Tightening the feedback loop with insourcing
A recent blog post by Kellogg School of Management professor, Marty Lariviere, highlights the transition that GE Appliances is making to “insource” manufacturing from China to the U.S. Discussion of insourcing strategies is plentiful nowadays and there are those who believe it will not work. Apple recently announced a move to insource some elements of Mac manufacturing. What’s different is that while Apple’s effort appears to be an attempt at improving their public image even at the expense of profits, GE has already realized many benefits to their bottom line.
Over the years, labor and resource costs in China have increased as have transportation costs to bring finished goods back to the U.S. A reduction in these costs would be an obvious benefit but, as Lariviere points out, GE has experienced deeper benefits which have further reduced costs.
Manufacturing in the U.S. has enabled GE to get products into the hands of consumers more quickly but a greater follow-on benefit is that less inventory in the pipeline enables GE to react more quickly to unforeseen changes in the market. In other words, GE has become more agile.
Geographically distributed development is very hard. In the case of the Geospring water heater, GE was unable to overcome a serious lack of communication between product designers in the U.S. and engineers on the factory floors. By bringing the two teams closer together GE was able to leverage greater collaboration which increased innovation enabling the design of a less complex product that required less parts and was therefore quicker to build.
At the core of both of these transformations is the improved execution that comes from a tightened feedback loop between collaborators and between producers and consumers. Lariviere calls this out with a quote from the Atlantic article, “Mr. China Comes to America.”
Insourcing may not be the answer for all globally distributed teams but there can be clear benefits when fundamental enablers of execution are improved.