Wal-Mart told its global suppliers they have until 2017 to comply with its sustainability initiative or risk losing shelf space.
The retailer said Thursday (Oct. 25) during a conference in Beijing it is expanding its sustainable supply chain commitment with a series of initiatives that entail measuring and scoring products via the retailer’s “sustainability index."
Wal-Mart first rolled out the sustainability index in 2009, which evaluates products in 107 categories, such as apparel, electronics and toys. The index uses metrics developed by an independent consortium on sustainability.
The company said its merchandise buyers are already using the index to influence regular buying decisions. To date, more than 500 suppliers have participated in the sustainability index. But the surface has barely been scratched as Wal-Mart has more than 55,000 active suppliers worldwide.
The impact of these commitments will be global and make a difference with products sold around the world, Mike Duke, CEO of Wal-Mart Stores Inc., said Thursday.
For example Wal-Mart's computer buyer used the sustainability index to identify opportunities to reduce greenhouse gas emissions and save energy from laptops. Only 30% of laptops sold by Wal-Mart were using "advanced power management" – a feature that switches the computer to a lower power state when it's idle or used at a reduced energy capacity.
The industry had a standard for activating "sleep" mode when a computer's system is in 30 minutes of inactivity. Wal-Mart's computer buyer asked suppliers, when possible, to shorten the time to 10 minutes of inactivity. Wal-Mart now has a goal for 100% of the computers it sells this holiday season to have advanced power management as the default setting. The retailer says this change will eliminate more than 200,000 tons of greenhouse gas emissions and save customers money on electricity bills.
'A CLEAR MESSAGE'
It’s no coincidence Thursday’s sustainability announcement was made in China, where Wal-Mart has more than 20,000 suppliers. Under the new terms, dozens of toy makers, technology manufacturers and garment factories must improve energy efficiency and waste reduction if they want to stay on the Wal-Mart shelves.
The retailer said that by the end of 2017, U.S. Walmart and Sam's Club stores will get 70% of their goods from global suppliers that use the sustainability index.
"This will send a clear message to the Wal-Mart supply chain that if you want to grow and partner with us for the long term, you will engage with us on the sustainability index," Duke said during his speech in Beijing.
Duke said the retailer's toy buyers visited Chinese factories recently with the index in hand to judge energy usage and check on whether the plastics used in the toys were safe for factory workers and their communities. He said the index is providing a full picture of the sustainability of products, from social to environmental issues, from the impact on workers to the impact on the planet..
Beginning in 2013, Wal-Mart will use the sustainability index to influence the design of its U.S. private brand products.
GLOBAL SOURCING SHIFT
Wal-Mart said it will also change the way its key global sourcing merchants are evaluated so sustainability becomes an even more important part of buyers' day-to-day jobs. In 2013, these global sourcing agents will join key buyers in Walmart U.S. and Sam's Club who already have specific sustainability objectives on their annual evaluations.
The cost of implementing sustainability into the supply chain falls squarely on manufacturers' shoulders. But the Walmart Foundation said it will grant $2 million to help fund efforts to launch China’s own Sustainability Consortium.
Dr. David Hyatt, a professor in supply chain management at the University of Arkansas, has been involved in a two-year study that looks at the impact and cost of implementation for supplier compliance to sustainability standards from a number of leading retailers. He said there are large front-end costs for those companies leading the way in product packaging and distributing innovation. But he said those costs are balanced in part by the fact that innovators will have competitive market advantages going forward.
This next phase of compliance required by Wal-Mart should fuel more discussions between the retailer and its global supplier base, Hyatt said.
Despite the fact that consumers are often willing to pay more for a sustainable product, Hyatt says that’s not part of the plan at Wal-Mart. The retailer continues to push suppliers to achieve lowest cost inventories so it can deliver on its everyday low price pledge to consumers – a strategy that is paying off in a big way.
During Wal-Mart’s second quarter the retail giant posted total revenue of $65 billion – just about 7 cents of every dollar spent by U.S. consumers, excluding auto sales.
Moving forward, major consumer product suppliers to Wal-Mart said this week they will continue to try and streamline operations and cut overhead costs to deliver more value.
By the end of the month, Procter & Gamble Co. will be more than 70% of the way to its goal for reducing headcount by 5,700 positions under a $10 billion restructuring program announced in February.
CEO John Moeller told analysts and reporters Thursday (Oct. 25) that P&G would reach 4,200 job cuts by the end of October. He said the company would deliver a $1.2 billion reduction in its cost of goods sold this year, thanks to previously announced restructuring efforts.
Colgate-Palmolive Co., the world’s largest toothpaste maker, said it will cut its global workforce by 6%, or about 2,300 jobs, in a four-year restructuring program aimed at cutting costs amid slowing economies on the world stage. These streamlined efforts are expected to save $365 million to $435 million annually by the fourth year, Colgate said. The company has roughly 38,600 employees.
Colgate says it is working to boost profit by reducing structural costs, improving the supply chain and increasing the use of global data and analytic capabilities.
On Wednesday, Kimberly-Clark Corp, maker of Huggies brand diapers, said it would eliminate 1,300 to 1,500 jobs as it leaves some low-margin businesses in Europe.
Each of these suppliers is already onboard with Wal-Mart, with their own sustainability initiatives in the works as well.