Editor’s note: This survey was conducted of all remanufacturing industries including the printer cartridge remanufacturing industry.

The remanufacturing industry is not only big—it is a business quite unlike any other. No other form of enterprise takes discarded or worn out products and gives them a second life. Doing that job, and doing it well, requires special capabilities. We [the authors] have just completed an examination of the remanufacturing industry to develop a picture of what it takes to be a successful remanufacturer in any of dozens of different product areas where remanufacturing can be found. Our report, The Remanufacturing Industry: Anatomy of a Giant, was published in June 2003. Even though we have been studying the remanufacturing industry for many years, there were surprises.

Not everything was surprising, however. Earlier findings were verified, too. In the mid-1990s, Professor Lund conducted a national survey of remanufacturers to try to estimate the size and scope of the industry. Based on information gathered from over a thousand remanufacturing companies and from the executives of the major trade associations, his research team was able to produce the first estimate of the remanufacturing industry’s size. Those figures were a surprise. According to that estimate published in 1996 in The Remanufacturing Industry: Hidden Giant, the industry is made up of about 70,000 firms, with total annual sales of $53 billion. These companies directly employ approximately 480,000 people. Indirect employment (core brokers, parts suppliers, distributors, retailers, services, and installers) could double or even triple that employment number.

So, remanufacturing is big business, as large in sales as the consumer appliance manufacturing industry or the steel products industry, and with employment that is six times larger than the petroleum products industry in this country. In addition to its direct contributions to our economy as tax-paying, income-producing firms, remanufacturing companies are environmentally beneficial. They conserve materials, energy and manufacturing capacity.

The Toner Cartridge Sector

The toner cartridge sector of the industry, at the time of the first report was the newest of the sectors, and it had been experiencing explosive growth. It was already large, but it was also having growing pains. The estimate of toner cartridge sales for 1995 was about $2.5 billion, with 6,500 firms employing almost 32,000 people.

Our more recent information leads us to believe that the number of toner cartridge remanufacturers is considerably smaller today. There has been a substantial amount of consolidation—small firms being acquired by larger companies or going out of business, and larger firms becoming wholesalers to former remanufacturers, who are now reselling units produced by others. It is likely, however, that toner cartridge remanufacturing sales volume has actually increased over the past seven years. Employment may have remained at about the 1996 level.

The New Study

Having looked at the remanufacturing industry “from the outside,” we decided that anything as big and important as this industry deserved a closer look. This time, we wanted to examine the inner workings of companies in the industry, to define what things are common to other forms of business and what features set them apart. The concept of an anatomical examination was not far from what we had in mind.

The study began two and one-half years ago with preparation of a confidential eleven-page questionnaire. After it had been tested, we asked executives in six different product sectors (automotive, electrical apparatus, machinery, office furniture and equipment, tires, and toner cartridges) to fill it out. Companies were randomly selected within each of the sectors.

In retrospect, we should have realized that we were asking for an enormous sacrifice of time on the part of busy executives. A large fraction of those we asked came through, and we finally had 274 valid responses, with over 28,000 items of information to analyze. We are truly grateful to these respondents.

In preparing the report, we wanted to provide information to the general public, particularly public policy makers, in addition to providing data useful to members of the industry. For that reason the first chapter of the report is concerned with the nature of remanufacturing, criteria for remanufacturable products, and how this industry contributes to America’s economic and ecologic health.

As part of the introduction to remanufacturing we also included short profiles of several successful remanufacturers who allowed us to publish information about their operations. Lasertone Corporation in Littleton, Massachusetts was the poster child for the toner cartridge sector, thanks to the cooperation of its president, Nancy Connolly, and vice president, Gary Roy.

A Few Highlights from the Study

First, here are some overall findings about the industry as a whole. We were interested in sales and employment figures, because through them we could derive an approximation of employee “productivity” in terms of sales dollars per employee. The table at right, taken from the report, is interesting in several respects. The distribution of firms by sales volume shows that most are quite small, typically with annual sales ranging from one-half million to five million dollars. But note that in terms of total sales volume, the few companies operating at $25 million or more were responsible for about 68 percent of all the sales of the 256 firms that gave us sales data. Finally, notice that as sales volume increases, sales per employee increases dramatically, a startling example of economy of scale (see Figure 1). Here is a strong reason for the kind of business consolidations we have seen occurring in the toner cartridge sector.

In spite of the recession in recent years, it appears that sales of the remanufacturing industry have continued to grow. Among the firms providing us with sales information, aggregate sales increased 20 percent from 1997 to 2000. Smaller firms with sales of $800,000 or less exhibited less growth, but larger firms had growth slightly more that 20 percent (see Figure 2 on next page).

One other surprise relative to the industry as a whole is the extent to which remanufacturers are involved in other forms of business. In fact, only 52 percent of the respondents stated that remanufacturing was their primary business. Most frequently mentioned as primary activities other than remanufacturing were service and repair (20 percent), and selling new products (15 percent). The toner cartridge sector was at variance with the industry generally, with over 90 percent giving remanufacturing as their primary activity and only 5 percent listing service and repair as primary. However, a large percentage of those cartridge firms that are primarily remanufacturers also provide service and repair (86 percent), sell new cartridges, and even sell new equipment (79 percent).

More Findings about the Toner Cartridge Sector

Price Positioning. We asked firms how they priced their products relative to comparable new products. Laser toner cartridge prices have a considerable range, but most seem to range from 45 percent to 65 percent of new. It is interesting to compare graphs for the tire-retreading sector and the toner-cartridge sector, because firms in the two sectors have similar characteristics. Many tire retreaders provide contract remanufacturing to fleets of trucks, where the core is obtained at no cost. Toner remanufacturers frequently service fleets of printers. Retreaded tires require new rubber. Toner cartridges include a high percentage of new parts and toner. Despite these similarities, pricing patterns are quite dissimilar (see Figure 3).

Consumer Motivation. Why do customers buy remanufactured cartridges? We gave respondents an array of possible reasons. Cartridge remanufacturers chose only three—price, quality, and service—to the virtual exclusion of all others (lead time, reputation, reliability, knowledge, warranty, integrity, convenience, or environment). Although warranties were not considered a prime sales motivator, we have found in other studies that the absence of a warranty can be a prime de-motivator.

OEM-Remanufacturer Relationship. A theme that recurred at several points in our investigation was the contentious and complex relationships between cartridge remanufacturers and OEMs. Although about 25 percent of all firms from all sectors in the survey said that they received “some” or “much” assistance from OEMs in marketing and distribution, cartridge remanufacturers reported no assistance at all. Generally, cartridge remanufacturers indicated that they received the least help from OEMs and had the most difficulty with them. They saw, for instance, OEM attempts to discourage remanufacturing as a major threat to growth. Two-thirds of the respondents in this sector stated that new product design discourages remanufacture. The Lexmark “killer chip” was frequently cited as an example.

In an industry where laser printers are comparable to razors and cartridges are like razor blades, it is natural that the “razor blade producers” want to protect their market (and high margins) at all cost. It is perhaps surprising that the competition has not become even more vicious. The fact that remanufacturers often sell new cartridges and equipment and provide service and repair for their customers adds to the complexity of the OEM-remanufacturer relationship, and this could be a moderating influence.
More Information Available

These are a few of the findings of our study. Other areas investigated include core sources, yields, employment, wages, skill levels, use of professional staff, product costs, inventories, investment in equipment and total assets.

More information about the 179-page report and about our research activities can be found on our website: www.bu.edu/reman. Ordering information for the report can also be obtained at this site.