Insourcing at GE: The Real Story

GE's "insourcing" of appliance manufacturing to the U.S. has been trumpeted as a major reversal of the trend of sending jobs abroad to lower cost locations, and has been characterized in the press as a kind of "onshoring" story. I see it differently: as a "NUMMI deja vu" story. You may recall that NUMMI was a joint venture of Toyota and GM, where Toyota took over one of GM's worst plants and turned it around with a new management system — using many of the same people and the same unions. GE's insourcing is actually quite similar. So, how did GE do it?

First, a little relevant history: In the 1950s economic expansion drove growing demand for appliances. To meet this demand, GE created GE Appliance Park in Louisville, Kentucky, which reached a peak of 23,000 employees in 1973. In the early 2000s, as part of a huge offshoring trend in the business economy, GE shifted manufacturing to suppliers such as Samsung and LG. But these suppliers became competitors and ever-harder to work with. Then at the end of 2007 the housing market crashed. By the summer of 2008 GE leadership wanted to sell the appliances business or spin it off.

During that difficult time Dirk Bowman, former GE Appliances General Manager of Manufacturing, went to GE Chairman Jeff Immelt with a proposal. Bowman aimed to increase manufacturing capability and bring manufacturing jobs back to the U.S. from Korea, China, and Mexico. Immelt asked why production should be put in old factories in a union environment. Dirk's answer was: "We can save on transportation and be closer to our customers. We can have engineering work more closely with production. We can work smarter than Korea, China, and Mexico, using 15-20% of the labor they use." Immelt was convinced, and GE Appliances got a $1 billion investment.

The challenges GE faced were daunting. If the goal was to leapfrog the competition in every product line while revitalizing U.S. manufacturing, management had to take a big swing. The $1 billion plan envisioned 11 new product platforms in six different manufacturing sites. GE needed to reduce new product development cycles from 3-4 years to 1-1.5 years. The plants had been on life support, so they needed major repairs. The workplace was divided into functional areas; no one knew how to work together. All the laboratory equipment had been given away. The only people left were tough survivors, so the bench was not deep. The company needed to rebuild expertise and capabilities. It needed to recruit huge numbers of people in a short period of time. It needed to invest in new development labs and to co-locate teams.

In the summer of 2009 management decided to bring production of a water heater back to the U.S. from an Asian contractor. GE manufacturing leaders started applying "Lean" thinking and tools to a "model line" for manufacturing in Appliance Park. They introduced a new cross-functional team structure for improvement — the "Big Room." Functions were seated together with a common goal: working on the value stream from consumer research to testing. They put the schedule up on the wall so everybody knew what was happening. There was a fishbone diagram of the production flow (the backbone was the main flow, and the branches were the sub-assemblies), and a cardboard mockup of the factory layout which also showed how the equipment would look. At 7:45 a.m. each day leaders met, then at 8:00 a.m. everyone met to review the prior day, and what they would do that day. Then at 4:15 p.m. everyone met again to review what they'd done. The water heater that resulted was a new design, with better performance: 20% fewer parts and 50% less labor. Inventory was reduced 60%, labor efficiency improved 30%, time-to-produce was reduced 68%, and space required for the line came down by 80%.

The development team was extremely cohesive. But the problem was, the culture needed to change outside the "Big Room" and very few cultural change efforts had been made since 1994. Employees were anxious: the business had been up for sale in 2008 and 2009, and there had been little to no investment in plants or training. The purpose of their work was being redefined through continuous improvement, but the clarity across functions and among the workforce was fuzzy.

As the leadership began to introduce a new way of working together it had to solidify trust in the workforce and instill a level of confidence that continuous improvement was not just another initiative that would pass. This would be a journey.

To spread the new culture more broadly, management decided to form another cross-functional team (a "Little Big Room") to define tenets about how they would operate. A team of 16 curious, honest, and bold people — including production operators and leaders from HR, engineering, purchasing, operations, and training — were selected. Everyone who joined the team had to leave his or her job for four months. They visited the furniture manufacturer Herman Miller and auto supplier Autoliv to see what mature Lean operations looked like. They saw hourly workers deeply engaged in reviews of operational performance measures, solving complex problems. The GE team developed a purpose and nine guiding principles — the "Appliances Performance System." The biggest shift was to focus on making work better for front line operators and put everyone else in support of operators...shifting the paradigm to support versus command and control.

To further shift the culture, Dirk Bowman made a commitment that nobody would lose his or her job due to Lean, but that everybody's job would change every day. The union president echoed the same message. The union acted as a second set of leaders to help execute and reinforce changes. To demonstrate their deep commitment, in December 2011 GE rolled out team leader training. GE Appliances now has a dedicated learning organization that in 2012 trained 3,000 employees on the fundamentals of the Appliances Performance System.

So, while the macro story may be about jobs coming back "onshore," at its core this is really a process and a culture story. GE Appliances is proving once again that the balance of process and people, aligned with a clearly articulated and understood purpose and vision, is the source of improved performance and capability development. With leadership engagement and support, this system will thrive.

Harvard Business Review