Wal-Mart outlines new quality, energy standards for suppliers
Wal-Mart Stores Chief Executive Lee Scott last week called on global retailers to agree on common social and environmental standards for supply factories to streamline quality control processes and level the competitive playing field.
Scott, reacting to last year’s onslaught of import product recalls, also committed Wal-Mart to use suppliers that meet high quality and safety standards and reduce energy consumption. The moves are part of an ongoing strategy to improve the company’s image in the face of public reaction to the impact of its low-cost strategy on labor, the environment, and community development.
A single standard would make compliance easier for suppliers rather than trying to meet separate standards for multiple customers, and could reduce the number of redundant inspections conducted by buyers, Scott said in a speech to 7,000 U.S. store managers gathered in Kansas City, Mo. A unilateral approach currently in place allows some companies to get by with lower standards and gain a cost advantage, he added.
“In the next three years, we would like to build a very different system. We believe that there should be one framework of social and environmental standards for all major global retailers. And there should be one third party auditing system for everyone. This will ensure improvement can occur across the board on a level playing field,” Scott said.
He endorsed ongoing work by CIES, the International Committee of Food Retail Chains, to develop common standards for the retail industry. Under the group’s leadership, seven major retailers agreed last summer to follow a common set of best practices for food safety.
Wal-Mart, along with Carrefour (France), Tesco (Britain), Migros, Ahold (Netherlands) and Delhaize, said they would use one of four common industry benchmarks for food safety to reduce supply chain duplication. Suppliers certified as meeting any of the four benchmarks are accepted by all the members of the group.
Scott said effort should be expanded to workplace and environmental standards.
“I stand ready to meet with the CEOs of our competitors and make socially and environmentally responsible sourcing a reality across the entire retail industry,” he said.
The company, which sources a large share of its products from China, will also work with Chinese officials and non-governmental organizations to make sure suppliers comply with Chinese environmental laws and regulations, Scott promised.
China’s rapid growth and low-cost production capability has come at the expense of its environment.
“We will require our suppliers who export from China to certify that they meet key standards. We will include this certification in our supplier contracts. And we will have a mechanism in place to make sure our suppliers meet these standards throughout the term of our relationship. We commit to doing these things as quickly as possible. And we hope to see significant results within three to five years.
“Ultimately, we would like to see this effort combined with the industry wide effort I described earlier. But if it is not, Wal-Mart will in fact lead. We will move forward by ourselves,” Scott said.
Meanwhile, the company has begun requiring suppliers to demonstrate that their factories meet specific environmental, social and quality standards, and plans to extend the requirement to all suppliers within three to five years. Suppliers must meet the standards to do business with Wal-Mart. Regular reporting will be used to certify suppliers and ensure compliance with Wal-Mart standards.
“Any supplier that fails to keep its word will be required to take prompt and serious action. If a supplier fails to improve and fix the problem, we will stop working with that supplier,” Scott warned.
He also held out the possibility of incentives for producers that embrace the quality initiative.
“We will favor — and in some cases even pay more — for suppliers that meet our standards and share our commitment to quality and sustainability. Paying more in the short term for quality will mean paying less in the long term as a company. Higher quality products will mean better value, fewer problems, fewer returns and greater trust with our customers. Saving people money is a commitment to our customers throughout the life of the product.”
Some motor carriers are already benefiting from Wal-Mart’s incentive policy. The retailer belongs to the Environmental Protection Agency’s Smartway Transport program, which gives a green seal of approval to freight companies that work to increase energy efficiency and reduce greenhouse gases and air pollution. Shippers in the voluntary program pledge to give at least half their freight business to Smartway carriers.
Wal-Mart has taken that commitment to the next level by paying Smartway trucking firms a higher fuel surcharge to encourage participation in the program, a Wal-Mart spokesperson told American Shipper.
Scott said maintaining high product standards is good for business “because suppliers that cheat on the environment, cheat on laws, and cheat on the treatment of their people, will cheat on the quality of product they sell us. But suppliers that are ethical and responsible in how they do business are much more likely to care about quality and, in doing so, care about the customers in your stores.”
Wal-Mart is ramping up its sustainability initiative by asking suppliers to make electronic and other energy-intensive products 35 percent more efficient within three years, Scott said.
He acknowledged that the goal is ambitious, but that Wal-Mart will use its expertise to help companies drive out waste in the same way it is mandating the use of radio frequency identification devices for pallets in its supply chain and reduced packaging.
“If we achieved our 25 percent goal just in the U.S., we would save enough electricity to power 3 million homes per year or the equivalent of 10 million barrels of oil,” Scott said, according to a transcript.
Immediate priorities are for every air conditioner sold in the United States to meet the Environmental Protection Agency’s Energy Star rating and for all flat-panel televisions to be 30 percent more energy efficient by 2010.
Wal-Mart will use its buying power to soften the impact for consumers of buying more efficient, environmentally friendly products, which typically cost more than regular ones.
“We will bring everyday low prices to energy-saving merchandise,” Scott said. The company backed its pledge by immediately rolling back prices on 3M Allergen Air Filters by $2 to $10.88.
Wal-Mart will work with suppliers to reduce prices and double the sale of products, such as weather stripping, that can make homes more energy efficient, Scott said.
The world’s largest retailer also wants to help suppliers reduce by 20 percent the amount of energy consumed to make products.
He also presented a future in which Wal-Mart plays a role in the hybrid-electric or plug-in electric automobile market and becomes an energy producer and supplier.
“Imagine your customers pulling into your parking lot, and seeing wind turbines and solar panels, and being able to charge their cars while they shop. I think that would make them feel good about shopping at your stores. It would also make them feel good if they could save money in the process. What if we fed the power generated by those wind turbines and solar powers back into the electrical grid? Just imagine the impact of our customers being able to buy eco-friendly energy at the unbeatable Wal-Mart price.”
Despite Wal-Mart’s public effort during the past 28 months to reduce waste, greenhouse gases and pollution, the company is not listed by the EPA as one of the top 53 companies purchasing electric power from renewable sources such as solar, wind and geothermal. Wal-Mart’s stated goal is to be supplied 100 percent by renewable energy. Last May it announced a major purchase of solar power to help run 22 stores and reduce greenhouse gas emissions by an estimated 6,500 to 10,000 metric tons per year. The company said it could be one of the largest solar power purchases ever when fully implemented. ' Eric Kulisch