During my internship at the Reshoring Institute, I have been responsible for a number of different stimulating projects. I started with Walmart’s initiative to assist manufactures reshore their operations. Walmart’s undertaking is massive. It has pledged to increase the amount of items bought from U.S. suppliers by $250 billion, over the next ten years. Walmart’s commitment reaches beyond providing monetary assurance. It will offer additional support by facilitating the reshoring process through initiating business introductions and reviewing options for financing. It will assist in supply chain coordination by providing long-range demand forecasts and making longer-term commitments to suppliers. Walmart will help accelerate the reshoring process by supporting current suppliers in restoring their operations through flexible buying contracts. Lastly, Walmart has established a $10 million innovation fund dedicated to support research projects advancing innovative solutions to key challenges manufacturers encounter that, once addressed, can lower the cost of production.
Next, I researched companies who had undertaken the reshoring process in response to the Walmart initiative. The first corporation I analyzed is Redman & Associates. They manufacture “ride-on” toys for Walmart, and were initially outsourcing to a Chinese company. The deal Redman & Associates structured with Walmart incorporated a 520,000 unit a year $70 million commitment from Walmart to buy from Redman. Arkansas, the location for the new facility, included additional incentives such as $2 million toward building and equipment costs, as well as state tax credits and rebates. Some of the benefits of Reshoring for Redman included a reduction of 2.2 million miles in shipping, a savings of over $7 million and a minimum of a 7-day reduction in the supply chain. Unfortunately, Redman had difficulty extracting manufacturing from China, which complicated their ability and success in serving Walmart.
I have also been conducting research into industries that exhibit a high potential for reshoring. These industries exhibit similar characteristics such as highly automated production, local, accessible raw materials, inefficient shipping, the need for adaptability, and the potential for IP risk. One of the industries that we feel has potential is the toy industry. As of now close to 92% of the $22 billion US toy market comes from overseas production.
The Reshoring Institute has provided me with a greater insight into the dynamics of the supply chain industry and the factors that must be considered when deciding where to build your products. It seems to me that the only benefit that has come from offshoring is decreased unit price due to lower labor costs. However, the risks this implies and the increased total overhead costs can ultimately negate the savings from offshoring. If you are interested in learning more about the work we do and how we can help you bring manufacturing back contact our Executive Director, Rosemary Coates at rcoates@ReshoringInstitute.org.
Eric Pardee is a graduate MBA student at the University of San Diego. He expects to graduate in 2016.