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How Does Wal-Mart Benefits From Green Sustainable Supply Chain?

Outline

Environmental change has begun to grip the world with consistent patterns of turbulent weather conditions which have resulted in extreme heat waves, rainfall, snowfall and hurricane in most parts of the world. Under the circumstances it becomes important for people to be concerned about taking remedial measures in reducing the complexities. Scientists have revealed that a specific climate pattern has emerged in the world since 1993 whereby every year has had temperatures that have been the highest for the last twenty years. This paper will examine the issues pertaining to the Green Supply Chain Management strategies of Wal-mart.

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Executive Summary

Climate change has led to a massive depletion in the earth’s natural resources. With the growing population there is a visible shortage of resources that were previously taken to be granted. Almost 80% of the countries are facing water shortage which has begun to threaten their health situation and economic performance. Additionally, about 40% of the countries do not have access to clean drinking water and proper sanitation facilities. Environmentalists are afraid that if the situation is not improved, the world will be depleted of most natural resources by the end of the next century. It has been found that environmentally friendly inputs can be transformed through given processes and their by products can be recycled within the prevailing environments to avoid harm to natural resources. It implies that products are developed which can be used again after their life cycle is over, thus generating a supply chain that is sustainable. This is referred by environmentalists as the Green Sustainable Supply Chain which eventually results in reduction of costs in addition to being of immense help to the environment.

The main foundation for Wal-Mart’s success has been its proactive approach in implementing far reaching strategies in supply chain management and continues to remain the main competitive advantage for the company in the retail and departmental store industry. Wal-Mart’s system of distribution incorporates several approaches to supply chain management which have made it the undisputed leader, especially by means of sharing information with its suppliers. Amongst the several logistic support systems which the retailer employs, its newly adopted strategies that pertain to making the processes green and environmentally conscious are proving to be of a distinct advantage. Wal-Mart aims at supplying all its products through renewable energy, to achieve a capability of nil wastage and to sell products which maintain the company’s possessions as also the environment. To achieve such objectives the company will have to decide how much it will invest in green technology.

Objectives

This research paper will focus on Wal-Mart’s green supply chain and how it benefits from green sustainable supply chain.

Scope and assumptions

The issue of environment impacts all human beings and is thus a major area of concern for all supply chain personnel since they are faced with the problem of resource depletion. This paper will examine and research upon different drivers of supply chains and the advantages accruing from the creation of a green supply chain. The paper will include different theories and hypothesis of other authors and theorists in the area of green supply chains. Data will be collected by way of surveys conducted amongst individuals involved with varied supply chain companies and will include social responsibility, profitability, functionality and recommendations.

While examining the issue it is valuable to mention the present status of Wal-Mart in terms of its reputation and status in the retail industry. The company has undergone immense changes since the time Sam Walton put the company on the track to sustained growth and success in being the world’s biggest retailer; a status it has held on to for the last several decades. Wal-Mart’s initial strategies comprised of targeting low income groups by providing them with goods at the lowest possible prices. Technology was utilized in the distribution networks and supply chain logistics after David Glass took over in 1988, which further resulted in reduced costs that enabled the company to sell goods at much lower prices. Wal-Mart was steered towards consistent sustainability after Lee Scott took over the reins and he heavily relied on the business models pertaining to strengthening the supply chain management by adopting green technology. This new decision impacted Wal-Mart very favourably and the company established its unique corporate identity by becoming a leader in distribution techniques. The new distribution system and efforts to attain sustainability have altered the company into an eco friendly source of power that is constantly cutting costs and remains in the forefront in terms of systems of distribution technology.

The use of sophisticated technology over the years improved Wal-Mart’s operations which became an example for the retail industry in terms of retail efficiency and a faultless distribution system. Consequently a technology boom happened in the retail industry and with the introduction of information technology during the 1990s, rapid advancements were made by Wal-Mart. Visibility was focused upon by sharing information amongst suppliers and a strategy was stabilized that stresses on how to operate at low cost and to become a low cost fore runner in focussing on distribution and logistics. Cutting edge technologies were utilized to develop competitive advantages in logistics in an industry that was characterized with high volumes, inelastic pricing policies, uneven market shares and disorganized distribution systems (Turock, 2004). Wal-Mart’s distribution and supply chain systems are now considered as the most proficient and comprise of its main competitive advantages in the retail sector.

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Wal-Mart began going green after 2000 when a new strategy was adopted to make logistics systems more eco friendly. Green logistics fundamentally implies the implementation of a system which can autonomously check foreign suppliers to ensure that they cater to the social and environment parameters. The efforts to become green are important but an international retailer such as Wal-Mart had to keep into account the effects the transformation would have on its bottom line. The company believed that it had to cater to the needs of the environment as also to be profitable at the same time. An example was provided in this context whereby if the company improved upon the fuel efficiency of its truck fleet by only one mile per gallon, the saving would amount to $52 million per year. Sustainability also implied that corporate social responsibility (CSR) would have to incorporated into the business model that would eventually act as a self regulating mechanism for the company to keep check and to make sure that the laws, international norms and ethical paradigms are observed. In essence, the CSR policies were aimed at enabling the company to accept responsibilities for the effect of its activities on the environment, stakeholders, community, employees, consumers and the public at large.

Although Wal-Mart had attempted to go green previously also but the present strategy is more feasible and is beginning to show positive signs. Previously such issues were dealt in a defensive manner but now the plans are being implemented in using the advantages of cooperation, proactive planning and as profitable opportunities. The company had in 1989 made attempts to address the environmental issue by taking up with suppliers to supply products that were safe environmentally. Suppliers were required to provide the products in recyclable and bio degradable packing but the huge effort could not succeed since the vendors believed that Wal-Mart wanted to generate profits at the cost of suppliers. But in using such strategies the company gained considerable good will with environmentalists in being the first retailer to attempt measures for the benefit of the environment. However the measures were not entirely successful and were discarded soon from Wal-Mart’s list of priorities.

If the new strategy has to succeed it will have to be deeply ingrained within the supply chain operations management to meet with the goals as set in 2005. The entire value chain has to be targeted in making use of the opportunities. What needs to be done is the evaluation of the complete value chain in being a means to implement sustainability by way of the distribution channels. It is essential to establish metrics to enhance Wal-Mart’s capability to keep a check on its corporate functions and international suppliers so as to support the efforts.

During the end of 2005 Lee Scott, Wal-Mart President gave a presentation to over 1.5 million workers spread across 6000 retail stores along with their suppliers and provided a plan in regard to the company’s new sustainability initiatives to enable Wal-Mart to make a significant impact in reducing the harm on the environment, which would eventually make the company as the most innovative and competitive organization in the world. Three ambitious goals were outlined which would result in a marked improvement in the company’s efforts towards sustaining the environment. In the coming years Wal-Mart would get its entire supply of energy from renewable sources. Waste will be reduced to the bare minimum with an objective to reduce it to zero and only those products would be sold that sustain the environment and the company’s resources. It is clear that the company is making attempts to become different in a field where it was at one time considered to be lagging behind. Some of the most severe critics of Wal-Mart have begun to agree that the company has started making positive strides towards achieving its environmental goals. Such objectives may appear to be extra ambitious but they are certainly possible to achieve, especially in view of Wal-Mart’s successes in the past with goals that initially appeared impracticable. Other objectives that have been set in regard to sustainable environment are:

  • “Increase fuel efficiency in Wal-Mart’s truck fleet by 25 percent over three years and doubling it within 10 years” (Heying et al, 2009).
  • “Reduce greenhouse gases by 20 percent in 7 years”, (Heying et al, 2009).
  • “Reduce energy use at stores by 30 percent in 7 years” (Heying et al, 2009).
  • “Cut solid waste from U.S. stores and Sam’s Clubs by 25 percent in three years Buying diesel-electric and refrigerated trucks with a power unit that could keep cargo cold without the engine running, saving nearly $75 million in fuel costs and eliminating an estimated 400,000 tons of CO2 pollution in one year alone” (Heying et al, 2009).
  • “Making a five-year verbal commitment to buy only organically grown cotton from farmers, and to buy alternate crops those farmers need to grow between cotton harvests” (Heying et al, 2009).
  • “Promising seafood certified wild by the Marine by 2011 to only carry Stewardshi Council, a group dedicated to preventing the depletion of ocean life from Overfishing” (Heying et al, 2009).
  • “Buying (and selling) 12 weeks’ worth of Restrictions on Hazardous Substances” (Heying et al, 2009).

Although such goals may appear to be difficult, a company such as Wal-Mart is placed with distinct competitive advantages in attaining the given environmental standards (Duecy, 2004).

Wal-Mart has begun to establish networks by involving government agencies, non profit organizations and suppliers to make its supply chains green. The company is also adopting the networking approach in lowering its over all environmental and carbon footprints so as to enhance profits and increase margins. Wal-Mart had made recent attempts to reach out to external stakeholders in trying to cater to the needs of areas suffering from excessive environmental degradation and to locate the main networks that could assist in achieving such goals. Incentives will be offered to the net works by providing them information and a stake in the company’s operations.

Method of Study

According to Green Supply Chain News Letter (2008):

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“Research shows that eco-friendly business can enjoy above-average return on investment as well as better performing stock. Even for a large retailer like Wal-Mart, the benefits of going green have made a significant impact on their bottom line. New innovations in manufacturing and transport have revolutionized the way Wal-Mart conducts its business in China, and consequently, around the world. The rising costs of oil and raw materials have revolutionized the landscape for global corporations. Companies are being forced to find new ways to reduce energy use and this in turn has made going green both strategically important and economically viable. Companies today are feeling the urgency to reduce costs and are turning to “green” strategies for answers” (Green Supply Chain News Letter, 2008).

In taking the green direction Wal-Mart will have to come out of its isolation and interact more with its external stake holders, non profit organizations, government agencies and academic centers. It cannot be denied that the company does not have much internal expertise in this regard and will require external help for its new strategies. It is true that most of the opportunities for improving the environment rest with the suppliers since they go through the production processes which entail maximum damage to the environment. Wal-Mart has commenced networking with suppliers in different product segments starting with areas that impact the environment the most. Sustainable value networks have been established in areas such as sea food and packaging whereby participants get information about the company’s operations in order to get maximum commercial advantages from the resultant social and environmental outcomes. It is noteworthy that in the first year of the strategy the networking teams were able to generate savings that exceeded the profits of a number of Wal-Mart Super Centers.

According to a 2006 study reported in Science magazine, “unless we fundamentally change the way we manage all the ocean species together as working ecosystems, then this century is the last century of wild seafood. All species of wild seafood will collapse within 50 years, according to a new study by an international team of ecologists and economists. The loss of marine biodiversity worldwide is profoundly reducing the ocean’s ability to produce seafood, resist diseases, filter pollutants and rebound from stresses, such as climate change and overfishing,”(Stanford Report, 2006). In the same year, the sea food business of Wal-Mart increased by 25% but now the management is finding it extremely difficult to get consistent supplies of sea food. Maintaining continued supply is the biggest issue and Wal-Mart has started buying fish that has been obtained through sustainable fishing procedures.

In contrast to the sea food situation cotton is not short in supply but sourcing of cotton too is becoming difficult since its growth and farming entails a great deal of pollution. Organic cotton is however less harmful to the environment and on the health of the workers at farms. Wal-Mart has begun labeling garments that are made of organic cotton which are softer and acceptable to parents of small babies. But most customers are not readily willing to pay extra for organic cotton just because it proves to be better for the environment. It has been found that if people are given feed back about the advantages of the product and the health advantages for the entire family they could have the willingness to pay higher prices (Heying, 2009).

It is sad that during 2004, the USA had dispatched over 80% of its electronic wastes to underdeveloped and developing nations where it resulted in creating pollution levels that far exceeded levels permitted in developed nations. In spite of the blatant off shoring of pollution, electronic waste from computer and other electronic materials accounts for about 40% of the lead content in the land fills of the USA. Wal-Mart aims at introducing practices that will result in reducing such harmful effects by recycling the waste through safer procedures and by designing electronic gadgets and implements that do not have hazardous elements. The company places top priority on increasing energy efficiency in its electronic implements.

The core strategy of Wal-Mart continues to be focused on generating values by way of price based transactions and inter action to generate long term collaborations and relationship with non profit organizations, suppliers and different external stake holders. By establishing strong and sustained value networking, the company is able to get a complete perspective about discovering beneficial methods to tackle environment issues pertaining to depletion of fisheries, climate changes and air pollution. In return, non-profit organizations are able to achieve their objectives in being supported from the large scale operations of Wal-Mart. Suppliers benefit from the stability that results from close ties developed with the giant retailer as also from the guidance provided by partnering nonprofit organizations of Wal-Mart (Plambeck, 2009).

Data Collection

The fundamental idea to collect data is to gather the respondents’ viewpoints in regard to Wal-Mart’s Green Supply Chain Management Strategy. Forty respondents were chosen that comprised of Wal-Mart employees, management, suppliers, members of non profit organizations and other stake holders in getting to know about the effectiveness of the company’s green supply chain management strategy. The questions related to the following:

  • Design goals and metrics to measure environmental performance
  • Comments on products that can be environmentally sustainable
  • How to help suppliers; especially lower-tier ones that were previously invisible to the company to improve their processes and adopt breakthrough technology
  • Develop new sources of revenue
  • Commits to buy or promote eco-friendly products
  • Consolidates its business with a smaller, more select group of suppliers
  • Nurtures longer-term, closer relationships with suppliers that include a focus on environmental innovation

The following questions were placed before the respondents and they were asked to give their unprejudiced responses.

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  1. What do you feel are the best means to design objectives for a green sustainable supply chain
  2. Where do you place Wal-Mart in terms of its efforts to achieve high standards for sustaining the environment?
  3. What kind of products should Wal-Mart source in meeting the objective of green sustainable supply chain management?
  4. What strategies should be adopted to involve smaller suppliers in meeting the objectives?
  5. What are the key resources the company should use in mobilizing the willingness of the employees to act as per the plans to achieve a sustainable environment?
  6. What should be the basis for choosing suppliers and distributor networks in different countries?
  7. What process should be used in developing countries such as China and India where the potential for Wal-Mart is huge?
  8. How can new sources of revenue be developed in terms of the eco friendly products, especially in view of the higher prices?
  9. What strategies can be adopted in encouraging customers to buy eco friendly products?
  10. Do you feel non profit companies can play a significant role in furthering the interests of Wal-mart in achieving the goals for sustaining the environment?
  11. How can non profit companies be utilized in enhancing the popularity of such products?
  12. What is the constructive role that employees can play in achieving the given goals?
  13. What is the constructive role that distributors can play in achieving the given goals?
  14. What is the constructive role that suppliers can play in achieving the given goals?
  15. What is the constructive role that customers can play in achieving the given goals?
  16. What is the constructive role that management of Wal-Mart can play in achieving the given goals?
  17. Do you believe that Wal-Mart can benefit by nurturing a closer relationship with new suppliers that focus on environmental innovations?
  18. What in your opinion is the most important aspect of a green sustainable supply chain management, profitability or sustaining the environment?
  19. What choice should be made if efforts to sustain the environment results in higher costs for Wal-Mart?
  20. How much time do you think will the transformation to a greener environment take?

Data Analysis

While analyzing the responses of the respondents it was found that a number of issues were raised that had a direct bearing on the applicability of the processes envisioned by Wal-Mart. While some stake holders were much confident about the initiatives for sustainability others had a strong reason to be apprehensive about their success. Some argued that the company’s green initiative may not succeed since a lot of companies that had attempted to do so, have not met with much success. They felt the costs become considerably huge which does not make the attempts viable for a business organization. Some employees felt that since the management will have to spend approximately $500 million over a single year, it will become a massive exercise at very high cost without the surety of success. Consumers too were pessimistic in terms of having to pay higher prices, while suppliers were not optimistic due to the huge costs involved (Gunther, 2006).

The main criticism related to increased costs in almost every sphere of activity in the production processes for suppliers and down the chain until the consumer ends up in paying higher prices. Complaints about sub optimal product assortment entails that customers, suppliers and some amongst the management were not convinced about the success of the efforts. Most employees were critical of the factory labor conditions and were apprehensive if their lot will stand to gain in the long term especially since the cost factor will increase for products and will take some time, if at all there is a positive sign in terms of increased profitability on the new products.

Summary of Result

Wal-Mart must deal with the given challenges very seriously if the strategy for green sustainable supply chain management is to succeed since public reputation is at stake as more and more promises are made to the public at large. It is on record that Wal-Mart relies heavily on a small number of suppliers that are selected on a regional basis in different parts of the world. The company is at risk of facing increasing prices due to the extremely narrow base of suppliers, more so during times of resource and supply constraints. When there are lesser suppliers there is every chance for Wal-Mart to miss out on opportunities in sourcing the best supply deals and prices. Opportunities may also be lost in creating innovative goods desired and preferred by consumers but which may not meet the environmental standards set by the green sustainable supply chain requirements. There is no second opinion about the fact that Wal-Mart has to continue innovating and managing the resultant green changes arising due to its efforts in this regard. All non profit companies working with Wal-Mart will not refrain from assisting Wall-Mart in choosing the product assortment procedures.

Conclusion

The facet of sustainability is not the sole issue faced by Wal-Mart in meeting its business objectives. The sustainability program is not from the perspective of being an act of philanthropy nor is it viewed by the management as entirely comprising of an act of corporate social responsibility. Wal-Mart views the program as forming an integral part of its business and is entirely in alignment with its business model, its missions and its culture. This paper has delved into the requirements to be implemented in meeting the objectives of a sustainable business model which makes this objective an entirely different perspective as compared to other goals of the company. The objectives are in keeping with the previous endeavors of the company, its strategies as outlined by the management and the values that go with the newly established networks and risks attached with the efforts. Wal-Mart has made major efforts including the setting up of a green website wherein tips are provided on how consumers may adopt a greener perspective on the goods and services that they buy in keeping with their aspirations for a better environment.

Critics of Wal-Mart have been arguing that the new initiatives for sustainability are attempts on the part of the management to cover up the deteriorating work place practices and its poor financial results. However Wal-Mart needs to consistently go on with its efforts and continue investing in the environmental program while at the same time addressing the worker issues so that it is established that the environmental strategy is not merely viewed as a stunt to divert public attention. If the company can establish that it is indeed serious about improving the environment and committed to its investments for green initiatives, criticism will be proved as baseless and then Wal-Mart will win another round of applause.

List of References

Duecy Erica, (2006). Darden, Wal-Mart Ride Seafood Sustainability Wave, Buoy Advocates, Nation’s Restaurant News.

Gunther Marc, (2006). The Green Machine, Fortune.

Heying Adam & Whitney Sanzero, (2009). A Case Study of Wal-Mart’s “Green” Supply Chain Management, Operations Management.

Plambeck Erica l & Denend Lyn, (2008). The Greening of Wal-Mart, Stanford Social Innovation Review.

Stanford Report, (2006). “Science Study Predicts Collapse of All Seafood Fisheries by 2050”. Web.

Turock, Art. “Driving Wal-Mart’s growth engine,” Progressive Grocer, 2004.

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