Greening Wal-Mart’s Supply Chains

A Few Powerful Buyers Could Create a Sea Change in Production

While the new year is inspiring individuals and businesses to think about going green, some corporate giants have already made green resolutions and are delivering the goods.

One driving force behind this shift toward sustainability may come as a surprise to shoppers: Wal-Mart. The retail colossus, long criticized for using its heft to obstruct workers' access to unionization, adequate health care and better wages, and to push big box stores into communities, wiping out small businesses, is now using its clout to send sustainable ripples all the way down its supply chains.

At the heart of its effort is a scorecard that will eventually measure the environmental and social impact of each item on store shelves.

In 2005, Lee Scott, Wal-Mart's former CEO, laid out the company's environmental goals: to produce zero waste, to be supplied by 100 percent renewable energy, and to sell sustainable products.

Towards these ends, Wal-Mart launched its global Sustainability Index initiative last July to create more transparent supply chains, promote product innovation and provide customers with information about the sustainability of products. The initiative involves three stages: supplier assessment, a life cycle analysis database, and the creation of a tool for customers.


Supplier Assessment

In the first phase, Wal-Mart is surveying its approximately 100,000 global suppliers with 15 questions focused on energy and climate, material efficiency, natural resources, and people and communities.

This summer, U.S. suppliers for Wal-Mart and Sam's Club were sent surveys asking if they had measured their greenhouse gas emissions, what their emissions levels were, if they had reported them to the Carbon Disclosure Project (the largest database of corporate climate change information), and if they had set goals for emissions reduction. The survey questioned them about their waste and water use, and reduction targets for both, and about addressing environmental compliance and product safety with their direct suppliers. Finally it asked if suppliers could ensure that facilities making their products were in compliance with local laws concerning working conditions.

Suppliers will see how they compare to other suppliers in their category and are rated "above," "on" or "below" target. Wal-Mart will use the surveys to "identify leadership" and, within the next two years, intends to reward suppliers who are measuring their environmental impacts and making progress towards meeting sustainability goals.

"If a supplier chooses not to participate, they will simply be considered not a leader and their scores will reflect that in the future," said Rand Waddoups, Wal-Mart's senior director for sustainability.

But with so much business at stake, what supplier wouldn't move quickly to comply with Wal-Mart's drive for sustainability?

Almost all the top-tier suppliers returned their surveys by Oct. 1 and are currently working with Wal-Mart to engage other suppliers and eventually other retailers.

The 15-question sustainability survey focuses on a supplier's business as a whole. It isn't perfect: The responses are accepted in good faith, and since the survey doesn't examine actual products, it doesn't take into account toxic materials or the amount of water used in creating specific products, or the safety, energy efficiency and recyclability of products. Suppliers will soon be asked to provide additional information about their products, however.


Life Cycle Analysis Database

In creating the Sustainability Index, Wal-Mart joined with universities, suppliers, retailers, NGOs and government officials to form the Sustainability Consortium (SC).

The SC is headed by Jay Golden, assistant professor on the Sustainability-Barrett Honors College faculty at Arizona State University, and Jon Johnson from the Sam M. Walton College of Business at the University of Arkansas.

The consortium's goals are far more ambitious than the index — it plans to develop the independent scientific foundation for an industry-wide global sustainability index for products through their life cycles, from raw materials to customer usage; to determine the best way to communicate product sustainability information to consumers; and to make recommendations for reducing the environmental impacts of products.

Golden explained how several pilot runs on household and personal care products, electronics, food and textiles will be carried out.

A working sector will select specific products and identify what data already exist on each product's life cycle impacts. Equivalencies for evaluating products will be standardized, product category averages will be established, and rules will be set to enable the product's life cycle analysis (LCA) to be validated by third parties.

Each company will then run an LCA on its own product, aided by Earthster, open source Web-based software that allows users to conduct LCAs cost effectively. Finally, SC will identify where opportunities exist in the life cycle for reducing environment and social impacts.

Wal-Mart and other companies, including P&G, Cargill, Disney, Monsanto, Tyson and Pepsico are founding partners of SC. Asked whether it's appropriate for these corporate behemoths to be involved in setting standards that will ultimately be used to evaluate their own products, Golden explained,

"You need input from these companies to make effective, feasible, cost-effective and timely rules." Wal-Mart's participation is a huge plus for SC's far-reaching agenda, he said. "Wal-Mart stepped up and made a commitment, and having the world's largest retailer involved adds a lot of strength to our efforts."


A Tool for Customers and PR

In five years, Wal-Mart is planning to have sustainability scores on its products that will inform customers of the product's sustainability, quality and history, Waddoups said. Wal-Mart and SC are working on how best to deliver this information to consumers.

The Sustainability Index initiative has certainly enhanced Wal-Mart's eco-credentials, but Nelson Lichtenstein, author of "The Retail Revolution: How Wal-Mart Created a Brave New World of Business", and a history professor at the University of California, Santa Barbara, is cautionary.

"Wal-Mart is improving its supply chain and getting greener, but it's classic Wal-Mart — it throws the burden onto its supply chains because it can squeeze them and they will scramble to do this by squeezing some other part of their business. At the bottom of the chain, you find perverse things going on — they take it out on the workers," he said.

Lichtenstein believes the sustainability drive is "partly a political process to get out from under bad press."

The effort appears to be paying off. Wal-Mart earned the rating of "greenest company" in a recent Green Confidence Index survey.


The Power of the Sustainability Push

Regardless of Wal-Mart's motives, because of its scale, the positive implications of its Sustainability Index could be a sea change for its $400 billion business, over 100,000 global suppliers, millions of customers around the world and the environment.

Take a look at some of the actions Wal-Mart is already taking to green its supply chains:

    Packaging:

    Wal-Mart's goal is to reduce packaging by 5 percent by 2013, which would be equivalent to removing 200,000 trucks from the road annually and would save the company an estimated $3.4 billion.

    The retail giant already only sells 100 percent compacted liquid laundry detergent, having removed all unnecessary water from the product. According to Amy Zettlemoyer-Lazar, director of packaging for Sam's Club, "That change alone will have saved, over the next three years, an estimated 400 million gallons of water, more than 95 million pounds of plastic resin, 125 million pounds of cardboard, and untold millions of dollars in transportation costs from moving smaller products."

    Energy Efficiency:

    After improving energy efficiency in its own stores, Wal-Mart sent its engineers to do energy audits of some suppliers as part of its Supplier Energy Efficiency Project (SEEP).

    One supplier, the von Drehle Corporation in North Carolina, which produces paper products, replaced antiquated lighting with fluorescent and installed motion activated sensors upon the recommendations of the energy audit and ended up saving $37,000 a year in one facility alone.

    Wal-Mart is working with suppliers to reduce the energy use of its most energy intensive products 25% by 2011. Because a major expense of doing laundry is the cost of heating water for washing machines, Wal-Mart worked with P&G to formulate a cold water detergent.

    Each year, Wal-Mart and Sam's Club sell billions of dollars of electronic products, many of which continue to draw phantom power even when they're off, so Wal-Mart is working directly with suppliers to reduce phantom power in all their products.

    Organic Farming:

    As the world's largest purchaser of organic cotton, Wal-Mart is partnering with 1,000 cotton farmers to help convert millions of acres of land from chemical to organic farming. Because the transition to organic farming takes three years, during which farmers cannot charge organic cotton prices, the retailer is paying the farmers organic cotton prices beginning the first year.

    One of the largest purchasers of wild cod and farm-raised seafood, Wal-Mart has also committed to purchase all wild-caught fresh and frozen fish from Marine Stewardship Council-certified sustainable fisheries by 2011.

    Company Culture:

    To green its company culture, Wal-Mart encourages all employees to brainstorm ideas for more sustainable practices. At the November Global Sustainability Milestone Meeting, a flower department associate related how they realized they could ship fresh flowers in dry packs instead of water, saving water, and space and money in transport. Instead of flying all job candidates to the Bentonville, Ark., headquarters, the head of corporate recruiting now conducts Webcam interviews. In 45 days, the department did 55 virtual interviews, but flew in only 10 candidates, saving $45,000 and thousands of pounds of carbon emissions.


Consumers Want Green Goods

Wal-Mart knows sustainability makes both good business sense and good public relations sense, but it's also responding to customer interest in sustainable products.

The Green Confidence Index, a monthly survey of 2,500 adults across the United States, found that half of all respondents bought a green product this year, and three out of five who have never intentionally purchased a green product intend to next year. About 25 percent are planning to buy a green big-ticket item in the near future.

Because of consumer interest, more retailers and organizations are measuring the sustainability of products. Here is a sampling:

    Nike's Considered Design line calculates solvent use, waste, materials use and treatment in its footwear and apparel.

    Timberland's Green Index scores its products according to greenhouse gas emissions, chemicals used and resource consumption.

    Patagonia's Footprint Chronicles allows users to track a product's life cycle and calculate energy consumption, distance traveled, CO2 emissions and waste generated.

    The Eco Working Group, a consortium of over 100 outdoor businesses, is developing an industry wide Eco Index for products and companies with environmental guidelines, environmental performance metrics and a comparative scoring system.

    GoodGuide measures the health, environmental and social impacts of food, personal care products, household chemicals and toys, and their companies.

    The Climate Counts Scorecard examines what
    companies are doing about their environmental impacts and how they compare to others in the same sector.

Wal-Mart and the Sustainability Council are hoping that more retailers and businesses will ultimately sign on to the Sustainability Index. For it to really work, it needs to be accepted as a supplier standard around the world.

Given Wal-Mart's influence, it just may be.

Hunter Lovins, president and founder of Natural Capitalism Solutions, which helps businesses and governments become more sustainable, has consulted with Wal-Mart and said, "Wal-Mart is doing more, I would submit, to move the needle than any of us."

 

See also:

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Reaching for Sustainability in the Next Real Estate Cycle

Psychologists Delve Into the Paradox of U.S. Concern but Inaction on Climate Change

Businesses Tap into Social Networking Site to Strategize Away Carbon Emissions

 

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