Remanufacturing: Turning old parts into new opportunities

What if a product’s journey didn’t end after its first use? Remanufacturing—restoring preowned parts to perform like new—is transforming automotives, electronics, and other industries. In this episode of The McKinsey Podcast, Senior Partner Inga Maurer and Editorial Director Roberta Fusaro explore how this practice reduces waste while creating more value for companies.

The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.

The following transcript has been edited for clarity and length.

What’s new on McKinsey.com

Lucia Rahilly:  AI continues to be all over the headlines. But some leaders are having difficulty realizing the projected value of AI, enterprise wide. If you’re among them, check out a new article outlining six lessons derived from over 50 agentic AI builds that McKinsey led this year.

Roberta Fusaro: And the kind of investment Lucia just mentioned is fueling a more expansive definition of the term, infrastructure. It’s not just roads and bridges anymore. These days infrastructure can include data centers, fiber optic networks, and EV charging stations. To better understand the investment opportunities, leaders can check out our all-encompassing report about global infrastructure.

Remanufacturing is gaining traction

Roberta Fusaro: Inga, thanks so much for joining the podcast today.

Inga Maurer: Thank you so much for having me. I’m excited to be here.

Roberta Fusaro: This is a great topic that may not be top of mind for some of our listeners. The article you’ve coauthored is “Remanufacturing 101.” Can you help us understand what remanufacturing is and why it is important, particularly now?

Inga Maurer: Remanufacturing is restoring a part that has been used for a couple of years—typically called a core—and then turning it into a like-new condition. Some people might be familiar with this regarding their phones or computers.

It involves taking the component apart, cleaning it, and inspecting it. Some components, like rubber and plastic parts, have wear and tear. You replace those, reassemble the part, put it through a testing process, and then use it again. The importance of this has grown because of a couple of factors.

First, supply chain disruptions provide an opportunity to restore some used products to a like-new state. This is also more cost-effective; we typically see it with cars or trucks when they go to their second, third, or fourth owner. It also helps to create a more sustainable use of parts. Cost savings can be anywhere between 40 and 60 percent, so the affordability aspect, especially in the current macro context, can play a significant part for some customers.

Roberta Fusaro: When we talk about remanufacturing, who is actually doing the refurbishing? Is it the OEMs [original equipment manufacturers], or are other players primarily associated with remanufacturing?

Inga Maurer: There are a couple of different players doing this. Most OEMs do it, but sometimes the company that makes the overall product, like the assembled car or truck, offers some of the solutions. Sometimes it’s done by what’s called a tier-one supplier, for instance, someone who sells components to a car manufacturer—automotive starters, alternators, and headlamps are some common components.

The original manufacturer of the starter, alternator, or headlamp would do the work, but there’s also a whole industry of independent remanufacturers. They go out and acquire the core. Let’s say you take your car in to get a new headlamp; the shop now has your car’s old headlamp. They sell this core to independent remanufacturers, who do the remanufacturing and then sell it back into the aftermarket channel.

Opportunities in every sector

Roberta Fusaro: You mentioned some automotive examples there, but are there other industries or companies that stand to gain from remanufacturing?

Inga Maurer: Absolutely. We’ve seen a lot of applications in the heavy equipment industry, like in construction. There are applications in aerospace and defense industries, in infrastructure, and even in components for the transmission of technology or power, such as for trains.

More recently, we’ve seen applications in medical devices—for example, in medical imaging. In Europe, there’s a stronger mandate toward remanufacturing, while in the US, it’s been more organically built with consideration for some of the supply chain benefits as well as the cost opportunities.

Roberta Fusaro: How big is the overall market for remanufactured parts?

Inga Maurer: The market today is around $50 billion. It’s expected to grow to around $100 billion over the next three to four years. Today, it only accounts for 2 percent of all manufacturing, so it’s still a fairly small part of the pie, but it’s one that we are seeing grow significantly.

For example, one of the industries I didn’t discuss earlier is consumer electronics: cell phones and computers. Because there is also an intent to reduce electronic waste, there’s a lot of opportunity for that segment to take more share and become an even more important element in remanufacturing.

From disruption to resilience

Roberta Fusaro: Thinking about this potential for growth, I know supply chain disruptions have started to help companies see the benefit of remanufactured parts. Are tariffs having a similar effect?

Inga Maurer: There are a couple of different things to unpack. In a world of supply chain shortages, there is usually a much shorter lead time because you start with the core. You would start with between 70 and 90 percent of the final product and then improve it. Many people have confidence in remanufactured parts because they undergo the same rigorous testing as a new component.

It’s not just “I’ll clean it, put on a new label, and sell it.” Instead, there’s a real testing requirement. I think it’s very important to understand that you’re not getting a part from the junkyard plugged into your car. There is a manufacturing process in between.

When you think about that in the context of tariffs, a lot of the value sits in the core, and the core is generated in the US. Say you take your car in for repair. They take out the starter or the alternator, which becomes the core. That accounts for 70 to 90 percent of the manufacturing value. So even if I now have to import to replace some rubber bits, plastic parts, and seals, I might make those in the US or import them. But they’re a small portion of the entire product value.

So even if you apply a tariff of 10 or 20 percent of the component cost, you still have this big core made in the US. Some remanufacturing today happens in Mexico, so the cores get shipped to Mexico and then come back to the US. But there are a lot of facilities still in the US, and those are being expanded.

Roberta Fusaro: Inga, according to your article, remanufacturing isn’t just about cost savings. How do you measure the value of customer satisfaction from remanufacturing?

Inga Maurer: First, there’s more customer awareness that remanufacturing exists. For example, if your car is three years old, you might still want the new OEM part. If your car is seven years old, you might want the new but aftermarket part. And then if your car is ten years old, you don’t want the cost of maintaining the car to be higher than the value of the car itself.

So, remanufacturing provides a reliable product. We show warranty data, how the product performs in the field, and demonstrate that it isn’t failing. We see it performs well and has high reliability. That’s one of the things that drives customer satisfaction.

The second piece is that availability is pretty good. Remanufacturers have built out their assortment, and you can now find parts for most makes and model trends.

Return rates are low, indicating satisfaction among installers or mechanics who put the parts into use. Finally, it is cost-efficient, which is another big element that drives customer satisfaction.

Two sides of the remanufacturing coin

Roberta Fusaro: Let’s look at this from the make side and the buy side. On the make side, what are some areas of improvement so they can capture more value as this market grows?

Inga Maurer: The most challenging issue that a majority of companies in this space spend the most time on is accessing the cores. There are a lot of different mechanisms to get customers to ship their used parts.

There’s a whole ecosystem of brokers who go to repair shops, medical facilities, or electronics stores to collect e-waste. The more you have a proprietary channel, the lower the cost of collecting the core because you don’t have to pay a broker. That’s the most important thing as people grow their business—getting this critical ingredient.

The second piece is to have the right tools and specialty equipment to disassemble the components correctly. If certain parts are welded, for example, they are much harder to disassemble and require different tools than if they’re just screwed together. It’s important to have the right tools to do that.

The most critical area for remanufacturers is their testing capabilities, because if the product does not perform well in the field and you have a lot of failures, then it would erode customer trust. And trust is critical. Whenever you get something that has been used previously, there’s a little bit of uncertainty around it. So, having the right testing capabilities to build and sustain customer trust in your quality is important.

With the onset of AI and gen AI, we’re also seeing more focus on tracking the life cycle of parts in real time and managing inventory. For example, in cars, a remanufacturer knows that 2012 model Toyota Camrys are now 13 years old, and they’re getting into the sweet spot for remanufactured components. As the remanufacturer, I need to make sure I’ve collected enough cores and set up my supply chain to get additional components needed for remanufacturing. Then I have to place them back into the channel. There are a lot of steps, and a lot of pieces need to come together. Analytics, AI, and gen AI can play a critical role in making you more efficient at managing this process.

Roberta Fusaro: Where could gen AI have the most impact?

Inga Maurer: The first area is forecasting and analytics. It involves really understanding where different parts are in their life cycle and when different designs are getting phased out. Based on that, it’s a matter of determining what the right part is.

The second piece is that data can also be a thought partner for engineers who are considering the optimal components to replace or which components to clean and reuse. Analytics can also provide engineering support as you design. You start with the component that comes as-is, and then, at some point, you have to design the remanufacturing operations. The first time you remanufacture a headlamp you haven’t produced before, you want to understand how to approach it.

The other area of impact involves testing; we are now using many simulation models and digital twins of components. Instead of putting the component itself in heat conditions, cooling conditions, or engine restarts, you would run a lot of this in simulations and then do more confirmatory testing.

Another area to use AI is in core logistics because a lot of the supply chains for construction, medical devices, auto, and consumer electronics are very global. Some markets have a higher propensity to recycle effectively and collect cores. To make the supply side easier, it can think about optimization of the global network.

Roberta Fusaro: Looking now at the buy side, what are some things that companies need to think about when purchasing remanufactured products?

Inga Maurer: It requires understanding the application you’re using it for and getting ahead with demand planning. Contrary to some new components, where there’s sometimes almost infinite inventory, there could be inventory restrictions if the core is unavailable.

Sometimes, for very complex, expensive, and technical applications, you might take the core out of your own product, ship it to the remanufacturer, and then get that same core back and put it back into your product. That means you have some product downtime. This is just for the highest and most technical applications, with very limited core availability. You then have to think, how do I schedule the downtime?

For more mass-market applications, you also don’t want to put too many cores or parts into inventory because if you don’t continue to use the part, managing obsolescence becomes expensive.

The last part is if you have components with a very heavy software layer. Think about, for example, an engine control unit, any of the electronics, and advanced driver safety features in your vehicle. Some of these components need hardware and software upgrades, and then integrating them back into the vehicle or application can have some limitations.

Balancing sustainability and scale

Roberta Fusaro: I want your take on the longer-term sustainability advantages of remanufacturing. What are they?

Inga Maurer: There are a couple of different things. Of course, it is resource conservation. For example, there is some recycling remanufacturing, such as on batteries, on headlamps that have argon gas in them, or on metal components where you have to create new steel.

Remanufacturing reduces the amount of raw material consumed. It also has some energy savings, because you use less energy compared with the production of a new part, since you’re only focusing on 10 to 30 percent of the value-add in the component. It reduces waste because instead of going into a landfill or recycling process, which tends to be more energy expensive, you extend the life of the product.

It also reduces a bit of your carbon footprint because you don’t ship as far. You typically keep the core within a geography, which helps to significantly reduce the overall carbon footprint. It also gets framed in the theme of the circular economy. You keep it in the circle. You’re adding small incremental ingredients, but you’re not starting from scratch.

Roberta Fusaro: At the end of the day, can everything old be made new again? Or are there limitations to remanufacturing?

Inga Maurer: There are limitations. First, some components might not be suitable for this, depending on how they were initially designed and engineered. Also, certain materials degrade over time as you put stress on them. Even steel can crack and break at some point. Plastic components can break when exposed to too much heat. You want to make sure the core can actually sustain an additional five or ten years of life.

There are also some components related to safety, where there is a clear trade-off between the safety of the customer in the application and the benefits of using a remanufactured component. As people correctly err on the side of caution, they might decide it’s best not to go with a remanufactured component. And sometimes, as a car gets too old—let’s say that instead of a 2012 car I have a 1995 model—unless you’re using them for old-timers and collections, those cars will get retired. I can’t take an alternator out of that car and put it into a 2020 vehicle, because there’s something called design obsolescence there.

Parts will naturally sunset when a vehicle is no longer in operation or there are very few of them in use. Limitation considerations include the ability of the material, safety concerns, and the need to phase out specific designs.