mgmt 385 post 6

Case: Blankenship, C. (2021) “GE Appliances: Reshoring Manufacturing” (Harvard)

Study Questions: What factors should be considered when deciding whether to make or buy a product? If you were in GE’s shoes, what would you have done at the point in time when you couldn’t make refrigerators?

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Rev. Feb. 17, 2021
GE Appliances: Reshoring Manufacturing
We Can’t Make the Refrigerators
Chip Blankenship, CEO of GE Appliances, came right out and said it to Jeff Immelt, chairman and CEO
of the General Electric Company (GE), and Keith Sherin, CFO and Vice Chairman: “We have to delay the
launch of the French-door bottom-freezer (FDBF) refrigerator until after Red, White, and Blue.”1
The company had invested $300 million in renovating Appliance Park Building 5 (AP5), a one-millionsquare-foot factory built in the 1950s, reshoring manufacturing, and hiring thousands of people in Louisville,
Kentucky. The grand opening of the factory had been two months earlier, with Kentucky’s governor,
Louisville’s mayor, and Immelt in attendance. It was a beautiful factory. The problem was that two months
later, the team at the factory could not make the products.
AP5 was in a combination of stagnation and chaos. The team was unable to thermoform2 the ABS plastic
liners for the inside of the refrigerator cases, and the automatic case-fabrication line itself was temperamental—
it was producing parts with too much dimensional variation for smooth assembly operations. Each refrigerator
factory had a mini chemical plant inside it to produce foam for cases and doors. Foam served as insulation as
well as structure, so getting the exact amount delivered with no leaks and a successful cure were key
characteristics of success. The AP5 wet system was not delivering foam to the cases with the right chemistry,
and all the liner penetrations for LED lights and many other features were allowing a myriad of foam leaks. To
make matters worse, the workforce was not yet competent on brazing, and the yield of good braze3 joints in
the sealed system was very low. Foam and braze yield problems were extra painful because many operations—
and thus significant value—had been expended right up to the moment that a unit had to be scrapped.
These upstream battles turned the final assembly line into a chaotic effort to put together a conforming
product and meet the demand of initial floor loads4 (more than 5,000 refrigerators) with the required mix of
This is a field-based case. All information and quotations, unless otherwise noted, derive from the author’s own experiences.
Thermoforming was the process of heating a plastic sheet to a pliable condition and stretching it over a mold (with vacuum assist), cooling the
shape, and trimming the flash. It was often used to make inner liners for refrigerator doors and cases.
3 Brazing was a metal-joining process that required a filler metal of a lower melting point than the base metal work pieces so that the base metal did
not melt in the process. It was similar to soldering, but required higher heat and, typically, a tighter fit for capillary flow of the braze alloy. Brazing in
appliance manufacturing was a key operation to produce a sealed system for refrigerators, which cooled the freezer and fresh-food compartments. It
consisted of a compressor, condenser, evaporator, and expansion valve with associated copper tubing and cooling fans. The term brazing yield referred
to the number of good units coming out of all the brazing operations divided by the total number of units that entered the process.
4 Floor loads were all the appliances necessary to put on floor display at all retail stores and in builder model-home displays. The process of shipping
these in bulk could be triggered when a new model was released to replace an existing floored appliance, or when a new floor spot was won.
1
2
This field-based case was prepared by Charles P. Blankenship Jr, Montgomery Distinguished Professor of Practice, University of Virginia Department
of Materials Science and Engineering. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an
administrative situation. The author gratefully acknowledges the assistance of Deborah Wexler, Daniel Rowley, and Michael McDermott in preparing
this case. Copyright  2020 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email
to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of the
highest quality, so please submit any errata to editorial@dardenbusinesspublishing.com.
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models. Right behind this initial salvo was the requirement by retailers to ensure sufficient inventory of the
promotional models to support Red, White, and Blue, the annual Fourth of July promotional extravaganza that
was rivaled only by Black Friday in the appliance industry.
It was clear that Immelt and Sherin were furious. Blankenship and Mark Krakowiak, GE Appliances CFO,
sat on the other end of the videoconference line waiting for their response.
Sherin said, “I knew we shouldn’t have invested in Louisville.”
Immelt said, “Come on, Chip. You used to make jet engines all day long. Are you telling me you can’t make
a refrigerator?”
Blankenship said, “Jeff, we can make a refrigerator. We just can’t make 550 per shift with the right fit, feel,
and finish to deliver to customers.”
In frustration, Immelt said, “Should we just give this product back to MABE?”5
Sherin chimed in and said, “We probably should just get the Mexican or Korean sites back online and stop
further investment in Louisville.”
GE Infrastructure: The Future of GE
Although the Appliances and Lighting business divisions were GE’s most recognizable activities to the
average US citizen in the first decade of the 2000s, they were not key drivers of revenue or operating profit for
the company. GE was investing into growth platforms such as aircraft engines, power generation, medicalimaging systems, and oil and gas equipment.
All of these growth platforms were in long-cycle industries with high intellectual-property moats6 yielding
significant, profitable service annuities. The Appliance and Lighting businesses were categorized as cash
generators that were used to fund investment activities in other businesses and were thus starved for capital as
a matter of policy.
As a direct result of this corporate landscape, GE Appliances and GE Lighting were left to manage their
own product and business portfolio growth with very limited capital for R&D, factory modernization, or even
equipment maintenance. (See Exhibit 1 for a GE Appliances timeline.) GE Appliances embarked on a design,
source, and sell strategy with a joint venture (JV) in Mexico, MABE, for gas ranges, dryers, and side-by-side
and FDBF refrigerators. It enlisted Korean companies LG and Samsung for microwaves, higher-feature
refrigerators, and high-capacity top-load washing machines. It also formed a JV (called Little Swan) with a
Chinese washing-machine company to produce front-load washers.
Product development required very little capital and just enough engineering resources and industrial design
effort to specify the visual brand language, a functional specification for performance of the appliance and, in
some cases, the control systems. Program management was required to sequence the development process with
test and validation, including field tests, prior to commercial product launch. The financial return on investment
(ROI) of this strategy was very good—in fact, too good.
5
6
MABE was GE Appliances’ joint venture (JV) in Mexico.
Intellectual property moats were used to describe how difficult it would be for competitors to duplicate a company’s capability.
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The Downside of a Phenomenal ROI
The downside of GE outsourcing the detailed product design and manufacturing of many new products
was twofold. First, of all the players in the US appliance market, GE Appliances owned the leading distribution
and service network—which made for excellent engagement with builders, retailers, and consumers. But since
GE did not directly oversee the manufacturing process, there was a gap in an otherwise tight and timely
feedback loop. The company was losing its ability to incorporate customer and consumer feedback in a
continuous-improvement loop, even though GE repairpeople were in consumer homes addressing problems
one-by-one. Any and all improvements were outsourced, translated, and managed by others.
Second, although initially GE had been pleased with on-site representatives from the sourced appliance
suppliers, it became apparent that they were doing more than just facilitating good communication with their
headquarters team. The suppliers were learning from and preparing to attack the US appliance market
themselves. GE had helped accelerate the launch of some able competitors with attractive brands and capability.
Fix, Close, or Sell?
In 2008, GE started a sale process, but was not able to attract an offer high enough to justify a sale from
its perspective. Feedback from potential buyers was that the capability of the assets did not justify the price GE
was seeking. A pivot was made to launch a spin of GE Appliances to shareholders. Timing of this pivot could
not have been worse, as the global financial crisis, and more specifically the collapse of the housing market,
crippled GE Appliances’ financial results and scuttled this entire strategic approach. At this time, GE decided
to keep the business, and evaluated different ways of running it better.
Unbeknownst to Jim Campbell (CEO) and Kevin Nolan (VP of engineering), they walked into a classic
trap—be careful what you wish for—as they entered the boardroom on the third floor of GE’s corporate
headquarters in Fairfield, Connecticut, in 2010. They were responding to a question from Immelt: “What would
you do if we decided to make a major investment in new products and GE Appliances’ US factories?”
Campbell and Nolan were like the proverbial dogs that caught the car by the tire. They returned to
Louisville full of angst about how to deliver on the biggest investment bet of their careers. Immelt had not only
agreed to fund all of their new product investment proposals, but he had also insisted that they bring additional
products from Mexico and China back to GE’s historic Appliance Park manufacturing complex and execute
multiple programs in parallel. To make it even more interesting, he required that Nolan compress the newproduct introduction (NPI) cycle from three years to between 18 and 24 months.
The commitment would amount to $1 billion in investment for factory renovations, new assembly lines,
and insourcing of fabrication equipment, plus expense money for design, development, and testing of nine new
appliance platforms: a wall oven, a plastic-tub dishwasher, a stainless-steel-tub dishwasher, a front-load washer,
a front-load dryer, an FDBF refrigerator, a hybrid electric water heater (HEWH), a high-capacity top-load
washer, and a high-capacity top-load dryer.
Campbell and Nolan’s team had the “want to,” but it was short on the “know how.” Many of the
engineering and operations leaders had limited experience introducing detailed, designed products directly into
their own manufacturing environment, let alone at an accelerated pace and with a Lean approach that they were
all learning how to implement on the fly. Nevertheless, in 2012, a heroic and eye-watering Super Bowl TV ad
kicked off the public campaign for “America Works”—and also GE’s investment in and commitment to
reshoring major appliance production.
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The Business Case for Reshoring: The HEWH Example
The HEWH was a sourced design from Midea in China. The design required around 15 assembly hours
per unit. The GE team was convinced it could reduce the labor content to 2 hours per unit, offsetting some of
the labor-rate increase for union labor in Louisville.7 The team proposed using Lean design techniques to reduce
part count and improve assembly efficiency, along with automating various operations.
While some major components like printed circuit boards, wiring harnesses, compressors, and fan motors
would still ship from China, the overall transportation costs and value of inventory in transit would be reduced.
The flexibility to respond to the market could be improved, while simultaneously, the amount of finished-goods
inventory required to maintain desired service levels could be lowered. The factory chosen for production of
the HEWH, Appliance Park Building 2, had been dormant since it was abruptly shut down in the 1990s.8 An
image of the product and an overview of its attributes are shown in Figure 1.
Figure 1.GE’s GeoSpring hybrid electric water heater.
Source: Company image, used with permission. Information comes from “GeoSpring Hybrid Electric
Water Heater,” GE Appliances website, https://www.geappliances.com/appliance/GeoSpring-hybridelectric-water-heater-GEH50DEEDSR; “Home Energy Chart,” GE Appliances press release,
https://pressroom.geappliances.com/file?fid=506ea6ec29371a6e0d00059d; and “The Cost of Heating
Water at Home,” GE Appliances press release, https://pressroom.geappliances.com/
file?fid=506ea70229371a6e0d00059f (all accessed Jul. 8, 2020).
7 Charles Fishman, “The Insourcing Boom,” Atlantic, December 2012, https://www.theatlantic.com/magazine/archive/2012/12/the-insourcingboom/309166/ (accessed Jul. 13, 2020).
8 https://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/.
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Appliances That Consumers Want…and Merchants Have to Have on the Floor!
Each product had to have at least one first-to-market “wow” feature. For example, the FDBF refrigerator
had an autofill feature for the water dispenser that used sonar—the same technology used in automobile
backing-up sensors—to detect the volume of a glass placed underneath. The control algorithm for the dispenser
was designed to deliver an exact amount of water for that container. The Café model shown in Figure 2 had
the capability to deliver hot or cold water from the dispenser. The new stainless tub dishwasher had a bottlewash feature—great for sports bottles as well as baby bottles.
Working with the chief appliance merchant at Home Depot, the GE team tried to come up with an answer
to the “sea of stainless” malaise that was developing on the floor of big-box and mom-and-pop appliance stores
alike: What could be the next big thing?
After considerable focus-group work and research into cabinetry and kitchen design trends, the team
developed the Slate finish. Slate was defined as Topaz, Dorian Gray, and Stainless Steel accents. It was not a
color, even though a significant amount of paint was involved. It needed a name like “finish” to command the
same price point as the stainless steel premium of around $100 more than a black or white “color.” Slate turned
out to be a raging success, with more than $200 million in sales in its first year.
Figure 2. GE’s French-door refrigerator.
Source: Company image, used with permission. Information and some images come from “GE’s New Line of French Door Refrigerators
Offers Most Sophisticated Ice and Water Technology Available Today,” GE Appliances press release, March 20, 2012,
https://pressroom.geappliances.com/news/ge-s-new-line-of-french-door-refrigerators-230468; “Hot and Cold: Opposites Unite in New GE
Café Refrigerator,” GE Appliances press release, https://pressroom.geappliances.com/news/hot-and-cold:-opposites-unite-in-new-gecafeTM-refrigerator; “Water Bottle RLP Election Symbol,” posted to public domain by “AshokChakra,” December 16, 2019,
https://commons.wikimedia.org/wiki/File:Water_bottle_RLP_election_symbol.svg; “Teacup Clipart,” posted to public domain by
“Dvortygirl,” August 21, 2005, https://commons.wikimedia.org/wiki/File:Teacup_clipart.png; and “Glass-of-Water,” posted to public
domain by “Derek Jensen,” December 10, 2005, https://commons.wikimedia.org/wiki/File:Glass-of-water.jpg (all accessed Jul. 8, 2020).
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Struggles
At the end of 2011, GE made a leadership change at GE Appliances, installing Blankenship as president
and CEO, with the charge to deliver on the execution phase of the reshoring and NPI programs. The first thing
he noticed was that the closer the first wave of five development programs came to launch of production units,
the more red appeared on the readiness scorecards.
A first walk of the HEWH factory floor revealed that the team was struggling to achieve good-quality welds
on the bottom of the steel tanks. The production team members were violating most of the rules for achieving
a good metallurgical bond prior to striking an arc, allowing contamination from enamel spray and grit, as well
as uneven contact; and they were not controlling the distance from the electrode to the joint—which defined
the voltage (one-third of the primary variables that determined weld quality—voltage, current, and travel speed).
The laundry team was having trouble laser-welding the stainless steel baskets for the new high-capacity topload washer. The dishwasher team was having trouble commissioning the 1,500-ton transfer stamping press
and associated dies to make dishwasher inner and outer doors.
The list of equipment and assembly problems kept growing. The business needed technical and operational
help, and fast. Blankenship called for technical help within the GE company network. While a few helpful
resources answered the call, they were not enough to turn the tide.
The French-Door Debacle
Immelt, along with the governor of Kentucky and the mayor of Louisville, was set to visit and unveil the
FDBF refrigerator plant in AP5 in March 2012. Two weeks before their visit, some major equipment stations
were not yet set on the floor. The equipment team flew the automated case-fabrication line from the
Netherlands in an Antonov9 after it completed production testing at the supplier. Not all of the 40,000 gallons
of white paint on the walls was dry when the factory and communications teams started setting up the chairs
and banners to welcome the visitors. It was a celebration of investment in US manufacturing, new products,
and good-paying jobs that had benefits and future opportunities. The team members were smiling, but they
were sweating bullets.
After the pomp and circumstance, Blankenship and Krakowiak had to answer Immelt and Sherin’s
questions on the spot in the business-review videoconference. Could they turn this factory into a reliable
production facility? Could they solve the real technical problems of thermoforming, foam delivery, and brazing
competence? Krakowiak was starting to believe that there would not be a return on the investment in AP5 even
if the facility could eventually produce at rate. Although sunk cost was not a good method by which to evaluate
the next play, he was not convinced he could trust any more optimistic learning curves presented by engineering
and manufacturing leadership.
The lowest total cost solution going forward may have been to give up. All that was required to put MABE
back in the business was to ship the part-specific tooling. MABE could spread the operations across its available
equipment capacity and stand up a new final assembly line or add a shift to a current one. But that wasn’t the
main driver of the decision. There was more at stake. If GE Appliances was going to make products and “put
America to work,” it was going to have to change its approach. It would need a new capability to solve problems
faster and completely.
9
Antonov aircraft were the largest cargo transport aircraft in the world. They were designed and built in Ukraine.
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Blankenship and Krakowiak committed to deliver on a revised schedule. The following actions were
implemented immediately:
1. Blankenship and Krakowiak formed a multidisciplinary team to determine what skills and experience
were missing from the current lineup in the areas of engineering, production, and quality in AP5 and
the other projects underway.
2. The sourcing organization stepped up and made some strategic outsourcing placements to reduce the
number of big problems to solve internally. For example, the FDBF refrigerator’s left-hand door was
very difficult to make—it had a complex 3D curvature along the outer surface. Sourcing placed it at a
high-quality stamping vendor at a high cost, but with reliable quality and delivery performance—one
less problem to solve internally.
3. A critical process technology team was created to reestablish technical competence in key areas for
appliance manufacturing, such as brazing, foam production, enamel application, welding, metal
stamping, and thermoforming and injection molding of plastics.
4. A dedicated production engineering support team was inserted into AP5 to triage and act on escalations
more quickly, and to determine what design changes were needed in fabrication or at suppliers to solve
assembly and quality issues.
5. Brazing was made a skilled operation, and a level change was made for operators that achieved a
certification. Union bumping rules10 were modified to stabilize this operation in each plant.
A total of 90 engineers and production experts were hired in a period of two months.
Workforce
Historically, calls for hiring hourly employees in Louisville resulted in 10 or even 100 times the applicants
compared to available openings. With the big reshoring initiative, each factory advertised for between 300 and
500 jobs. It didn’t take long to realize that the community was not ready for this level of opportunity. Initial
attrition (within 30 days) was high: upward of 40%. Injury rates ballooned from around the industry standard
of 4 (incidents per 100,000 hours) to more than 10. Half of the injuries were repetitive-motion related
(ergonomic) and more than half were from the recently hired population.
Who was responsible for this lack of preparedness to respond to opportunity? The public schools? The
chamber of commerce? The company? Parents? The sheer numbers of work-ready people required to resource
the assembly lines and support areas overwhelmed the community. There was no demand signal transmitted to
the school system two to three years ahead of time, and no wonder—GE considered the entry-level operator
position “unskilled” and thus relied on workers to show up for the opportunity, train for a few days, and then
assume their places in a five-foot pitch and perform three to five work elements within between 15 and 45
seconds, depending on which assembly line they were assigned. Upon further review, this was a grave mistake
and the result of an uninformed view.
Improvement required many small contributions from production and design engineers, first-line
supervisors, environmental health and safety (EHS), medical, HR, communications, government relations, and
the entire business leadership team.
10 Many union contracts allowed more senior workers to declare a desire to work at a different spot within their grade level in a plant or in a site. If
someone senior bumped a worker from their spot, that worker had the right to choose a landing spot as long as they were, in turn, bumping someone
junior to them from that spot. This could create quite a few changes at a site, and was therefore often coordinated and choreographed so it could be
managed administratively. Management, however, was only a fraction of the challenge—the main challenge was operational: different people on the line,
all with new-to-them work to perform.
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The aptitude tests used to screen applicants were changed to emphasize readiness to work as well as
teamwork. HR took candidates for a walk through a factory on their way to another part of the interview
process, and some candidates decided on the spot that the job was not for them: a win-win. HR and
communications partnered with Jefferson County Technical College and targeted certain local high schools to
create training programs that could deliver better-prepared candidates. GE established its own training center
with a model assembly line to develop skills and work-harden new operators prior to inserting them on a
production assembly line.
Additional ergonomic experts were hired, and jobs that required movements deemed unsafe for the
operator required a solution. Solutions typically included a redesign of the assembly method, a tooling change
(or tooling assist), or automation. The GE medical team engaged with operators to improve their readiness to
work with an “industrial athlete” program of foam-rolling and other warm-up and recovery activities before
their shifts, during breaks, and after their shifts.
Several culture issues with a portion of the workforce at GE’s Appliance Park and some old rules created
additional headwinds. Actions of a few caused real problems for customers and business performance.
Absenteeism on the order of 20%, including abuse of family and medical leave time, resulted in reduced output
and in some cases assembly line shutdowns. The union rules allowed senior members to “bump” to positions
of preference. The ripple effect of a Monday where between 30% and 50% of the operators were at new
positions compared to the Friday before could cripple the factory, especially when it was already introducing
new products on a learning curve. These difficult issues were addressed by the business leadership and the
union leadership—but more importantly, employee engagement on the front lines was typically shown to
provide a winning recipe for improvement. In some drastic cases, if improvement could not be made,
products—and work—was moved.
Wave 2: Decatur Top-Freezer Refrigerator and Appliance Park Building 1 (AP1) Top-Load Washing
Machine
The next wave of product introductions was aimed at upgrading high-volume, lower-price-point products
originally introduced in the 1990s. In Decatur, Alabama, the factory workforce was stable and very experienced
at making over one million units per year—the same volume that the workforce for AP1 and the top-load
washer was able to meet. Each support area of both factories had experienced staff and equipment for all critical
operations, such as stamping, brazing, foam, thermoforming, and injection molding.
The teams were encouraged to identify key technical, cost, and schedule risks at the beginning of the
program and figure out how to retire these risks earlier in the schedules, preferably well ahead of the commercial
launch. In the top-freezer refrigerator program, a supplier was discontinuing production of the thermostat used
to control temperature in the freezer and fresh-food compartments. The new product would need a new part
from a new supplier. A decision was also made to change foam vendors for cost and process-compatibility
reasons. The team decided to introduce these two changes to the existing product before launching the new
design—therefore, problems with these specific changes could be solved prior to dealing with the onslaught of
issues that show up in a new design introduction.
The new thermostat worked like a charm, but the new foam created issues. The composition and delivery
process delivered lower-viscosity foam and produced more leaks. The product design had to be adapted and
the foam process itself required optimizing. Each of these changes also had energy-compliance implications,
and the opportunity to evaluate each change individually was valuable learning for the team. Two big changes
were incorporated, problems were solved, and risks were retired prior to the changeover to a new design.
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In the top-load washer program, design for assembly was the key product risk. The team had three key
leaders who worked together to do three things exceptionally well—deliver conforming parts for early test
builds, build design-confirmation prototype units with actual factory labor (not engineers), and lay out a factory
that could produce mixed models and flow with timely, quality feedback loops. These three leaders
demonstrated the epitome of teamwork and engagement among design, engineering, manufacturing, and quality
functions. The top-load washer program demonstrated that a successful program could be run in Louisville—
a program that was successful not only by GE Appliances internal standards: the new top-load-washer assembly
lines led to AP1 being recognized by the Lean Enterprise Institute as a showcase Lean factory, both plants were
finalists in Industry Week’s Best Plant Award in 2018, and Decatur won Assembly Magazine’s Best Assembly
Plant Award in 2019.
Epilogue
The GE Appliance team’s capability to design and develop new products that consumers wanted in their
homes and stores wanted on their floors had improved greatly during the $1 billion new-product revival and
reshoring of manufacturing that lasted from 2010 to 2016. The business rekindled its ability to make things.
The business’s Lean IQ was climbing, and the value of the business had increased substantially.
However, the consumer-appliance business still did not fit in the portfolio transformation that GE was
executing. How could this better consumer business fit into GE’s future? Was it just a better version of
something that still didn’t fit?
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GE Appliances Timeline
GE Appliances: Reshoring Manufacturing
Exhibit 1
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Source: Created by author. Image sources are “Money (6896)—The Noun Project.svg icon from the Noun Project,” posted to public domain under Creative Commons (CC0 1.0) by “CivBot,”
March 7, 2018, https://commons.wikimedia.org/wiki/File:Money_(6896)_-_The_Noun_Project.svg (accessed Jul. 7, 2020); “Map Symbol for Restrooms,” posted to public domain by the United
States Department of Transportation, January 14, 2013, https://commons.wikimedia.org/wiki/File:Restrooms.svg (accessed Jul. 7, 2020); “Map Detailing Central America,” posted to public domain
by “Jerem 43,” December 14, 2008, https://commons.wikimedia.org/wiki/File:Map-Central_America.png (accessed Jul. 7, 2020); and “For Sale,” purchased by author from Shutterstock.com on
March 23, 2020; all images not otherwise cited are from the GE Appliances Pressroom, https://pressroom.geappliances.com (accessed Jul. 7, 2020), and are used with permission.
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