By Kevin Meyer
Perhaps I'm just an optimist, but it's starting to seem like the discussion on manufacturing in America is changing. Just a year or two ago it was a struggle to find anyone – outside of manufacturing that is – that believed that the U.S. could be a manufacturing powerhouse again.
Richard McCormack's Manufacturing & Technology News puts this on display in it's latest issue with a story and accompanying interviews on GE Appliances. Unfortunately most of what I will quote here requires a $495 subscription, but that could almost be worth the stories in this issue.
After decades of neglect, General Electric has a newfound love affair with its appliance manufacturing division. The 122-year-old company created by Thomas Edison has recommitted itself to developing and producing a new line of innovative products in America. It is re-invigorating its 900-acre Appliance Park located in Louisville with $1 billion of investment in a new generation of designers, engineers, workers and production systems. And for the first time, it is applying the lean methodology to all of its operations.
It's a pretty big deal, but perhaps even bigger is the realization – and example – that even the worst outsourcers can learn that total supply chain cost can trump supposed "cheap labor" savings.
When asked by Manufacturing and Technology News if the 80 percent drop-off of manufacturing workers was caused by robotics, automation and high levels of productivity, virtually every GE person who responded said the same thing: No. The loss was due to offshore outsourcing.
So what did they do?
In moving production back to the United States, GE decided that every aspect of the water heater needed to be redesigned through a team approach under a lean planning system that included GE’s sales division, designers, product and process engineers, accountants, executives and workers. It included the involvement of plumbers, retailers and customers. Anybody involved was allowed to suggest improvements. “What this shows is what can happen when we all sit down and work together,” said GE International Union of Electrical Workers President Jerry Carney.
In the process, it made the unit more affordable, reducing the retail price from $1,599 for the product made in China to $1,199 to $1,299 for the unit manufactured in Louisville. The production line uses the common lean practice of a “pull” system based on demand. There are visual controls. Inventory is in plain sight. The factory is bright,
The article goes into considerable detail on those changes, including the fact that they can only claim "Produced in America," not "Made in America" because they could not find a domestic source for some key components required to achieve the domestic content rule. Sad, but perhaps that will change too.
And you read that right – the factory is still unionized. In two accompanying articles Richard interviews both key company officials as well as the union chief. First from the company side of things.
Q: When you were considering moving production of the water heater from China to Louisville, were labor costs a major consideration?
Rick Calvaruso [Appliances Lean Leader]: The cost of wages is only one factor. What you have to look at is total cost of the whole product. When you make a product far away from where consumers buy it, you have costs of shipping, duties, customs and you have to carry more inventory.
Keith Burkhardt [Marketing Manager]: You can respond quicker if your factory is domestic. You have time on the water when you manufacture a product abroad. It takes time to respond to fluctuations in demand. We had a very successful promotion last fall where we sold more units than we expected to and as a result we were out of stock for a lot longer than we would have been had we had a domestic factory.
Q: Do you think what you are doing can be replicated by other large OEMs that have outsourced so much of their production?
Rich Calvaruso: We hired [lean export] John Shook [chairman and CEO of the Lean Enterprise Institute] to coach us and I’ll just tell you what John said. He said that he normally doesn’t care whether or not a company does lean well. “But you guys are GE. You guys matter. What you are doing here is not only important for GE Appliances Louisville, Kentucky, it’s important for the whole country.” So some of us say, “Wow, that is pretty impressive.” But somebody has to show the way because we can do these things. This is a real. This is a real factory, with real people making real stuff.
Steve Downer [Product General Manager]: There will be a lot of eyes on this place and we welcome it because these are really exciting times.
Q: Do you think the United States will see a big insourcing trend?
Steve Downer: I think it’s going to be case by case [based on] very thorough analysis. I would expect every company to evaluate why this is a good business.
Rick Calvaruso: There are a lot of things being talked about outside of here. If you listen to what [James] Womack [founder of the Lean Enterprise Institute] says, the momentum starts to build back. The whole notion of going to the cheapest labor place isn’t always the best answer. You see continued inflation in China. It’s not as cheap as you think to put stuff on a boat and ship it half way across the world. Plus you have to have all the inventory and you have to hope six weeks or eight weeks before a customer wants to buy it that you bought the right stuff. The world changes fast. People may want something different and if you have to wait a long time, they’re going to buy something else.
And from IUE union president Jerry Carney:
Q: There is widespread perception that unions have killed American manufacturing because they have refused to budge. They got paid too much and stuck with their old work rules. One worker only does one thing. The union’s militancy in trying to protect jobs has meant they’ve lost them all.
Carney: That’s all changed. We know we have to be globally competitive. We know we can’t just look at what’s happening right here. We have to look at other appliance manufacturers to make sure we are competitive with them, otherwise we will lose our jobs. If I keep a closed mind and keep my eye only on my union hall, then I’m not doing my workforce any good because these jobs will leave here in a heartbeat.
Q: Why did it take GE so long to wake up to lean?
Carney: I don’t know.
Q: How about you as a union?
Carney: Our union international president Jim Clark is a big promoter of lean. He comes out of the automotive industry. Years ago, he was watching all of these manufacturers closing down and said that if IUE didn’t embrace lean, we would be closed down as a whole. He was in Evansville, Ind., at Whirlpool represented by the IUE. They closed down last year. It was the same size facility as our refrigeration plant with the same number of employees. It closed and went to Mexico. Lean will help us bring jobs back.
Q: Does the lean focus on eliminating waste mean eliminating jobs?
Carney: It’s not always a person that is waste. Lean takes the waste out of a process, but if we have waste and we have two people able to do a job that three people can do, you pull that third person out and take $40,000 or $50,000 off that line. We become more competitive with Mexico or China. Our agreement with General Electric is if I can take one person off the line, we’re going to create another job for that person and it will help us bring back more work from overseas. There is no layoff.
No layoffs for lean improvement policies are common, but at a company like GE? Are pigs flying? And we've been telling you about the Whirlpool nonsense for years.
The main story and accompanying interviews are several pages long and also discuss the issues with skills and hiring, government regulations (from both sides), struggles at other GE facilities, and struggles with suppliers. I wish I could reprint more here, but that would be doing Richard a disservice for a great piece of reporting in Manufacturing & Technology News.
As for GE – this is a good story. But GE doesn't exactly have the best reputation from a manufacturing in America standpoint, so the proof will be in the pudding. We'll be watching.