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Not Just Patriotic, U.S. Manufacturing May Be Smart
Originally published on Sat December 8, 2012 8:12 pm
The advantages to making products in the U.S. are starting to stack up — and companies are taking notice. Among them are Apple, which announced Thursday it plans to start producing some of its Mac computers here instead of in China, and General Electric, which is making big investments at home.
It's not just a matter of publicity, either. As the December issue of The Atlantic reports, companies are seeing real economic advantages to "insourcing," a reversal of the outsourcing trends that sent U.S. manufacturing overseas.
A New Approach
General Electric opened Appliance Park in Louisville, Ky., in 1951, but lately it has been making some changes there. In August, the company announced an $800 million investment in jobs, products and the manufacturing process itself.
Back in 2008, Rich Calvaruso gathered his team at Appliance Park and told them they had to rethink the dishwasher. As a "Lean" leader, Calvaruso's job is to figure out how to make things more efficiently. So he asked a team of factory workers, designers and marketers to put their heads together. They managed to cut down the time it takes to build the dishwasher by one-third.
The dishwasher's orientation was the key. When it was set up a certain way, operators down the line could do their work without spending time manipulating the washer itself.
Even though it now takes fewer people to make that dishwasher, not a single person was laid off. Calvaruso tells Guy Raz, host of weekends on All Things Considered, that those employees were freed up to work in other parts of the company.
That process set in motion a company-wide re-evaluation of how GE should operate. The new philosophy was simple: It might make more business sense to have everyone involved in a product work in the same place. That thinking led to a change that couldn't have happened if some workers were in China, others in Mexico and some in the U.S.
GE holds up another example of improved efficiency. The marketing team wanted to eliminate four visible screws to improve the dishwasher's design. A diverse group of workers found a way to do that, making the manufacturing process quicker as a result.
With workers in different departments physically sharing the same space, Calvaruso says, these cross-interest conversations can happen more easily.
Where's The Incentive?
Reporter Charles Fishman, who wrote about Appliance Park in the latest issue of The Atlantic, doesn't think it's a blip. He sees the four-screw story as a metaphor for this insourcing boomlet.
"To me the power of the four-screws story is no one ever would have known, in the old method, a year and a half ago, that anybody wanted the screws to disappear," he says, "that they could have been made to disappear, that making the screws go away makes the door cheaper, easier to make and a better product."
Fishman says companies are finally seeing the economic advantages of doing things differently.
"What I discovered is it's not clear this huge wave of outsourcing was done for really smart, rational business reasons," he says.
Companies started moving jobs overseas when they calculated how much cheaper the labor was, Fishman says, but they weren't factoring in other kinds of costs.
"This stuff turns out to be really complicated," he says. "And you have to sit down and ask a whole set of questions before you understand that you've been making a mistake for a year, or two years, or four years."
One of those factors that businesses are starting to take into account is intellectual property, Fishman says. Specialized technology can make products more competitive, but if they're made overseas, it's easier for others to make knockoffs.
Another incentive is energy prices, he says. Manufacturing in the U.S. cuts down on transportation costs. Plus, he says, the factories themselves can run on natural gas, which is cheaper in the U.S.
All of these variables put together make the difference, Fishman says.
"I don't think you can say just wages, or just energy prices, or just transportation time," he says. "But when you stack them up, it really gets to be incredible."
Re-Evaluting The Model
But U.S. manufacturing jobs aren't exactly erupting in a boom.
"There haven't been this few people working in factories in the United States since 1941. There were a third fewer people in the country then," Fishman says.
However, the output of the workers that are in the industry is high.
"Because of the recession, we're not quite at the highest dollar value the country's ever produced in manufactured goods, but we're very close," he says.
And as more companies like GE make big investments in U.S. manufacturing, others could start to follow.
Fishman says the U.S. manufacturing industry won't ever look exactly like it used to, but that different kinds of manufacturing will start happening in different places. However, he says, the notion that the U.S. will never make anything again is "dramatically overstated."
"I think smart companies will see it isn't an act of patriotism or charity," he says. "It's smart business to make stuff here."
GUY RAZ, HOST:
Just on the outskirts of downtown Louisville in an industrial part of the city, there's a factory. It's called Appliance Park, and General Electric opened it back in 1951. And it's so big, you pretty much need a bicycle to get around.
Can you rent these bikes to get around your...
RICH CALVARUSO: Maintenance bikes - the whole park's about a mile across. So if you had to go from building to building, there's a lot...
RAZ: It might be nice to take a bike. That's Rich Calvaruso.
CALVARUSO: I'm the lean leader here at GE Appliances.
RAZ: And we'll get to what a lean leader is in a moment, but first, we asked reporter Devin Katayama to take a tour of the place.
DEVIN KATAYAMA, BYLINE: So what are we looking at here? Is this part of the...
RAZ: And we sent him to a specific assembly line at the plant's park.
CALVARUSO: So this is the line that we put in place in April of 2009, and this replaced a line that had been here for about 25 years.
RAZ: It's a brand-new line that was built to produce dishwashers - GE dishwashers made in America. And that line may be a window into the beginnings of what's being called American insourcing.
From NPR News, this is WEEKENDS on ALL THINGS CONSIDERED. I'm Guy Raz. And our cover story today: bringing it back home. Is made in the USA making a comeback?
The story of Appliance Park at GE was recounted in a two-part article in the latest issue of The Atlantic. James Fallows, a regular on this program, wrote about the changing face of labor in China, and Charles Fishman wrote about the economics of insourcing. We'll hear from Charles Fishman in a moment, but back to Appliance Park and GE.
Back in 2008, Rich Calvaruso gathered his team at the park and told them they had to rethink the dishwasher. Calvaruso, as we mentioned, is called a lean leader at GE. His job is to figure out how to make things more efficiently. So he asked everyone - the factory workers, the designers, the marketers - to put their heads together, and they managed to cut down the time it takes to build that dishwasher by a third.
CALVARUSO: On the old dishwasher line, the operators will have to mainly manipulate the dishwasher to get an orientation they needed for building it. Very simply, the team kind of used gravity and some simple rails to allow the dishwasher to tilt back so the operators in the next section of the line can do their work and not have to constantly manipulate it. Every time an operator manipulated a tub, it wastes a few seconds. If you did that multiple times, all those seconds add up.
RAZ: Even though it now takes fewer people to make that dishwasher, not a single person was laid off. Calvaruso explains that they were freed up to work in other parts of the company. And that process set in motion a company-wide re-evaluation of how GE should operate. A new philosophy: The idea that it might make more business sense to have everyone involved in a product work in the same place.
And that thinking led to a change that couldn't have happened if some workers were in China and some were in Mexico and some were in the U.S. So here's an example: GE made a dishwasher that was good, but it didn't look good. The marketing team wanted to eliminate four visible screws in the door to make a sleeker-looking machine. So once again, the company assembled a team. Here's Rich Calvaruso again.
CALVARUSO: And that team had a lot more diversity on it, so we had actually design engineers and industrial designers and marketing and everyone from the whole business on that team. And results in a really good-looking product, but more importantly, it actually eliminated the work of actually having to shoot all those screws.
RAZ: So all those people are now in the same area - the designers, workers who build the equipment, the marketers who sell the equipment. They're all there in the same...
CALVARUSO: Yeah, they're all in one big room.
CALVARUSO: They actually have a very large open room. There's no big cubicles, walls. We took all those out. So it's been a great thing to watch. Like a couple of days ago, I was out on the shop floor and I saw one of our hourly associates that's on the dishwasher team, and she was out on the line struggling with trying to assemble one of the new designs. And after she did it for a while, I said, you know, you should just really just go talk to Kyran.
And Kyran Hoff's our design leader for dishwasher. And she said, you know, that's a good idea. I'll just go up and see Kyran. So, you know, I walked away thinking that's really pretty cool, really, that Mary can just walk up and go see Kyran and talk about that problem.
RAZ: Yeah, that is cool. I mean, the person who designed it and then the person assembling it. I wish I had that with IKEA, you know, when I come home with my IKEA box.
RAZ: Now, this is a four-screw story. The idea that Mary in assembly can talk to Kyran in design is what's given GE the confidence to invest almost a billion dollars in Appliance Park and bring jobs back to the U.S.
Now, think about it. Just four years ago, fewer than 2,000 people worked at Appliance Park in Louisville, a place that once employed 23,000. But in just four years, the number of workers there as tripled with more coming soon. And reporter Charles Fishman, who wrote about Appliance Park in the latest issue of The Atlantic, doesn't think it's a blip.
This past week, Apple announced it'll start producing some of its Mac computers in the U.S., even the Chinese manufacturing company Foxconn now says it'll expand its operations here. And Fishman sees the four-screw story as a metaphor for this insourcing boomlet.
CHARLES FISHMAN: To me, the power of the four-screw story is no one ever would have known in the old method a year and a half ago that anybody wanted the screws to disappear, that making the screws go away makes the door cheaper, easier to make and a better product. And that's what that story sort of shows you.
RAZ: So why wouldn't it have been possible 18 months ago? I mean, why couldn't that four-screw story have happened two years ago?
FISHMAN: It could have. And for two years or three years, you've been reading stories about companies reopening U.S. factories or bringing this line of products or that line of products back to the U.S., and none of those stories actually answered the question that was on my mind, which was why? Why did it make economic sense?
What I discovered is it's not clear this huge wave of outsourcing was done for really smart rational business reasons. People were looking at I can hire 30 workers for the cost of one American worker. I kind of don't care what my other costs are. This stuff turns out to be really complicated, and you have to sit down and ask a whole set of questions before you understand that you've been making a mistake for a year or two years or four years.
RAZ: So it's not just GE. There are other companies that are bringing manufacturing back?
FISHMAN: There are dozens and dozens of companies that are bringing manufacturing back. Caterpillar is opening factories in the U.S. Some of that work is coming back from offshore. Otis Elevator is moving elevator manufacturing back from Mexico to the U.S. One reason has to do with intellectual property. All of these products are getting more and more sophisticated.
GE now makes a washer and a dryer that are connected to each other and talk to each other, so you can simply take the clothes from the washer and put them in the dry and the dryer dries them. You don't have to do anything with the dryer. All of that gives the products, you know, a competitive advantage in the market. But what happens when you make them overseas is that the people making them knock off your products.
So one of the reasons for bringing this manufacturing back home is to literally protect the special features that a place like GE or Otis Elevator thinks its products have in another country.
RAZ: How much of this so-called insourcing boomlet has to do with oil prices or even all the natural gas that's being exploded in the U.S.
FISHMAN: I don't think you can say just wages or just energy prices or just transportation time. But when you stack them up, it really gets to be incredible. So oil prices are three times what they were just 10 years ago. And oil prices are the key in terms of bringing stuff in a big ship from China to the U.S. across the Pacific.
Natural gas costs a quarter in the U.S. what it does in Asia, and a huge factory like Appliance Park can rely on natural gas to generate power. And so it took - it's just one of those wonderful moments when I was talking to the people at GE. It takes five weeks from the moment you put a refrigerator or a dishwasher on the ship in China until it gets to the port in California.
Then, of course, it has to get from Los Angeles to somewhere in the U.S. I said, so how long does it take to get the product into distribution from this factory? And they just laughed and pointed to a conveyor belt, you know, running overhead in the factory. They said it takes 19 minutes. That's a huge advantage, plus the cost advantage in terms of energy.
RAZ: Charles, as you point out in your article, some six million manufacturing jobs were lost in the decade that began in 2000. Over the past two years, about half a million factory jobs have been created in the U.S. That doesn't sound like a whole lot, doesn't sound like a trend. But you say it is?
FISHMAN: Yeah. Let's put the big numbers in context. There haven't been this few people working in factories in the United States since 1941. There were a third fewer people in the country then. Remarkably, the output of those 12 million people is extraordinary. Because of the recession, we're not quite at the highest dollar value the country's ever produced in manufactured goods, but we're very close.
What's very clear is Immelt, the CEO of GE, is spending almost a billion dollars to bring this factory and a couple other GE appliance facilities back to life. You don't spend a billion dollars on a $5 billion a year business unless you think you're going to be using that billion-dollar investment for 10 or 20 years. And if the economy picks up, companies are going to look at what GE is doing and realize they need to do this, too, in order to stay competitive.
RAZ: So, Charles, for the last four years of the recession, we've been hearing about job loss and how those jobs are not coming back, manufacturing jobs are not coming back to the United States. Is that true?
FISHMAN: No. I think a lot of things can still be made cheaper somewhere else. What the people I talked to said is there's going to be different kinds of manufacturing done in different kinds of places. We're never going to see Michigan and Ohio look like they looked in the '60s and '70s, but I also think that this complete sense of resignation that we're never going to make anything in the United States, I also think that is dramatically overstated. And I think smart companies will see it isn't an act of patriotism or charity. It's smart business to make stuff here.
RAZ: That's journalist Charles Fishman. His article from this month's Atlantic magazine is called "The Insourcing Boom." Charles, thanks.
FISHMAN: Thanks so much for having me.
RAZ: By the way, Charles, have you heard of this American company that is making hoodies? American Giant, it's called?
FISHMAN: American Giant?
RAZ: You haven't heard of them?
RAZ: They're making hoodies.
FISHMAN: OK. I'll look them up. No, I mean...
RAZ: More on that hoodie in a moment. It's been dubbed the best in the world. How the company is making money making them here in the next part of ALL THINGS CONSIDERED from NPR News. Transcript provided by NPR, Copyright NPR.