Make no mistake Walmart’s announcement to eventually implement Eco labels on all products is big news, probably bigger than cap and trade legislation. What Walmart said, in effect, was that its customers would be given more information to make choices among products based on their environmental and social impacts through a sustainability scorecard now being developed with several universities and NGO partners. That means the nearly 100 million US customers a week who shop at Walmart will now have additional insight into the “total costs” of production, not just the price tag they are accustomed to seeing. Walmart believes customers will want to know where products are made and how they are produced and they expect this to become the new normal in retail.
Why is Walmart doing this? During their July Milestone Meeting in Bentonville Arkansas, Mike Duke, the CEO explained that most of the great retailers of the past were unable to appeal to their next generation of customers because they had either failed to change with them or had become less relevant. While Walmart knows it has, and must continue, to deliver on their promise of “More for Less”, it is now concerned about how to deliver on the “Live Better” part of the slogan; especially if these new consumers prefer products made with sustainably in mind (see Joel Makower’s “Why Doesn’t Green = Better“). Mr. Duke noted that the children of today’s customers care deeply about environmental matters. To the largest retailer in the world it is not only a matter of staying close to their future customers but also managing brand risk by not appearing to be out of touch with their present day customers.
Walmart is taking the lead in focusing their suppliers on their carbon and resource footprints as a way to drive competitive advantages and protect their brand. With tens of thousands of partners around the globe they feel they have the opportunity to not only improve the quality of the products they offer but also eliminate sources of unnecessary costs deep within their supply chain. To make the point Walmart explained that by focusing on packaging and transportation efficiency in 2008 they were able to increase case load by 3% while driving 90 million fewer miles and saving $200,000 in the process. They accomplished this by using more fuel efficient trucks, filling truck tires with nitrogen and working with suppliers to increase packaging density and deploy more intelligent routing. To accomplish this Walmart had to work closely with their suppliers to reduce the amount and size of packaging used to ship products. This sort of Supply Chain collaboration will become the model of Operational Excellence as companies seek to meet Walmarts sustainability targets.
Product Label Transparency
About 40% of the products sold today at Walmart and Sam’s Club are private label products. These are products where Walmart deals directly with the manufacturer to eliminate name brand owner markups. This is especially significant as it will likely be these trading partners who will be the first wave of manufacturers to provide information needed to create the eco label. Since Walmart is, in effect, the brand owner they have every right to require disclosure on all hazardous materials, energy consumed, Green House Gases (GHG) emitted or water consumed during manufacturing and shipment to Walmart Warehouses but they stopped short of requiring this level of detail, at least for now (see “It’s Easy Being Green, The Meaning of Eco-labels”). To get traction quickly they are asking 15 simple questions around Energy and Climate, Material Efficiency, Natural Resources, People and Community. Straightforward questions like: Have you measured your corporate greenhouse gas emissions? Have you measured water use and waste generation? Do you know the origin of all the components in your product? Do you know where your components are made and do the factories follow local laws?
Risk Management
As the largest retailer, Walmart drives more resource consumption than any other business in the world. In a crowded world of 6.7 billion, expected to balloon to 9 billion by 2050, there is a practical limit to the amount of resources we can continue to harvest if everyone wants a lifestyle similar to those enjoyed in the developed countries. Walmart understands that under as a business-as-usual scenario within a few short decades resource constraints will pit the “haves against have nots” and prices will begin skyrocket. Not good for their business…
A closer look into the current economics of first world production, distribution and consumption reveals horrible inefficiencies from a system perspective. Nearly half the electrical energy produced is wasted within the distribution system and by inefficient appliances, half the food production in the US is ultimately thrown away and cheap energy and globalization has produced incredibly complex supply chains that are fragile and bloated with unneeded costs.
The Future of the Supply Chain
The days of linear supply chains and arms length business relationships are coming to an end. Globalization killed it and in its place are now value chains and networks that are both competitive and codependent on a flow of information from consumers to manufacturers. Walmarts sustainability initiative is not about crushing suppliers or stealing their IP or creating new bureaucracies, it is about becoming more efficient, lowering costs, extending natural resources and improving the standards of living of consumers around the globe. In 2006 Walmarts price competitiveness was thought to have resulted in savings for consumers of over $287 billion, or $2,500 per household according to Global Insight an independant research firm. Walmart knows it must squeeze this waste and more out of production and transportation systems to remain the top retailer. And as Martha Stewart would say “that’s a good thing” for the next 3 billion people on the way.