The manufacturing reshoring trend continues to grow, as highlighted by Walmart’s U.S. Manufacturing Summit in Denver.
As noted in last week’s CompanyWeek articles, the purpose of the Summit was to promote Walmart’s 10 year $250 billion initiative to supply it’s customers with more Made in USA goods. Those are large numbers. On a national level, this particular reshoring commitment is the biggest opportunity one company has provided to U.S. manufacturing. Until now, the largest projects, by companies such as GE or Caterpillar, had individually reshored up to 2,000 manufacturing jobs. In the 10th year of Walmart’s program, it will be buying $50 billion more U.S. products per year, generating, by our estimate, about 300,000 additional manufacturing jobs (by Boston Consulting Group’s estimate, 1,000,000 total jobs). In the six months since its announcement, 19 companies have been officially announced in the program, generating 4073 known jobs.
Whether your company chooses to tango with the superstore or not, it had better at least be aware of the changing tides of location sourcing in manufacturing. Total Cost models demonstrate the logic of localization: producing near the consumer often reduces total cost. The reshoring trend has recently reached a milestone: ten years ago we were losing about 150,000 jobs per year to offshoring; last year there was a net zero job loss to offshoring.
A look at the probable drivers of Walmart’s U.S. Manufacturing program demonstrates a number of the issues driving the reshoring trend as a whole. Walmart depends on the middle-class consumer and will suffer if U.S. manufacturing does not recover more. A healthy economy requires a maker-culture, both to provide manufacturing jobs and support a middle class, as well as to drive R&D and innovation on home soil –objectives that are achieved most efficiently by replacing imports with Made in USA products.
Walmart’s success also hinges on its ability to project a positive public image. They correctly perceive a greater demand for Made in USA, driven by consumers’ desire for higher quality goods, as a well as goods that support their own economy. This concept applies equally or more so to smaller local brands supplying local markets.
In some cases, reshoring is made possible because consumers are willing to pay a premium for U.S. made goods. While short-run, customizable luxury items are one category that is successfully bringing manufacturing back, it is by no means the only option. Walmart for example has no intention of achieving its reshoring goals by raising retail prices. It correctly believes that its suppliers will be able to, in many cases, meet the price objective by understanding that, with reshoring, even though the U.S. manufacturing cost will be higher the overhead will be lower, and the Total Cost of Ownership (TCO) will be equal or lower.
TCO is the key factor in the reshoring trend. It is defined as the total of all relevant costs associated with making or sourcing a product domestically or offshore The not-for-profit Reshoring Initiative is helping companies determine whether they can go with U.S. production. More on the Initiative and TCO can be found on the rehorenow.org website. In addition to the free TCO Estimator software, the Initiative also provides a sortable database of 1500+ reshoring articles and a Case Studies feature where companies can share their real cases of reshoring.
We encourage companies to pursue supplying the U.S. market with U.S. made goods. Companies can call on the Reshoring Initiative and its tools for help understanding the P&L impact of shifting to U.S. production.
Coming soon: Reshoring Trends in the Apparel Industry