Wal Mart A Green sustainable supply chain

A Green Sustainable Supply Chain can be defined as “the process of using environmentally friendly inputs and transforming these inputs through change agents – whose byproducts can improve or be recycled within the existing environment. This process develops outputs that can be reclaimed and re-used at the end of their life-cycle thus, creating a sustainable supply chain.” The whole idea of a sustainable supply chain is to reduce costs while helping the environment. Many people would argue that being environmentally friendly increases your costs. In the past, most companies were focused on reducing unit costs. Many companies later evolved into looking at total landed costs with the on-set of global trade. Companies also started looking at the usage costs with a piece of equipment (i.e. what are my cost per copy when using a copier). In today’s “sustainable” world the thinking should be what is the life cycle costs of this part, piece of equipment or supply chain process.

Wal-Mart has undergone many growth stages since Sam Walton first decided to be the best retailer in the world. His initial strategy was to target low-income families in rural areas by offering significantly lower costs. When David Glass took over in 1988, walton’s mission was truly realized through the use of technology in distribution and supply chain logistics, which allowed Wal-Mart the opportunity to cut costs and lower prices for end users. Lee Scott took the reins in 2000 to steer Wal-Mart toward sustainability. Scott’s business model to strengthen supply chain management processes by “going green” was a strategic decision that positively impacted Wal-Mart’s growth, distribution techniques, and corporate identity. His knowledge of distribution systems and push for sustainability has transformed the company into an ecofriendly powerhouse that continues to cut costs and remain at the frontier of distribution systems

technology.

OBJECTIVE OF THE STUDY

The study is undertaken with the following objective:

To study Wal-Mart initiatives towards achieving sustainability by adopting Green Supply Chain.

RESEARCH METHODOLOGY

The research methodology used in the research paper is based on descriptive research. The data is taken from Supply Chain management Review.

Going Green

Requirements

Lee Scott took charge of Wal-Mart in 2000 with a newly adopted strategy of making logistical processes more economically friendly. “Green” logistics, at its core, means employing a system that can autonomously observe overseas suppliers to make sure they congregate environmental and social standards. Though the push for becoming environmentally friendly is vital, a global business like Wal-Mart must consider the transformation’s effect on the bottom line.

Lee Scott saw the two goals as intertwined: “being a good steward of the environment and being profitable are not mutually exclusive. They are one and the same” (Source: MSNBC, 2005).

Scott provided an instance by calculating that improving fuel mileage efficiency in the trucking fleet by one mile per gallon would save further $52 million/annum.

The shift towards sustainability also incorporated Corporate Social Responsibility (CSR) into Wal-Mart’s business model. Ideally, this Corporate Social Responsibility (CSR) strategy would function as a built-in self-regulating method where Wal-Mart could check and make sure their obedience to laws, ethical values, and global norms. This Corporate Social Responsibility (CSR) policy will act like a tool for the company to embrace responsibility for the impact of their actions on the environment, customers, workforce, communities, stakeholders and every other additional associates that remain in the public sphere.

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The Next Level

Wal-Mart has under – taken green initiatives in the past, but Scott’s arrangement is different and has the latent for being successful based on numerous factors. In the past, Wal-Mart dealt with environmental issues defensively to a certain extent than considerately, proactively, and as a prospect for profit.

In the year 1989, in response to correspondence from clientele on the subject of environmental concerns, the company launched a crusade to persuade its suppliers to make available environmentally safe products in biodegradable packaging or recyclable packaging.

On the other hand, this large-scale effort was met with some uncertainty from commentators who believed that it was wished-for to generate benefits for Wal-Mart at the expense of its suppliers. However, the company did earn some goodwill among environmentalists as the first major retailer to speak out in favor of the environment.

When dealers claimed they had made environmental improvements to products, Wal-Mart began promoting the products with green-colored shelf tags. It should be noted that even though Wal-Mart promoted these products, the company did not actually determine or monitor the improvements. Despite the consequences, the company sold as many as 300 products with green tags at one position. By the early 1990s, the green tag program moved out all in all, and environmental issues slipped off of the Wal-Mart’s list of strategic priorities.

The new sustainability strategy needs to be deeply rooted in Wal-Mart’s operations and supply chain management (SCM) to congregate the ambitious goals set in 2005. In the words of Lee Scott, ** “We recognized early on that we had to look at the entire value chain. If 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 percent of the opportunity that’s out there”** (Source: Plambeck, 2007).

Wal-Mart’s headship must therefore weigh up the entire value chain as a means of implementing sustainability through distribution systems. Creating metrics for analysis is supreme to Wal-Mart’s capability to keep an eye on corporate operations and global suppliers to be able to support their real efforts for enhancement with substantial data.

Ambitious Goals

In late 2005, Wal-Mart President and CEO Lee Scott gave his first presentation broadcast to over 1.5 million employees in over 6,000 stores and each of its suppliers. He presented the audience with a detailed synopsis on the subject of Wal-Mart’s new sustainability scheme to make a positive impact and to a great extent reduce the impact of Wal-Mart on the environment in order to become the “most competitive and innovative company in the world” (Source: Plambeck, 2007).

In his speech, Lee Scott laid out three very ambitious objectives in which he vowed Wal-Mart would:

1. Be supplied 100 percent by renewable energy in the very near future

2. Create zero waste

3. Sell products that sustain Wal-Mart’s resources and the environment

Clearly, Wal-Mart is trying to distinguish itself in an area where it was once considered a foot-dragger. Even some of the harshest Wal-Mart critics have started to agree that the company has begun to make good on its promises. Obviously, these goals can seem overly ambitious to most, but they should not seem beyond belief taking into consideration Wal-Mart’s past success with seemingly out-of-the-way goals.

The three goals were just an prologue to Mr. Scott’s speech. He also discussed the following goals:

1. Amplify fuel efficiency in Wal-Mart’s truck fleet by 25 percent over the span of three years and doubling-up within 10 years.

2. Decrease the green house gases by 20 percent in 7 years

3. Trim down energy use at stores by 30 percent in 7 years

4. Cut solid waste from U.S. stores and Sam’s Clubs by 25 percent in three years.

5. Buying diesel-electric and refrigerated trucks with a power unit that could keep cargo cold without keeping the engine on, saving just about $75 million in fuel costs and eliminating an estimated 400,000 tons of CO2 pollution in one year alone.

6. Making a five-year verbal promise to buy only organically developed cotton from farmers, and to buy alternate crops those farmers need to grow between cotton harvests.

Couple of years back, the company became the world’s largest buyer of organic cotton.

7. Promising by 2011 to only carry seafood certified by the Marine Stewardship

Council, a group dedicated to preventing the exhaustion of ocean life from overfishing.

8. Buying (and selling) 12 weeks’ worth of Restrictions on Hazardous Substances compliant computers from Toshiba.

Even though this may seem like a very large list for a company to carry out, each of these are within reach and place Wal-Mart in a great competitive position for the future.

Sustainable Value Networks

At the same time as Wal-Mart is building value added networks of government agencies, non – profit organizations, human resources and suppliers to “green” its supply chains, the business is using a network approach to bring down on the whole the carbon and environmental path in order to add to profitability while increasing limits.

For years Wal-Mart has been scarcely paying attention on operations and supply chains, expansion, and profits. In recent times, Wal-Mart reached out to external stakeholders to try and widen areas of utmost environmental impact and make out key networks which would be of assistance to achieve these goals.

In return for participating in these value-added networks, participants would be given information about as well as a say in Wal-Mart’s operations. Tyler Elm, Wal-Mart’s senior director of corporate strategy, and Andrew Ruben, Wal-Mart’s vice president of corporate strategy and business sustainability, directed Wal-Mart’s network leaders to, “derive economic benefits from improved environmental and social outcomes” (source: Elm, 2007). “It’s not philanthropy,” he adds. According to a Stanford Social Innovation Review, “By the end of the sustainability strategy’s first year, the network teams had generated savings that were roughly equal to the profits generated by several Wal-Mart Supercenters” (Source: Denend, 2008). Below is a list of Wal-Mart’s sustainable value networks and how the company plans to accomplish each of the main three goals:

At the core of the business sustainability strategy adopted by Wal-Mart is a drift from generating supplementary value through price-based interactions, relationships with non – profit organizations, suppliers, and other stakeholders. Through the above networks, Wal-Mart is absorbing a system viewpoint which helps retailers find ways to deal with environmental issues. In exchange for these suppliers addressing the issues, the scale of the operations at Wal-Mart enables nonprofit network members gain huge leaps towards their overall missions. Suppliers also have the benefit of not only the steadiness that more intimate relationships with Wal-Mart fetch, but in addition the guidance and support from Wal-Mart’s nonprofit partners.

The Wal-Mart sustainability strategy no doubt looks to be off to a promising start; they must not turn out to be complacent and must press-on with awareness in order to make these networks sustainable and able to spread out without interlude.

The first thing they need to do is administer these partnerships vigilantly in order to keep costs down. They also need to be able to manage the sense of balance between presenting “green” and conventional “non-green” products in its stores. Finally, because of the very high number of nonprofits in the network, Wal-Mart is required to supervise the loss of these partnerships. Individual groups may not be able to dig up credit for a large decline on environmental impact. Over time, these groups’ lack of ability to be able to make obvious their impact may cause some tribulations with their fundraising because donors will insist on more and more data referring to their performance. These problems could sooner or later source the nonprofit groups to pull out from the networks.

Counter-Arguments to Wal-Mart Going Green

While some stakeholders and management become increasingly confident about the new sustainability initiatives, history dictates that there is reason to worry. Many critics argue that Wal-Mart’s green initiative is simply unsustainable. As with many companies attempting to make their business strategy more “green”, upfront costs become unavoidable and are simply not worth the investment. Wal-Mart will need to spend in upwards of $500 million per year in order to achieve the goals mentioned earlier in the study. The promise of potential savings down the road does not resonate with consumers, or smaller Wal-Mart suppliers, the same way it does with big corporations. However, it is important to note that Lee Scott stated in 2007, “Tangible profits generated by Wal-Mart’s sustainability strategy in the first year of implementation were roughly equivalent to the profits from several Wal-Mart Super Centers.” Intangible benefits, such as public goodwill and improved assurance of supply, are worth much more to the retailer than the profits generated the first year of implementation. As Wal-Mart attempts to scale up networks and improve upon “green” initiatives, the company faces three possible obstacles:

1. Increased Costs

2. A Sub-Optimal Product Assortment

3. Criticism of Factory Labor Conditions.

Wal-Mart must take these challenges seriously because public reputation is on the line as it makes more and more promises to the public. With increased dependence on a limited number of selected suppliers, Wal-Mart also may face rising prices from the narrow supply base, especially in times of limited resources. Also, with fewer suppliers Wal-Mart may miss opportunities to create innovative products that customers may want but are not necessarily environmentally friendly. Wal-Mart must continue to innovate while managing incremental “green” changes to their supply chain management. Each of the nonprofit partners will continue to push Wal-Mart in choosing product assortment lines.

Conclusion

According to the 2009 Wal-Mart Sustainability Report, Lee Scott was quoted as saying,

“The facet is sustainability at Wal-Mart isn’t a stand-alone issue that’s separate from or unrelated to our business. It’s not an abstract or philanthropic program. We don’t even see it as corporate social responsibility. Sustainability is built into our business. It’s completely aligned with our model, our mission and our culture.” In this case study we have outlined the requirements needed to become a sustainable business, the reason why this initiative is different than others previously attempted by Wal-Mart, goals presented by management, the new value networks, and risks Wal-Mart needs to address. They have already taken major steps including a “green” website where they give tips on how customers can go green and what they can do to reduce their environmental impact. Wal-Mart critics argue that the steady dose of these initiatives is an effort to deflect attention from its work-place policies and its financial performance. They need to continue to invest in its environmental policies as well as address the issues facing their workforce in order to prove these initiatives are not just a public relations stunt. However, if Wal-Mart proves that it is serious about reducing environmental impact and devoted to investing in green initiatives, critics will have to unclench their fists for a round of applause. At least for a moment.