Jason Busch on Wal-Mart's Sustainability: (Still) Missing the Point

When I read Jason Busch’s latest tirade against Wal-Mart’s (WMT) sustainable supply strategy, I tried to refrain from comment. Unfortunately, restraint is not one of my better qualities.

The Spend Matters’ blogmaster chalked up the news of Wal-Mart’s ongoing effort to reduce the carbon footprint, packaging, and waste in its supply chain to just another example of the retail giant beating up suppliers on price. (For the record, Wal-Mart wasn’t asking for price cuts. Instead, the article quotes Wal-Mart purchasing execs saying they won’t accept price increases from suppliers.) Jason likened Wal-Mart’s supply approach to the “whack-a-mole” game. “If a supplier complains [about Wal-Mart’s request], threaten to move elsewhere.”

Jason went on to chastise the retailer for driving suppliers to embrace sustainable practices to reduce costs further, “even in the inflationary environment that many food producers are facing.”

My thoughts: Good for Wal-Mart.

An inflationary economy is exactly the time for spend management organizations to pump up the volume of their cost-reduction efforts. (I would have thought that a free market capitalist like Jason would have been giving Wal-Mart props; not criticism. Next thing you know he’ll be backing Senator Hillary’s call to repeal NAFTA.) In fact, the CPOs I’ve been speaking with in U.S. and Europe over the past month report that their bosses and boards are demanding greater cost reductions – not less.

Wal-Mart is no different. Just because it is among the world’s largest companies doesn’t mean it is immune to the effects of rising energy, commodity, and food prices. Nor does it mean that Wal-Mart should subsidize mediocrity in its supply chain.

On the contrary, Wal-Mart’s competitive advantage has always been having the most efficient and effective supply chain. Accepting anything less than continuous improvement in cost and performance from its suppliers would shake the very foundation upon which the retailer’s business is built.

Wal-Mart’s refusal to blindly accept price increases in these inflationary times forces its suppliers to find ways to operate more efficiently. In fact, Wal-Mart’s sustainability strategy is less about the environment than it is about cutting inefficiency, waste, and costs within its stores and across its supply chain.

Wal-Mart’s call for all suppliers to trim packaging by 5% over the next five years actually reduces material and shipping costs both for the retailer and for suppliers. (Improving the environment is merely a positive by product.) Smaller packaging reduces waste and lowers overall transportation costs, allowing trucks to use less fuel and enabling suppliers to fit more product into a single truckload. It also cuts material costs for suppliers. Quite simply, smaller packaging means suppliers can buy less material for every unit sold. That can add up to big savings.

By Wal-Mart’s estimates, this package reduction initiative alone is equal to removing 213,000 trucks from the road, saving about 324,000 tons of coal, and 67 million gallons of diesel fuel per year. It also curbs the emission of 667,000 metric tons of carbon dioxide.

It should also be noted that Wal-Mart is not shoving the full onus of sustainability and cost reduction on suppliers. The retailer has partnered with suppliers to uncover ways to remove waste and costs from the entire supply chain. It has also rewarded suppliers for their efforts – and not solely with additional business (although it has done that too.) For example, under the package reduction initiative, the retailer wisely promised to keep suppliers whole by reserving them the same amount of store shelf. With slimmer packaging, suppliers can get more product onto every shelf, increasing their profitability per store.

For evidence of the positive impact slimmer packaging requirements can have for Wal-Mart suppliers, look no further than Nestle. The chocolate giant recently reported that it has saved £500 million by reducing slimming the packaging for the chocolates, beverages, and other food products it produces.

Facts like these suggest that Wal-Mart’s sustainable supply strategies will be more boon than burden for its suppliers.

 

Comments

[jerico]

Right on Tim!

Wal-Mart has moral obligation as on of the largest economic forces in the U.S. to lead. As it lead in hurricane Katrina relief, as it lead to decrease prescription drug costs, it is leading in sustainability efforts. If Wal-Mart does not push packaging reduction, energy use reduction, and cost-cutting it won't matter much if smaller companies try or not.

History will record that these efforts stimulated the best minds in retail, manufacturing and engineering to act agressively to reduce global warming.

I just wish Wal-Mart was in the oil business. Gasoline would be a lot cheaper.

[bostongator]

I agree with Jerico...way too easy to try to get attention on your blog when you try to slay the giant like WMT. However, out of all retailers that I've sold to over the years, WMT being one of them, they are the very toughest on suppliers. However, they are also the poster child in the retail space for sustainability...and I don't mean green washing. They are actually doing the right thing, and even sites like Treehugger.com are impressed.

[buffdnet]

sad to say there are doing these things, once again at the expense of employees as new hires do not get any raises during the first year.
who wants to wait for what inflation will surely wipe away, as the policy is a 40-60 cent raise

[madmilker]

Homer Lee gets caught with his pants down... now after 10 years with tat big single "star" ....they changing the logo....duh!
quote*In China, as elsewhere, we follow the Wal-Mart tradition of building our business one store and one customer at a time. We strive to provide our customers with friendly service and a wide selection of quality products at Every Day Low Prices. With each Wal-Mart store we bring advanced retail know-how to the local market. By fostering a healthy, competitive environment, we hope to constantly improve our business operations and customer service in order to contribute to the prosperity of the local economy.

Wal-Mart firmly believes in local procurement. We recognize that by purchasing quality products, we can generate more job opportunities, support local manufacturing and boost economic development. Over 95% of the merchandise in our stores in China is sourced locally. We have established partnerships with nearly 20,000 suppliers in China. At Wal-Mart, we always work with our suppliers to grow together. In August 2007, Wal-Mart once again secured the top spot of the 2007 Supplier Satisfaction Survey conducted by Business Information of Shanghai. Additionally, Wal-Mart directly exports about US$9 billion from China every year. The export volume by third party suppliers is also estimated to be over US$9 billion.*end quote!
Now! if there be 182 country's making items for the world to buy and they have only 5% of the pie in China...duh! This company makes the nice people of China support their currency(yuan) by keeping it in their country working for the people there.... but with the "yuan" going up in value and the US dollar going down...all the foreign items that the American consumer buys thinking it is cheap has went up in price. People...its all about the currency and to keep a currency strong you got to keep it floating around the country you live in so it can work for you. For the past 12 years all them US dollars are being shipped overseas to a foreign bank and with the American worker not making anything for the foreigner to buy the "we the people" have to turn to the "second" largest employer in America(Uncle Sam) to sell "we the people" debt in order to get all them dollars back! 50 years ago a foreigner would had given their left nut for a US dollar or a Hershey's chocolate bar and today the same foreigner has got Uncle Sam and the American consumer by both all the while Hershey is moving the chocolate factory to Mexico. Wakeup! America and think "MADE IN AMERICA" and put the word Washington back in D. C.....Washington had been reelected unanimously in 1792. His decision not to seek a third term established a tradition that is now embedded in the 22d Amendment of the Constitution. Read his Farewell Address of Sept. 17, 1796 and think American made for a change.
1. Wal-Mart is now Wal*Mart
2. Wal-Mart is proper English in America
3. Wal-Mart is losing business
4. Sam Walton didn't take the hyphen out of the name.
5. Wal-Mart is "not" in Germany.
6. Wal-Mart is "not" in South Korea.
7. Wal-Mart sells cheap crap and America is addicted.
8. Wal-Mart ain't the only store in your town.
9. Wal-Mart stock price has been "flat" for six years.
10. Wal-Mart CEO got $22 million bonus for doing nothing.
11. Wal-Mart paid pumpers can't pump up a lead balloon.
12. Wal-Mart(1 store)takes in $500,000 to $800,000 each day.
13. Wal-Mart kite flies monies out of every town at 00:15
14. Wal-Mart sold $1.96 billion in bonds to buy back stock.
15. Wal-Mart buying back stock trying to prop price up.
16. Wal-Mart Insiders sold stock last month.
17. Wal-Mart is not a growth stock.
18. Wal-Mart has no layaway.
19. Wal-Mart has no Bank in the United States of America.
20. Wal-Mart doing something right....staying out of Manhattan.
21. Wal-Mart gonna sell another $2 billion in bonds to prop the price up but it ain't gonna work either!
22. Wal*Mart is not Wal-Mart.
23. The ghost of Sam Walton is looking for the person that took the hyphen from the name and replaced with a big single star.
24. Project Red turned yellow in front of the SEC!
25. Having to borrow $15 billion to buy Helen's estate shares as they are dump on the open market.
26. And having to borrow another $2.5 billion to pay bills...with the yuan going up in value and the US dollar still going down....all that China crap ain't so cheap any more ....to bad they don't buy American made for the American stores and keep the US dollar working at home.....but they only do that in China at buying 95% Chinese items for the China stores....duh! no wonder the yuan is going up in value....it's staying in China and working for the people there....all the while the people in America send the US dollar to a foreign land....they just don't understand what made America a super power wus the American people working their butt off making stuff and until they quit thinking cheap crap and start thinking...made in America....it's only gonna get worse...how sad!
27. Wal-Mart, cannot, will not, never will be, no way, never can be number #01 in anything but..........to glorify the star above their door are that person would had never put it there in the first place.
online.wsj.com/article...

[Tim12345]

buffdnet is incorrect. Wal-Mart has not changed it's wage increase policy at all. It reviews the employee's on an individual basis and judges the raise on performance or they are given their raise on a progression timeline (90 days, 6 months, 1 year, etc) over 2 1/2 years. They have not suspended anything having to do with wage increases.