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OM in the News: Why GE Decided to Reshore Appliance Production

March 16, 2012

It seems that after decades of neglect, GE has a newfound love affair with its appliance manufacturing division. Manufacturing & Technology News (Feb. 28, 2012) reports that the 122-year-old company is reinvigorating its 900 acre Appliance Park in Louisville with a $1 billion investment in designers, engineers, workers, and production systems to produce a new line of innovative products. And for the first time, it is applying the lean methodology to all of its operations.

In moving production back to the US from China, GE decided that every aspect of its water heaters, for example, 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, execs, workers, retailers, and customers (including the plumbers that install them). In the process, it made the unit more affordable, reducing the retail price from $1,600 (when made in Asia) to $1,200 when made in Louisville. The bright and modern factory production line, with visual controls, uses the common lean practice of a “pull” system based on demand.

Why did GE reshore?  “What you have to look at is the total cost of the whole product,” says one GE exec. “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. You can respond faster if your factory is domestic. The whole notion of going to the cheapest labor place isn’t always the best answer.”

Adds the local union leader, a partner in the reshoring effort: “Lean takes the waste out of a process. We become more competitive with Mexico or China.” (Please note that this magazine requires a $495 subscription fee).

Discussion questions:

1. Why did the union back lean production, when its efficiencies usually mean fewer workers are needed on the line?

2. Why is GE reshoring its appliance division to the US, yet sending its x-ray headquarters to China (as noted recently in our blog)?

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