The Reshoring Challenge: Why and How CEOs are Moving Jobs Back to America

Reshoring 3Walmart created its strategy working with Boston Consulting Group (BCG), which estimates that by the end of the 10-year period, the retail giant will have created 250,000 direct manufacturing jobs in the U.S. and 750,000 supporting jobs, for a total of 1 million.

What kind of jobs are they? “Commonly, you will hear the statement ‘that when manufacturing comes back, the jobs will come back too,’” Marsiglio says. But they are different jobs. “When I walk through automated factories making products for us, people may be [wearing white coats] and using their iPads to check the machinery,” she says. Across the board, American manufacturers are becoming more technology-intensive, using wireless communications, for example, to link supply chains with manufacturing and assembly lines.

DOMESTIC FROM THE START
Suppliers who went global but maintained some production in the U.S. are better able to respond to Walmart’s initiative because they have some infrastructure and some employees in place. But starting from scratch is much more difficult, as John Dammermann, CEO of Impact Innovations, discovered.

Impact Innovations, an employee-owned company with about $150 million in annual sales based in Clara City, Minnesota, specializes in making seasonal holiday items for major retailers, such as Walmart, Kmart, Michael’s and Big Lots. It sells ornaments, Christmas stockings and bows, indoor and outdoor décor and wrapping paper. For years, these items have been made mostly in China.

In 2011, Impact Innovations acquired a gift-wrap competitor, Cleo, in Memphis, Tennessee. Cleo had shifted half of its gift-wrap-making to China and Impact Innovations completed that offshoring process. Impact Innovations did not acquire Cleo’s old printing presses, but kept its converting equipment. Those converters allowed the company to cut large runs of wrapping paper mass-produced in China into smaller packages of paper that could be sold at retail.

Dammermann approached Walmart in 2012 about bringing some of the gift-wrap production back to the U.S. His labor costs in China were increasing by 15 to 20 percent each year and he reckoned that wrapping paper was less labor-intensive than ornaments or stockings. So it was the product closest to the tipping point of being cheaper to make domestically.

But he needed assurances that his contracts with Walmart would last long enough to justify buying new printing presses. The retailer made the commitment and Impact Innovations invested $7 million in two presses, installing one in Memphis in June 2014 and then a second in January 2016. It expects to spend another $3 million this year. “The commitment from Walmart gave us the confidence to go out and invest,” Dammermann says. “A lot of big, public corporations would not want to make the commitment we did because it’s a long-term payoff. We just decided it was the right thing to do.”