SUSTAINABILITY

READINESS

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GREENING / Supply Chain

By Erica L.PIambeck ' Erica Piantbeck{planibeck_erica@gsb. stanford.edu) is Associate Professor of Operations, Jnforwalioii iinil TVc/iwo/o^y in the Graduate School of Business and Senior Fellow in the Woods Institute for Environment at Stanford University.

Wal-Mart's

In October 2005, Wal-Mart CEO Lee Scott committed the company to three ambitious goals: To be supplied 100 percent by renewable energy; to create zero waste; and to sell products that sustain Wal-Mart's resources and the environment.This is the story of Wal-Mart's progress toward those goals and the array of innovative practices that WalMart is implementing to "green"
its supply

n October 200S, in an auditorium filled to capacity. WalMart President and CEO Lee Seoti mndc tht- company's first speech to be broadcast to 1,6 million employees in all 6,000 plus stores worldwide^and shared with its 60,000pliis suppliers. Scott announced tbat Wal-Mart was laitnebing d sweeping business sustainability strategy to dramatically reduce tbe company's impact on the global environment and tbus become "tbe most eompetitive and innovative company in tbe world.' He argued tbat "being a good steward of tbe environment and being profitable are not mutually exclusive. They are one and the same." Scott also committed Wal-Mart lo tbree aspiratlonal goals: "To be supplied 100 percent by renewable energy; to create /.ero waste; and to sell products that sustain our resources and tbe environment."' To meet tbose goals. Wal-Mart would seek to transform its supply chain, in cooperation with suppliers and environmental nonprofit organizations. Cwen Rutta, Director of Corporate Partnerships at Environmental Defense, was e.veited about \^orking uitb Wal-Mart: "'Weve come to belie\e tbrough experience tbat you really can create environmental progress by leveraging corporate purchasing power," sbe said. "And wbo's got more purcbasing [lower than Wal-Mart?"" Indeed. Lee Scott's cooperative business sustainability strategy would go mucb fiirtber tban tbe retail giant's earlier green initiatives. In tbe ]>ast, Wal-Mart had dealt witb environmental issues defensively, rather tban eooperatively, proactively, and as profit opportunities. In 1989, in response to letters from customers about environmental concerns, the company bad faimched a campaign to conx'ince its sup|iliers to provide environmentally safe products in recyclable or biodegradable packaging. The large-scale effort met witb some skepticism from commentators who believed that it was intended to generate benefits for Wal-Mart at its suppliers'expense.'

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Nevertheless, tbe company did earn some "goodwill among environmentalists [as] the first major retailer to speak nut in favor of the environment in 1989."^ Wben vendors claimed tbey bad made environmental improvements to products. Wal-Mart began promoting the products with green-colored sbclF tags (witbout measuring or monitoring tbe improvements tbemselves). At one point, tbe company sold as many as 300 products with green tags. But not all tbe beadlines were positive. One large supplier was exposed for stretcbing its claim to offer environmentally friendly paper towels, and Wal-Mart and the supplier were heavily criticized."^ By tbe early 1990s, tbe green tag program disappeared altogetber, and environmental issues seemed to slip off the company's list of strategic priorities. Lee Scott, along witb Andrew Ruben and Tyler Elm, vice

president and senior director of corporate strategy and business sustainability, respectively, recognized that in contrast to tbose early campaigns, tbeir new sustainability strategy would need to be deeply embedded in Wal-Mart's o[)erations and supply cbain management to meet the ambitious goals set in 2005. Elm put it this way: "We recognized early on tbat we had to look at tbe entire value chain. H we had focused on just our own operations, we would have limited ourselves to 10 percent of our effect on the environment and eliminated 90 pereent of tbe opportunity tbat's out tbere."''

Looking Outside the "Bentonville Bubble**

In 2005, witb that recognition in inind, i^uben hired lilu Skye Sustainability Consulting to belp identify tbe categories of Wal-Mart's products and processes that bad tbe greatest

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environmental impact. Tbe Wal-Mart/Blu Skye team multiplied sales data witb environmental impact factors from tbe Union of Concerned Scientists," and identified 14 focal areas, bundled into tbree broad categories: renewable energy; zero waste; and sustainable products. (See Exhibits 1 and 2). For each focal area, an executive sponsor (primarily at the executive vice president level) and a network eaptain (typically a senior vice president) took charge of building a sustainable value network of Wal-Mart employees and representatives Irom government, academia, environmental nonprofits, suppliers, and other stakeholders. The goal was to reduce environmental impacts and derive profit from tbat positive change. Network captains were typically senior managers from Sam's Club or Wal-Mart who were considered lo be among the companys top performers. Whereas Wal-Mart had previously been notorious for being internally and operationally focused, the network captains were charged to look outside "tbe Bentonville Bubble" for strategic input and asked to start "pulling ideas from everywbere," even from critics."
EXHUITl

Wal-Mart's 14 Sustainable Value Networks

Renewable Energy Global Greenhouse Gas Strategy Alternative Fuels Energy, Design Construction & Maintenance Global Logistics Operations & Internal Procurement Packaging Sustainable Products Textiles Electronics Food & Agriculture Forest & Paper Chemical Intensive Products Jewelry Seafood China
Source: Wai-Marl

Ark. headquarters to work within tbe networks. However, Wal-Mart strategically deeided iiol to bire associatesemployeesto work on sustainability on a full-time basis, but instead to embed sustainability in tbeir daily work. Elm explained tbe approach: "Business sustainahility isn't something you're doing in addition to your job. It is a new way of approacbing your job." To help make that lean model viable and because WalMart lacked internal expertise in environmental sustainability. tbe company bired one or more external advisors from Blu Skye or Rocky Mountain Institute (RMI) for each network. To capitalize on tbe incoming ferment of creative ideas, many ol the 14 networks implemented new supply chain management practices. Across all 14 networks, tbe leaders intensified tbe company's efforts to move toward stronger relationsbips witb a relatively small number of suppliers. Witb assistance from its network partnersthe environmental nonprofits and eonsultantsWal-Mart set a goal of motivating suppliers to "race to tbe top" in improving tbe environmental sustainability of products and processes. The new supply chain management practices associated with this initiative are summarized bere, and described in greater detail below, witb examples drawn from (he company's global logistics, China, seafood, eleetronies, and textiles networks. Wal-Mart is engaging its array of network partners to; 1. Design goals and metrics for monitoring the environmental performance of suppliers' products and processes, and identify breaktbrougb product and process tecbnalogies. 2. Certify suppliers and oversee the chain of custody for eco-Iabeled pniducts, 3. Assist suppliers wilb process innovation especially the lower-tier suppliers tbat were previously less visible to Wal-Mart. Wal-Mart also is implementing tbe following cooperative supply cbain management practices to motivate suppliers to reduce tbe environmental impacts of their products and processes:
EXHIBIT2

Wal-Mart's Sustainable Value Network Structure

Environmental groups joined tbe networks with some trepidation. As a i-itianciiil Times article put it, "P'or membersbip-based environmental groups, such as tbe Sierra Club, and otbcrs tbat seek to work in eoalition witb student and labor campaigners, engaging witb tbe biggest villain on tbe block presents risks ot losing support and funds.'"* However, many such organizations decided tbat tbe advantages of being able to belp influence Wal-Mart's environmental performance outweighed any negative repercussions from tbe association. Seeking tbe opportunity to drive positive environmental ehange on a massive scale, nonprofits and nongovernmental organizations (NGOs) such as Environmental Defense stationed employees in the company's Bentonville.

Government Organization Thoiigtit Leader

Source: Wai-Marl

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4. Commit to buy a specified quantity of an inno\ative produet. 5. Eliminate Intermediaries and brukers In the supply chain. 6. Consolidate business with a seleet "roup of direet suppliers and develop longer-term strategie relationships with each of those suppliers. 7. Redesign the buying organization to give one person responsibility for nurturing the relationship with each direet supplier and for handling negotiations with that supplier on pricing, quality, and environmental innovation. 8. Bncourage licensing of en\ironmental inno\'ations. Each of these numbered points is illustrated below with examples from the various networks.

use less packaging, utilize more effective materials in packaging, and source tbese materials more efficiently rclati\'e to other suppliers."'"' The scorecard is an important enabler for Wal-Mart to achieve its public goal of reducing the packaging used by al! of its suppliers hy 5 pereent between 2008 and 201.^. If achieved, this fi\e-year program is expected to generate $3.4 billion in savings. In the first month, 2,268 vendors have logged onto the paekaging scorecard site and 117 produets have been entered into tbe system. 2. Certifying Environmentally Sustainable Products According to an international study released in 2006, all species of wild seafood are greatly depleted and predicted to collapse within 50 years." Within this ominous business environment, Wal-Mart sourced approximately $750 million in seafood in 2006. and the eompany's volume of seafood business is growing at roughly 2S percent a year. "I am already having a hard time getting supply,'" said Peter Redmond, vice president for seafood and deli, and captain ot the Wal-Mart seafood network. "If we add 250 stores a year, imagine how hard it will be in five years."' Redmond believes that ct)ntinuity of supply is the greatest challenge for Wal-Mart's seafood network, and sees the Marine Ste\^ardship CounciFs certification program for wild-caught iish as the best means for addressing this challenge. The Marine Stewardship Council (MSC). estahlished by Unilever and the W'brld Wildlife Fund (WWF) in 1997, has defined standards For certification as a sustainable fish-

1. Identifying Goals, Metrics, and New Technologies Speiiking to the task of idemilying elficient new technologies and goal-setting, sustainability director Elm said: "The value of the netwx.)rk approaeh is that the goals grew as the spirit of the possihle grew. [For example.] the involvement of groups like Rocky Mountain Institute in our logistics program bad a tremendous impact on how much and ho\v quickly WalMart recognized it could drive ehange. Initially, the logistics network was going after incremental gainsfor example. improving the efficieney of Wal-Mart's trucking fleet by a few pereent over several years. But now they plan to double its efRcieney in 10 years." With guidance from RMI, Wal-Mart started to procure byhrid diesel-eleetric trucks and refrigerated trucks that leatured a small power unit for eooHng so the engine could be turned off v\hen the truck was stopped. In the Hrst year of the program following Lee Scott's announcement, the logistics network achieved t o hire associates employeesto work on roughly a 2S j^ercent improvement in fuel effi- sustainability on a full-time basis, but instead to ciency, meaning almost $75 million in annual savings and 400.000 tons of CO, per year that embed sustainability in their daily work. did not enter the atmosphere. For its part, the packaging network implemented a Web-based scorecard that would evaluate each ery, hased on the United Nations' Code of Conduct for product's packaging against nine sustainability metrics, Responsible Fishing and on input from fishermen, retailers, including cube utilization, recycled content, CO^ per ton ol government, nonprofits, and other stakeholders. The MSC production, and recovery value. The scorecard was devel- certifies third parties to audit and certify' fisher)' and procesoped with input from the 200-plus members of the packag- sor compliance throughout the supply chain, from "hoat to ing network, including nonprolks, the U.S. Environmental plate."'- An MSC eco-Iabel on the finished product signals Protection Agency, Wal-Mart's direct suppliers, packaging to consumers that the fish has been harvested and processed suppliers, and other stakeholders. Wal-Mart's more than in a sustainable manner. By raising consumer av\'areness, the 60,000 suppliers were asked to use the scorecard throughout MSC hopes to drive demand and thus motivate the industry' calendar 2007 to see how their packaging innovations, envi- to shift to more sustainable fishing practices.'* ronmental standards, energv' efficiencies, and use of materiIn its textiles network, Wal-Mart is partnering with envi.ils rated relative to tbeir peers. Beginning in 2008, Wal-Mart ronmental nonproRts to select standards for organic cotton formally planned to use the system to "measure and recogni/e farming and manufacturing processes and relying on those its entire supply chain based upon each company's ability to partners to oversee the chain of custody. Kim Brandner,

Wal-Mart strategically decided not

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tion process by doing a preliminary evaluation and identifying specific problems that need to be fixed (e.g. strengthening management practices, rebuilding stocks, and reducing enviWe've ivorked uHth the Organic Trade Association and ronmental impacts before they will qualify for certification by the MSC). the Organic Exchange (OE) to make sure that we are upholding the most stringent guidelines and standards. For Similarly, with the support of nonprofits such as OE, the growth of cotton, we have chosen the U.S. Department Wal-Mart is engaging more deeply in its textile supply chain of Agriculture {USDA) standards. So, regardless of where than ever before. "It used to be that if Wal-Mart was buying the cotton is graivn around the ivorld, the fanners have to Champion t-shirts, they wouldn't look past Sara Lee [which follow USDA guidelines for organic growth. For processing, held the license for Champion products]. They didn't think about the spinner, or the dyer, the ginner, or the farmer," said we're following the Global Organic Textile Standard. Diana Rothschild, former Wal-Mart employee and Blu Skye Third-part)' organizations certify practices at each link in the consultant to the textiles network. Under the new strategy; supply ehain as the cotton moves from farm to factow. "There Wal-Mart employees now interact directly with organic cotare about 150 certification agencies, hut we recognize only the ton farmers to understand their needs as OE helps them to seven that we think are the most strict... Since we're not doing improve farming practicesAssistance from Wal-Mart's network partners is invaluthat paper^vork, our reputation is resting on who ts certif^ang for us, which is why we picked the toughest certification com- able to suppliers and makes doing business witb Wal-Mart panies," said Brandner. Certification paperwork is completed more attractive. Suppliers have a strong incentive to innovate at each step in the process and finally reviewed by Consumer in order to keep Wal-Mart's business. Testing Laboratories (CTL) in conjunction with final product testing. Currently, the cost and labor requirements of certifica- 4. Committing to Larger V'blumes of Environmentally tion are largely absorbed by Wal-Mart's suppliers. Sustainable Products 3. Providing Network Partner Assistance to Suppliers Wal-Mart is able to provide suppliers with valuable knowledge and process assistance through its strong relationships with the environmental nonproHts in its networks. For examBy making a commitment to buy a specified quantity of each product certified as environmentally friendly, Wal-Mart gives its suppliers an incentive to develop and produce tbat product. For instance, in its textiles network, the retailer learned that, along with the cost of certification, farmers faced a near-term reduction in yields v^ith organic cotton farming, as well as the need to diversify crops. "Organic farmers can't grow cotton in the same Reid for an extended time because it depletes the soil of nutrients," said Rothschild. This forced to select standards for organic cotton farming and farmers to alternate the planting of cotmanufacturing processes and relying on those partners ton witb legumes, vegetables, or other cover crops to rejuvenate the soil.'"* to oversee the chain of custody, 'Those alternate crops often cannot be sold as organic and are not as lucrative

senior brand manager of sustainable textiles for Wal-Mart, described Wal-Mart's approach;

In its textiles network, Wal-Mart is partnering with environmental nonprofits

pie, when the Chinese government threatened to shut down a number of textile dye houses, including one of Wal-Mart's suppliers, in order to reduce pollution in Beijing ahead of the 2008 Olympics. Wal-Mart immediately took action. Brandner explains, "[W'e] put the dye house in touch with one of the NGOs in our neUvork, which helped it formulate a more environmentally friendly process that reduced its toxic output ver>'- quickly. Although other retailers v\ere negatively affected by the shutdown of their Chinese dye suppliers, we did not have any of our production capacity cut with this vendor." (n the seafood network. Wal-Mart is relying on the WWT to increase the number of fisheries and processing plants in the MSC certification program. Specifically. WWF helps boat operators and processors prepare to enter the certifica-

as organic cotton. This creates tbe temptation for farmers to turn to non-organic farming," she explained. However, to meet organic standards, a farm needed to remain tree ot non-organic pesticides or simitar materials for a period of three years prior to the harvest of any organic crop.'"" To increase and secure its supply of organic cotton. Wal-Mart made a tive-year verbal eommitment to buy organic cotton from farmers. "'It gives tbem confidence and stability;" said Lucy Cindric. captain of tbe textile network. In addition, to belp reduce uncertainty in the market, Wal-Mart (which became the world's largest purchaser of organic cotton in 2006) also agreed to purchase the organic cotton farmers'alternate crops. In 2006. Wal-Mart also publicly announced a highly ambitious seafood goal to carr)' tOO percent MSC-certified wild-

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caught fisb in its stores within three to five years. As tbe supply Wal-Mart is unlikely to completely eliminate its intermediarof MSC-certified tish is currently far from adequate to meet Wal- ies. Kor example, the former CHO of a major coffee supplier Mart's demand, this public iinnounecmenl is eltectively a com- to Wai-Mart sees excessive risk in eliminating coffee brokers and contracting directly with coffee farmers. His concern is mitment to buy from all fisheries tbat become MSC-certified. In its sourcing of consumer eleetronies. Wal-Mart typi- tbat if a well-known company, such as tbe one be led, concally avoids long-term purcbasing commitments and main- tracted directly with a farmer, and then tbe spot price for tains low inventory' levels because of the industry's bigh coffee went above the contract price, bis company could not uncertainty of demand and significant risks of inventory ot)sotescence. However to acquire personal computers tbat v\ere compliant witb the LU Restrictions on Hazardous Substances (RoHS) Directive as part of its efforts to carry more environ- its sustainahility strategy in the first year of mentally friendly electronics, Wal-Mart implementation were roughly equivalent to the made a commitment to Toshiba to buy 12 weeks' wortb of inventor) as opposed to profits from several Wal-Mart SuperCenters. its more typical four-week commitment. "We'll take tbat risk." said Alex Cook, electronics buyer for hold the farmer to tbe contract price. If it did. then NCOs Wal-Mart. "We want to be tbe first one in the U.S. to sell would criticize the company for barming poor farmers and its reputation would suffer 1 berefore. contracts with coffee RoHS-compIiant PCs." farmers could effectively only place a floor on the price tbat bis company would bave to pay. In contrast, anonymous cof5. Cutting out the Middleman An immediate but unanticipated benefit ot MSC certifica- fee brokers could bold farmers accountable to the contracted tion in tbe seafood networkand of organic cotton certifica- price. Contracts are important for providing incentives for tion in tbe textile network-v\as full visibility ol tbe chain ot investment and securing a supply of coffee, particularly wben custody, and hence the opportunity to eliminate intermediar- prices are low but likely to rise sbarply in tbe near future. ies. Said network captain f{edmond: 6. Consolidating Direct Suppliers Over tbe short term, Wal-Mart bas bad many diverse relationOne of the problems we hud was hou' much of our fish was sbips with many factories, often working witb a supplier one coming to us third-, fourth-, or even fifth-lunui Sovtetimes purebase order at a time or one season at a time. Year to year, our supplier tunicd out to be nothing more tha}i a packer tiiat was going out to a market saying, 7 need SO.OOO pounds tbe eompany may easily switcb from one supplier to another. Tbe result: it has been tough to obtain improvements on issues of salmon no matter where it comes from.' Tlnough the chain sueh as environmental compliance because the retailer's relof custody, we started to see when fish was being handled four evance to those suppliers bas been low. Says sustainability vice or five times, and we kneiv li couldij'i he good for the fish president Ruben: "Rigbt now we account for two pereent of [since texture and flavor fish degrades over time, especially a lot of people's business, especially overseas. We know tbat through freezing and refreezingj. And it's certainly not good needs to be a lot larger^maybe 50 or 60 percent.' for traceubility. It brought us a lol more awareness ahout our base, so noiv things come to us a lot more directly So WakMart is now starting to consolidate its business witb select groups of direct suppliers. "We're trying to stimulate a tiy simplifying its supply chain. Wal-Mart reduced the race for the to[).' explained Laura Phillips, president and divifrei:|uency of seafood stock-outs, improved the quatity of sional merchantlisc manager of entertainment/wireless for Waltbe fisb it was reeeiving. reduced paperwork and transaction Mart and co-captain of the electronics network, I'be race-forcosts, and reduced tbe costs and environmental impacts ot tbe-top concept means that suppliers would be motivated to innovate in environmental perlorniance in order lo maintain or transportation. expand the amount of business tbey received from Wal-Mart. In tbe textiles network, Brandner noted: "We used to buy Tor example. Manish Kumar, CLC) of tbe Fisbin' cotton from Turkey, sbip it to China for spinning and knitting, and tben ship it again to Guatemala to be cut and sew n. Company. Wal-Mart's top supplier of frozen fisb fillets in the Now. by looking more deeply at the supply chain, we re find- U.S. since 2005. was working with tbe WWI- lo draw^ more ing (tpportunities to do tbings like eliminate tbe sbipment to fisheries and processors into the MSC certitic.ition program Cbina and have all processing done in Cuatemala." Going even though tbis added signillcanlly more complexity time, and effort to ibe job witbout increasing near-term profits. direct to Guatemala saved time and money for Wal-Mart. Despite the benefits demonstrated in tbe examples abo\e. "I bad no idea what the iMSC was in January- [2006]." said

At the end of 2006,Wal-Mart found

that the tangible profits generated by

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Kumar, "today, I s[ientl halt my Jay. every day, working on something related to ihe MSC." Kumar felt that his efforts werc helping to secure and expand his business with WalMart in the long-term. "It's definitely brought ns closer. I think there's a lot more trust now in our relationship," he said. "Tbeyre v\illing to let us talk on their behall, delcnd their points, and explain to tbe businesses we work with how important this effort is. And, because we bave tbe muscle of iheir business bebind us, we can go to a plant or a fisher\' and persuade them to become certitied." 7. Restructuring the Buyer Role To better manage relationships witb suppliers, the textiles network implemented a major organizational cbange: It rctlcsigned the role ol ils buyers. In the past, textiles buyers bad been generalisls. bandling a wide variety of responsibilities (as buyers did in otber product categories). The textiles net-

essential to the long-lcrm viability ot Wal-tMart's susiainability strategy because in Wal-Mart's traditional business model, the buyers rotated positions every !2 lo 18 months. Only by increasing the longevity and deptb of personal relationships in sourcing, he believed, would Wal-Mart truly be able to develop and maintain the future-looking, trust-based relalionsbips with suppliers needed to drive ongoing en\'ironmental innovation. 8. Licensing Environmental Innovations In Wal-Mart's electronics network, suppliers' sensitivity aboul intellectual property is a barrier to improving environmental performance. Said Blu Skye's Scot Case, who worked witb the electronics network: "There are all sorts of concerns about confidential business information and suppliers being reluctant to supply information to Wal-Mart because it might somehow end up in the hands of their competitors. For example, if one factor^' is significantly more energy-efficient tban otbers, it's got an advantage. If it shares that information, the competition might gain a mucb better uiulerstanding ot its production costs and therefore its protii margins." Some suppliers fear that this lype of information potentially could be used by Wal-Mart in price negotiations. On tbe otber band. "'With anything that can be easily tested, most suppliers are nn)re comfortable providing," explained Case. "Information about bow much energy a produet consumes is not particularly sensitive." This hesitancy to disclose is challenging to Wal-Mart. and not just trom a performance management perspective. As Scong Ohm. \ice president and divisional merchandising manager of eicctronies for Sam"s Club and co-captain of the eleetronies network put it: "If someone comes up with a better, metre sustainable way to do something, we want to encourage them to share that with other suppliers lo increase the impact." As a result, the eleetronies network was encouraging suppliers to license their en\ ironnicntal innox^atioiis. The opportLinity to derive additional revenue from an environmental inno\ation would increase the suppliers' incentives to invest in innination, \\hi!c licensing the innovation also would leatl to impro\'ed en\'ironmcntdl perlorniLincc across the industry and more widespread benelils lor WakMart.

Wal-Mart may miss opportunities

to source innovative products that
customers might want but which are not necessarily environmentally friendly.
work di\ided this t'Lindion into fotir different job categories: Merchandising (buyer)I'oeust'd on the customer and understanding what tbe product assortment should be to best meet the custoiner's needs. Product DevelopmentFoeused on produci design and trend executionmarrying wbat tbe buyer says the eustomer wants witb what tbe trends are in the marketplace in order to drive development ot the product. Technical Services and Sourcingtoeused on creating the technical specifications lor caeh product, deciding bow to package it. and determining the best sourcing strategy, including supplier negotiations, pricing and quality. Planning and Execution-hocused on tinanciat ptanning, ordering anc! inventory managfinent. and store layout. In the new model, representatives trom eaeh ol these four "centers of exeellenee" were co-located as members of a tigbtty integrated produci team. Eaeh was given ttie chance to beeome a specialist and to take a more strategic approacb to their role. In |iiirticular. sourcing specialists were meant to develop and nurlure the longer-term relationships with suppliers tbat were necessary to support activities such as the organic cotton project and other sustainability initiatives. Sourcing specialists were encouraged to boid ibe position for many years. According to Brandner, tbis organizational change, backed by the eompany's focus nn tbe en\nronment, is leading her team lo "iiecoine smarter merchants," she says. Sustainability leader Elm saw this type of cbange as

Three Traps to Avoid

In colkiboration with its suppliers and with environmenlal nonprofits. Wal-Mart is dramatically reducing the en\ironmental impacts of a portion of its products and production processes wbile increasing its own profits. At the end of 2006, Kuben and Elm found that tbe tangible profits generated by Wal-Mart's sustainability strategy in tbe first year of implementation were rougbly equivalent to the profits Irom sc\'eral Wal-Mart SuperCenters. Intangible benefits, such as publie goodwill and imjiroved assurance of supply, are likely to be worth much more lo the retailer. I-^uben and Elm envision a huge array of untapped opjiortunities. and they arc commit-

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Some of Wal-Mart^s **Greening" Decisions

Buying diesel-electric and refrigerated trucks with a power tinit that could keep cargo cold without the engine running, saving nearly $75 million in fuel costs and eliminating an estimated 400,000 tons of CO^ pollution in one year alone. Making a five-year verbal commitment to buy only organically grown cotton from farmers, and to buy alternate crops those farmers need to grow between cotton harvests. Last year, the company became the world's largest buyer of organic cotton. Promising by 2011 to only carry seafood certified wild by the Marine Stewardship Council, a group dedicated to preventing the depletion of ocean life from overfishing. Buying (and selling) 12 weeks' vi/orth of Restrictions on Hazardous Substances (RoHS)-compliant computers from Toshiba.

tory certification from the buying organization may cause a loss of information and coortlination. which runs counter to Wal-Mart's strategy ol embedding responsibility for reducing environmental impaets within the buying organization. Going lorward. Wal-Mart must be \igilanl if it is to avoid these three possible jiitlalls and eontinue to manage its supply cbain in a manner tbat reduces environmental impacts and increases its prufils. Indeed. Wal-Mart's suslainahility strategy must be prolitahie if it is to he sustainable in ihe long run and achieve Lee Scott's aspirational environmental goals. OSO Sources:
1 I n Volt. 'Twi-nlielh t^t'iiltin' U-inli-rshi;i." OttobtT 24. 2005, hlt]i://www. walmaftst(ires.com/Files/31 st%2(lC:cmur>''^ JQLcu^k'rship.ixlf (January 29.2007). 2 "Kiivimiimeniiil Croup Moves in Nciir VVitl-Mari." Ihc ('omnwrciiil Appeiil. July 16. 2004. p. D4, ,^ "Tough Talk and Southing Speech: Mana^in^ Rqiutalions lor Heing roiiRh anii lor Being Clouil." Ctir[>onitc HepiiUilinu Hevieir. 1949. p. ^ 17. 4 Richard Halverson, "Bip Three Take High Road on Environmental Front," Discouril Slore Nm-i. March I. 1991. htlp://nndar[ic|g;.coin/p/articles/ ini m.^092/is n6 v.^O/ai IH'ilWS:' (JiinuLm- 11. 20071. 5 Jill MtTL'dilh (Jinshorg and Paul N. Bloom. "Choosing llit- Right Crcen Miirki'ling Strategy." WIT Shan Muruigament Rcineii\ |-'ull 2004, hllp://slojnrcvicvvmit.edu/smr/issuc/2004/l'al!/12/ (January 31, 2007). 6 Much of ihe material for this article, as well as ail quotations (unless otherwise cited) are drawn from the Stanford University Clraduate SchH>l of Business case study entitled "VVal-Mtiri's Sustainahility Strategy" (CiSB No. OIT-71) and associated teaching note by lifica Plamheck imd Lyn Dcnend. 7 Michael Brovver and Warren Leon, A Ciiiisuttu'Ts ('uiiit' lo Efja^tm' Euviniiimentiil Choicer: Fractical Advice from the Union i)j Concerned Scientists. (Three Rivers Press: New York. 1999). 8 Marc Cum her. "The Cireen Machine." fortunf. }u\\ ?>\. 2006. http://money. ([Novcmher2R, 20(Ki), 9 Jimathan Birchall, "Wal-Mart Pieks a Shade of Creen." F l x o m , Feb. 6, 2006. p. I. 10 "Wal-Mart Unveils 'l^ackaging Scorecard'to Suppliers." Wai-MartFacts. com. November 1. 2006. htlp:/Avww.walmaril.ii.ts.com/arikles/4564.asp\ (December S. 2006), I I "Science Study Predicts Collapse of A!l Seafood l-isiieries hy 20^0." Sliinfard Report. November 2, 2006, h11p://nyws-ser\ice.stanford.edu/nevvs/2006/ novL-mber8/ocean-l lQ806.html iPeeemhcr 14.20061. 12 Erica Dueey, "Harden. Wai-Mart Ride Seafood Sustainability Wave, Ruoy AdviianL's." Nation's Hesliitiraiit News. February 13,2006, p, 8. t.l Ibid. 14 Jordan K. Speer. "Organic Apparel; It's Nol Just for Treebuggers Anymore." Apjhirel Ma^aiitw. http://wvvw.apparelman.com/arlicles/may/mayO'i Lshtml (December 19.20061, ! S Tawainga W. Katsvairo. David L. Wright, Jim J. \Uirois and Pawel P. Wiatrak. "Making the Transilion irom Conventional to Organic Farming Using Conservation Tillage in l-'lorida," Univt-rsJly of Florida. IFAS Extension, hnp://gijis,ifas,un,edu/AC246 (January 31. 2007), 16 N, Craig Smith and Robert J. Crawford. "The Wal-Mart Supply Chain Controversy."_/"""'"' cf l^^siin-ss Ethicf Hihicatinn (20061: 14 V 164. 17 Scott, op. tit. IH Richard M. Locke, Fel Qin. Alberto Brause, "Does Monitoring Improve Labor Standards?" MIT Sloan Research Paper No. 4612-06, July 2006; and Richard M, Loeke and Monica Romis. "Improving Working C'ondiiions in a Cilobiil Stipjily Chain," MITShkni MaiMf-cnii'tit /ifr/cif. Winter 2007.

ting to scale up Wal-Mart's efforts to green its supply chain. It won"t ail be plain sailing. Wal-Mart faces three possible obstacles as it scales up its network approaeh: (11 increased costs, (2) a sub-optimal product assortment, and (3) criticism of factor)' labor conditions. Wal-Mart's publie reputation is on the line as it makes ambitious public promisesfor exam]ile. [o sell only MSC-certificd wild-caught fish within three to Wvc years. Rccominjj more dependent on fewer selected suppliers, tbe retailer may taee price rises from tbat narrower supply base, partieularly in times of scarcity and for limited resources like MSC-eertiHed seafood. Additionally, with fewer suppliers and a foeiis on soureing environmentally-friendly products, Wal-Mart may miss opportunities to source innovative produets that customers might want hut which are not necessarily environmentally friendly. Wai-Marts environmental nonprofit network partners will continue to push for environmental attributes in choosing produet assortments. Although Wal-Mart might in the future be rewarded with offset credits for reducing CO emissionsthrougb its beavy and suecessful promotions of "green" light bulbs, for instanceit is unlikely that tbe eompany ean recapture all of the environmental value created hy promoting green products, and might end up with a product assortment that is suhoptimal ior the purposes of maximizing the company's own profits. Wal-Mart has also long heen criticized for poor lahor eonditions in its suppliers'factories.'*' In response, in bis October 2()()S speecb, Lee Scott said: "We are committed to increasing our engagement concerning supplier factory conditions... We are separating factory eertifieation from the buying organization."' This will avert potential conflicts of interest that arise when buyers can obtain less expensive produets from noncompliant factories, but it migbt exacerbate the worst lahor-related problems tbat tend to occur wben buyers under-forecast and tben demand overtime productionas was discovered in Nike's supply ehain.'" Separation of fac-

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