Building Sustainability in Supply Chain – Walmart Way

Posted on November 30, 2010 by

Walmart Sustainable Product Index
Walmart, a retail giant and largest company in the world by any standards, announced plans to develop a worldwide sustainable product index. It is expected to lead to higher quality, lower costs, and measure the sustainability of products. Walmart states that the need for such index is due to the increasing pressure on natural resource, upcoming environmental regulations, and impact on supply chains by climate change will increase the cost of the products in future. Working together with supplier in product design, development , manufactur ing, and transportation by adopting sustainable practices can make them future ready. Since Walmart is known for selling the huge range of the product at affordable prices, it is indeed necessary for them to
look at the sustainable sourcing of the product in future.
Walmart has envisaged 3 steps in this direction. These steps are

1) Supplier Sustainability Assessment
The firs step is reaching out to its 100,000 global suppliers and urging them to adopt sustainable practices in their value chain.
Walmart will send survey questionnaire annually to evaluate these supplies. The questions will be grouped in –
– Energy and Climate
This section contains questions that are centered on the GHG footprint of the organizations, GHG targets, and reporting to CDP. Carbon Disclosure Project has become one of the largest platform in the world for the organizations to disclosure climate change related information. Thus Walmart urges its suppliers to share their climate change related strategies through CDP. Scoring is done based on the responses by the organizations on aforementioned fronts.
– Natural resources use
Natural resource section stresses on whether suppliers have established sustainable procurement mechanism and third party certification of products and systems for sustainability assurance.
– Material efficiency
Material efficiency section contains questions on amount of solid waste organization generates and steps taken to reduce it. Also it asks about the water footprint of the organization and how it is working towards reducing the same.
– People and Community
This section focuses on social compliance by suppliers, community development activities in the market they operate, and knowledge about their own suppliers.

2) Life-cycle Analysis Database
Second step is creation of global database of information on the life-cycle analysis of products – from raw material to disposal.
This will be achieved through creation of consortium of universities that collaborate with suppliers, retailers, NGOs, people, and governments to develop this database. Such database helps in identifying the environment, social and economic impact of the product during is lifetime.

3) Simple tool for customers
The final step of the index is to provide customers with product information in a simple and convenient way to understand the product’s sustainability rating and about LCA of the product. Walmart is developing various tools for this purpose. Customer can use these tools to make right buying decisions and consume the product in more sustainable way.

Beyond Sustainability
Though the sustainability initiatives help restore or sustain social, economic, and environmental balance, its futile exercise for a profit making organization unless it doesn’t not bring in tangible commercial benefits or long run intangible benefits which eventually help organization make more profits in sustainable way. In long run, sustainability initiatives should help the organization consolidate its position in the market, gain goodwill of the stakeholder, assure investors about long term business viability, and help increase profits. The initiatives at Walmart are designed keeping the same objectives in mind. Ongoing engagement with suppliers under sustainability programme helps Walmart sustain the market share in long run by making products more affordable through cost cutting, meeting the growing regulatory requirements, offering wide range of products to its customers, and managing suppliers more effectively. Information collected through this survey on continual basis helps Walmart understand how its suppliers are stacked up. Survey data can highlight the inefficiencies in supplier’s the system and
value chain. For example, GHG footprint and energy intensity can show the supplier’s energy bills. Now Walmart can compare the data from two different suppliers who supply similar product and assess who is more efficient in terms of energy intensity. Walmart can then work with the less efficient supplier to adopt best practices from its peers and invest in energy efficiency, thereby reducing the cost of the product. Same logic can be applied in case of waste generation, water usage, packaging, and material efficiency. Eventually Walmart can reduce the waste in its value chain and thereby reduce the cost of the product and thus remain competitive. Also people and community engagement earns social goodwill and trust.

Road ahead for the suppliers
Suppliers need to gear up for this challenge and become more efficient within the framework set up by Walmart. There is proposed reward for the suppliers who have better sustainability index. Besides the reward, here is the business opportunity for the suppliers to differentiate their products in the market. Study by consulting firm BCG shows that the segment of environment conscious consumers is set to grow in future. These consumers will fuel the demand for the products having low carbon footprint, lower environmental and social impact, and consume less energy while in use. Thereby suppliers having higher product index on sustainability can lure this segment of customers. Adopting the sustainability practices leads to cost cutting, production innovation, and thus increase in profits. Supplier’s can follow the steps depicted in the schematic to initiative the actions to respond to the survey questionnaire and begin journey towards sustainability in true sense.

Posted in: Sustainability