From a recent article about GE in The Atlantic Magazine, the following conclusions are made:
Changes in the global economy are coming into focus:
Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
The natural-gas boom in the U.S. has dramatically lowered the cost
for running something as energy-intensive as a factory here at home.
(Natural gas now costs four times as much in Asia as it does in the
In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
American unions are changing their priorities. Appliance Park’s union
was so fractious in the ’70s and ’80s that the place was known as
“Strike City” (GE’s complex in Louisville). That same union agreed to a
two-tier wage scale in 2005—and today, 70 percent of the jobs there are
on the lower tier, which starts at just over $13.50 an hour, almost $8
less than what the starting wage used to be.
U.S. labor productivity has continued its march upward, meaning that
labor costs have become a smaller and smaller proportion of the total
cost of finished goods. You simply can’t save much money chasing wages
Here is an excerpt from the article:
This year, something curious and hopeful has begun to happen,
something that cannot be explained merely by the ebbing of the
Recession, and with it the cyclical return of recently laid-off workers.
On February 10, GE’s Appliance Park in Louisville, Kentucky opened an
all-new assembly line in Building 2, largely dormant for 14 years, to
make cutting-edge- low-energy water heaters. It was the first new
assembly line at Appliance Park in 55 years, and the water heaters it
began making had previously been made for GE in a Chinese contract
March 20, just 39 days later, Appliance Park opened a second new
assembly line, this one in Building 5, to make new high-tech French-door
refrigerators. The top-end model can sense the size of the container
you place beneath its purified-water spigot, and shuts the spigot off
automatically when the container is full. These refrigerators are the
latest versions of a style that for years has been made in Mexico.
Another assembly line is under construction in Building 3, to make a
new stainless-steel dishwasher starting in early 2013. Building 1 is
getting an assembly line to make the trendy front-loading washers and
matching dryers Americans are enamored with. GE has never before made
those in the United States. And Appliance Park already has new
plastics-manufacturing facilities to make parts for these appliances,
including simple items like the plastic-coated wire racks that go in the
In the midst of this revival, GE’s CEO, Jeffrey Immelt made a
startling assertion. Writing in Harvard Business Review in March, he
declared that outsourcing is “quickly becoming mostly outdated as a
business model for GE Appliances.” Just four years after he tried to
sell Appliance Park, believing it to be a relic of an era GE had
transcended, he’s spending some $800 million to bring the place back to
life. “I don’t do that because I run a charity,” he said at a public
event in September. “I do that because I think we can do it here and
make more money.”
The GeoSpring water heater, the one that just came home to Louisville
from China, looks a little like a robot – although taller and slimmer.
It has a long gray body and a short top section—the brains—in gray or bright red, with a touch-pad control panel.
The GeoSpring in particular, Kevin Nolan, the vice president of
technology for GE Appliances says, has “a lot of copper tubing in the
top.” Assembly-line workers “have to route the tubes, and they have to
braze them—weld them—to seal the joints. How that tubing is designed
really affects how hard or easy it is to solder the joints. And how hard
or easy it is to do the soldering affects the quality, of course. And
the quality of those welds is literally the quality of the hot-water
heater.” Although the GeoSpring had been conceived, designed, marketed,
and managed from Louisville, it was made in China, and, Nolan says, “We
really had zero communications into the assembly line there.”
To get ready to make the GeoSpring at Appliance Park, in January 2010
GE set up a space on the factory floor of Building 2 to design the new
assembly line. “We got the water heater into the room, and the first
thing [the group] said to us was ‘This is just a mess,’ ” Nolan recalls.
Not the product, but the design. “In terms of manufacturability, it was
terrible.” The GeoSpring suffered from an advanced-technology version
of “IKEA Syndrome.” It was so hard to assemble that no one in the big
room wanted to make it. Instead they redesigned it. The team eliminated 1
out of every 5 parts. It cut the cost of the materials by 25 percent.
It eliminated the tangle of tubing that couldn’t be easily welded. By
considering the workers who would have to put the water heater
together—in fact, by having those workers right at the table, looking at
the design as it was drawn—the team cut the work hours necessary to
assemble the water heater from 10 hours in China to two hours in
Louisville. So a funny thing happened to the GeoSpring on the way from
the cheap Chinese factory to the expensive Kentucky factory: The
material cost went down. The labor required to make it went down. The
quality went up. Even the energy efficiency went up. GE wasn’t just able
to hold the retail sticker to the “China price.” It beat that price by
nearly 20 percent. The China-made GeoSpring retailed for $1,599. The
Louisville-made GeoSpring retails for $1,299.
Time-to-market has also improved, greatly. It used to take five weeks
to get the GeoSpring water heaters from the factory to U.S.
retailers—four weeks on the boat from China and one week dockside to
clear customs. Today, the water heaters—and the dishwashers and
refrigerators—move straight from the manufacturing buildings to
Appliance Park’s warehouse out back, from which they can be delivered to
Lowe’s and Home Depot. Total time from factory to warehouse: 30
What is only now dawning on the smart American companies, says Lou
Lenzi head of design for all GE appliances, is that when you outsource
the making of the products, “your whole business goes with the
outsourcing.” Which raises a troubling but also thrilling prospect: the
offshoring rush of the past decade or more—one of the signature economic
events of our times—may have been a mistake.
Harry Moser, an MIT-trained engineer, spent decades running a
business that made machine tools. After retiring, he started an
organization called the Reshoring Initiative in 2010, to help companies
assess where to make their products. “The way we see it,” says Moser,
“about 60 percent of the companies that offshored manufacturing didn’t
really do the math. They looked only at the labor rate… they didn’t
look at the hidden costs.” Moser believes that about a quarter of what’s
made outside the U.S. could be more profitably made at home.
GE is not alone in moving the manufacture of many of its products
back to the U.S. The transformation under way at Appliance Park is
mirrored in dozens of other places, with Whirlpool bringing mixer-making
back from China to Ohio, Otis bringing elevator production back from
Mexico to South Carolina, even Wham-O bringing Frisbee-molding back from
China to California. The Boston Company published a paper in May on
ways for investors to capitalize on the U.S. factory revival. ISI Group,
an investment-research company, put out a 98‑page report in August,
piling up reasons for the return of a strong U.S. industrial sector.
Nancy Lazar, who co-authored the ISI Group report, says, “This is the
beginning of a manufacturing renaissance. I’ve been saying this since
2009. Even the industrial companies told me I was crazy. Why are they
telling me I’m crazy? Because they’ve spent the last 15 or 20 years
putting the plants outside the U.S. That’s over.”
Insourcing solves a whole bundle of problems—it simplifies
transportation; it gives people confidence in the competitive security
of their ideas; it lets companies manage costs with real transparency
and close to home; it means a company can be as nimble as it wants to
be, because the Pacific Ocean isn’t standing in the way of getting the
right product to the right customer.