Executive Briefings

Wal-Mart Tells Suppliers to Go Green. Will They Listen?

Sometimes it seems like Wal-Mart Stores Inc. issues mandates to its suppliers the way vendors hand out pens at trade shows. The latest dictate highlights the monster retailer's plan to create a "worldwide sustainable product index," based on supplier input. Wal-Mart is asking (that's the polite term) its 100,000-plus suppliers to fill out a 15-question survey detailing their own sustainability efforts. They'll be required (OK, I said it) to respond in four categories: energy and climate, material efficiency, natural resources, and people and community. The "simple but powerful" questions, in the words of chief merchandising officer John Fleming, will cover such details as the location of suppliers' factories, amount of water used in production and solid-waste generation. Then, Wal-Mart will join with universities, shippers, retailers, NGOs and government agencies to devise "a global database of information on the lifecycle of products - from raw materials to disposal." At the end of the process, the company expects to have a sustainability rating for each of its products, so that consumers can tell how "green" each one is.

Of course, price-obsessed Wal-Mart isn't offering to defray the expense of answering the questionnaire. Nor is the retailer likely to let suppliers add a few cents to the price of their products to pay for it. As with Wal-Mart's earlier mandate on supplier adoption of radio frequency identification tags, the financial burden will fall on the parties who are doing the conforming. Yet many companies, especially those with multiple tiers of suppliers, don't have the data easily on hand. So the question is: will suppliers push back, as they did with the RFID affair, thereby undermining the whole effort?

"There's always a chance that initiatives like this don't gain enough traction to get off the ground," says Rich Becks, a senior vice president with E2open. (His company, which hosts a software platform for managing data from multiple tiers of the supply chain, stands to benefit from the Wal-Mart initiative.) But Becks doesn't think that the retailer's latest thunderbolt will fizzle out. For one thing, he says, it doesn't involve the purchase of expensive hardware. And it's hard to argue with the value of the effort, from a social as well as a business standpoint. "Wal-Mart is anticipating that environmental issues are going to play a much larger role in decisions that customers make," Becks says. In a statement accompanying the announcement, Wal-Mart president and CEO Mike Duke said consumers are becoming more interested in the total lifecycle of a product, "so they can feel good about buying it."

Any supplier who views the issue as purely one of compliance will find it hard to get excited about falling in line, Becks admits. But those who take a "holistic" approach might have a different attitude. In the course of detailing its total carbon footprint, a supplier could find ways to cut back on expensive fossil fuels and streamline its supply chain. The exercise could lead to a different set of choices with regard to raw-material suppliers, contract manufacturers, factory sites, transportation modes and logistics providers.

The value of having that kind of knowledge grows as resources become scarcer. Water is a particular concern. "Some say it will be the next oil," says Becks. "[Wal-Mart is] taking an early view of recognizing that issue."

Becks believes the economics of sustainable supply chains will become more favorable as the practice matures. Consumer-goods producers will win the loyalty of eco-conscious buyers, and volume efficiencies will take care of the rest. Compact fluorescent light bulbs, for example, cost more than the old incandescent model, but their price is expected to come down as sales ramp up. And the longer lifespan of a CFL bulb is already an incentive for consumers who aren't completely fixated on shelf price.

In any case, says Becks, the newest Wal-Mart program "is not going to happen overnight." The company is asking only its top-tier suppliers in the U.S. to complete the survey by Oct. 1. Timelines for foreign suppliers will be drawn up on a country-by-country basis. The whole program will be phased in over a five-year period, as the retailer works out the precise nature of the sustainability scorecard for each of its products.

Like it or not, suppliers will eventually have to play ball. But will they be willing to participate at a time when their already-thin margins are further challenged by global recession? "When the light bulb goes off that it's really all about cost and profitability," Becks says, "that is when it's going to be accepted."

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Sometimes it seems like Wal-Mart Stores Inc. issues mandates to its suppliers the way vendors hand out pens at trade shows. The latest dictate highlights the monster retailer's plan to create a "worldwide sustainable product index," based on supplier input. Wal-Mart is asking (that's the polite term) its 100,000-plus suppliers to fill out a 15-question survey detailing their own sustainability efforts. They'll be required (OK, I said it) to respond in four categories: energy and climate, material efficiency, natural resources, and people and community. The "simple but powerful" questions, in the words of chief merchandising officer John Fleming, will cover such details as the location of suppliers' factories, amount of water used in production and solid-waste generation. Then, Wal-Mart will join with universities, shippers, retailers, NGOs and government agencies to devise "a global database of information on the lifecycle of products - from raw materials to disposal." At the end of the process, the company expects to have a sustainability rating for each of its products, so that consumers can tell how "green" each one is.

Of course, price-obsessed Wal-Mart isn't offering to defray the expense of answering the questionnaire. Nor is the retailer likely to let suppliers add a few cents to the price of their products to pay for it. As with Wal-Mart's earlier mandate on supplier adoption of radio frequency identification tags, the financial burden will fall on the parties who are doing the conforming. Yet many companies, especially those with multiple tiers of suppliers, don't have the data easily on hand. So the question is: will suppliers push back, as they did with the RFID affair, thereby undermining the whole effort?

"There's always a chance that initiatives like this don't gain enough traction to get off the ground," says Rich Becks, a senior vice president with E2open. (His company, which hosts a software platform for managing data from multiple tiers of the supply chain, stands to benefit from the Wal-Mart initiative.) But Becks doesn't think that the retailer's latest thunderbolt will fizzle out. For one thing, he says, it doesn't involve the purchase of expensive hardware. And it's hard to argue with the value of the effort, from a social as well as a business standpoint. "Wal-Mart is anticipating that environmental issues are going to play a much larger role in decisions that customers make," Becks says. In a statement accompanying the announcement, Wal-Mart president and CEO Mike Duke said consumers are becoming more interested in the total lifecycle of a product, "so they can feel good about buying it."

Any supplier who views the issue as purely one of compliance will find it hard to get excited about falling in line, Becks admits. But those who take a "holistic" approach might have a different attitude. In the course of detailing its total carbon footprint, a supplier could find ways to cut back on expensive fossil fuels and streamline its supply chain. The exercise could lead to a different set of choices with regard to raw-material suppliers, contract manufacturers, factory sites, transportation modes and logistics providers.

The value of having that kind of knowledge grows as resources become scarcer. Water is a particular concern. "Some say it will be the next oil," says Becks. "[Wal-Mart is] taking an early view of recognizing that issue."

Becks believes the economics of sustainable supply chains will become more favorable as the practice matures. Consumer-goods producers will win the loyalty of eco-conscious buyers, and volume efficiencies will take care of the rest. Compact fluorescent light bulbs, for example, cost more than the old incandescent model, but their price is expected to come down as sales ramp up. And the longer lifespan of a CFL bulb is already an incentive for consumers who aren't completely fixated on shelf price.

In any case, says Becks, the newest Wal-Mart program "is not going to happen overnight." The company is asking only its top-tier suppliers in the U.S. to complete the survey by Oct. 1. Timelines for foreign suppliers will be drawn up on a country-by-country basis. The whole program will be phased in over a five-year period, as the retailer works out the precise nature of the sustainability scorecard for each of its products.

Like it or not, suppliers will eventually have to play ball. But will they be willing to participate at a time when their already-thin margins are further challenged by global recession? "When the light bulb goes off that it's really all about cost and profitability," Becks says, "that is when it's going to be accepted."

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