by Thomas Wailgum

Wal-Mart Orders Suppliers to Go Green, and Some See Red

Jul 20, 20095 mins
Enterprise ApplicationsIT LeadershipSupply Chain Management Software

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.

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.

Read “How Wal-Mart Lost Its Technology Edge” and “The Real Pirates to Worry About: Chinese Manufacturing Partners After Your IP Booty”

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.

Joel Makower, a green business analyst and executive editor at, points out more critically on his blog, “Like so many things related to both Wal-Mart and sustainability, there is both more and less going on here than meets the eye.”

“Despite what the headlines have been saying the past few days, this isn’t a product-rating scheme—at least not yet, and likely not for several years,” Makower writes. “Wal-Mart isn’t rating, grading, or ranking companies, let alone products. It hasn’t established a set of criteria or set a bar for performance. This isn’t an eco-labeling scheme.”

Wal-Mart’s sustainability index “is a means for providing transparency about companies, allowing them and others to compare companies to one another, showing how each performs,” he adds. “The information will be one of many factors [Wal-Mart] will use to assess companies. It may be a tiebreaker, all other factors (price, quality, availability) being equal.”

When Wal-Mart Says Jump, Suppliers Say…

Of course, there is virtually no downside for Wal-Mart in leading this sustainability initiative, as analysts have pointed out.

However, once again, it is Wal-Mart’s suppliers that will feel the pain of forced change, questionable benefit for their businesses and new financial burdens. “This is one small step for Wal-Mart and one giant leap for Planet Earth,” writes Moss Kanter. “It is also one enormous demand on suppliers, among them many small companies that will feel crushed by the giant’s new non-carbon footprint.”

So what will this cost a Wal-Mart supplier? Bruce Richardson, AMR Research’s chief research officer, points out in a blog that one retail consultant estimates that a new labeling and redesign system can add 1 percent to 3 percent to the cost of a product.

But just how much do consumers actually understand or care about carbon-emission labels? In an interview with, Edgar Blanco, a research associate at MIT’s Center for Transportation and Logistics, noted that “consumers have expressed in surveys that they are interested in this, but in the key moment of purchase, it’s unclear how much more they are willing to pay. And that’s what companies are struggling with.”

As for now, Wal-Mart executives will bask in a greenish glow and the company’s fledgling environmentally-friendly status.

“Wal-Mart has gone well beyond talking the talk here. It’s changing the game,” writes’s Makower. “How quickly and dramatically the game really changes will be something we’ll all be watching, very closely.”

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