Making it in America: a new wrinkle

As recently as a decade ago, the offshoring trend looked unstoppable. It didn't seem to matter much which industry a company was in—apparel, toys, electronics, or whatever—if it was a manufacturer, there was a good chance it had moved (or would soon move) production overseas, typically somewhere in Asia. And it wasn't hard to figure out what was the driving the trend: the prospect of jaw-dropping labor savings.

Over the past two or three years, though, we've seen signs that the winds are shifting. Companies that once focused solely on labor costs when deciding where to manufacture are starting to broaden their horizons. While they're still looking at wages, they're also weighing a host of other factors—like shipping costs, cycle times, customer service considerations, and the risk of supply chain disruptions. And in a number of cases, their analyses are pointing them toward a country they had pretty much written off in the past: the United States.

Ironically, some of the first to see the advantages of manufacturing on U.S. soil were foreign multinationals. In 2008, for instance, we reported that several large foreign corporations were planning to set up shop in this country. They included the French power systems maker Alstom, which opened a factory in Chattanooga, Tenn., in June 2010, as well as ThyssenKrupp, which opened a steel making and processing facility in Alabama in December 2010, and Volkswagen, which this past May opened a plant in Chattanooga to produce the VW Passat.

Now, it appears the story is taking another twist. We recently received word that an iconic American brand is joining—or to be precise, rejoining—the "Made in the U.S.A." movement. As DC Velocity Associate Managing Editor Susan Lacefield learned during a trip to Kentucky, General Electric (GE) will soon move production of its hybrid water heaters and dryers from China and Mexico back to its plant in Louisville.

Although that raises a number of questions, one of the first that comes to mind is how GE expects to compete with rivals that manufacture in low-wage countries. The appliance giant says it has that all figured out: As part of the initiative, it is retooling its plant and adopting lean manufacturing processes, which will radically reduce its labor requirements.

In fact, General Electric believes it has a lot more to gain than it has to lose by bringing production back to these shores. For one thing, it expects to reap big savings on transportation costs. It will also see a reduction in cycle times—no small consideration in an era when consumers want it now and won't hesitate to go elsewhere if you don't have what they seek.

And that's just the beginning. GE also says the move will make it easier to protect its intellectual property since it will no longer have to share proprietary information with offshore partners. On top of that, company executives believe that co-locating GE's product design and engineering teams with the manufacturing operations will bolster its core competency in manufacturing—a capability that was being degraded as engineers and designers who had worked directly with manufacturing operations were retiring.

"For years, products have been designed far away from the factory and the people who would manufacture them. By co-locating all the people who are involved in bringing a product to life—engineering, quality, production ... and sourcing—we increase collaboration and problem-solving and shorten development time. The result is going to be better products for our customers," said Kevin Nolan, GE Appliances' vice president of technology, in a statement.

It's a high-stakes gamble. In total, GE Appliances is investing approximately $600 million in its manufacturing and other facilities at Appliance Park in Louisville.

There you have it: Further evidence that the rumors of the death of the American manufacturing sector may have been both greatly exaggerated and premature.