Leanshoring: Winning with Customers by Bringing the Business Closer 

“Leanshoring” may now be one of the most significant shifts in American manufacturing strategy in decades. The term itself, however, was coined more than two decades ago by Jim Womack, Founder of the Lean Enterprise Institute and coauthor of books including The Machine that Changed the World¹ and Lean Thinking² Josh Howell, President of LEI, says leanshoring is happening because profound disruption — fragile supply chains, geopolitical tensions, and chaotic tariffs — has turned long-distance manufacturing into a liability.  

Jim recently joined Josh and Kevin Nolan, President and CEO of GE Appliances, a Haier company, in a webinar to discuss leanshoring as a solution to the increasing problems associated with offshore production. Under Kevin’s leadership since 2017, GE Appliances has committed $6.5 billion to U.S. manufacturing and has become the No. 1 appliance company in the United States. The company’s leanshoring story combines lean manufacturing, unique approaches to innovation and customer engagement, and learning by doing, experimenting, and overcoming challenges.

Leanshoring integrates product development, supply chain, manufacturing, delivery, and service as close to the customer as possible, said Josh, because proximity enables rapid feedback loops, customer partnerships, and fundamentally different forms of value creation. It transfers value-creating activities for a given group of customers — in this case, U.S. customers — that have been conducted offshore back to the U.S., and doing this profitably, said Jim, also former research director of the International Motor Vehicle Program at the Massachusetts Institute of Technology. Despite introducing the leanshoring concept in 2003, Jim said it has been a tough sell to companies until recently, and some of that could be because it’s difficult.

“First, you have to calculate the total cost of given activities in the offshore location vs. those costs in the U.S. — turns out it’s not quite so easy to do as most people have wanted to believe,” said Jim. “Second, you have to calculate the cost savings from employing lean methods when you bring those activities back. Then you put those together and you can determine whether a U.S. location is competitive for leanshoring. We’re not advocating that people do anything that isn’t going to make the business successful. We’re simply saying that you need to do a bit of calculating to make sure you’re really doing the right thing.”

The leanshoring calculation has historically been difficult because manufacturers never understood and applied a total cost perspective when they started sending goods to Mexico and overseas a half century ago, said Jim. Driven by purchasing organizations, KPIs focused on purchase price variance and low logistics costs. They didn’t consider currency risk, connectivity costs, supplier risks, loss of intellectual property, and loss of skills for how to produce. “Moving offshore was a no-brainer — if you didn’t have any brains, it was easy to justify it,” said Jim.

Moving offshore was a no-brainer — if you didn’t have any brains, it was easy to justify it.”

— Jim Womack, Founder, Lean Enterprise Institute

Those offshoring decisions didn’t know how to calculate risks, so they placed the risk at zero. They also consistently failed to consider the potential cost savings, lead-time reductions, and quality improvements available through lean thinking applied at plants in the States.

“Painfully, for us, most executives in the U.S. way back when had no idea how to calculate the advantages of lean thinking,” noted Jim. “They didn’t know of an example, so again they wrote those advantages to zero. So off they went to low-wage locations — not low-cost necessarily — and then there were tariffs. And here we are today.”

A New Model for Leanshoring

There is now a clear and compelling example of successful leanshoring in GE Appliances, headquartered in Louisville, Kentucky. The company has been at it for more than 15 years and stayed the course across three CEOs and two owners. Equally impressive, according to Jim, is how they’ve deployed lean throughout the entire organization: lean product and process development; fulfillment from order through delivery; supplier alignment and improvement; and a lean management system covering basic stability, improvement management, and stretch management for big leaps — all with a strong focus on innovation. GE Appliances understood that bringing commodities back and producing them the same way as before would be a losing proposition. “You also need to innovate. That’s the third piece of the puzzle,” said Jim.

There is currently a drive to reshore goods to the United States. But if that’s done with goods being produced in the same ways they were decades ago, the likely outcome is inflation and stagnation, said Jim. Yet taking a better approach and adopting leanshoring has its challenges.

“It takes a lot of work,” said Kevin. “That’s something that sticks with me. The difficulty is that you only learn by doing.” No matter how much you read or prepare for it, the day the learning starts is the day the reshoring — and the lean transformation — begins.

Kevin was with GE amid the offshoring exodus and, as an engineer, wondered what the future would look like without manufacturing. He said he thought offshoring could work — partner with overseas suppliers, develop innovative products, bring them back to the States — but from 1997 through the 2008 financial crisis he witnessed a steady degradation in GE capabilities, with remaining manufacturing facilities getting worse, providing more incentive to offshore. And the people the company had spent years developing began moving off to competitors; GE was letting its manufacturing and design engineering skillsets walk away.

“In 2008, we really realized we had to bring things back — it wasn’t working out well for us,” recalled Kevin. “We saw our position in the market continuing to erode and people we had worked with continuing to grow [elsewhere]. We knew the strategy was wrong.”

GE Appliances began to see, at companies like Herman Miller, that leanshoring was possible. The company then started doing the calculations described by Jim, noting that even on paper it’s a hard process. Then in 2012, the company opened a new water heater facility in Louisville, its first new plant there since 1957.

“I still don’t think we’re [anywhere near] how good we can be,” said Kevin. “This journey … is one where with continuous improvement, you keep gaining faith that you can get better and better, and that builds on itself. That’s the journey we’ve been on for quite some time. Really saying, ‘How do we get better? How do we every month learn from doing, keep improving, keep getting better, and having the confidence that this is the right thing to do.’ We’ve seen when you do it right, it works, and the results are tremendous.”

Kevin likened GE Appliances’ leanshoring transformation to learning to play a musical instrument: “The only way is to practice, and you have keep at it, keep working at it, and keep improving. You almost don’t notice your improvement until you look back over a good length of time and, ‘Wow, look at where we’ve come from.’”

Leanshoring Requires Continuous Product Innovation

Kevin said the scary part about opening new U.S. facilities is the 25-year investment and realizing that the products built in the startup phase cannot be those delivered for the next 25 years. “Do we have 20 years of products? It’s a lot of responsibility. When you put a factory in and you hire thousands of workers, that’s livelihoods you’re putting in there. It’s people who have to take care of families. It’s not something that you can quit tomorrow and feel good about yourself. So how are we going to keep these things vibrant?”

Kevin realized the company’s innovation processes had suffered from the same problems as manufacturing: closed, hierarchical, slow. GE Appliances then began working directly with users, consumers, customers, and makers to do things differently. “We flipped innovation on its head. That’s been another terrific story. It’s kind of like lean, it requires leaps of faith. Protecting things isn’t the best. Getting user feedback, and being on the frontline and sharing and learning is a better way to innovate, and I think we’ve proven that so.”

Two concepts have been core to GE Appliances’ new innovation processes:

• Zero distance: The objective is to put zero distance between the customer and the company, and management needs to get out of the way. GE Appliances’ first real success with this was its Opal Nugget Ice Maker, which started with passionate people who were “crazy about chewable ice,” said Kevin. “I did not understand it. I had no clue. Was there really a market?” The company did crowdfunding, not to raise capital, but to validate demand for the product. Soon people were urging the company to market the product. “That was a whole new concept. Typically you’re trying to convince people that your new product is exciting. Where here, everyone was cheering us on, we want this thing.”
  
  Getting direct feedback in the product development cycle changed everything. “Zero distance means that the people who should be in charge of your company are the people using your products. They should be the ones guiding, they should be directing what they want to see next. Not corporate, not management. It’s a hard leap of faith for people to make. But no harder than the leap of faith that with lean we can bring production back profitably and build them in this country.”
  
• Co-creation/open innovation: Kevin grew up in New York City and was fascinated by the Chelsea Hotel and the remarkable innovations — poetry, writing, music — that came out of that building, going back to Mark Twain. He said he came to realize the building was literally architected to create collisions between people — bring different kinds of thinkers together, and he wondered whether it could be replicated in product development.
  
  MIT’s Media Lab was pursuing a similar concept, which supported his idea, and led to GE Appliances partnering about a decade ago with the University of Louisville on FirstBuild, “a Venn diagram of people who loved appliances, people who were makers, and passionate end users.” Kevin says he still has trouble describing FirstBuild and exactly what occurs there, and encourages people to see the innovation process for themselves. FirstBuild radically changed the company’s thinking about corporate’s role in innovation to freeing and supporting people to explore what they’re passionate about. No one at FirstBuild can dictate what to work on — only the community and the people watching and cheering them on. The process leads to far more failures than successes, he added, but no one is afraid of failing as they run fast experiments.
  
  “Before we’d put all this financial and plans together and all this research into ‘Should we do something?’” said Kevin. “It’s proven to me to be a total waste of time. How many companies spend all their management time on whether they should approve something or not? So get out of the approval and start getting into the enable of people and their ideas.”
  
  Jim and Josh have been to FirstBuild: Josh called it “among the more amazing business innovations I’ve ever come across.” Jim said the idea of FirstBuild is to get interested people with different knowledge and different ways of thinking together and let them explore. “It’s pretty chaotic,” he added, and people can’t quite explain what they’re working on. “But these are serious people. This is not just goofing off. These people are professional innovators, they’ve got a method, they know what they’re trying to do, and so what’s not to like. You can imagine that it then becomes suddenly this wonderful product that everybody in the whole world wants… This is an attempt to do some innovation on innovation.”

Innovating Management Methods

In addition to innovating how they innovate, GE Appliances has innovated how they manage. One method is immersion experiences.

There are two types of immersion experiences that have occurred at GE Appliances, according to Kevin. The first is a planned immersion by which leaders go to the shop floor for a week or two and actually try to improve a job by doing the job, studying the standard work, and genuinely understanding what an operator struggles with. They’ll then design an improvement that the operator will adopt. It’s a humbling experience, especially when the “improvement” turns out to cause more problems than it solved.

The people who should be in charge of your company are the people using your products.

— Kevin Nolan, President and CEO, GE Appliances

Other, powerful immersion experiences came about due to COVID. When it became difficult for GE Appliances to adequately staff the shop floor, salary roles went out to work alongside hourly associates on the frontlines, sometimes five or six days a week, eight hours a day. Kevin said this experience truly forced leaders to know the job and the work that people do and the value they create.

“Culturally, it helped a lot,” added Kevin. “The salary-hourly tension became a thing of respect. The hourly respected that we still know how to work, and we’re not just suits talking. And we got great respect for the hourly associates and what they do and how they do it. “There’s got to be respect for the work and for the people doing the work.” Josh noted that this mutual respect occurred within a unionized GE Appliances facility in Louisville.

Just as zero distance for innovation was brought to GE Appliances by parent Haier, the related management concept of micro-enterprises came from China and was adopted. Haier expressed this structure as breaking the company into the smallest segments that add value to the market and work directly with the market, said Kevin. GE started with four micro-enterprises and has more than tripled the volume. Individuals can create new micro-enterprises on their own when they see an opportunity, and then proceed to build a focused, dedicated, passionate team around it. Micro-enterprises at GE Appliances minimize having business decisions travel up to a CEO and back down, which slows decision-making and leads to missed market signals. “In today’s world it’s dynamic. Organizations that are built on speed and nimbleness [have an advantage], and that’s a lot of lean. That’s why lean gives you such an advantage in a manufacturing system: you can change, and you have this concept that constant change is healthy. When you are not changing, you are not improving. Micro-enterprises remove the friction and make it much quicker to react out there.”

Jim cautioned other companies and leaders to not copy what GE Appliances is doing — such as micro-enterprises. He did, though, encourage them to experiment with these concepts, as GE Appliances did in testing and adapting Haier methods to make them their own.

Kevin agrees that a transformation needs to be unique to an organization: “Do an experiment, and see if you get a positive result. The smaller the better, I think. A lot of them won’t work, and you don’t want to do too much harm. So once you see something positive, then ask ‘Can we scale it? Can we learn from it? Can we move it?’ It’s good to see others to give you some confidence, but [you have to] start doing it and seeing what works for you and doesn’t work for you. Every industry is different, markets are different, customers are different, but the fundamentals are somewhat the same. Understand the work, get close to the work, and focus on that.”

Kevin continued, “You’ve got to keep trying and learning. What changed us is having more of a learning organization. The pride had to leave us. Pride is one of the worst things for creating a learning environment.”

Pride is one of the worst things for creating a learning environment.

— Kevin Nolan, President and CEO, GE Appliances

Rich Calvaruso, Senior Director, Lean Management Office, and Jennifer Bolton, Principal Lean Coach, of GE Appliances will present at LEI’s Lean Summit in Houston, March 12-13.

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