Earlier this month, we covered Walmart’s recently announced strategy to drive $50 billion in spending to US suppliers over the next decade. The plan calls for what is probably the largest reshoring effort crossing categories, geographies and industries (from apparel to furniture). Yet Walmart’s logically intentioned efforts might not be as easy as some think. Our experience looking at reshoring and domestic manufacturing (both generally speaking and on a category specific basis) points to five specific challenges that Walmart is likely to face with varying degrees of impact based on the good-for-resale area. These are:
1) Lower-skilled labor availability – while this might surprise some, the number of low-skilled workers in the US willing to grind it out at just above minimum wage on a full-time basis might surprise you. As an example, we have heard far too many stories recently (both in the non-union South and Union-dominated rust belt) about factory workers not wanting to go back to work based on potentially losing unemployment and other benefits.
2) Higher-skilled manufacturing labor – a number of the priority categories that Walmart wants to source domestically as part of its program initially include sporting goods, apparel basics, storage products, games, and paper products. Additionally, “high potential areas” are also included in the strategy such as textiles, furniture and higher-end appliances. Many of these require higher-skill levels as part of the manufacturing process. Some require formal training programs of two years or more (welding, machining, etc.) The US may lack the available skill base to deliver the number of skilled workers required.
3) Tier two and tier three suppliers have moved production offshore – re-shoring $50 billion in spend will require not just working with large OEM suppliers to deliver, but working with a longer supply chain, including sub-tier suppliers. In many industries (e.g., athletic footwear), the entire supply chain has largely moved offshore with precious few outliers that remain. Bringing industry back onshore means bringing suppliers further down the supply chain back. This won’t be easy.
4) Raw material availability and capacity – China is the world’s largest consumer of metals today. It’s also the biggest producer (by an order of magnitude) of certain raw materials, including rare earth metals. As we consider the challenges of reshoring spend, we must also consider domestic raw material availability constraints and whether the global sourcing of certain raw materials before value-added steps make such a transition worth it without building greater capacity domestically first.
5) Supplier relationship management – Walmart does not have the best reputation among suppliers for collaborative supplier development activities and joint-cost take out (just ask a vendor who has lost all their margin for weeks through a marginally late delivery and associated penalties/fines at Walmart or Sam’s Club). Rather, Walmart is known for taking a hard-nose targeting costing approach (“you will deliver this product at this cost within these parameters”). Deviate from the agreed-to schedules (e.g., having a truckload show up late)? Watch out! You’re paying for it.
The reshoring of such large amounts of spend will require a collaborative supplier relationship management approach, working with suppliers as true business partners, not just vendors meeting certain price, quality and delivery targets, or paying the consequences. This will require a material shift in procurement strategy that Walmart must embrace versus adopt.