Wal-Mart’s onshoring manufacturing effort hits snag with Redman problem

Mel Redman was the early face of the much-publicized effort by Wal-Mart Stores Inc. to return manufacturing jobs on the U.S., but his company faces a troubling hitch in plans by to make battery-operated ride-on toys in Redman & Associates spacious new assembly plant in Rogers.

Sales Chief, Redman’s Hong Kong-based manufacturing arm cut off the 60-day credit line with Redman and demanded full payment for the toys ordered for the holidays, according to a lawsuit filed by Redman in Federal court on Friday (Sept 5).

Redman was forced to suspend its small operation in Rogers until this matter can be resolved.

“This is a very sad day for Arkansas and for the many associates who dedicate themselves to bringing jobs back to America. Closing our upstart manufacturing program is something that was done only as a last resort,” said Mel Redman, chairman and CEO of Nuvzn Technologies, the parent company of Redman & Associates.

Wal-Mart seems undaunted by the action and released this statement through spokesman Kory Lundberg: “The circumstance in this situation appear to be specific to this manufacturer and its 3rd party supplier and it’s best for any comments to come from them. I will tell you that we are excited about the progress being made on our $250 billion commitment to support U.S. manufacturing and U.S. jobs. We continue to see growth in the number and type of suppliers who are bringing us products that support our commitment.”

Wal-Mart said it was not aware of any other similar problems with other onshoring efforts.

Redman was the first big announcement in Arkansas related to the Wal-Mart onshoring plan. Gov. Mike Beebe and then Walmart U.S. CEO Bill Simon were part of an Oct. 7, 2013, press event in Rogers announcing the deal. Beebe at the time credited Wal-Mart for stepping out to help facilitate suppliers and economic teams to make success stories like this happen.


DELIBERATELY TIMED DISRUPTION
Redman claims in the lawsuit that Sales Chief knew by breaching the 60-day payment arrangements the partners have used for the past two years it would disrupt the supply chain and hold ordered product hostage resulting in Redman’s inability to fulfill its large holiday orders to Wal-Mart.

The suit claims that Ellen Liu, executive director for Sales Chief, made clear her intention to derail the “Made in the U.S.” plan earlier this year. Between March and May, Sales Chief shipped $3.4 million of inventory to Redman in the U.S., but on May 24, Sales Chief revoked Redman’s credit terms requiring full payment of goods ordered, shipped and those in transit.

Redman said the disruption was deliberately timed. The company worked to gather money to get some of the product released but in so doing they depleted their working capital. He said the freight storage fees on inventory sitting in containers has already accrued to $1.4 million – product they don’t have access to but are billed for storage.

BACKDOOR MEETING?
The suit also claims that Sales Chief contacted Wal-Mart directly to try and sell the product, cutting Redman out of the transaction. Wal-Mart notified Redman of this backdoor meeting and invited them to attend, which they did on Sept. 4. However, on Sept. 5, Redman notes in the suit that Sales Chief had a meeting with Wal-Mart to which Redman was not invited. Wal-Mart would not comment on alleged meetings when asked by The City Wire.

“Continuing forward, we will put our focus on retail operations and supply chain logistics. Our current inventory and future sales projections should allow us to repay and honor our financial obligations to our lenders and the state going forward,” said Wyatt Watkins, chief financial officer of Redman & Associates.

For now the 275,000-square-foot Redman facility in Rogers is dark and 24 workers have been laid off.

Grant Tennille, executive director for the Arkansas Economic Development Commission, said the state did give Redman a few incentives to move their manufacturing operation from Shanghai to the Natural State. Those incentives included $2 million that goes toward building and equipment costs for Redman, and the Arkansas Advantage 1% state tax credit on wages paid for five years. In addition, Redman was to get a sales tax rebate on manufacturing equipment purchases relating to its startup.

Tennille said the tax credits occur retroactively. Redman said the incentive package helped to seal the deal, but some of the incentive money will have to be repaid if the contract terms are violated.

“We were informed that our company was the talk of China, and not in a good way. Our supplier’s unexpected departure from years of business dealings hurt the supply of goods to Wal-Mart. Unfortunately for the people of Arkansas, and especially our associates and their families, their underhanded strategy worked,” said Redman.

“Our plan is to do what we know best, which is providing quality goods to Wal-Mart at the best possible price for the consumer, as we have done for years,” Redman added.