Allentown Revisited

photo: flickr user sludgegulper

Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line, sang Billy Joel in his 1982 hit, “Allentown,” a song that for many symbolized the decline of American manufacturing and expressed the despair many factory workers felt after losing their jobs.

There were other Allentowns dotting America’s industrial heartland, including Louisville, Kentucky, home of GE’s Appliance City, where the number of people making appliances peaked at 23,000 in 1973 before dropping to under 1,900 in 2011 as jobs were outsourced to China. Well, those jobs are coming back to Appliance City, Charles Fishman explained in his December 2012 Atlantic article.

Why are they coming back? Fishman cites some obvious and not so obvious reasons.

• Appliances made abroad can be copied and manufactured more cheaply by competitors.
• Oil prices have tripled since 2000, driving up cargo shipping costs.
• America’s abundant natural gas supply has lowered factories’ energy costs.
• Labor costs are rising in China as workers are making five times more than they did in 2000, with wages expected to increase 18% per year in the future.
• As American workers become more productive, labor costs become a smaller portion of the cost of producing goods.

In bringing the jobs back to the U.S., GE learned (or re-learned) some valuable lessons, including the value of having designers, market researchers, engineers, and line workers in the same room. According to Fishman, “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 in Louisville.”

Another lesson was a math lesson, namely labor isn’t the only variable that affects cost. According to manufacturing expert and Lean Enterprise Institute CEO John Shook, “There was a herd mentality to the offshoring…But it was also the inability to see the total costs—the engineers in the U.S. and factory managers in China who can’t talk to each other; the management hours and money flying to Asia to find out why the quality they wanted wasn’t being delivered. The cost of all that is huge.”

photo: GE

The last lesson concerns the collapsing life cycle of many products. Fishman states that, until recently, a new range or refrigerator design was assumed to last seven years. Now, says Lou Lenzi, head of design for GE appliances, managers figure models will last two or three years, a trend that underscores why designers, engineers, and workers must collaborate on the front end. According to Fishman, “Factories take a while to settle into a new product, a new design. They face a learning curve. But models that have a run of only a couple years become outdated just as the assembly line starts to hum. That, too, makes using faraway factories challenging, even if they are cheap.”

Fishman concludes that these lessons add up to this: “GE is rediscovering that how you run a factory is a technology in and of itself. Your factory is really a laboratory—and the R&D that can happen there, if you pay attention, is worth a lot more to the bottom line than the cost savings of cheap labor in someone else’s factory.”