5 Challenges From Walmart’s $50 Billion Reshoring Strategy

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.

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Voices (3)

  1. Harry Moser:

    I agree there are issues but am more optimistic. $5B/year is about 0.3% of U.S. manufacturing value added. Realistically, some of the product will have offshore components, so maybe 0.2%. Of course, all of the value added is not consumer goods, so maybe 1% or 2%. I think we can handle it. The visibility will also help recruit more skilled labor. The Japanese auto transplants brought some of their supply base with them. Other industries can do the same.
    One key is to use total cost of ownership, instead of ex-works price or labor rates for making sourcing decisions. See http://www.reshorenow.org.

  2. Doug Smock:

    Nice post Jason. I am a skeptic as well.


  3. Ilmar Luik:

    All Walmart problems can sink the United States. Obvious solution to inhoring production to US is more automation here.

    But what are the limits to what automation can do?

    Amazingly it is not in computer speeds, smart software, high speed machinery and not even in the availability of skilled trades, to maintain and to service automated equipment..

    The real limit is the Walmart’s problem No. 1 Shortage of low skilled people in the US.

    All the government programs beginning with the unemployment insurance, food stamps, etc. has depleted the labor pool of non/low skilled people.

    All the government welfare programs have also provided them with lot’s of free time to listen to the armies of the US government subsidized Community Organizers.

    What do the organizers preach? You are poor because the rich and powerful Corporations robbed you blind and US ruled by them therefore the United States is an evil country. Read Communist Manifesto for details of the message.

    If you think the message is too stupid for anybody to take seriously. THINK AGAIN.

    The most powerful countries today are based on the principles of the Communist Manifesto and they are expanding their military and economic power.

    Believe it or not the ugly truth is that the Communist Manifesto works.

    That gets us to the second Walmart’s problem, shortage of higher skilled labor in the US.
    There are many demographic reasons for it which are very hard to cure.
    Pushing females into manufacturing is about just as idiotic as pushing them into foxholes to advance their Army careers on expense of taking care of the children.

    Walmart’s third problem US manufacturing will collapse if China disappears. Try to run a machine shop without a singe Chinese made product. Your competitors will drive you out of business. So much for the second and third tier suppliers.

    4. Raw materials Titanium is a good example even if we had the ore EPA will make it impossible to process it..

    It has already happened to the production of the semiconductors. EPA prohibits the use of chemicals which are needed for production of semiconductors. There goes the production of high technology products in the US.

    All of the above shows why even extreme automation can not save the United States.

    The problem is not too much or too little technology and or automation.

    The problem is totally POLITICAL.

    Any ideas how to cure it before it is too late?

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