The expectation is that in the coming years, more manufacturers will start to develop refurbishment capabilities, leading to increased volume in refurbished asset sales*. A challenge for manufacturers is to find the optimal time to carry out refurbishment during the life cycle of equipment.
This depends on several factors related to the technical life of the equipment, rate of technological obsolescence, customer demand, and costs of maintaining, refurbishing and remanufacturing the equipment. Figure 1 shows a few examples of moments during the life cycle of an asset and, specifically, at what point in time during the life cycle refurbishment can typically be found. It is essential to highlight that this can vary significantly by asset type and practices.
Figure 1: Indicative refurbishment moment in the lifetime of the equipment
As an example, for an asset such as a crane, with a significantly long-life cycle, a complete refurbishment might not occur until the equipment reaches the end of the technical life (given that standard repair and maintenance is done periodically).
At this point, the equipment can be either taken apart for remanufacturing or part harvesting. In the so-called ‘hard-assets’ domain, remanufacturing can be a very profitable activity (even more than refurbishment); this is due to the high value of main components such as engines. Quite different considerations are to be made when dealing with equipment with a low collateral value, such as electronics, IT equipment or low-tech/portable healthcare imaging or diagnostic devices. For such equipment types, scrapping at the end (or even before) of the technical life is quite a common activity, due to the relatively high value of the raw materials and low costs of disposal. It is important to say that regulations related to disposal of these materials and components are becoming stricter in most countries.
Refurbishment as a profitable revenue stream
Profitability is another key topic for the manufacturer to assess the feasibility and long-term sustainability of the refurbishment activity. Figure 2 provides an insight into the typical costs of acquiring a used piece of equipment, running it through a refurbishment process and bringing it to a new customer.
It is evident that the spread in costs and margins vary a lot depending on the sector, equipment and manufacturers’ processes and facilities. Nonetheless, it seems clear that, if well managed, refurbishment can lead to a profitable alternative revenue stream.
Figure 2: Refurbishment costs build-up
Research and insights
DLL’s whitepaper ‘Refurbishment: the road to success’ deepens the understanding of the refurbishment concept and the organizational implications of starting a refurbishment business. The whitepaper provides a checklist to manage the process of setting up a refurbishment business. Get your free copy of the whitepaper now.
*Source: DLL whitepaper ‘Refurbishment: the road to success’, September 2018