Wal-Mart's Green Strategy: Supply Chain Makeover Targets Chinese Manufacturers

Wal-Mart has demanded that its Chinese suppliers adhere to green, environmentally friendly and product safety standards. But experts say that ensuring compliance in the complicated, vast network of Asian suppliers will be nearly impossible.

When you think of "green" and environmentally-friendly retailers, Wal-Mart is likely to be the last retailer that comes to mind. But Wal-Mart has a vision of going green, and the world's largest retailer is now demanding its suppliers, including the massive number based in China, live up to environmentally friendly manufacturing practices and product-safety guidelines to make that vision come true.

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To that end, Wal-Mart recently brought together more than 1,000 of its leading suppliers, in Beijing, to tell them that big changes were in store. All of the suppliers in Wal-Mart's universe—not just those from China—were soon going to be held to higher manufacturing and operations standards, to "build a more environmentally and socially responsible global supply chain" at Wal-Mart, announced company executives.

Wal-Mart HQ

This bold and very green message, delivered by CEO Lee Scott, was unambiguous: "A company that cheats on overtime and on the age of its labor, that dumps its scraps and chemicals in our rivers, that does not pay its taxes or honor its contracts—will ultimately cheat on the quality of its products. And cheating on the quality of products is the same as cheating on customers," Scott told the crowd of Wal-Mart suppliers, Chinese government officials and other attendees.

"We will not tolerate that at Wal-Mart," Scott stated.

The specifics of the new policies, requirements and deadlines for what Wal-Mart called its "Global Responsible Sourcing Initiative" were equally as bold, and most were targeted at suppliers based in China.

A new supplier agreement, for example, sets out the requirements:

  • Manufacturers' facilities must certify compliance with laws and regulations where they operate as well as rigorous social and environmental standards, set by government agencies, beginning with suppliers in China in January 2009 and for all other Wal-Mart suppliers by 2011.
  • By 2012, suppliers must work with Wal-Mart to make a 20 percent improvement in the energy efficiency inside the top 200 factories in China that Wal-Mart directly sources from.
  • Suppliers must create a plan to eliminate, by 2012, defective merchandise reaching the Wal-Mart supply chain.
  • All of Wal-Mart's direct import suppliers, plus all suppliers of private label and non-branded products, must provide the name and location of every factory they use to make the products that they sell to Wal-Mart.
  • And by 2012, all suppliers Wal-Mart buys from directly must source 95 percent of their production from factories that receive the highest ratings on environmental and social practices.

In effect, Wal-Mart was telling its suppliers that to get its business, suppliers must make their operations environmentally friendly and socially responsible, and ensure that their suppliers' business practices and operations are greener than they ever have been.

The nagging question, however, is whether Wal-Mart and its supplier base can pull this off. Or, will this become another RFID misadventure for its suppliers—too much money, too short a deadline and too little ROI.

"Given the time lines that Wal-Mart specified in this initiative," says AMR Research VP Noha Tohamy, "saying that this is a hard task is an understatement. It's going to be near impossible to do some of the things they outlined."

Wal-Mart's Green Strategy—Why Now?

In announcing the new green and product safety policies and requirements of its suppliers, the world's largest retailer is aiming to do many things.

No doubt, a driving force behind a greener Wal-Mart—especially with the thousands of Chinese suppliers it works with—is to improve Wal-Mart's battered corporate image in the United States and abroad by holding suppliers to stricter manufacturing, product safety and environmental requirements. CEO Scott receives much of the credit for taking this critical first step, says Tohamy. "All along, Lee Scott has been pretty committed to this goal," she adds.

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