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 But suppliers trying to reshore production as part of the initiative
by the world's largest retailer are running into practical problems
as they try to restart long-idled corners of U.S. manufacturing.
Companies that make the leap have to grapple with a host of
challenges, including a shallow pool of component suppliers, an
inexperienced workforce, and other shortcomings that developed
during the country's long industrial decline.
"A lot of the tribal knowledge and skill sets are gone because the
humans who used to do that work have either retired or died," says
H. Kim Kelley, the CEO of Hampton Products International, a
privately held maker of locks, lighting and other household
hardware. The Foothill Ranch, California-based company began selling
products made in Asia to Walmart in the 1990s and is now supplying
it with some U.S.-made products.
Trying to rebuild that manufacturing capability, while making
products that meet Walmart's standards, can require companies to
“start from scratch,” Kelley says.
Cindi Marsiglio, the Walmart vice president overseeing the U.S.
sourcing push, says the retailer and its existing suppliers have 150
active reshoring projects in various stages of development. For all
too many, she says, finding U.S.-made component parts has emerged as
a vexing problem.
Hampton, which also makes tow straps, tie-downs and bungee cords for
the automotive market, had a hard time locating a U.S. maker of
lightweight but strong polyester yarn. Marsiglio says other
suppliers complain of difficulty finding small motors, as well as
plastic injection molding equipment and computerized cut-and-sew
tools.
The issue is so widespread that Walmart is making it the focus of a
two-day summit it is hosting in August in Denver. At a similar
summit held in Orlando last year, Walmart focused on connecting
suppliers with economic development officers from states hoping to
lure the new factories.
The retailer says it is especially interested in having factory
owners with excess capacity attend the August event - even those
that aren't interested in supplying Walmart directly. The hope is
that they can become contract manufacturers to Walmart suppliers
looking to produce in the United States.
On July 8, it is also inviting hundreds of potential vendors to an
"open call" to pitch U.S.-made products to the retailer in
Bentonville, Arkansas, where it is based.
SHUT PLANTS
Walmart's critics say the company bears some responsibility for the
diminished capability of U.S. manufacturers. For years, its
relentless insistence that suppliers cut costs prompted companies to
shut domestic plants and shift production to low-wage countries.
Now, the retailer is asking companies to come back home - though
they need little prompting. The forces pulling production back to
the United States are powerful and real and include lower domestic
energy prices, increasingly competitive wage rates, the benefits of
greater automation, and a renewed appreciation for the value of
being able to respond quickly to shifting U.S. customer demands.
Still, starting up a manufacturing operation is a complex
undertaking, especially for vendors like Hampton and Redman &
Associates, an Arkansas-based toymaker.
Last year, Redman sold 1.1 million battery-powered ride-on toys,
such as large toy cars, in the United States - every one of them
made in Chinese contract plants. By 2016, the privately held company
plans to be producing about 600,000 of those toys each year out of a
brand-new company-owned and run plant in the U.S.
Mel Redman, the company's CEO and chairman, says the transition has
required the company to reverse engineer everything its Chinese
contractors were doing - an exercise that wasn't easy given his
executive team's background in retail.
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“We didn’t know much about manufacturing – we didn’t know anything
about it really,” he says.
SHIPPING COSTS
Walmart declines to say how many products it has introduced as a
result of the 18-month-old Made in USA initiative. But the company
says consumers can now buy everything from U.S.-made flat-screen
TVs, light bulbs and towels and curtains in its stores and on its
website.
The flat-screen TVs, made in Winnsboro, South Carolina by Element
Electronics, may be the campaign’s biggest surprise to date.
Founded in 2007, Element had until this year made all its TVs in
Asia - but it was unable to get them on Walmart's shelves because
there was nothing that differentiated them from rivals' products,
says CEO Mike O'Shaughnessy.
“So we began to think about what we could do differently. Well, one
of the things we could do differently is to make our TVs at home,”
he says.
Element built a small test plant in Michigan that began producing
flat-screen TVs shortly before Walmart announced the Made in USA
push in January 2013. The announcement prompted the company to
fast-track its expansion. Today, Element’s 315,000-square-foot plant
in South Carolina has six assembly lines making 32- and 40-inch TVs
that are now available in all of Walmart's more than 4,000 U.S.
stores.
The switch has led to significant savings in ocean freight charges
and customs duties on finished goods - though like so many companies
involved in the initiative Element has had difficulty finding
domestic suppliers. "We import the vast majority of our parts," says
O'Shaughnessy. "Longer term, the more success we have procuring our
parts domestically, the better off we expect to be."
Although Walmart has given itself 10 years to meet its $250 billion
goal, Marsiglio says the retailer hopes to meet the target ahead of
schedule. She says the point of the "open call" next month is to
simplify a product pitching process that can challenge even
long-time suppliers.
But while the door is open, the bar is high and Walmart will require
any applicants to open their financial books as part of the
screening process.
Given Walmart’s reputation as a tough negotiator with suppliers, the
disclosure of sensitive financial information to the retailer
requires a leap of faith. But Element's O'Shaughnessy said his
company had no misgivings about opening its books. Walmart needs to
know it can rely on its vendors, he said.
“What does it cost to produce product? What does it cost to move
product? Every one of the variables that make up the cost of the
product we (shared) with Walmart,” he says.
(Editing by David Greising and Martin Howell)
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