Walmart ‘s Made in the USA goal and impact

An article in the Wall Street Journal titled “Pitching to Walmart – Made in the USA” (October 7,2013) describes plans by Walmart to increase their US sourcing by $5 billion each year. But the company wants to hold customer prices, with US suppliers having to redesign products, respond quicker and thus adapt, despite paying wages that are four times China wages. Examples from toys, cell phone case manufacturers suggest that over 1200 US jobs have been created. Will WalMart’s efforts result in competitive US production, or will it require product performance to be sacrificed to maintain retail prices? Would the company be better off charging a premium for US made product, or will that strategy be unsustainable? Will the faster supply lead times benefit all products, or only those products with volatile demands, like fashion products?

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13 Responses to Walmart ‘s Made in the USA goal and impact

  1. deepakregu says:

    This measure will increase competitiveness of US manufacturing as it will allow them to realign operations and overcome internal inefficiency in operations. The price must be same because if the customer price is not retained and prices are allowed to increase, it will be equivalent to subsidizing the non-competitiveness of US operations. This strategy would pay off for products with volatile demand (which are likely to be already priced high) for the better responsiveness. In products with stable demand, overseas suppliers will have a competitive edge with cost-efficient manufacturing, where as for products with volatile demand, US manufacturers can benefit from the advantage of local operations for quick replenishment.

  2. This is a good move to improve the efficiency of manufacturing at US and making it comparable to China. Already the gap in the manufacturing cost between US and China is on a decreasing trend and the move will further support production in US. The faster lead time is particularly beneficial for the products which has fluctuating demand and cannot be predicted easily while for the constant demand still the option which is more cost effective should be chosen.

  3. Vivek Kaimal says:

    Although I cannot be completely sure I think that in this case there is a possibility of Market for Lemons here (which is sometimes summarized as “the bad driving out the good” in the market). Competing with Chinese wages and prices while being in the USA is difficult (almost impossible) without compromising on the product quality. If there is an actual difference in quality between the US made products and the Chinese ones, there is no harm in charging a premium on the US made products. However, sourcing local is a strategy that must definitely be adopted by Walmart as it will generate goodwill, jobs and also improve the efficiency of the US industry.

  4. Sarath Suresh says:

    One of the primary reason for a shopper to visit Walmart is the cost competitiveness it provides when compared to the other players.The buyer is not very much concerned if the product is made in china or in US.All they look for is a good quality product at an affordable cost.Sourcing locally is a strategy being tried and tested by many players across the globe and if Walmart can do that successfully without having to increase the prices,that is the best thing they can do to the US manufacturing industry which is competing neck to neck with the Chinese one.

  5. Rohit Singh says:

    From a consumer view point, a person does not really cares whether it is China or USA made. In Walmart, they are looking for best prices. Now, internal sourcing will be a challenge as the entire USA operations has to become really efficient in terms of cost and coordination will be highly required for such an exercise. Responsiveness will definitely increase and time to market will get reduced significantly.

  6. Christian Lehr says:

    US sourcing with decreasing lead times gives an advantage especially for products with a high volatility in demand. In addition there could be benefits for expensive products, due to the reduction of in-transit inventory costs, and for cheap but capacious or heavy products because of reduced transport costs. These benefits carry less weight for small, low cost products facing a constant demand.
    But even with potentially higher product prices charged by the US suppliers it is possible to reduce costs for Walmart, due to decreased supply chain costs. For Walmart it is crucial to assure high product performance and just go for US sourcing when the total landed costs are lower or at least the same as sourcing from China. Due to higher wages this is likely to result in an improved competitiveness of US production.
    In addition market research could identify products that consumers are willing to pay a premium when produced in the US.

  7. Qidi Cao says:

    In my opinion, the faster supply lead times will benefit certain products but not all products. Products like fashion products and creative products will benefit as a USA made, however, products like bath towel, toothbrush, and daily consume products will not benefit as a USA made since labor is higher in USA.

  8. Greg Nichter says:

    Research has shown that American consumers will pay a premium for products that are marketed as “Made in USA”. Wal-mart is smart to take advantage of this in their marketing. From a manufacturing standpoint, America is becoming an increasingly viable option for manufacturing. Chinese wages are on the rise, and short lead times are becoming more important. By sourcing from the U.S. Wal-mart can help to spur a manufacturing mini-renaissance. I think that faster lead times will benefit all products. If Wal-mart can move to 100% American sourcing, they can utilize their extensive distribution network to its fullest potential. All products can flow quickly to the customer, and in-transit inventory costs will plummet.

  9. Rahul Srinivas Sucharitha says:

    In my opinion, more than the transport costs, walmart has to focus on whether they would like to get lower inventory costs. By introducing manufacturing in US, the inventory costs would increase even though we would get lower lead times.
    this concept would benefit volatile demands but not those products whose demands are not as wavering as fashion products, etc.
    Also , by conducting surveys and interviews, we could get information about products which can profit from introducing this concept and products which do not.

  10. Yang Liu says:

    It is a big advantage to enjoy the preference of Walmart for US production. Considering higher labor cost and other factors, US production should improve its production process to maintain retail prices instead of scarifying its quality; otherwise, it will impair its competition advantages comparing products from China. At the beginning, charging a premium for US made product is not a bad choice to cover relatively higher production cost; however, it should not last long as customer will vote products with the same quality but lower price by foot. To apply this strategy, the company should take products characteristics into consideration. For products with short life cycle and uncertain demand, making at home is highly recommended.

  11. Trey Christner says:

    WalMart’s efforts will most likely result in product performance to be foregone. The company will not better off charging a premium because that will become unsustainable when consumers decide to purchase the cheaper product in the long run. Faster lead times will benefit some products only when demand is high. Fast lead times won’t matter if there is no demand.

  12. Joseph Mista says:

    Some people will argue that as an American we should be willing to pay a bit extra to get products made in the USA as it helps support the economy. Other will argue the opposite in favor of competition. As WalMart’s model has always been to be cheaper than their competition, the idea of them charging a premium price for the US made products doesn’t seem on the surface to be a good move as their target customers are very price sensitive. The pressure will go on the manufacturers, not WalMart, if they intend to try and sell their products with WalMart. They will need to be extra vigilant in their procurement and tooling efforts if they hope to succeed.

  13. Kevin Morrisroe says:

    As the years go by, it is becoming less and less competitive to manufacture in China. As this was posted in 2013, Chinese wages have only gone up. We have seen numerous companies move their plants either back to the US or to Mexico. I believe US manufacturering can be sustainable without sacrificing quality if the procurement and supply chain is done correctly. As Joe said above, Walmart charging a premium for US made goes against Walmart’s entire business model and I do not see them going this route.

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