A few weeks ago, General Electric's (NYSE:GE) chief information officer, Jamie Miller, presented at the Oppenheimer Industrial Growth Conference to discuss the company's digital opportunity and how it connects to the company's longer-term gross profit margin targets of its industrial businesses.
By the end of Miller's presentation, it became increasingly clear that beyond GE transforming itself into an industrial powerhouse less reliant on its financial services business, GE Capital, the company's industrial segments are also becoming more streamlined, which in turn, helps drive margin expansion.
Of all the areas where GE is becoming more streamlined, Miller touched on two areas that struck me as having the greatest impact.
The GE Store
Several years ago, GE came to the realization that there's a combination of software, engineering, and IT infrastructure that unifies the company's seven industrial segments.
This realization gave birth to the GE Store, an initiative headed up by GE Global Research, which allows each of its industrial segments to explore how other segments are using technologies, developing products, streamlining manufacturing processes, and building services. The goal of the GE Store is to see if one industrial segment can borrow from another segments' implementations.
Put another way, the GE Store essentially opens an individual segment's R&D pipeline and operational processes to the rest of the company to ensure that breakthroughs and best practices are proliferated throughout the organization.
To illustrate this point, Miller highlighted how a team at GE's Greenville, South Carolina, plant, which produces gas turbines, mapped out every single activity the plant's engineers and factory floor employees were doing as part of the design and manufacturing process. The team targeted activities that could be replaced with digital and sought to reduce unnecessary redundancies in the workflow. Ultimately, the team expects this initiative will realize over $100 million in cost savings over the next few years, as the findings are implemented.
Thanks to sharing its findings with the GE Store, Greenville's cost savings initiative has since inspired GE's aviation and oil and gas segments to launch their own cost-savings programs that mimic Greenville's approach. Longer term, the potential exists for Greenville's findings to be rolled out to GE's worldwide base of 400 factories.
On a high level, GE's concept of the Brilliant Factory builds on Henry Ford's belief that complex tasks become easier when they're broken into smaller steps. With the Brilliant Factory, GE breaks down a factory into its bits and bytes, converging the physical and digital world. The goal of the Brilliant Factory is to build a factory that can make itself better over time.
A Brilliant Factory is built on two pillars. The first pillar tightly integrates the engineering and manufacturing teams, which GE refers to as virtual manufacturing, and allows engineers and manufacturers to get on the same page in terms of designing for manufacturing, cost, and performance.
As Miller put it, "That deeper integration of the two [teams] drives a much more accelerated cycle time in our engineering design process and also brings a result earlier in the manufacturing process." In other words, marrying a factory's engineering and manufacturing teams leads to better manufacturing outcomes.
The second pillar leverages data from factory machines packed with sensors to optimize how the factory is run. Miller explained that it's all about ingesting data in real-time, running algorithms against it, and using the results to optimize the factory's performance in real-time.
At GE's Brilliant Factory in Greenville, South Carolina, this data feedback system lead to an impressive 25% increase in productivity over a three-month period.
To be clear, the concept of the Brilliant Factory isn't just for new factories. In an interview with GE Reports, Christine Furstoss, global technology director at GE Global Research, explained that:
We are seeing the biggest [Brilliant Factory] impact in term of saving cycle time and improving quality in our existing factories. Many of those factories have older infrastructure. By putting in these new pieces of software and hardware right into the fabric of what we already have, we're getting huge cycle time reductions, higher quality and more repeatability.
That's why I'm excited about the Brilliant Factory, because it isn't for one subset of GE, it's not just for new factories. It really can have tremendous impact inside a factory where we perhaps haven't had as much investment over recent years.
Putting it all together
From a bigger-picture perspective, as GE becomes a more streamlined organization that allocates resources more effectively, it accomplishes two things. First, GE becomes a simpler organization to run, which can help it be more competitive and nimble in a fast-moving global economy. Second, it sets the company up for improved productivity, which could translate to significant cost savings.
For instance, according to Furstoss, a 1% improvement in productivity across GE's entire supply chain could be worth up to $500 million in savings.
Ultimately, initiatives like the GE Store and Brilliant Factory put GE in a position to wring out major savings across its entire supply chain. In the end, that could prove to be a major deal for shareholders.
Steve Heller has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.