On July 16, Wal-Mart Stores Inc. announced plans to develop a sustainable product index based on supply chain data collected from its worldwide suppliers. The announcement was made at a meeting with 1,500 Wal-Mart suppliers and associates at the retail giant’s headquarters.
“Society’s expectations of retail are changing in three fundamental ways,” said Mike Duke, Wal-Mart’s president and CEO. “First, the economic crisis is leading consumers toward a new normal, where they not only want to save money; they are getting smarter about saving money. Second, in this age of social networks and instant information, consumers increasingly expect more transparency on the products they buy. Today, there is no trust without transparency.
“There’s a third, longer-term shift,” continued Duke. “We’re living in a world of increasing population and decreasing natural resources: 6.7 billion people now live on this planet. Every second, four new human beings are born, and the global population is expected to reach more than 9 billion by 2050.”
These fundamental changes are driving the need for a rating system consumers can use to evaluate the sustainability of the products they purchase, Duke said. “Customers want products that are more efficient, that last longer and perform better,” he added. “And, increasingly, they want information about the entire lifecycle of a product so they can feel good about buying it. They want to know that the materials in the product are safe, that it was made well and that it was produced in a responsible way.”
The five-year process will begin with a worldwide survey of Wal-Mart suppliers. The survey asks 15 questions about each supplier’s goals to reduce energy costs and greenhouse gas emissions, cut waste, enhance quality, responsibly source raw resources and produce products responsibly and ethically.
“The survey is a key first step toward establishing real transparency in our supply chain,” remarked John Fleming, chief merchandising officer at Wal-Mart.
“Like our customers, we now expect more of ourselves and our more than 100,000 suppliers around the world,” Duke added.
As the second step, Wal-Mart will create a Sustainability Index Consortium—a group of universities that will develop a global database of information on the lifecycle of products— from raw materials to disposal. Wal-Mart has provided initial funding for the consortium, which will be jointly administered by Arizona State University and the University of Arkansas. The retailer will also partner with one or more technology companies to create an open platform that will power the index.
“It is not our goal to create or own this index,” said Duke. “We want to spur the development of a common database that will allow the consortium to collect and analyze the knowledge of the global supply chain. We think this shared database will generate opportunities to be more innovative and to improve the sustainability of products and processes.”
The final step in developing the index will be to translate the information into a rating consumers can use to evaluate the sustainability of products. How the rating will appear on products has yet to be determined, but Wal-Mart said it could be a numeric score, color code or some other type of label.
The giant retailer’s announcement is likely to trigger some unpleasant memories in the minds of veteran material handling professionals. In 2003, Wal-Mart began requiring its suppliers to use RFID tags. The move greatly increased costs associated with material handling and logistics, and many suppliers saw the directive as a major compliance burden.
To find out how the new mandate might impact material handling operations, MHM asked Rich Becks, senior vice president of strategic supply-demand solutions at E2open Inc., a provider of on-demand supply chain management software, for his insights.
“The RFID mandate was a hardware and productivity initiative,” Beck says. “This is a market initiative. Wal-Mart is trying to ensure it is on the right side of a mega-trend. This is a major milestone. Wal-Mart senses a growing segment of its customer base is aware of sustainability, and it expects buying habits to change.”
Suppliers that rise to the challenge by embedding sustainability into logistics operations, moving toward something Beck calls “ecooperations,” will be better positioned to compete in a resource-constrained world, he says.
“Sustainability really means short- and longterm profitability,” he adds. “Lean and green are related. Companies that get savvy on footprint analysis and critical- resource analysis, along with those that have people in their organizations hunting waste, will be able to meet Wal-Mart’s requirements and make money. It’s all about positioning, sustainability and long-term profitability.”
Wal-Mart’s 15 Questions
The first step in the creation of a sustainable product index will be a survey of Wal-Mart’s 100,000 global suppliers. The survey is divided into four areas: energy and climate, material efficiency, natural resources and people and community. Following are the questions, which top-tier suppliers are being asked to answer by Oct. 1.
Energy and Climate
1. Have you measured your corporate greenhouse gas emissions?
2. Have you opted to report your greenhouse gas emissions to the Carbon Disclosure Project?
3. What is your total annual greenhouse gas emissions reported in the most recent year measured?
4. Have you set publicly available greenhouse gas reduction targets? If yes, what are those targets?
1. If measured, please report the total amount of solid waste generated from the facilities that produce your product(s) for Wal-Mart for the most recent year measured.
2. Have you set publicly available solid waste reduction targets? If yes, what are those targets?
3. If measured, please report total water use from facilities that produce your product(s) for Wal-Mart for the most recent year measured.
4. Have you set publicly available water use reduction targets? If yes, what are those targets?
1. Have you established publicly available sustainability purchasing guidelines for your direct suppliers that address issues such as environmental compliance, employment practices and product/ingredient safety?
2. Have you obtained third-party certifications for any of the products that you sell to Wal-Mart?
People and Community
1. Do you know the location of 100% of the facilities that produce your product(s)?
2. Before beginning a business relationship with a manufacturing facility, do you evaluate the quality of, and capacity for, production?
3. Do you have a process for managing social compliance at the manufacturing level?
4. Do you work with your supply base to resolve issues found during social compliance evaluations and also document specific corrections and improvements?
5. Do you invest in community development activities in the markets you source from and/or operate within?