Why (some) manufacturing is returning to the USA

General Electric has moved some of its key appliance-manufacturing work back to the USA, re-opening "Appliance Park," a megafactory in Louisville, KY. The company is finding it cheaper to do some manufacturing in the US relative to China, thanks to spiking oil costs, plummeting natural gas prices in the US, rising Chinese wages, falling US wages, and, most of all, the efficiencies that arise from locating workers next to managers and designers.

The GeoSpring suffered from an advanced-technology version of “IKEA Syndrome.” It was so hard to assemble that no one in the big room wanted to make it. Instead they redesigned it. The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent. It eliminated the tangle of tubing that couldn’t be easily welded. By considering the workers who would have to put the water heater together—in fact, by having those workers right at the table, looking at the design as it was drawn—the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.

In the end, says Nolan, not one part was the same.

So a funny thing happened to the GeoSpring on the way from the cheap Chinese factory to the expensive Kentucky factory: The material cost went down. The labor required to make it went down. The quality went up. Even the energy efficiency went up.

GE wasn’t just able to hold the retail sticker to the “China price.” It beat that price by nearly 20 percent. The China-made GeoSpring retailed for $1,599. The Louisville-made GeoSpring retails for $1,299.

The Insourcing Boom [The Atlantic/Charles Fishman]


  1. GE purchases a lot more from contract manufacturers and OEMs than they build themselves.

    I know, I sell stuff to GE, most of it made in the US.  But I also compete with GE, usually with Chinese products and most of that terrible beyond all imagination. I spent most of last week evaluating our new acquisition, a US company that sold almost exclusively Chinese purchased items here in the US.  There is a great deal of cross-polination, a lot of their products are sold (under a different name) by GE, and they are hideous.  Shoddy workmanship, horrible use-interfaces, and just purely terrible mechanical designs.

    GE will buy anything they can sell for profit, no matter how bad it is.

    1. I think “rising wages” is just as big. There is a huge overhead cost in sending jobs overseas, even if it’s just the oil they put in the boat to bring that shit back over here. Those jobs moved as soon as it became a little bit cheaper to work over there. As soon as it becomes a little more expensive–a small rise in wage expectations ought to be enough–the US is cost-competitive again.

          1. When a fifth of your domestically produced office furniture and more than a third of US made electrical appliances are made by prison labor, it’s hard to make a fuss about China…

    2. Especially when you factor in how much municipalities are willing to give huge tax breaks and subsidies so they can actually have some jobs in the area.

    3.  I think the key point is this one:
      “…the efficiencies that arise from locating workers next to managers and designers”

      In other words, “Things run better when the white-collar people are in the same facility as the factory workers. Unfortunately, none of our white collar people were willing to relocate to China, and it just wouldn’t be right to replace *them* with Chinese designers and managers. If we did, would replacing our *executives* with Chinese counterparts be far behind? We can’t have that!”

    1. rising Chinese wages, falling US wages,

      You mean American corporatists win again while American worker’s standards of living continue to decline.

  2. I was taught (by a macroeconomics professor with obvious biases) that globalization is a rising tide that raises all ships. Now that manufacturing is slowly starting to return after boosting the Chinese economy at the expense of our own, It seems like the crests and troughs of waves. It will take another 20-30 years I think to definitively say whether the tide is actually rising, but at least the jobs are slowly starting to come back. If nothing else, I think it would be easier to trap the jobs here as they return than to try and entice them back from a more profitable position overseas.

    1. Well the tide is rising for Laotian villagers.  But American workers are now in the same boat as the Laotian villagers, and it will take a long, LONG time for that boat to rise to 1950s union-job levels.

  3. Iterative design, much? Take that new improved, lean, design and go back to China to get competitive bids on manufacturing it. And chop another 20% off the production costs.

    1. The point is that 10 iterations in the US are cheaper and faster than 10 iterations from the US to China.  

      1. Sorry, I’m just reading that story as a criticism of the engineers doing the original design and the managers who were supposed to be running the outsourcing. This doesn’t feel like a a story about how manufacturing in the USA works better than in China but rather about how GE is useless.

        1. I think we somewhat agree, but for bleeding edge products, it can be easier to have R&D and production at the same site.  Heat pump water heaters are not a perfected product — lots of pitfalls have come up, and even the customers aren’t sure what they need.  

  4. Yay!
    American labor and wages have been squashed enough that welfare queens like G.E. see the convenience of having some things made back in the (more third world-ish) U.S. but at what will probably be closer to Wal-Mart wages with the rest of citizens having to subsidize the hidden costs of those low wages. All while the brass of companies like G.E. have seen their wealth rise and rise and rise. A climate where the CEO of G.E. helps guide Obama administration’s hand on business policy.  Economics!…..oligarchy…

      1. What’s the source for that chart? It’s brilliant.

        I first saw it pointed out several years ago that wages have been static since about 1973, while productivity has more than doubled, but I’ve not been able to find an authoritative source when in the heat of a discussion of economics. There’s scarcely a discussion of economics where this isn’t relevant. Including the rise in wealth of the 1% really completes the story.

  5. And then there’s the issue of dealing with Chinese companies, graft & corruption, and of course, the Chinese government.

  6. We do manufacturing here in the US for the same reasons (and some in Singapore). Nothing beats being able to get an engineer out on the manufacturing floor right now. If you’re working with a third party Chinese firm, the list of wasted money, easily avoided blunders, and manufacturing horrors is endless. Such as the time one swapped a motor to save themselves 5 cents – not mentioning it to anyone, of course – and then they all burned out in the field. Another time they swapped the order on all the connector pins. And everything just takes far longer than it should.

    I think some US management is starting to realize that for some things a bargain is not actually a bargain. Even MBAs can learn?

    1. I think some US management is starting to realize that for some things a bargain is not actually a bargain.

      Also, the successful class war on average American workers has done wonders…

      1. It’s not whether management figures it but if consumers realize that Lower Prices Always is not sustainable, that the wages you cut by shopping at places that don’t value labor might be your own. Management, MBA-style, is all about cutting costs and competing on price, making the quarterly targets and collecting a bonus.

        1. Agreed, and the entire sick cycle keeps being perpetuated by keeping people in the dark via the same “news” media the corporatists own.  That’s basically one of the goals of OWS is to penetrate this vast media firewall.  It’s been successful to a huge extent so far, but there’s still a long, long way to go unfortunately.

  7. Interesting the GE is investing in Appliance Park now that Louisville has snagged a major infrastructure upgrade as an early adopter of gigabit fiber. I wonder if that was a factor in their decision to site manufacturing and design together.
    Perhaps we’ll see similar stories about Kansas City now that Google Fiber is rolling out.

  8. If you’re one of the water heater manufacturers who never left — Bradford-White, State, AO Smith, Rheem, American, et al. — I guess you just read this article and sigh.

  9. Nice anecdote, but bad example. They took a poorly designed and expensive (as a result) product, redesigned it to be better and cheaper and now it’s better and cheaper. How much would the Chinese charge to make the new and improved version?

  10. Politics aside, this seems like a vindication of the notion that design is not the outer trim details but how the object works, how the components are fitted and assembled. Poorly made products are not always the fault of the assembler. The decisions that inform quality, durability, and reliability are often made many pay grades above the people who handle the product. Took awhile for US automakers to figure that out.

  11. Ironically the article mentions the decreasing cost of natural gas in the US, which makes manufacturing cheaper.  Unfortunately it also makes electric water heaters like this one less attractive.

  12. I work for a Chinese company.  Part of my job involves moving some of our production from China to the USA.  Not for sale in the USA, but for export to China.  Why?  Because the Chinese don’t trust Chinese products and will pay more for made in the USA.  And the cost isn’t that much more.  With the improved component and assembly quality, we actually expect to reduce our costs.

  13. I work in US manufacturing. I make auto parts. I have survived four lay-offs within the past 4-5 years. We are doing OK at the moment. Not great but OK. I am part of an international, family-owned corporation. I think that might be a positive. At least we aren’t headed by short-sighted US management teams.

  14. A little off main topic, but I don’t know anyone who found Ikea furnitures difficult to assemble (although they tend to fall apart after a few moves).  Is it that confusing??

    1. I couldn’t figure out “IKEA Syndrome”.  Googling it just got me the urban dictionary, which isn’t applicable, or some talk about how labor costs in Sweden.

  15. A long time ago when Japan was just ramping up they had a terrible inferiority complex to deal with. If you went into an executive’s home you’d find he’d bought a lot of American appliances and electronics because to be good it had to be American. Not only that, to be really good it had to come from Hollywood.
    A friend made standard tapes for all forms of magnetic recording. If the order was going to Japan he’d ship it to L.A. where an agent would send it out with a Hollywood address as the return address. I’m not making this up. He made good money because of it. One wonders what goes on in the minds of the Chinese these days?

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