Wal-Mart Suppliers Fall Short of Environmental Goals

A major part of Wal-Mart’s attempt to win back public favor was its environmental initiatives. Soon after critics began attacking Wal-Mart for its business practices in 2005, CEO Lee Scott announced a series of environmental initiatives (PDF) aimed at improving the company’s carbon footprint AND its public image. More recently, Scott has gone on the record to include Wal-Mart’s suppliers in those initiatives.

Pressure on suppliers has been a critical aspect of Wal-Mart’s plans for environmental improvement. But an article in today’s Northwest Arkansas Morning News shows that the company’s suppliers just aren’t responding the way the company had hoped. Fewer than half of Wal-Mart’s supplier companies have met demands for packaging improvements, and it doesn’t seem like they’ll be reaching Wal-Mart’s goals any time soon.

What will Wal-Mart do to remedy the situation? Cut out over half its suppliers? We think not. Perhaps Wal-Mart should make some changes to its own business model, before it starts demanding changes from its suppliers.

Suppliers struggle with scorecard [NW Arkansas Morning News]

There was a time when a deadline was a line drawn around a prison beyond which straying prisoners could be shot.

These days, it’s generally considered the latest time by which something should be completed.

In the case of Wal-Mart’s deadline for suppliers to complete a packaging scorecard, it’s a little of both. Or neither.

Half of the retailer’s suppliers have ignored the Feb. 1 deadline, risking the business equivalent to being shot - having their products eliminated from the shelves of the world’s biggest retailer.

The retailer expected suppliers to be fully compliant by the deadline. But despite failure to reach that goal, Wal-Mart is encouraged by its success thus far.

“While we’re not at 100 percent yet, we feel that we’ve made great progress,” Wal-Mart said in an e-mail statement.

It’s a different story than what packaging officials outside the public relations department say about the retailer’s progress in getting suppliers compliant, and what may be hindering greater progress.

PACKAGING PROBLEMS

An official with MARS Packaging Knowledge Group, a division of Southfield, Mich.-based Mars Advertising, which hosts scorecard training sessions for suppliers, said the retailer is “not even close” to getting products from 60,000 global suppliers entered into the system.

“I really can’t believe Wal-Mart thought everyone would be on board by February,” said Larry Dull, a packaging consultant with MARSpkg, who instructs some of the scorecard courses.

On the eve of the Feb. 1 deadline, 97,000 products had been entered into the scorecard by 6,371 vendors. Almost two months after the deadline, the total lingers around 100,000 - about half of Wal-Mart products and 20 percent of those from Sam’s Club, said Chet Rutledge, packaging business and production senior manager for Wal-Mart’s private labels.

“There’s still a lot of work to be done,” Rutledge said.

Rutledge and many others are enthusiastic about the scorecard, which promises to be the first step to reduced packaging, and ultimately, waste that ends up in landfills. It evaluates nine metrics including package-to-product ratio, recycled content and transportation requirements.

Wal-Mart has vowed to achieve a 5 percent reduction in packaging by 2013 as it strives to meet its own ambitious goals to become more eco-friendly.

“Packaging is like Wal-Mart - it has taken a huge amount of grief over the years for being a problem,” Dull joked.

SCORECARD CRITICISM

But as Wal-Mart seeks to clean up its act, some say the retailer’s pressure on suppliers to help it meet those objectives is unfair to smaller companies lacking financial resources and know-how. It also oversimplifies packaging issues amid ongoing debates of what’s sustainable.

And under the threat that scores influence buying decisions, working to improvement is an expected follow-up to entering packaging data into the digital scorecard within Wal-Mart’s Retail Link database.

“Everyone is supposed to follow suit like they are the only company out there,” said JoAnn Hines, a Kennesaw, Ga.-based packaging consultant.

Sources close to suppliers suspect they may be holding out to see if Wal-Mart is serious about the scorecard initiative when other supplier-dependent efforts have failed to score with them.

The scorecard initiative is often compared to RFID (radio frequency identification tags) systems Wal-Mart wanted its suppliers to tag products with so the retailer could improve its inventory controls. Suppliers resisted the initiative, which also carried an unmet deadline for compliance, because the high cost of tagging merchandise came with little financial return for vendors.

But sources close to the retailer say that, unlike RFID, the scorecard and other sustainability initiatives aren’t going away, and Wal-Mart is serious about implementing the movement throughout the supply chain.

“The movement is directionally correct, is the right thing to do and is a good thing,” said Bill Williamson, sales director and team leader for CHEP, a global supplier that provides reused pallets and containers to Wal-Mart and suppliers. “When we explore innovation, you are always going to find pros and cons. The exciting thing is there’s certainly more positive things that are happening.”

MONEY SAVINGS

Wal-Mart intends to increase its capital efficiency as it reduces waste, which will mean more competition for shelf space. Merchandisers with bulky packaging risk losing out to those that internalize the “less is more” mantra from Wal-Mart.

The retailer has vowed to reward its most innovative suppliers with favorable product placement.

An early indication of that promise came last year when Wal-Mart gave compact fluorescent light bulbs a big push. As it sought to sell 100 million of the smaller, energy-saving bulbs, it re-arranged shelves to give favorable placement to CFLs.

On the losing end of that reward system is detergent - the first major casualty to be whisked from the shelves. In May, Wal-Mart will eliminate traditional laundry detergent from its stores in favor of liquid concentrates.

Wal-Mart said the transition to concentrates will eliminate 95 million pounds of plastic resin, conserve more than 400 million gallons of water, reduce consumption of more than 520,000 gallons of diesel fuel and save 125 millions pounds of cardboard.

“Make no doubt about it: There is money to be saved,” Dull told suppliers in a scorecard training session.

And money to be made.

The market for green products is gaining speed, according to research from Leo J. Shapiro & Associates. The company’s recent research found that consumer demand for environmentally responsible products continues to increase, sparking the rush for manufacturers and retailers to jump on the green bandwagon. Two thirds of consumers surveyed had purchased a product in the last year designed to conserve energy or protect the environment.

Wal-Mart plans more events to heighten consumer awareness of eco-friendly products during a month long “Earth Month” promotion in April.

COSTLY COMPLEXITIES

A lack of packaging expertise has stalled some supplier’s efforts to go green, while others worry the retailer expects improvements and innovations without enough consideration given to the time and cost involved.

“It’s very complex when you look at the side ramifications of changes to packaging,” Williamson said.

The scorecard asks a series of questions and assigns scores based on the environmental impact.

For example, a product made of PVC (polyvinyl chloride) and transported by air from outside the U.S. would give a worse score than an item using a material with a lesser environmental impact traveling fewer miles.

Making an error in the scorecard comes at a cost. Wal-Mart may, at any time, request a third party audit of a product’s score - at the expense of the supplier.

Playing with “what if” scenarios also comes at a cost. For those with enough cash on hand, a supplemental program to the scorecard software can run scenarios on potential changes and show how those changes are reflected in the score.

A rush to improve a score can cause a supplier to overlook other issues, such as life-cycle analysis or how changes in amounts or types of packaging can produce more waste from damaged products.

In terms of implementing changes, a supplier faces expenses in re-engineering, testing and producing newly-packaged products.

“You just can’t change a corporate culture like that in a year, especially at these smaller companies. They just don’t have the resources,” said Hines. “It’s an extraordinarily expensive process.”

And some errors are to be expected in the learning process.

“Any time you introduce change, you are going to run into trial and error,” Williamson said. “When you alter packaging, you are changing something else.”

Companies scoring big on sustainability might fail to score with consumers.

Biota Water, made from corn-based bioplastic, was a great idea. But reviewers said the water tasted like corn. Last year, the company filed for Chapter 11 bankruptcy in federal court.

“If you give them everything they want, they will choose sustainability, but they will not accept a tradeoff,” Len Sauers, P&G’s new vice president of global sustainability told Fortune Magazine in a recent interview.

The retailer is making an effort to bridge the gap between suppliers and sustainable packaging pros at an upcoming sustainable packaging fair April 15-16.

TEST RUN

The retailer had given suppliers notice of the deadline a year in advance, and said it was “disappointed” to not have full compliance by the deadline “because we did give them a year,” Matt Kistler, Wal-Mart’s senior vice president of sustainability, told Reuters in February.

“Truth is, there’s still a lot of folks completing that scorecard,” said Charles Walsh, who oversees the scorecard software for Efficient Collaborative Retail Marketing, which created it.

And there are kinks being worked out within the scorecard itself.

Compact detergent, for example, should have scored high, but didn’t. That’s because the scorecard had measured the amount of liquid, not uses. From that was born a new measure, called the “consumer meaningful unit of measure.”

The retailer said that throughout 2008 it will continue to work with its Packaging Sustainable Value Network - a brain trust of suppliers, government agencies, academics, trade associations and non-governmental organizations - to verify the methodology behind scorecard calculations. Once the scorecard gets a test run in the U.S., it will then be implemented in Canada and Mexico.

Debate continues about the definition of sustainable packaging.

“It’s a work in progress. (Wal-Mart) is diligently striving for the facts because, I don’t want to say the scorecard is in its infancy, but it’s not matured yet. There is still very vibrant dialogue on both sides of the fence on what’s sustainable,” Williamson said.

Posted by Alex Goldschmidt on Monday, March 31, 2008