Witnessing a Rebirth

July 11, 2011
In Louisville, GE builds a state-of-the-art appliance factory, but its most important product may be learning.

On one side of the wall is a rather decrepit factory built in the 1950s, replete with broken window panes and uneven floors. But walk through the door at GE's Building 2, and it feels as if you entered a scene from "2001: A Space Odyssey." The building is brightly lit, sporting a fresh coat of white paint and completely empty. Within a year, though, the 400,000-square-foot space will be home to a state-of-the-art production line making an energy-saving hybrid water heater. We are witnessing "the rebirth of the facility," as Randy Reeves, the lean leader for the hybrid water heater project, stated. Perhaps more importantly, we are witnessing an attempt by one of the world's largest manufacturing organizations to reinvent itself.

At the Louisville facility I was visiting, GE is investing $194 million and creating 300 jobs to produce bottom-freezer refrigerators. That facility was already slated for upgrades to produce the hybrid water heater and a new front-load washer and dryer. These all represent products that are being made in China and Mexico.

The history at GE's Appliance Park in Louisville had been an all-too-familiar saga of American industrial decline. Wages increased while selling prices for its products declined. The labor climate was so contentious that Louisville was dubbed "Strike City" in the early 1980s. Over time, the facility could no longer compete with production costs in Asian plants so GE began shifting work to them.

In 2005, things began to turn around as GE and the IUE signed a labor agreement that allowed for more competitive wages. Since that October, the company has hired 930 new employees at the Louisville complex. The state of Kentucky and the metro government also provided important incentives (more than $20 million in aid as well as funds to train employees for the new jobs) for GE to commit to the revitalization in Louisville.

GE officials cite several reasons for making the decision to reinvest in domestic production. An important one was a fuller accounting for costs, not just the costs of materials and labor but sometimes less quantifiable costs that were eating away at GE's competitive position. As GE's supply chain became longer and more complex, for example, it raised concerns about cycle times and slowed the company's ability to respond to problems and customer needs. It also resulted in the company carrying more inventory in the United States for products made in China.

While outsourcing provided cheaper parts, GE officials say over time it subtly began to erode the workforce's core competencies. By separating its design, engineering and manufacturing functions, the intimate understanding of how products are made was lost by many employees who were relegated to their functional silos. That impacted the technology negatively.

Refurbishing a factory is no small task, but the bigger transformation GE is engaged in is changing its manufacturing culture. GE enlisted lean consultants to help them learn and implement the Shingijutsu production philosophy. Calling it a "radical departure" from GE's normal processes, GE Appliances manufacturing leader Dirk Bowman stated last year that the process "instructs the teams to learn by doing and to leverage the power of collaboration."

In keeping with the Shingijutsu approach, the design of the new production line is being done by a team co-located in one work area. There, engineers, plant leaders, lean experts, sourcing officials and operators are working together to make decisions on how the production process will be set up. In a corner of the new factory floor, a scale model made of simple wood blocks and other materials is used to visualize the new production line and the flow of materials. The setup promotes daily discussion and quicker, more collaborative decisions.

Asked if GE was trying to become a lean company, Rich Calvaruso, the appliances lean leader, said the goal was to become a "learning company." He summed up the process this way: "As an organization, if we can learn, we can always get to a better place."

Steve Minter is Editor-in-Chief of IndustryWeek.

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