ities in this type of an environment. A disposal policyto balance supply and demand is an obvious concern.

Xerox continues to expand its consumable returnprograms. Most recently, a new program called theGreen World Alliance is expected to increase world-wide return rates for retail and office products’ sup-plies. This anticipated growth in product returns makesthe development of formal planning systems crucialto ensure that product reuse programs continue to bevalue-added activities for Xerox. Finally, the low vol-ume highly complex end of the remanufacturing spec-trum is examined by consideration of the operationsin a military aviation depot.

6. US Naval Aviation Depots3

Airplanes are indicative of the United States mili-tary’s work in maintaining, repairing, and remanufac-turing the majority of its weapons platforms (includingnaval ships, submarines, aircraft, and personnel carri-ers). While these systems have been described in liter-ature previously as repairable inventory systems, theprevious descriptions fail to consider the differencesbetween repair and remanufacturing of units. Theseproducts are very complex (tens of thousands of com-ponents), extremely expensive (replacement cost in thehundreds of millions of dollars), and the products havelong expected lives. For military aircraft airframes alifespan of 30 or more years is common. However,avionics components on these airframes may have afunctional life of less than 5 years. This combinationof long and short-lived components favors a modulardesign approach. Such an approach allows technicalupgrades, thereby, lowering the life cycle cost of ex-

3 The information in this section is based on interviews andwork with US Navy and civilian personnel at the Alameda NavalAviation in Alameda, CA, and with personnel at Naval Air SystemsCommand 4.0D.

pensive assets. Remanufacturing efforts focus on prod-uct life extension with end-items typically maintainingtheir unique identity. Civilian aircraft are subject tosimilar product life extensions and remanufacturing. Infact, many of the military’s remanufacturing programshave been successfully transferred to the commer-cial sector and repairable inventory theory is largelybased on military systems (Guide and Srivastava,1997).

This case on the US Navy and the environmentsurrounding this case is another good example ofclosed-loop supply chains; that is supply chains thatconsider both the forward and reverse flows of goods.The Navy maintains an extensive network of re-pair and remanufacturing facilities. The maintenanceproblem is only part of the complexity of managinga large-scale closed-loop system such as this. Theremanufacturing process (seeFig. 4) is a closed-loopsystem. The jet engine program is offered as a specificexample of remanufacture of aircraft. Engines mayrequire routine maintenance, scheduled remanufactur-ing, or unscheduled repairs and/or remanufacturing.Repair estimates and remanufacturing schedules arebased on the scheduled flying hours during a giventime period. Engines requiring repair or remanufac-ture are referred to as “not ready for installation” andare maintained as non-usable inventory.

Production schedulers at the remanufacturing facil-ities are given annual production goals for engines bymodel and type. Based on these schedules, engines arethen scheduled for delivery into the remanufacturingprocess on a quarterly basis. Planners attempt to pro-vide a level schedule of engines to be remanufacturedeach quarter. However, scheduling an equal numberof engines each quarter is not as effective in produc-ing a level set of resource requirements as one mightexpect. This is because the exact condition of eachengine, and the resulting required operations and ma-terials, are not known with certainty until the enginehas been completely disassembled and tested.

The testing process for engine parts and compo-nents is time consuming and complex. Testing of partsand components begins after complete disassemblyof a unit. The disassembly process is highly variablein terms of both time and parts yield. A part may un-dergo as many as four separate non-destructive teststo determine if the part may be reliably used again.Some parts may require dozens of operations while


Fig. 4. US navy remanufacturing system.

other similar parts may require only cleaning to beconsidered fully remanufactured. Yield losses mayoccur at any of the required operations. Reassemblyoperations are lengthy and are often disrupted by aconstantly changing group of parts. Reassembled en-gines must pass stringent testing and quality controlstandards prior to being released into service.

Engines are either repaired at a repair facility orremanufactured at a remanufacturing facility. Thedecision at which facility to refurbish an engine islargely a function of the operations budget for a givenyear. The operational capabilities of both facilities arecomparable, except repair facilities focus primarily onless extensive repair work. Repair work, in this case, isconsidered to be the minimum amount of work re-quired to return an item to its functional condition. Re-manufacturing, in this context, is the amount of workrequired to return an item to specified engineering andquality standards—a much higher standard than thatof repair. Often the determining factor in determiningwhether an item is either repaired or remanufactured isusually budget economics; an upper dollar amount isavailable to repair any one engine. Any engine requir-ing more extensive repairs than budgeted is deemeda candidate for remanufacturing. In this scenario theunit is reassembled, placed in a shipping container andscheduled for work at the depot level. Units to be re-

manufactured may be backlogged at an inventory con-trol point for a number of reasons. The most commoncause of backlogs is a combination of lack of fundsand a low need for remanufactured units (a practiceof postponement versus speculation). However, post-ponement can cause problems since the parts inventorymay be drawn from until there is a critical shortageof that unit or part, causing the system to backlog an-other less critical part unit until the cycle repeats itselfagain.

The availability of usable engines may be con-strained by a host of other factors. This is complicatedby the limited inventory of parts and components, tolimit inventory holding costs, and the long lead-timesfor procuring many of the components and parts. If apart is out of stock and the procurement lead-time isprohibitively long, additional engines are scheduledfrom the supply network and the needed parts and/orcomponents are removed from these engines. Thisprocess is referred to as ‘back-robbing’. It can cre-ate material mismatch problems, resulting in a largenumber of engines missing expensive parts and re-quire that components be ordered at a later date. Anexample of the challenges faced by the US Navy wasobserved by one of the authors while conducting re-search. A replacement component that was no longerin production was required, and had a procurement


lead-time of more than 2 years. Consequently, to meetshort and medium-term requirements the needed partswere stripped from complete units in inventory. Fur-thermore, large cost over-runs on material expenseswere experienced once the parts became availablefrom the vendor. This is further complicated by thelarge number of parts and components on a jet en-gine that must be reassembled together on the sameunit for reasons of machining requirements, safety, orreliability. This added complexity requires special in-formation systems for tracking parts and componentsand complicates the final reassembly of end-items.

6.1. Planning for Remanufacture-to-Orderenvironments

We categorize the key dimensions in aggregateplanning for a Remanufacture-to-Order environment(Table 6). Product returns are stable and are easilyforecasted since the remanufacturing facility servesa closed system, with the small population of indi-vidual assets under the direct control of the parentorganization. The occasional unanticipated failure ofa unit creates some uncertainty, but such events arerare. Returns quality is highly variable. This compli-cates materials, labor and machine planning. In fact,the units must be disassembled, cleaned and eachpart is individually inspected prior to any dispositiondecisions being made. Parts and components may gothrough a number of processes and then be scrapped.Prohibitively long procurement cycles sometimesforces managers to remanufacture parts that are onlyeconomically attractive because the parts are requiredwithin days or months. Products are complex andhave a very large number of parts and components.For example, one airframe routinely remanufacturedby the US Navy has over 40,000 components. The

Table 6Key dimensions of aggregate planning for RMTO products

Dimension Remanufacture-to-Order(RMTO)

Returns volume LowReturns timing Forecast with some certaintyReturns quality Highly uncertainProduct complexity HighTest and evaluate complexity HighRemanufacturing complexity High

variable quality of returns, large number of parts, andvariable remanufacturing requirements for each partmake remanufacturing planning and control quitecomplex. Coordination of disassembly operationswith remanufacturing operations and the assemblyprocess is complex.


Managers in a RMTO environment have a greaterneed for accurate, up-to-date information. Productionschedules are made far in advance and the proper al-location of resources is required to prevent backlogsat individual resource centers. Lead-times for replace-ment materials are lengthy. Managers require fasternotification when needed materials are not readilyavailable to consider alternative options. Carryingparts inventories is prohibitive, due to the high costassociated with individual components and parts. Theproblem of capacity planning in this setting has beenexamined byGuide and Srivastava (1997). The capac-ity management problem is significant since floatingbottlenecks that rapidly change location dependingon the condition of units, components and parts. Thedepot tries to maintain alternative work center as-signments for major operations in order to relieve thetemporary congestion. The depot also maintains sig-nificant amounts of surge capacities and the manage-ment has long favored more general purpose, highlyflexible, equipment over specialized faster automatedequipment. The work byGuide and Srivastava (1997)evaluates a modified method for capacity planningthat takes into account the uncertainties in materialsrecovery, processing, and labor.

7. Findings from the three case studies

Remanufacturing can offer dissimilar environmentsfor production planning and control problems. Al-though there is a generic set of activities for productionplanning for remanufacturing firm, there is a spectrumof returns volume, returns timing, returns quality,product complexity, test and evaluate complexity andremanufacturing complexity with each point alongeach spectrum having unique managerial concernsand activities. By explicitly recognizing these dif-ferences in managerial problems and concerns, the


Table 7Guidelines for specific production planning model development for closed-loop supply chains with product recovery

Planning focus Planning level Key decisions

RMTS Match core supply with demand End-item cores Recovered partsReplacement parts

RATO Component mix to meet demand Component Final reassembly scheduleRecovered componentsRecovered partsReplacement parts

RMTO Replacement materials required to meet forecast demand Part Replacement partsComponent

need for different product-positioning strategies andspecialized planning systems are more apparent.

We show inTable 7the planning focus, the planninglevel, and the key decisions for each of the remanufac-turing types. This table serves as a starting point forthe development of formal mathematical models. Acommon requirement for any successful managementstrategy is the importance of materials planning andprocurement. Remanufactured products may have notbeen in production for long periods, and visibility forparts and component requirements with low demandand long lead-times is crucial. Savvy manufacturersnow need to design efficient processes for reusing theirproducts. For a growing number of manufacturers, inindustries ranging from carpets to electronics, reversesupply chains are an essential part of their closed-loopsupply chain business. For instance, in the case of Ko-dak, over the past decade the company has recycledmore than 310 million single-use cameras in more than20 countries. Key objectives for such companies in-clude minimizing manufacturing and remanufacturingcosts as well as discovering innovative procedures torecover value from product returns.

In the case of Kodak, it is essential that the com-pany matches core supply with demand. The returnsvolume for single-use cameras is very high. Hence, inoperating in a Remanufacture-to-Stock environment,Kodak has made the single-use camera the centerpiecein its efforts to recycle, reuse, and product steward-ship. In the case of Xerox, the planning focus is to findthe appropriate component mix to meet demand. Inoperating under a Reassemble-to-Order environment,Xerox has to conduct planning at the component leveland Xerox’s products are based on modular designprinciples. This facilitates Xerox being able to custom

configure a remanufactured product at the reassemblystage based on customer needs and preferences. Fi-nally, the Navy operates in a Remanufacture-to-Orderenvironment where the focus is on meeting forecasteddemand with replacement materials. In such an envi-ronment, the Navy maintains an extensive network ofrepair and remanufacturing facilities. The jet engineprogram is offered as a specific example of remanu-facture of aircraft in the case of the Navy. In the nextsection, we compare our findings from the three casestudies with previous research findings.

7.1. Comparison with previous research findings

Table 8provides a summary of the case findingsalong the same characteristics identified byGuide(2000). Disassembly was not considered to be a plan-ning issue at Kodak, but it was considered a major

Table 8Complicating characteristics and the case evidence

Complicating characteristic Case

Kodak Xerox US Navy

Uncertainty in timing Low Moderate ModerateUncertainty in quality

and quantityLow Moderate Low

Balancing returns withdemands

Easy Moderate Easy

Disassembly Easy Moderate DifficultUncertainty in materials

recoveredLow Moderate High

Reverse logistics network Simple Moderate SimpleMaterials matching None Limited HighRouting uncertainty None Moderate High


success factor at the Navy facilities. In both cases,materials planning was the primary concern, not theactual disassembly operations. The requirements forreverse logistics networks were also relatively unim-portant for operations. At Kodak the customers mustdeliver the cameras to a photo processor and the pro-cessor then made arrangements directly with Kodakacting as a consolidator. The US Navy flew or airfreighted turbine jet engines to the depot facilitiesusing their own equipment. Only at Xerox was therea concern with the design of the reverse logistics net-work and for the most part reverse and forward flowsused the same facilities.

We offer a different view of the complications andchallenges faced by remanufacturing firms, but weview these as adding to the understanding of remanu-facturing activities from a slightly broader perspectivethan that offered byGuide (2000).

8. Relating and confronting traditionalproduction planning and control forforward supply chains with remanufacturingenvironments

There are many similarities betweenHayes andWheelwright’s (1979)framework (Fig. 1), its impli-

Fig. 5. Modified product–process matrix.

cations to production planning and control for manu-facture and the three (case studies) illustrations thattypify different parts of the remanufacturing spec-trum. Consequently, we use Hayes and Wheelwright’swork as a basis for further consideration.

First, we summarize the similarities and differ-ences between planning and control for manufactur-ing and remanufacturing. Next we consider, how thethree cases can be used to provide a framework thatextends theHayes and Wheelwright’s (1979)frame-work to be representative for planning and control ina remanufacturing environment (Fig. 5).

Manufacturing and remanufacturing are similar ina number of important dimensions:

(1) The relationship between volume and strategy—asvolumes increase, the recommended progressionfrom Manufacture-to-Order to Assemble-to-Orderto Manufacture-to-Stock are similar for both man-ufacture and remanufacture. Unlike Hayes andWheelwright, we do not suggest a link betweenthe stage of the product life cycle and the posi-tion on the diagonal. In the case of reverse flows,the volume of product, its variety and the in-tended use of the remanufactured product or itscomponents determine the optimal position on thediagonal.


(2) The relationship between demand and predictabi-lity—low volume manufacturing environmentstypically produce a large range of products dueto specific requests. Manufacture is only sched-uled once an order is in hand. In exchange forthis customization, customers are prepared toallow significant times for delivery. In fact, man-ufacturers frequently have substantial lead-timebefore product delivery is required. Similarly inremanufacture, the existence of scheduling offerssubstantial predictability in the type and volumeof products that are anticipated. This predictabil-ity is further assisted by detailed information oneach product, as with the example of jet engines.

As one moves down the diagonal, the pre-dictability declines. The existence of leases thatprovide likely expiry dates offer some predictabil-ity. However, at the bottom of the diagonal, theforecasting of new product sales and returns areboth more challenging. Typically, new productsales are forecasted based on the history of pastproduct sales. In contrast, product returns arebased on anticipated return fraction, past productsales and future product sales.

Demand and predictability raise the question ofspeculationversuspostponement. The more pre-dictable product sales and product returns are, themore attractive speculation becomes. Speculation,in terms of manufacturing, suggests the produc-tion of product at near plant capacity in a way thatminimizes the average cost of the delivered prod-uct. In a traditional manufacturing setting, spec-ulation suggests rapid fluctuations in output thatcorrespond to product orders.

For remanufacturing, speculation suggests astable rate of remanufacturing. Such a process of-fers a reservoir of return products upstream and aconstant volume of remanufactured products thatflow into finished goods inventory downstream.In remanufacturing, postponement suggests thatremanufacturing does not occur until the finishedproduct is demanded. Both manufacture and re-manufacture have similar issues as one movesalong the diagonal with respect to predictability.Having considered predictability, product com-plexity is now considered.

(3) Product complexity—high volumes, in manycases, make it economically feasible to design

product complexity for manufacture or reman-ufacture. The reduction of product complexityincreases usability and acceptance at all points ofthe supply chain. Decreasing product complex-ity is related to and typically accompanied bydecreases in test complexity and manufacturingcomplexity.

(4) Test and evaluate complexity—like product com-plexity, test and evaluate complexity usuallydeclines as product volumes increase. In manu-facture, test and evaluation implies visual inspec-tions and functional testing used to determinewhether the product is acceptable or not. (Unac-ceptable products are either repaired or scrapped.)In remanufacture, test and evaluation refers to thedetermination of whether part or all of a returnedproduct is acceptable for resale. Like manufac-tured products, the test and evaluation for reman-ufacture considers functionality and appearance.Unlike manufactured products, the test and evalu-ation for remanufactured products considers wearand the anticipated remaining life of the prod-uct. Complexity of test and evaluation tends toincrease for decreasing volume. This relationshipis also typical of manufacturing complexity.

(5) Manufacturing complexity—both manufacturingand remanufacturing complexity have a negativerelationship with product volume. As productvolume increases, there is an increased need forautomating the manufacturing process. For lowvolume manufacture or remanufacture, it is onlyeconomically feasible to use generalized equip-ment. This equipment offers great flexibility, butis inefficient since it requires additional setuptime and/or increased time to complete the de-sired task. As product volume increases, the useof specialized equipment focused on the needsof a product, or product family, is typical in bothmanufacturing and remanufacturing.

Manufacturing and remanufacturing are similar interms of the relationships between product volumeand strategy; demand and predictability; and prod-uct, test and evaluate, and manufacturing complexity.However, remanufacturing introduces new challengesto production planning and control. These differencesbetween manufacture and remanufacture results in thevariability of supply and the return quality.


Table 9Comparison of planning environments

Dimension RMTS RATO RMTO

Returns volume High Moderate LowReturns timing Unpredictable Somewhat predictable PredictableReturns quality Limited Uncertain Highly uncertainProduct complexity Low to moderate Moderate to high HighTest and evaluate complexity Low to moderate Low to moderate Moderate to highRemanufacturing complexity Low to moderate Moderate to high High

Although, remanufacturing product-positioningstrategy requires a common set of activities, the diffi-culty of each activity and the associated managementissues vary greatly (Table 9).

The returns volume and timing seem to move to-gether. That is, as the returns volume gets smaller,the timing of the returns becomes more predictable.This is also a function of the value remaining in theproduct and the ownership of the product. The Navymaintains control of the jet engine throughout the pro-cessing, but for single-use cameras and photocopiers,ownership may pass through several actors. We alsofind that the more complex the products, the less pre-dictable the condition (quality) of the product. Thisis simply because the more complex a product, themore things that can go wrong. Additionally, very ex-pensive products, such as turbine jet engines, may beused for a much longer time span than the originaldesigners anticipated and unexpected failures quicklybecome the rule rather than the exception. Similar ob-servations hold true for test and evaluation complexityand remanufacturing complexity. More complex prod-ucts have more parts and components and these mayrequire extensive testing to determine if the parts maybe reused safely. Simple, inexpensive, products test-ing may be limited to a simple visual inspection sincethe cost of a false rejection of a good part is relativelylow. Remanufacturing complexity is a measure of howmany operations a part may be required to go throughand the structure of the facility (a job type shop ismore difficult to plan and control than a line flow fa-cility). Simple, high volume, products (e.g. toner car-tridges) are subject to less extensive remanufacturingoperations than an expensive product with high valueremaining (e.g. diesel engines).

In manufacturing, the availability of materials isgenerally assumed. There are cases in which supply

becomes a constraint for manufacturers (Walsh andLinton, 2000; Jain et al., 1991), but this is unusual.However, in remanufacturing, the need to consider andmanage the supply of raw materials is critical (Lintonand Johnston, 2000; Guide et al., 2000). In the casewith Kodak (RMTS), returns volume are high, whilein the case of Xerox (RATO), returns volume is mod-erate. On the other hand, returns volume for the USNavy (RMTO) are low. The examples indicate, withincreasing volume, the availability of supply of rawmaterials becomes increasingly uncertain. This uncer-tainty must be managed through a combination of stor-age of finished goods and work in process inventory(speculation) and development of alternative sourcesof raw materials. These sources of raw materials couldbe suppliers of either virgin raw materials or agentswho purchase and resell product returns. (The collec-tion and resale of old product is a common practicein the automotive industry (Guide et al., 2000).) It isimportant to note that not only is this a major dif-ference between manufacture and remanufacture, butthat uncertainty of availability of raw materials tendsto increase with increasing product volume. The othermajor factor that is specific to remanufacture is returnquality.

Return quality refers to the difference in conditionand functionality between products in the populationof returns. Differences or non-conformance to spec-ifications between raw materials and components inmanufacture of new products is increasingly small.However, differences between components for productreturns can be great due to differences in the extent ofuse of the product, the nature of the use and the envi-ronment that the product has been used and stored in.In the case of Kodak, if a component does not clearlymeet a certain criteria it is disposed of. Consequently,the return quality is certain. However, in the case of


a jet engine that is a Remanufacture-to-Order, an ef-fort is made to recover each component. In the caseof photocopier that is reassembled to order, qualityof returns is uncertain because it is dependent on theintensity of its use and its age. Consequently, returnquality varies greatly. In fact, this is a major driverof a high complexity of both test and evaluation andmanufacturing. In a remanufacturing environment theincreasing variability in return quality, as one movesup the diagonal, must be accounted for.

For many characteristics, manufacturing and re-manufacturing are similar. But, from the perspectiveof production planning and control the issues of returnquality and supply variability must be carefully noted.To assist in the consideration of where a product sitson the remanufacturing spectrum, we have extendedHayes and Wheelwright’s framework to reflect pro-duction, planning and control for remanufacturing(Fig. 5).

8.1. Implications of reverse flows in relation totraditional product–process matrix

The extension of Hayes and Wheelwright’s pro-duct–process matrix to consider production planningand control of reverse flows as well as forward flowsis important, since it offers guidance for operationsstrategy for the planning and control of manufactur-ing involving reverse flows. This is an important stepforwards since previous research has considered re-manufacturing and closed-loop processes to be uniquesituations. It is apparent from the growing body ofcase studies that these are not special cases, but ex-amples of an immature and growing field in manu-facturing. It is now possible to consider the recoveryof a product and determine where it is likely to siton the modified product–process matrix. In doing so,some general statements can be made about produc-tion planning and control. Furthermore, it is easier toidentify existing cases in the literature that are simi-lar and to make use of the research and findings thatalready exist.

As a product moves from high volume to low vol-ume, it is expected that the production process willmove from line flows to jumbled flows. This is thecase for both manufacturing and remanufacturing (orproduct recovery). In both cases, movement towards alow volume, jumbled flow environment will typically

result in a lower reliance on and need for forecasting.Furthermore, the processing will be more complex asvolumes decline. In the case of manufacturing, thisis the result of product variety creating a large num-ber of exceptions with relatively small batches. In thecase of remanufacturing, this is the result of productcomplexity creating a large number of exceptions withrelatively small batches. Similarly, testing and evalu-ation become more complex as volumes decline sincethe relatively small batches for manufacturing (drivenby product variety) and remanufacturing (driven byproduct complexity) create challenges in testing andevaluation of functionality. Complexity of processingand test and evaluation is driven by different variablesfor manufacture and remanufacture, but the effect ofthese two different variables is the same.

In addition to the implications provided by the ma-trix (Fig. 5) that involves parallels between manufac-ture and remanufacture, some additional insights areoffered into product recovery and remanufacturing bythe matrix regarding availability and variability of theproduct. As a product is placed higher on the diagonal,the availability of raw material will become greateras a percentage of what is ready for recovery. Thismay seem counterintuitive, since high volumes sug-gest greater availability of product. The critical pointis that the volume available may be low compared tosome other products further down the diagonal, but as aproportion of what is potentially available the amountis greater. For lower volume products stronger rela-tions typically exist between manufacturer and seller.These relations include: lease and take-back arrange-ments, trade-ins, supply of spare parts, and maintain-ing the equipment. Such post-purchase involvementensures that the manufacturer is aware of both thelocation and condition of a large percentage of thefield population. Whereas, with high volume products(down and right on the diagonal) post-purchase re-lations between seller and buyer are either minimalor non-existent. With increasing product complexity(higher on the diagonal) the greater possible variationof condition and quality of the returned product. Con-sequently, pre- or post-acquisition assessment of theproduct becomes of greater importance as a productmoves up the diagonal.

The extended product–process matrix offers aframework for consideration of product recovery andremanufacturing operations. In doing so, it is made


clear that the recovery of individual products are notunique cases and provides the ability to quickly assessdifferences in production planning and control forthe recovery of different products, such as, sand frombuilding sites, disposable cameras, automobile parts,telecommunications products, photocopiers, jet en-gines, and space shuttles (products listed in ascendingorder on the diagonal).

9. Future research and conclusions

Production planning and control for a remanufac-turing environment depends on product volume andthe nature of process. Consequently, attempts to use a“one-size-fits-all” approach is bound to fail. Insightsinto the interaction of a variety of key factors withvolume and process are offered through the extensionof Hayes and Wheelwright’s (1979)framework (seeFig. 5). The paper highlights several issues that pro-duction planning and control managers face in a re-manufacturing environment. This is critical, since inmany firms the product returns process has been de-signed as an afterthought.

Product returns continue to grow in volume world-wide, in part due to customer service considerationsand laws pertaining to producer responsibility. Thesechanges require firms to explicitly consider the re-quirements for product reuse and product returnchannels during the design phase of new product de-velopment. The next step is to formulate aggregateplanning problems that allow managers to quicklyexamine the trade-offs and to form the foundation forthe development of advanced manufacturing systemsspecific to the needs of remanufacturers. Work in thisarea has focused on specific problems for specificcases. With a framework in place, past cases can nowbe reexamined and the potential for generalizability ofthe approach to similar types of other problems can beassessed and determined. The framework also offersguidance on the reasonableness of different types ofassumptions for typical remanufacturing businesses(i.e. are the assumptions consistent with a specificlocation on the diagonal inFig. 5, and if not is there aviable reason?). The final goal of this research streamis to develop a coherent integrated production plan-ning and control systems for remanufacturing that isintegral to closed-loop supply chain systems.

Production planning and control problems must in-corporate reverse product flows as part of the over-all business strategy for any manufacturer or retailer.Growing pressure to provide additional customer ser-vice from the timely processing of warranty returnsand the increase in scope of laws regarding producerresponsibility mandate the design, management, andsupport of production planning and control that explic-itly incorporates reverse flow of products. Any produc-tion planning that does not explicitly consider reverseflows is, at best, an incomplete model. The three differ-ent case studies are exemplar of different managementsystems required for effective planning and control ofthe reverse flow of different types of products.

Appendix A. Terminology

Closed-loop supply chain: supply chains that aredesigned to consider the processes required for returnsof products, in addition to the traditional forward pro-cesses. These additional processes (also referred to asthe reverse supply chain) are:

• Product acquisition: the task of retrieving the usedproduct. This is a key to creating a profitableclosed-loop supply chain.

• Reverse logistics: the process of planning, imple-menting, and controlling the efficient, effectiveinbound flow and storage of secondary goods andrelated information opposite to the traditional sup-ply chain direction for the purpose of recoveringvalue or proper disposal.

• Test, sort and disposition: testing and sorting thereturns and disposition refers to how a product isdisposed of, e.g. sold to a broker, sold to an outlet,sent to landfill, etc.

• Refurbish: similar to reconditioning but requiresmore work to repair the product.

• Selling and redistribution.

Remanufacturing: “ . . . an industrial process inwhich worn-out products are restored to like-new con-dition. Through a series of industrial processes in a fac-tory environment, a discarded product is completelydisassembled. Useable parts are cleaned, refurbished,and put into inventory. Then the new product is re-assembled from the old and, where necessary, newparts to produce a fully equivalent—and sometimes


superior—in performance and expected lifetime to theoriginal new product.” (Lund, 1983).

Product recovery: amount of parts and materialthat could be recovered from returns.

Product returns: products for which a customerwants a refund because the products either fail to meethis needs or fail to perform.

Product reuse: using a product again for a purposesimilar to the one for which it was designed.

Product take-back: requiring manufacturers to col-lect product at end-of-life to reclaim materials and dis-pose of properly.

Reverse distribution: the process of bringing pro-ducts or packaging from the retail level through thedistributor back to the supplier or manufacturer.

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