Our between-the-lines take on the latest Walmart executive presentation in the Bentonville/Bella Vista Chamber’s WalStreet speaker series.
In October 2005, former Walmart CEO Lee Scott announced an ambitious corporate sustainability initiative that went on to win over skeptics, shake up suppliers, and forever raise the bar for the retail industry. In January of this year, Bill Simon, president and CEO of Walmart U.S., announced a similarly sweeping push to increase the company’s domestic product procurement by $50 billion within the next 10 years. The two initiatives share several additional similarities: Walmart is taking a decidedly proactive rather than defensive stance on both issues, supplier cooperation is central to each plan’s success, and despite the potential PR advantages inherent in both undertakings, Walmart has portrayed them as simply being good for business.
Sustainably produced products were once considered to be out of reach for many mainstream shoppers until Walmart went to work on changing the economics. Although financial hurdles to domestic manufacturing have found most U.S.-based suppliers scouring the globe in search of low-cost alternatives, Walmart enjoys a bit of a tail wind for its domestic manufacturing crusade thanks to rising wages in non-U.S. manufacturing centers like China and increases in freight and raw material costs. In her recent presentation to the WalStreet speaker group, Walmart’s senior vice president and GMM of its Home division, Michelle Gloeckler, expanded on the economic “tipping point” that is making many categories logical targets for strategic U.S. sourcing.
As aggressive as Walmart’s $50 billion goal may seem, Simon and Gloeckler argue that the number could realistically hit $500 billion within the same time period if other retailers jump in. No doubt many will, whether intentionally or not, as suppliers who service Walmart are sure to leverage the quicker response time and other benefits inherent to domestic production with other customers once they get the hang of it, just as they did when sustainability came knocking.
Gloeckler and former Walmart.com executive Greg Hall, who has assumed the newly-created role of VP U.S. sourcing and manufacturing, have been tasked with overseeing Walmart’s latest mega-move. Gloeckler made it clear that their team is doing granular math with its suppliers by category, rather than applying wishful thinking and daring its suppliers to comply. To that end, Walmart has analyzed over 1,300 categories to extract several common characteristics that separate those ripe for revision from ones that aren’t quite ready.
THIN AIR AND RAW DEALS
According to Gloeckler, items that are highly-automated and that take up a lot of room are at the top of the sourcing shift list. She cited battery-operated ride-on toys as an example of the type of product that requires “shipping a lot of air.”
Raw materials such as cotton are in plentiful supply in the U.S., making many softlines products logical choices for U.S. manufacturing. Gloeckler noted that 70% of U.S. cotton is shipped elsewhere, only to return to the U.S. as finished products. She later explained that Walmart will make a concerted effort to include makers of component parts in its process, and not just those who make finished goods.
Gloeckler echoed Walmart releases on the initiative by pointing out that two-thirds of what Walmart already purchases from suppliers is made, sourced, or grown in the U.S. The company will hit the $50 billion benchmark by increasing what it already buys from U.S. manufacturers, in categories like sporting goods, apparel basics, storage products, games, and paper products, and by helping onshore U.S. production in high-potential areas like textiles, furniture, and higher-end appliances.
The fact that Walmart doesn’t manufacture anything came up more than once in the presentation, and it did bear repeating, given the ongoing tomato-throwing over product offerings that come from other parts of the globe. In effect, Walmart has been put in the position of defending the global sourcing inclinations of its suppliers, who sell the same categories to other retailers, while at the same time, retailers who actually manufacture their own goods outside of the U.S. have been largely left alone. Through its domestic sourcing effort, Walmart is already making heroes out of suppliers such as Elan-Polo, Louis Hornick & Company, and EveryWare Global, Inc. which produce footwear, curtains, and glassware, respectively. All three made domestic manufacturing commitments following Walmart's U.S. Manufacturing Summit in Orlando on August 22, which was attended by more than 500 suppliers in 34 states. Walmart is also showcasing U.S.-made products on its website.
“Local” and “domestic” are contextual terms, and as former manufacturing-based economies evolve into higher-wage consumer-based economies outside of the U.S., “in-country” demand is increasing, in some cases offsetting the lower commitments made by Walmart suppliers. Gloeckler also noted that residential and commercial zoning changes overseas are pushing factories away from ports in some cases, further reducing incentives to source products in these regions. With so many moving pieces at work, Walmart’s 10-year commitment takes into consideration that the math will change as global circumstances evolve.
HELP AT HOME
Walmart isn’t expecting suppliers to wing it, and in fact is helping them navigate several domestic manufacturing obstacles, including shortages of skilled labor, limited access to financing, regulatory burdens, and location assessments.
Walmart is aligning with federal, state, and local governments to ferret out the unique incentives that its suppliers can leverage in existing or new factories, and is making longer-term commitments with some suppliers in order to provide a safety net for the investments that they make in the process. Walmart is also embracing phased rollouts, rather than expecting suppliers to ramp up to full capacity overnight. Gloeckler cited a supplier whose disclosure of the company’s available inventory led to an initial order on Walmart.com and a subsequent roll-out to 300 stores as more inventory became available.
One of the most important takeaways from the presentation was Gloeckler’s statement that it is possible to work with Walmart in “very different” and “non-traditional” ways. The open-endedness of these statements should encourage suppliers to ditch any real or imagined barriers and step up with at least a partial commitment toward domestic manufacturing or sourcing. Many Walmart suppliers source from manufacturers but are not true manufacturers themselves. These companies may enjoy an advantage as tweaks to their sourcing portfolios in key categories could increase their favor with Walmart without requiring a complete conversion to U.S. manufacturing. Ms. Gloeckler made it clear that Walmart will not rubberstamp supplier partnerships based on domestic manufacturing alone, and any supplier that has attempted to do business with Walmart should know that half-baked propositions of any kind don’t go over well with the company.
The big question on suppliers’ minds is always how Walmart’s overarching goals translate (or don’t) to their everyday contacts and business processes. Not surprisingly, Gloeckler cited her own Home category as an area in which the importance of U.S. manufacturing efforts is understood. Calling the manufacturing initiative a “leadership level” discussion, she encouraged suppliers to elevate to the DM and GM level if they are meeting resistance. She also indicated that additional information is available to current suppliers on the company’s website through Retail Link, under “information” and “made in the USA.”
Gloeckler outlined Walmart’s next steps as facilitating, accelerating, and leading, a sequence that worked quite well in the past as a guide for its sustainability initiative. From its leadership position, Walmart continues to drive sustainability measures that will have far-reaching global impact. I would expect nothing less of its latest push, and suppliers who jump in now are certainly to be on the ground floor of an industry-changing trajectory.