Cummins Inc. pairs corporate citizenship with business savvy.
Cummins' Memphis remanufacturing facility
It’s kinda cool.
A row of six new Habitat for Humanity houses with fresh pastel paint gleaming in the sun lines Pershing Avenue just north of Binghamton in a nameless, rundown enclave anchored by the Cummins Inc. diesel engine remanufacturing plant.
Cummins worked with Habitat to build the homes, which mirror the neighborhood in size and character, and plant employees were among those who participated in the project. The houses stick out like shiny new pennies, just outside the plant’s gate.
One house is peach-colored with white shutters and an onyx-black roof. The grass is manicured and an American flag is holstered on the tiny porch. It’s grandma’s house for someone.
And while it’s hard not to contrast it with the distressed homes around it, the house is a metaphor for the work going on next door, inside the 150,000-square-foot plant that is undergoing a massive renovation itself and will eventually be expanded.
Don’t build a new neighborhood somewhere else, it says. Rebuild this one.
Altruism aside, Cummins has found that helping out, particularly in the area of environmental-friendliness, made money for the company and over the decades has positioned it for solidity in mature and emerging global markets.
Roger Schepman, Cummins’ director of global growth and strategy, is the first to admit that the company’s green efforts did not begin merely out of a sense of corporate responsibility. In fact, it all developed long before the word “green” in business meant anything more than dollars.
“We were green before green was cool,” Schepman says.
Cummins Inc. was founded in 1919 and is headquartered in Columbus, Indiana. It has 40,000 employees worldwide and locations on every continent except Antarctica. Its current Fortune 500 ranking is 186, and in 2010 the company took in some $13 billion.
The company manages four divisions. Cummins Power Generation builds primary and standby power systems, which are popular in large emerging countries such as China, where the power infrastructure is weak or fragmented. In some places, Cummins generators run entire plants.
Cummins Distribution division provides fuel service and channel management around the globe.
The components division creates and builds fuel filtration systems, turbo engine technology, and emissions solutions.
And then there’s Cummins Engines, the division most Memphians associate with the company. That’s the division that builds diesel and natural gas engines for on- and off-highway vehicles, medium and heavy-duty.
The Memphis plant opened in 1972 and expanded in 1978. It was one of three original Cummins locations along with plants in Los Angeles and Chicago, which began Cummins’ first foray into the remanufacturing of engine components.
Why is that especially green? Now that green is a popular trend, Cummins has done some research and created videos on YouTube loaded with its own green statistics.
In 2010 alone, Cummins remanufactured 50 million pounds of core — failed cast-iron engine components — which pre-1966 would have ended up in a landfill.
All of that material would have been replaced with new iron components through mining, an industry run off of fossil fuels. Remanufacturing, or “reman,” uses 85 percent less energy and avoids 200 million pounds of greenhouse gases.
“Think of all of the energy that would go into mining and digging up iron ore, refining iron ore, and casting the block,” Schepman says. “You reclaim it and it doesn’t use nearly as much energy.”
Along the way, Cummins discovered that 85 percent of engine components can be remanufactured and that companies will in fact buy them. Cummins made $750 million in sales of remanufactured components in 2010.
Of course no one knew that in 1966 when the idea first came to light.
Clarence Carr, manager of the Memphis plant, and Allen Pierce, general manger for manufacturing parts and service, led a group of employees on a tour of the plant this October.
The group, clad in neon orange vests, slip-on rubber shoe covers, clear plastic visors, and earplugs, followed Carr through the open, airy plant that had the feel of several college gymnasiums lined up end to end.
“We are a turbo-only facility now,” Carr says. “This plant started out as known for cylinder heads, and it was built based on that. We had other products like water pumps and connecting rods. Now we are a turbo facility.
“Our goal here is to achieve contaminant removal without metal removal from critical processes.”
Lines of union machinists in navy blue disassembled core to get it ready for manual and computer diagnostic inspection. Others cleaned the pieces via an aqueous chemical bath, high-pressure water, or deep blasting with small rocks.
One worker drove a low trailer back and forth along aisles of the “supermarket” — an area of long, low shelves where individual parts are sorted and stored until needed for reassembly.
Carr says that 175 employees work on turbos, which along with fuel systems are the bread and butter of Cummins’ engine business. The plant produces about 180 turbos per day in two shifts.
“Future salvage is one of the areas where we’re continuing to develop the technology,” Pierce says. “That means [salvaging] something that we think at some point we might be able to save and reuse. We’re getting into new technologies like adding metal back through lasers or spray-welding or different methods to salvage things that in the past we would have thrown away.”
And the plant is getting the reman treatment itself. One end of it, about the size of a high school cafeteria, has already been scrubbed out, repainted a light gray, and relit with much brighter fluorescent lighting. Carr said that part of the assembly line will be moved in soon, creating more empty space which will then be similarly updated.
The Chicago and Los Angeles reman plants were eventually relocated to Juarez and San Luis Potosi in Mexico. Newer reman plants have since sprung up in Scotland, India, and Australia. Cummins just opened its newest in China.
In 1966, reman began as an experiment between Cummins and three of its distributors, but in 1978, having seen the area produce revenue, Cummins dissolved the joint venture and reman became a permanent part of the company.
It took that long for reman to become a solid revenue stream because the life of a diesel engine is long — perhaps 20 years or more — as compared to the gas-burning engine of a car, which may live only 10 to 12 years.
There’s a good side effect to a long process. When core is returned to the reman plant, Cummins engineers are able to pick-up on design flaws or other recurring issues and strengthen the new components before they have the same problems.
“A lot of times we’ll find a recurring failure mode, which is ironic because what we end up doing is reducing our sales on reman by helping Cummins improve the process,” Schepman says. “But that’s what we’re here for — not only to provide reman products for our customers but to help improve the base design of the product.”
And since Cummins engines built decades ago are still on the road today, chances are there’s a home for the reman.
“Most of our sales go to support the existing older engine out there,” Schepman says. “From a parts and reman standpoint, we’re still supporting engines that were designed in the 1970s and ’80s and are still running. These diesel engines are so much more durable and substantial than a gas engine. They just keep going.”
Of course so does the federal government, whose emissions standards are updated every three years. For the past 15 years or so, Cummins has designed newer, cleaner engines to keep up with standards.
Once a new engine is released, it takes about six years before the demand for replacement parts matures. That demand stays mature for 10 to 20 years, then declines slowly. If existing Cummins customers want to upgrade to new engines, they can for a fee.
If it sounds like staying profitable in this business is a matter of careful timing, it is, particularly given the differences between the markets of various countries.
“The market for reman in the U.S. is a very educated customer,” Schepman says. “There’s no stigma to [buying reman] whatsoever. Back in the ’70s there was a stigma to it, and it took the industry a while to realize that if you stick with a reman product you’re getting the same quality as new at a fraction of the price.
“Internationally, we’re finding that if we go back to India or China or Brazil, the market is not mature,” he says. “It’s back where we were in the ’70s, so we’re having to address all those same issues.”
But at the same time, India, China, Brazil, and Russia represent the highest potential growth for the company over the next five to 15 years. Sales in North America still stand for 75 percent of Cummins’ global sales, but growth here and in Western Europe have stabilized, while emerging economies are growing nearly 10 percent each year.
What’s more, some of the emerging economies, including China, do not have strong records on environmental protection, meaning that going green may not be much of a selling point.
There again, Schepman says, reman offers enough financial incentive to customers that going green is just icing on the cake.
A basic turbo 30 years ago may have cost around $250, but now with electronic improvements and higher emission standards in place, the cost is considerably higher. Buying reman allows customers in poorer countries to buy engines for a fraction of the cost of new.
“The reman is a good economic deal,” Schepman says. “It’s not like we’re just do-gooders. It makes money and it’s also green. The sustainability is a by-product of the industry.”
Another by-product is renewed importance of the Memphis plant. With reman growing abroad, Schepman says the future of the plant is solid and will grow.
“Memphis will continue to grow,” Schepman says. “The plant is critical to Cummins.”