What if They Have a Party and No One Comes?

    

Walmart has announced plans to buy an additional $50 billion worth of American made goods over the next decade. “This is a commitment around manufacturing and more economic renewal. We see it as a critical issue for us in the American economy,” says Duncan Mac Naughton chief merchandising and marketing officer for Walmart U.S.” It sounds a bit like Henry Ford’s $5 day – by paying the workers mare, they created more Model T customers. Walmart commits to “American renewal” - a critical issue in the American economy.

A good enough idea, I suppose, but it assumes there are American manufacturers willing to sell $50 billion worth of stuff to Walmart. That strikes me as an element of the plan that is by no means certain.

The Walmart sourcing model – at least sourcing among domestic suppliers – has been one of arrogance and domination. Would be, as well as existing, suppliers make the pilgrimage to Bentonville where they wait for a brief audience with buyers who are often described as pompous and numbers-driven supreme decision makers that hold the fate of suppliers in the palms of their hands. Existing suppliers are relentlessly hammered for price reductions. The relationship and the processes for supplying Walmart are defined by Walmart – period. Take it or leave it.

There are plenty of American manufacturers now who are fully capable of providing cost competitive, quality products to Walmart, but have opted out. They have simply decided that their business is better off without them. They tend to be the ones with wise leadership with a long term view of things. They are also the lean ones who can most effectively “bypass Walmart’s distribution centers and deliver directly to stores, so-called ‘no touch’ distribution.”

There is, of course, the larger matter of on line selling. An American manufacturer opting to sell to Walmart essentially walks away from its ability to sell through the Internet. Walmart will not tolerate a supplier that competes with them. Why would an American manufacturer want to hitch its wagon to Walmart’s star while Walmart is struggling to find a strategy to compete in an economy that is increasingly moving away from big box, brick and mortar retailing?

The Time article offers a glimmer of hope that Walmart gets it. A Walmart exec, in talking about their relationship with 1888 Mills to provide mattresses said, “There’s transparency on the part of both parties: we worked with collaboratively with them.” Maybe … but Walmart has spent the last twenty or thirty years building the image described by Time of “getting vendors into its buying rooms and beating the hell out of them on price, essentially leaving them with little margin.”

It will take a lot more than lofty statements on Walmart’s part about understanding the real economics of total cost of ownership and the value of local suppliers who make products that can be “produced quickly to meet a sharp rise in demand.”

No doubt Walmart will have plenty of takers for their Made in the USA strategy. The question is whether any of them will be from among the ranks of America’s good manufacturers. Far more likely they will be the big mass producers who might want to do some final assembly here for no reason other than the fact that Chinese labor cost has increased. They – like Walmart – have a long history of understanding labor cost and purchase price … and little else. What little value adding they actually do here will not last long when they – and Walmart – lapse back into their labor cost centered world view. Or they will draw in the marginal, poorly run domestic manufacturers who can’t resist the siren song of huge Walmart P.O.s, regardless of the long term implications of dancing with the devil.

I wish Walmart well, but the sort of change that will enable them to effectively drive and succeed in a local sourcing strategy, and enable them to compete against the on line sellers as a part of it, requires a cultural sea change in Bentonville, and an entirely new approach to accounting. It is hard to see them doing that.

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