September 21, 2012
When General Electric Co. (GE) decided to move the bulk of its U.S. appliance manufacturing to outside sources in Asia in the 1980s, it made fiscal sense at the time. Thirty years later, GE Appliances is moving production back in-house—and into the United States—due, in part, to unseen costs in that original decision.
“The problem is that you can see now in looking back, once you move your manufacturing offshore, you’re training your supplier to become your competitor,” said Lou Lenzi, general manager of design for GE Appliances.
The firm has now launched an $800 million investment to revamp its massive Appliance Park in Louisville, KY, which includes new capabilities in plastics and metal fabrication, new assembly lines, 500 new jobs, and a design and manufacturing outlook with a new focus on lean production. The money makes up the bulk of a $1 billion investment by GE in the appliance business.
“It’s not just about the product, but the process to make the product,” Lenzi said during a discussion on GE’s new manufacturing outlook at the Industrial Designers Society of America annual conference last month in Boston.
Here and back again
When Appliance Park opened in 1950, it was a prime example of vertical manufacturing. It comprised 900 acres with five manufacturing buildings and a warehouse space covering 47 acres on its own. A specially built railroad spur brought in raw material and took out finished appliances. It was so big, Lenzi said, it had its own zip code.
But 30 years later, in the 1980s, Fairfield, CT-based GE determined it cost 33% more to make its own appliances than to buy them from another manufacturer offshore. “The thinking at the time was that, given our brand recognition, it wouldn’t matter if it was made in the U.S. or in Korea,” Lenzi said.
So production of appliances moved overseas, U.S. jobs were cut, and buildings were shuttered. Then, in 2008, the housing bubble burst, and with it a prime market for home appliance sales. The appliance division found itself on the market and scrambling to prove its value to stockholders.
At the same time, production costs were increasing overseas, while shipping issues and the supply chain grew more complicated. Material costs also were on the rise globally, reducing the benefits of low-cost molding lines.
Turning to Toyota
GE took a look—again—at all the manufacturing capability already in-house, and the company decided it was time to come back home, with the assistance of automaker Toyota Motor Corp.’s Toyota Production System (TPS), which already was widely used in a variety of industries and is sometimes referred to as lean manufacturing.
Using TPS, Lenzi said, the company believed it could develop a new and more efficient way to make appliances. To that end, the company created what it calls a true “cross-functional” team to look at its manufacturing and built a full-scale model of a production line to determine the best layout for manufacturing and assembly.
But for GE, Lenzi said, TPS not only means making manufacturing changes on the shop floor, but also means bringing together every element of product development. Industrial designers need to know how the decisions they make will impact production, he added.
For example, a tweak to a door for aesthetic reasons that unnecessarily complicates assembly or adds costs by requiring additional steps in production does not help GE’s cause. “It’s looking at product specifications and features that mean something to the customers,” he said.
As part of its new investment, GE’s Louisville plant began adding positions in design, engineering, manufacturing and support services.
The first product to come back to Appliance Park was a dishwasher. In August, GE announced it plans to make more than 90 additional plastic parts for the dishwasher in-house at Louisville. The company claims its in-house injection molding unit will become the biggest injection molding operation in Kentucky and the fourth-largest in the United States.
Other work that has returned to the Louisville plant so far is a French-door, bottom-freezer refrigerator sold under the GE Profile line. That appliance went on sale July 4 and has performed solidly enough to give GE the confidence to add 380 more workers for a second shift in refrigerator production.
Revenue at GE Appliances is up 10% this year over the previous year, according to Lenzi, while the company has seen a 68% improvement in production time, a 60% reduction in inventory costs and a 30% improvement in labor efficiency through the use of lean manufacturing.
As part of its total $1 billion investment, GE Appliances will take its lean approach to other production sites, Lenzi noted, adding that there are five different operations within the appliance division that are still in line for updating.
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