By Kevin Meyer
While the world watches Boeing and the FAA trace a 787 Dreamliner battery problem from Seattle to Japan to Arizona to Italy then back to Japan, our recovering outsourcing addict friends at GE continue to move in the right direction. Maybe there should be a twelve step program for supply chain managers that still believe outsourcing helps lower costs. Well, true overall costs I mean – not just the labor costs shown on a P&L.
The Wall Street Journal this morning gives us more news of GE's about face. And this time it's not just a realization that chasing low labor costs doesn't work – they've already moved some appliance manufacturing back to the U.S. based on a true overall cost analysis. Nope, this time it's a realization of how outsourcing can impact the safeguarding of key technologies and processes.
As Boeing Co.pays a price for having farmed out crucial parts on its new Dreamliner, General Electric Co.'s aviation division is busy bringing work on its engines back in-house.
In late December, GE Aviation agreed to buy Italian parts supplier
Avio for $4.4 billion. That comes alongside the acquisition of a
three-dimensional printing company, a joint-venture with a component
casting company in Montana and another venture to secure access to a key
raw material—silicon carbide, which is used to make high-tech ceramic
This year, GE plans to open a pair of parts factories in Mississippi and Alabama and soon will announce the location of a third.
The strategy is aimed at safeguarding a key source of the industrial
By doing more of the work itself, GE hopes to protect its technology,
speed up development and secure supplies of needed components. The move
is a turnabout for a company that helped pioneer soup-to-nuts U.S.
manufacturing and then switched gears to help pioneer industrial
This renaissance of clear thinking isn't just happening within the aviation division.
GE now plans to replicate its new vertically integrated approach
across its businesses from gas turbines to medical imaging devices to
subsea oil wells.
"We want more under our control," said Colleen Athans, who runs
supply chain management for GE Aviation. "Rather than pay a supplier to
do it, we would like to protect our intellectual property." Late last year, Ms. Athans gave GE's board of directors a
presentation on the moves undertaken by the aerospace unit as a model
for GE's other divisions.
It's not just a direct cost equation anymore. Now it's about the long-term strategic business implications of long, fragile supply chains.
The article goes on to bash Boeing, which has become the poster child for understanding how outsourcing can influence more than just direct labor cost. Funny, I predicted there might be a problem… six years ago. And I'm not boasting about my crystal ball – just a little common sense from understanding that you can't run a business by focusing purely on traditional financial statements.
One final mostly unrelated tidbit. 3D or additive printing technologies are fascinating. In case any of your didn't think they are in the real world yet, here's your evidence:
Last year, GE Aviation bought Morris Technologies, an additive
manufacturing company outside Cincinnati. GE will use Morris's 3-D
printing machines to make the guts of the fuel nozzle on its Leap
engines. The equivalent part used in existing engines is made by an
outside supplier that brazes together 21 tiny pieces.
Coming to a plane near you.
Along similar lines you should listen to Chris Anderson formerly Editor of Wired magazine on why he’s leaving to set up a manufacturing business using 3D printers, lots of really interesting stuff in there for the lean thinker and the web.
Mark Welch says
It will be interesting to see if G.E.’s lean epiphany truly takes root or if they eventually fall off the wagon due to the temptation of short term P&L, quarterly earnings per share targets, etc. This is the proverbial big ship trying to turn around at sea. Many former G.E. people I know often describe their first few months after they left the company as “coming down from post traumatic stress disorder” due to the management philosophy there. As you described, Boeing, who Virginia Mason Medical Center credits with opening their eyes to lean thinking over 10 years ago, are now dealing with their own problems with the 787 because of their own temptation to chase the cheap labor, and they claim to have embraced lean for how long?!? It seems the American culture of short-term, individalistic thinking always finds a way to creep in and contaminate true lean thinking. See Liker & Hoseus’ Toyota Culture, page 21 for a deeper understanding of this…