Supplier Scorecards: Walmart’s Push for a Cleaner Supply Chain
From Stores to Supply Chain: Broadening its Sustainability Efforts
Walmart, the world’s largest retailer, has successfully introduced innovative and scalable, low-cost sustainability initiatives across its 11,695 stores. It was among the first retailers to make sustainable products available at little or no extra cost to customers at a time when such products typically came at a higher price. Walmart has also taken steps to optimize its energy usage and it is currently the largest commercial solar energy user in the U.S. More recently, the company has broadened its sustainability efforts from a focus on its internal operations to include external supply chain considerations [1].
Walmart’s shift towards a supplier focused sustainability strategy came partly in response to growing research that highlighted sustainability risks embedded in supply chains. The company’s NGO partners, namely the Environmental Defense Fund (EDF) and The Sustainability Consortium (TSC), have attributed as much as 80% of the greenhouse emissions associated with the U.S retail and consumer goods sector to its supply chain [2].
Walmart’s Strategy: Incentivizing Suppliers and Buyers to Reduce Emissions
As part of its initiative to reduce emissions across its supply chain, Walmart has engaged its extensive global network of over 100,000 suppliers to work towards this goal by introducing “Live Better” scorecards [3]. The scorecard initiative was rolled out in 2009 and the company began by asking its suppliers to answer 15 questions to assess the sustainability of their operations in four areas – energy and climate, material use, natural resources, and community. The scorecards have since evolved to include 100 category metrics which Walmart ranks on a scale from 1 to 100. Top-ranking suppliers are recognized by Walmart and are often rewarded with promotion space on Walmart’s e-commerce site [4].
Leveraging its position as the largest retail relationship for many of its suppliers– representing over 30% of business for some– Walmart has effectively created incentives for its suppliers to evaluate and report their greenhouse gas emissions [5]. To that end, the company has committed to purchasing over 70% of products sold in its stores from suppliers that use the scorecards to report the substantiality of their products by the end of 2017 [6]. Walmart has also aligned its core buying practices around this goal by making sustainability objectives count for roughly 5% of buyer performance metrics. Buyers receive training and access to “Buyer Tool Kits” to help them identify suppliers that are able to produce sustainable products at little or no additional cost to consumers [7]. Top performing buyers in each business unit receive financial rewards and a “Sustainable Buyer of the Year” award [8]. Walmart’s buyers have been particularly effective in working with its toy and detergent suppliers to reduce toxins and packaging waste [9].
Beyond its inherent sustainability benefits, the scorecard program also provides Walmart with a growing database of supplier sustainability progress. In partnership with The Sustainability Consortium, Walmart has built a Sustainability Index through which the company can evaluate individual supplier’s emissions reduction progress against a benchmark [10].
Recent Initiatives: “Project Gigaton”
In the Spring of 2017, Walmart launched Project Gigaton which enlists the support of 250 of its major global suppliers to reduce emissions in their operations and supply chain. The project aims to help Walmart achieve its target of eliminating 1 gigatons (1 billion tons) of GHG emissions from its supply chain by 2030, which according to the company is commensurate with removing more than 211 million vehicles off U.S roads for a year [11].
Project Gigaton signals Walmart’s continued commitment to reducing emissions across its supply chain by working closely with its suppliers. The project will afford Walmart greater visibility into its supply chain and into the suppliers which contribute most to its Gigaton reduction targets so that the company can build relationships with those who do while scaling back ties with those who do not. Although the project is not mandatory, Walmart is banking on voluntary participation from its leading sustainability suppliers [12].Unilever and Land O’ Lakes were among the first to sign on and the program has also received more recent commitments from Apple, Amazon, Google, and PepsiCo [13].
Looking Ahead
Walmart’s supply chain sustainability efforts represent an important step towards reducing global GHG emissions yet many of its sustainable products are met with skepticism from consumers who seek more information and transparency around supplier reporting metrics.
What steps can Walmart take to corroborate supplier’s independent reports of product sustainability? What else might it consider doing in order to improve consumer perceptions around the sustainability of its product offerings?
How might Walmart incentivize key suppliers which operate in countries with minimal greenhouse gas emissions regulations to commit to emissions reduction targets through Project Gigaton?
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Sources
[1] Andrew Spicer, David Hyatt, “Walmart’S Emergent Low-Cost Sustainable Product Strategy,” California Management Review, vol. 59 (2017), pp. 1- 27
[2] TSC 2016 Impact Report, Sustainabilityconsortium.Org. https://www.sustainabilityconsortium.org/wp-content/2016-impact-report/index.php
[3] Andrew Spicer, David Hyatt, “Walmart’S Emergent Low-Cost Sustainable Product Strategy,” California Management Review, vol. 59 (2017), pp. 1- 27
[4] Baier, P., “5 lessons from Walmart on making supplier scorecards work for you,”GreenBiz (May 24, 2012), https://www.greenbiz.com/blog/2012/05/24/5-lessons-walmart-making-supplier-scorecards-work-your-business
[5] Baier, P., “Why Walmart’s better supplier scorecard is a big deal,”GreenBiz (April 19, 2012), https://www.greenbiz.com/blog/2012/04/19/why-walmarts-better-supplier-scorecard-big-deal
[6] Andrew Spicer, David Hyatt, “Walmart’S Emergent Low-Cost Sustainable Product Strategy,” California Management Review, vol. 59 (2017), pp. 1- 27
[7] Baier, P., “5 lessons from Walmart on making supplier scorecards work for you,”GreenBiz (May 24, 2012), https://www.greenbiz.com/blog/2012/05/24/5-lessons-walmart-making-supplier-scorecards-work-your-business
[8] Wal-Mart Stores Inc., “Sustainability Leaders,” https://corporate.walmart.com/global-responsibility/environment-sustainability/sustainability-index-leaders-shop, accessed November 10, 2017
[9] Baier, P., “Why Walmart’s better supplier scorecard is a big deal,”GreenBiz (April 19, 2012), https://www.greenbiz.com/blog/2012/04/19/why-walmarts-better-supplier-scorecard-big-deal
[10] Jira, C. and M.W, Toffel, “Engaging Supply Chains In Climate Change” Manufacturing and Service Operations Management, Articles in Advance (2013), pp. 1-19
[11] “Walmart’s Project Gigaton,” BioCycle, vol. 58 (2017), pp. 6 https://www.biocycle.net/2017/05/01/biocycle-world-160/
[12] Garrett, R., “Wal-Mart: Give me a Gigaton,” SDC Executive (June 22, 2017) http://www.sdcexec.com/article/12340681/wal-mart-give-me-a-gigaton
[13] Sturken, E., “Why Walmart’S Project Gigaton Is Corporate America’S ‘Moonshot,” Greenbiz (April 19, 2017) https://www.greenbiz.com/article/why-walmarts-project-gigaton-corporate-americas-moonshot
As you pointed out, Walmart is one of the largest retailer worldwide with substantial bargaining power over its suppliers. Currently, Walmart if focusing on providing incentives to its suppliers to implement climate- friendly practices.
As a next step, Walmart could take similar approach to working with suppliers as Toyota with JIT implementation. Walmart could work closely with its suppliers and work with them closely to develop best-in-class practices regarding climate protection processes. Given Walmart’s experience and cooperation with multiple suppliers, it can now act as a coach for sustainability practices. Walmart would need to establish long-term relationship with supplier to encourage them to invest in sustainability. According to PwC, with long-term relationships in place, suppliers will be willing to implement practices and process that support environment [1].
[1] PwC. “Retail & Consumer Insights: Megatrends in the retail & consumer products industry”. (June 2015). Available online: https://www.pwc.com/us/en/retail-consumer/publications/assets/rc-insights-climate-change.pdf
I really enjoyed reading your paper on how Walmart is pushing for a cleaner supply chain. I agree that in light of the increasing number of shoppers and investors who are concerned about the sustainability of the goods they buy and the companies they own stakes in, companies like Walmart, are responsible for ensuring that their supply chains are managed well.
With respect to your question around how Walmart might incentivize suppliers to commit to cleaner supply chain practices, I think that a carrot and stick approach is the answer. On the positive reinforcement side, Walmart should develop and spread clear codes of conduct to help suppliers design and implement sustainability goals that directly support their business objectives. Additionally, it could launch training programs and online tools that enable the average supplier reduce their energy consumption. To reinforce efforts like these, Walmart should perform audits to monitor its suppliers’ sustainability performance and hold them accountable for it. Ultimately, if suppliers fail to meet their sustainability targets, Walmart could stop doing business with them, just as it would with other factors, such as the cost and quality of goods and the timeliness of shipments. After all, Walmart’s purchasing power as a retailer gives it significant influence over their suppliers’ business practices.
Nice article!
You bring up an interesting first question of “What steps can Walmart take to corroborate supplier’s independent reports of product sustainability?” For a company whose supply chain makes up 80% of the greenhouse emissions associated with the U.S retail and consumer goods sector, it is important for Walmart to start taking steps to change its global footprint for the sake of keeping a sustainable world and also maintaining its public image. However, as it does so, it needs to be careful to balance driving value for shareholders (who will be myopic and focusing on 2-3 year horizons instead of the 2030 vision Walmart has set) and keeping costs manageable with reducing its global footprint.
To this end, Walmart needs to be very efficient as it audits its 100,000 suppliers. Ideally, there would be audits for each location multiple times per year, but I wonder whether sending 500 auditors to 200 global locations for once-a-year audit would even be a manageable cost, or whether a yearly audit would even be a viable incentive to dissuade bad behavior from the suppliers. Similar to Ikea with its IWAY policy, Walmart would be best off by implementing a harsh penalty of contract termination for suppliers who do not buy in or underperform on their scorecards. In the long run as more IOT applications arise, Walmart may be able to deploy internet-connected sensors in supplier facilities that would monitor certain aspects of the suppliers compliance with Walmart’s scorecard.
Interesting read!
Regarding managing consumer perceptions around the sustainability of its product offerings, I think Walmart is in a tough spot. With stats like “…80% of the greenhouse emissions associated with the U.S retail and consumer goods sector…” linked to its supply chain, it’s hard to imagine a message that will resonate with consumers that doesn’t come across as hypocritical. Thus, I think they are on the right path by simply announcing these programs and allowing the media to opine rather than pursuing any consumer facing brand strategies.
In terms of incentivizing suppliers, I was a bit surprised at the cadence of the scorecard initiative. Based on the text, the initiative was introduced in 2009 and the only penalty mentioned is mandating that 70% of its products be purchased from suppliers using the scorecard by 2017. Walmart’s purchasing power should allow it to push its suppliers for quicker adoption.
Your last question highlights the importance of not taking a broad stroke approach when it comes to reducing greenhouse gas emissions. Overall, consumers are demanding more from companies so incentives are naturally aligned to adopt the program from a PR perspective; however, Walmart should keep the reduction targets in context, otherwise it may end up penalizing a key supplier for lower participation despite an overall cleaner footprint.