Wal-Mart ups the ante on sustainability

When Wal-Mart made a pledge toward sustainability in 2006, many thought it would be a passing phase. But in 2013, suppliers are getting a wake-up call as the retail giant will begin probing into and rating products by sustainability standards.

Last fall, Wal-Mart asked 3,000 of its largest suppliers for climate change disclosures as measured through the Carbon Disclosure Project (CDP). Only 37% responded.

Duncan Mac Naughton, chief merchandising officer for Walmart U.S., noted last year in the retailer’s Greenroom blog, “Working in partnership with nearly 100 other companies, we think we’ve found an innovative way to drive change. The Sustainability Consortium has begun delivering tools to our product buyers to help us evaluate product and supplier sustainability."

He said there are scorecards and other metrics that let buyers compare one supplier’s products with another.

“We have started integrating this work into our buying processes. Every buyer will have sustainability goals as part of his or her objectives, and we will use the Index as the tool to measure progress against those goals. We’ll recognize and reward those buyers and suppliers who are doing well. We will also ask suppliers who aren’t performing well to develop plans to improve, and we’ll hold them accountable for showing progress,” Mac Naughton noted.

He admitted this wasn’t the easiest topic to take on but it is becoming part of how business is done at Wal-Mart.

“We’re keeping at it, and we are delivering. The Sustainability Index…coming soon to a shelf near you,” Mac Naughton said.

Analysts say Wal-Mart has grown impatient with suppliers and is now more or less forcing their hand, as products ranking high will get on the shelf and those falling short of sustainable goals will be discontinued.

Buyers (Wal-Mart employees who buy from vendors) are the frontline decision makers for what products get approval and there is now a financial incentive for them to weed out the suppliers who fail to comply with sustainable initiative. Five percent of a buyer’s performance objective must come from sustainable suppliers

It’s Walmart’s most ambitious environmental endeavor thus far, said Greg Stine, president and CEO of SustainEdge, a sustainability consultant firm who works with smaller to medium size suppliers and businesses to develop sustainable practices. This initiative has the weight to change the way all sorts of products are made. The sheer scale of Wal-Mart and its 150,000 SKUs (stock keeping items) is monumental, Stine said.

SustainEdge works directly with suppliers who will soon be rated and ranked according to their peer competitors. It’s fair to say some suppliers have mixed emotions about the mandate, while others have willingly jumped aboard. Miller Coors has reported it has worked with barley farmers to reduce their use of water and pesticides. Procter & Gamble has said the Wal-Mart questions were basic for any company operating responsibly.

Small business owner Jan Long said her product, Mr. Canary bird feeders, are sustainable in that they are made from recycled plastic. She also redesigned the packaging to take-up half the designated shelf space and was rewarded with 2,000 additional stores this year.

Kantar Retail analyst Leon Nicholas said Wal-Mart is keenly focused on its productivity loop, determined to squeeze $2 billion in price savings this year, with another $4 billion committed by 2017. That comes from efficiency improvement in operations and throughout the supply chain.

A growing portion of those efficiencies are a result of Wal-Mart sustainability initiatives – which have saved $150 million in fiscal 2013. In 2010, Wal-Mart set the goal to cut 20 million metric tons of greenhouse gas emissions from its global supply chain by 2015.

“Suppliers will be looked at hard to reduce packaging by 5% this year moving toward this 2015 goal. I would not be surprised to see another goal for further reduction this fall,” said Kantar Retail analyst Robin Sherk.

By the end of 2017, Wal-Mart has said 70% of the goods it and Sam’s Club sell will be from suppliers that use the sustainability index.

Nicholas says companies who make private label products for Wal-Mart will also be chosen based on their sustainability scores.

“Wal-Mart is definitely taking a stand here, he said. “They are quite serious about it and suppliers large and small need to be ready.”