Wal-Mart Orders Suppliers to Go Green, and Some See Red
Wal-Mart has never been shy about telling its suppliers to make a big change, such as RFID tags. But its newest mandate to suppliers -- a "green" product rating system -- could be particularly complex and costly to achieve, some analysts say.
Mon, July 20, 2009
CIO — A famous superhero once noted, with trepidation: "With great power comes great responsibility." Retail juggernaut Wal-Mart, with $401 billion in worldwide sales, has always wielded the "great power" part with its suppliers.
For better or worse, Wal-Mart has pushed itself and its legions of suppliers to adopt new merchandising and IT systems, sometimes before the new techs, the suppliers and their supply chains were ready—from bar codes and point-of-sale scanning technologies, to electronic data interchange (EDI) and radio frequency identification (RFID), to name but a few.
By 2008, however, Wal-Mart executives appeared to have embraced the "great responsibility" piece of Spider-man's ethos. In fall of 2008, for instance, Wal-Mart brought together more than 1,000 of its global suppliers in Beijing and delivered a bold, eco-conscious message: "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," former CEO Lee Scott told the crowd. "We will not tolerate that at Wal-Mart."
Wal-Mart unveiled a new supplier agreement that had some environmental and business teeth. The nagging question, then and now, however, is whether Wal-Mart and its supplier base can actually pull off this supply-chain makeover.
Will this ultimately become another RFID misadventure for its suppliers—too much money, too short a deadline and too little ROI? Speculated one AMR Research analyst, "It's going to be near impossible to do some of the things they outlined."
Surveying 100,000 Suppliers
Just last week, Wal-Mart announced a major sustainability initiative, declaring that the Greener, More Environmentally Friendly Wal-Mart was for real.
Wal-Mart's plan: co-develop a worldwide sustainable product index that will establish a "single source of data" to allow Wal-Mart and (eventually) consumers to evaluate the sustainability of Wal-Mart's suppliers' products. In the first phase, all of Wal-Mart's 100,000 global suppliers will be required to answer a survey on practices in four areas: energy and climate, material efficiency, natural resources, and people and community. (Its U.S. suppliers, roughly 60,000 firms, will have to fill their surveys out by Oct. 1.)
In the plan's second phase, Wal-Mart will partner with a consortium of universities, suppliers, retailers and government agencies to "develop a global database of information on the lifecycle of products—from raw materials to disposal," according to Wal-Mart. "The company will also partner with one or more leading technology companies to create an open platform that will power the index."
In the last phase, all of the aforementioned steps and data capture on product information will translate "into a simple rating for consumers about the sustainability of products," notes the Wal-Mart announcement. "This will provide customers with the transparency into the quality and history of products that they don't have today."
The new sustainability initiative is being hailed by many industry watchers as a "game changer," as Rosabeth Moss Kanter, the Ernest L. Arbuckle Professorship at Harvard Business School, writes on her blog. "Wal-Mart's unilateral decision to put its purchasing and communication power behind going green also shows that a single company using its unique clout can accelerate public action to reduce greenhouse gases and reverse climate change," she writes.