Story by Sheldon Cwinn
Michelle Gloecker, SVP Home, leads the
New Initiateive.
Bill Simon, Wal-Mart's President of U.S. operations, laid out the vision in a recent speech at the National Retail Association's annual meeting. In order to stimulate the economy, and increase consumer spending, Wal-Mart will increase domestic purchases by $50 billion a year within the next 10 years. That is quite a lofty objective. Let's see how this initiative will impact not only Wal-Mart, but also the U.S. economy.
Wal-Mart already purchases two thirds of its products in the United States, so the $50 billion is already on top of that. So what the initiative actually amounts to, allowing for Wal-Mart's growth is a staggering $500 billion of domestic purchases a year.
The initiative will create jobs in areas such as manufacturing, industrial engineering, shipping and transportation, management, accounting, large equipment maintenance, and additional spin-off jobs in ancillary services such as restaurants and medical services. Products will be made closer to the point of purchase which will allow for additional flexibility because of reduced lead times and reduced transportation times. The cost recovery to Wal-Mart in warehousing and shipping will combine with multiple ripples in the supply chain, making the supply chain even more efficient than it already is. So there is a solid business case for the new initiative.
Which categories will be effected? Wal-Mart intends to grow U.S. manufactured merchandise on two fronts. By increasing what they already purchase domestically in categories such as sporting goods, apparel basics, storage products, games and paper products. And, helping create new U.S. manufacturing opportunities in categories such as textiles, furniture, pet supplies, some outdoor categories, and higher end appliances.
The 10-year lead time will allow Wal-Mart to adapt many of its existing suppliers back to domestic manufacturing. How will this work? Let's say Wal-Mart has a supplier for towels that currently come from factories off-shore. It is easy to figure out that with a few committments from Wal-Mart, an idol U.S. towel factory can be re-started and be back online, to make the merchandise domestically again. In fact, many off-shore manufacturers that used to be domestic suppliers,in many cases, still have equipment and production facilities that have sat empty, but remain in-place. Only Wal-Mart has the volumes that would make the numbers work to return to U.S. based manufacturing again.
The economics of manufacturing have changed rapidly. Previously investments went to Asia where wages were lower. The price of oil and transport was low. New Asian factories sprung up literally over night.Today some of these investments are nearing the end of their useful life. The equation is changing. There are tipping points in each product category where it is no longer profitable to manufacture merchandise off-shore.Through Wal-Mart's shear buying power, they can foster large enough orders to eclipse those tipping points and make it profitable to manufacture domesticly again.
By using new supply chain initiatives such as CPFR, Wal-Mart can collaborate with manufacturers and provide them with much more reliable and long-range forecasts, thereby allowing Wal-Mart to make long-range production committments which in turn will help new factories control their costs, expenses, and growth.
