When General Electric Co. 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 U.S. — 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, Aug. 15-18 in Boston.
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, Conn.-based GE determined it cost 33 percent 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 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 were also on the rise globally, reducing the benefits of low-cost molding lines.
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, which already was widely used in a variety of industries.
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, the Toyota Production System not only means making manufacturing changes on the shop floor, it means bringing together every element of product development, Lenzi said. Industrial designers need to know how the decisions they make will impact production, he said.
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, Lenzi said.
“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 percent this year over the previous year, according to Lenzi, while the company has seen a 68 percent improvement in production time, a 60 percent reduction in inventory costs and a 30 percent improvement in labor efficiency through its lean manufacturing.
As part of its total $1 billion investment, GE Appliances will take its TPS lean approach to other production sites, Lenzi noted. There are five different operations within the appliance division that are still in line for updating, he said.