Photo: Max Nisen/Business Insider
GE CEO Jeff Immelt made a compelling case for American manufacturing at the Atlantic’s “Manufacturing’s Next Chapter” conference in Washington, D.C. yesterday.He said that although his company is very much global, it makes more and more sense for the most advanced and innovative manufacturing to come back to the United States. For one thing, despite all of the talk of the skills gap, the country still has great workers.
“When I look at what 90 per cent of what GE makes, I want it to be made where the innovators are,” Immelt told the Economist’s Greg Ip.
And it’s not just about research. GE and others are manufacturing more here because increasingly, it’s more cost effective to do so. “The extent to which we’ve brought back outsourced production, Immelt said, “it’s mainly because we thought we could make it with higher margins in the United States.”
That’s because increasingly, materials costs are just as or more important than having the lowest possible labour cost. So companies want to make things close to the people they sell them to, and the ones they buy components from.
“If you can get a 1 per cent lower cost in materials, it outweighs any labour costs … We went from a world where oil was $12 a barrel for 30 years to one where it’s over $100,” Immelt said. “The amount of time it takes to ship something really is material.”
So not only are labour costs rising in places like China, they’re less important, especially to a company like GE that uses advanced manufacturing techniques. Immelt used the example of making a refrigerator.
“What’s really important is that materials are so much more expensive: steel, titanium, oil, distribution,” Immelt said. “If you look at a relatively basic product like a refrigerator, if you make it the right way and use lean manufacturing its pretty easy, it takes about 1.8 labour hours.”
And especially for highly specialised and advanced products, manufacturing and design work best when intensely integrated. For a turbine or jet engine, tiny adjustments in angles, the shape of a blade or fuel holes can save clients billions, Immelt said.
“Any technical product, the product is the process. There’s this process and engagement between what the designer sees and how it gets made,” Immelt said. “Most products have an incredible linkage between the design and the technology.”
That’s one of the reasons keeping things in the US is appealing; the designers and manufacturers can work together without travelling halfway across the world, and iterate and improve constantly.
Technology also helps. Immelt was asked whether he thought 3D printing had been overhyped. He emphatically disagreed.
“There’s stuff that’s just a cartoon, there’s stuff that will mean something and this is the latter,” Immelt told Ip.
Traditionally, most components are made from casts or carved out from something larger. 3D printing, or additive manufacturing, allows things to be printed layer by layer, extremely precisely, with little waste.
He was careful to temper expectations — we aren’t likely to see all the manufacturing jobs we had in the ’50s return, but we could see a slow steady growth of employment in the sector, and many will be high-quality jobs.
Immelt was emphatic that GE will remain a global company, but the same value and strategy proposition that led him to build manufacturing capacity in Mississippi will lead other companies to stay in or return to the U.S. as well.
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