An Analysis: Remanufacturing as Renault’s Strategic Activity
Company’s Background
History
In 1894, Marius Berliet designed and produced a single cylinder engine and his first petrol-driven car. He manufactured his first truck in 1906. At about the same time, Louis Renault launched his first commercial vehicle, followed shortly afterward by the forerunner of the bus for the city of Paris. Laffly, Rochet Schneider, Camiva and Citroen Poids Lourds joined forces with Berliet between 1952 and 1974. In parallel, Renault Trucks merged with Somua in 1955; thus Saviem was born. ()
Saviem and Berliet merged in 1978 creating the sole remaining French truck manufacturer, which became known as Renault Vehicules Industriels (RVI), the commercial vehicle branch of the Renault Group. RVI continued its international expansion by buying Dodge Europe and the American brand Mack in 1990. The entity became part of the Volvo Group in 2001 after being renamed Renault VI in 1992. The following year, it adopted the new international trade name, the Renault Trucks. ()
Development and Growth
With about 57,000 trucks produced in 2001, the Renault Trucks business area was the second largest business area in the Volvo Group. Renault, unlike Volvo Trucks which specialized in heavy trucks offered a broad range of vehicles-from light trucks for city distribution to heavy long-haul trucks and military vehicles. Overall, it owned 11 percent of the Western European market for light trucks and 13 percent of the market for heavy trucks. ()
Renault, employing 15, 000 people was present in 80 countries via a network of sales and service centers, importers and subsidiaries. The network was especially strong in Europe with over 1,500 sales and services points. Thirty two dealerships out of 146 were solely owned by Renault Trucks in the French market. Moreover, all members of the network sold vehicles provided after sales service and distributed ‘approved’ original Renault Trucks spare parts. ()
The Issue
Renault’s manufacturing was organized on the basis of firms’ orders placed by customers. Vehicles were assembled at three plants: Blainville for the medium-duty Renault Midlum range, Bourg-en-Bresse for the heavy-duty Renault Magnum and Renault Premium ranges, and Villaverde in Spain for the Renault Kerax range (dry bulk haulage). It had been in Limoges since 1938. Globally, it was the fourth largest employer in the Limoges area. ()
Renault was recently acquired by Volvo Trucks to form the largest European truck manufacturer. Within the industry, remanufacturing was rapidly growing in popularity. Remanufacturing encompassed all the activities involved in rebuilding used spare parts to achieve a performance level on a par with or just below that of new parts. Remanufactured parts provided price-sensitive truck owners with a low cost like-new alternative to the original equipment manufacturer (OEM) replacements with the added benefit of environmental consciousness. ()
Remanufactured parts, labeled ‘Renault 100 percent’ accounted for 16 percent of Renault Truck’s parts revenues and were processed in its Limoges plant. These dedicated facilities were rather old, inefficient and running at full capacity; thus increasing output would call for significant investments. ()
Jean-Francois Hilico, the industrial project manager at Renault Trucks surveyed the market, benchmarked competitors and assessed Renault’s Trucks capabilities in remanufacturing. He became convinced that it offered exciting opportunities to the company but it also had the potential to create conflicts with truck dealers and divert resources from the more profitable original parts business. He foresaw three options for Renault: 1) outsource the activity to a third party; 2) expand and streamline processes in the existing plant; and 3) build an entirely new plant. ()
Internal Strength and Weaknesses
Renault Trucks had the advantage in terms of human, physical and financial resources. As mention earlier, it employed around 15, 000 people and was present in 80 countries via a network of sales and service centers, importers and subsidiaries. In addition, it was strong in Europe with over 1, 500 sales and services point. It had also 32 out of 146 dealerships in the French market.
Its financial resources were at high degree considering the big turnovers in its sales. As stated in the case, Renault Standard Exchange parts revenue had reached $64 million with a product margin of $19 million in 2000. This was equivalent to 170 000 units sold. Likewise, its turnover from its total parts business during the same period was $488 million with a product margin of $192 million.
Diverting from manufacturing to remanufacturing, this company’s activity and process clearly showed and met the success in the global industry of automobiles and trucks. It did not only meet its goal in increasing its revenues but also helped in decreasing the waste brought about by this industry since automobiles and trucks were the source of nine million tons of waste annually (). Generally, with these facts and data, we can therefore conclude that Renault had a better and effective marketing and research and development plans and strategies.
However, Renault Trucks may face several problems and obstacles in pursuing its remanufacturing business since it required direct communication with the end consumers. Perhaps, it would risk alienating the whole dealer network since dealers and franchisees may had a clear financial incentive to either rebuild parts themselves or use new parts.
Segmentation of Renault’s customers base into two groups such as the trucks between three and seven years old with 12 percent remanufactured parts and trucks between eight and 15 years old with 25 percent remanufactured parts may also bring some problems between the company and its customers. Conflict between the two parties may also arise since it was mentioned that most of customers used reman parts because they did not have an integrated workshop and were not under service arrangement of the classis three-year buy-back truck contracts.
The External Environment
Within the industry, remanufacturing was rapidly growing in popularity. Considering the advantages and benefits it offered and brought and to competitively contend in the vehicles’ industry, Renault Trucks as a manufacturer recognized the importance of remanufacturing; thus applying this process in its operations.
By doing this decision, we can conclude that Renault was not left behind by its rival companies and manufacturers. It ran parallel to the latest trend of the vehicle industry. Renault also may not have problems regarding its brand reputation since it already established its name and identity even before when it was still manufacturing. Its entry to the market regardless of geographical setting was not difficult since it already had its dealers and franchisees worldwide. There were also no problems regarding the funding source since its turnovers was higher than the company expected.
The company offered a full range of remanufactured truck components with ‘Standard Exchange, Renault 100’ percent as its brand. It was distributed throughout the international dealer network and was available within 48 hours, as fast as the new parts. Like most of its competitors, Renault guaranteed the same performance as new components and offered a worldwide one-year warranty on parts, equipment and components. These moves may attract clients and buyers to patronize the remanufactured products since they have been guaranteed and assured of its performance.
However, independent repair shops did not view the development of Renault Trucks’ remanufacturing business favorable either. They had already initiated a price war and offered a 20 percent to 30 percent discount compared with Renault 100 percent parts. Parts suppliers like the Valeo, Wabco and Knorr were also thwarting the development of remanufacturing by partnering with dealer networks and independent repair shops to promote the use of new parts.
Such independent repair shops and dealer networks promoting the use of new parts were the obstacles that hinder the fulfillment of vehicles’ remanufacturing industry. They were the risks in Renault’s full success in remanufacturing.
Evaluation of SWOT Analysis
Balancing Renault Trucks’ strengths and weaknesses against opportunities and threats in remanufacturing, the company had an overall strong competitive position in the industry. Thus, it can profitably continue pursuing remanufacturing.
Despite the price war and discounts offered by the independent repair shops and dealer networks promoting the use of new parts, it can still continue its current business strategy because aside from the fact that these repair shops and dealers didn’t offer the same warranty and level of reliability as ‘Renault Standard Exchange’, Renault already had established its name and reputation among the truck manufacturers and customers as the largest business area in Volvo Group.
Proper and direct interaction of Renault with its end consumers must be done. The company must provide customers with information and assurance that the quality and efficiency of its remanufactured products were the same as or can be highly compared with the quality of those new manufactured products but in lower prices. Customers and buyers should have an incorporated workshop about reman parts and should have a service arrangement on the two groups segmented by Renault Trucks.
Renault should also establish a rapport between the whole dealer network to avoid alienation of dealers and franchisees. It may put-up business meetings and talks with such dealers to discuss the trends in remanufacturing at the same time to tackle issues concerning rebuilding parts of the dealers themselves and using of new parts.
To minimize if not fully eradicated the threat of the independent repair shops and dealers promoting the use of new parts, Renault should demonstrate its competitiveness and the effectiveness of its remanufactured products. It must show and emphasized the benefits and advantages of the remanufactured products as well as the need to remanufacture.
Corporate-Level Strategy
Volvo Group Mission
‘By creating value for our customers we create value for our shareholders. We use our expertise to create transport-related hard and soft products of superior quality, safety and environment; care for demanding customers in selected segments. We work with energy, passion and respect for the individual.’
Volvo Group Vision
● To be valued as the world’s leading provider of commercial transport solutions
● To be number one in image and customer satisfaction
● Sustainable profitability above average
● Number one or two in size or superior growth rate
We can assume that Renault Trucks as member of Volvo Group considered and practiced the Group’s vision and mission in performing its operations. In order to do these, Renault according to Hilico, had secure the supply of carcasses both in quality and quantity. According to him, they will also improve the remanufacturing process so that the customers associate their label 100 percent Renault with image of quality, security and environment-the three strategic pillars of Volvo Group.
Diverting from manufacturing to remanufacturing, the company had given the new opportunities to compete in the automotives and trucks industry since remanufacturing was the industry’s latest trend. The change in its corporate strategy was just an adaptation to the changes in industry and the changed over time. The new corporate strategy also will contribute most in its competitive advantage given the new demands and fashion in that industry.
Business-Level Strategy
Renault Trucks was a single-business company and member of group of companies from the same industry. It had already established its name and reputation when it was still in manufacturing. Since it diverted to remanufacturing, there was still a need to reestablish its name and reputation in remanufacturing as well to attract further clients and buyers. Guaranteeing that the remanufactured components were the same as new in terms of performance and offering a worldwide one-year guaranty on parts, equipment and components were good business strategy of the company. It will gain the trust of the buyers; thus, to patronize its remanufactured products.
Structure and Control Systems
Remanufacturing was rapidly growing in the industry of automotives and trucks. Remanufacturing a component such as a complete engine block, meant removing it from the vehicle, discarding worn parts, reassembling the engine and testing it. Remanufactured components or reman were usually aimed at vehicles between five and 12 years old. Vehicles that were less than five years old were either under warranty or repaired with original parts. (1999)
The advantage of a remanufactured part over an original one was its price. For most components, remanufactured versions were 30 percent to 5o percent cheaper, enabling companies with big fleet to significantly reduce their servicing and maintenance costs. Because remanufactures knew the quality of each component, they were also able to offer warranties of 12 to 24 months or 150,000 lm for engine. ( 1999)
Remanufactured components, especially engines, often benefited from recent technology, which sometimes made them more efficient than the original component in terms of performance and emission regulations. Remanufactures also offered customers the option of having the electronic control module (ECM) transferred from the old engine to the remanufactured one ensuring not only the original emission integrity with which that engine had compiled but also that the customer’s pre-calibrated engine specifications were automatically programmed in the new engine. ( 1999)
Another aspect was time. Remanufacturing was quicker than rebuilding, which translated into quicker turnaround and less downtime. Added to the cost savings over purchasing a new part, this made remanufacturing even more appealing. ( 1999)
Given such advantages and benefits offered by remanufacturing and considering its popularity in the industry, it was not shocking that Renault turn from manufacturing to remanufacturing. Renault used the right integration and control system to manage the shift in production strategy: the remanufacturing operations since it had the authority who was Hilico who surveyed the market, benchmarked competitors and assessed the company’s capabilities in remanufacturing.
Thus, the company saw the exciting opportunities in remanufacturing as well as its potential conflicts with truck dealers. It also provided the company to have three options such as to outsource the activity to a third party, expand and streamline processes in the existing plant or build an entirely new plant to address the remanufacturing operations.
Recommendations
We can assumed that the whole company was already informed and had the knowledge about Renault’s shifting in remanufacturing process since Hilico consulted all the parties involved from marketing to engineering and R&D and manufacturing. The three options to support the remanufacturing business were incorporated with all the elements, the financial as well as softer ones. Further, the project was also put back into the strategic perspective of the Volvo Group.
The first possibility was to hand over the remanufacturing business to a subcontractor. Renault Trucks owned part of the equity of a remanufacturing company that could increase capacity if Renault Trucks guaranteed to transfer the Limoges plant business. In this case, however, it would be more difficult to monitor the quality of the process. The Renault 100 percent label also could be at risk. ()
The second alternative involved streamlining the remanufacturing process in the Limoges plant. It aimed to concentrate the activity in seven adjacent buildings and improve automation to reduce manufacturing and logistics costs. Capacity would remain the same, 250,000 units a year. Renault Trucks did not forecast any price increase for the following six years. Product margins would improve by five percent. ()
The third alternative was more ambitious. It entailed moving the remanufacturing business to a new plant, just five kilometer north of Limoges. The investment was significantly higher but capacity would be increased gradually to 300,000 units by 2006. Margins would improve by 10 percent in 2002 and by two percent in each of the following years. The processes would be redesigned to include, for example, a “clean dismantling” step. In addition, the new plant would be built to meet more stringent emission regulations and achieve a “zero liquid waste, zero outside storage of carcass” level. Water consumption would be reduced from 450,000 m3 per year to 3,000 m3 per year and the plant would be eligible for ISO 14000 certification. ()
According to , if Renault went for the last alternative; the company would create an organizational breakthrough by tailoring a manufacturing process to the remanufacturing activity. Further, such a plant with zero emission could also become a pilot site in terms of environment and working conditions and bolster the image of Renault 100 percent. However, increasing capacity could create problems in the future with Volvo. He also raised the argument that with the increasing commonality of parts between its trucks, where carcasses should go in priority five years from now when 70 percent of parts are common between Renault Trucks, Mack Trucks and Volvo Trucks. () Considering such statement, we could therefore conclude that the last alternative was not a recommendable option. Thus, what we have to regard were the two first alternatives.
After weighing the advantages and disadvantages showed by the first and second suggestions, we could select option two as better than the first option since in the first option, it was mention that it would be more difficult to monitor the quality of the process and the Renault 100 percent brand could be at risk. Option two also was the most rational among other options in terms of the global strategy of Volvo Group.
However, Renault must also not set aside its manufacturing operations since it was its first business strategy. Also, maintaining its manufacturing will provide the needs and demands of those customers who still want to have and purchase all new parts components and products.
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