Archives » Friday, October 24, 2008
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Mary Hennock
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Oct 24, 2008 10:29 AM
As the world economy sags, the world's largest retailer is looking for
new ways of reducing both costs and environmental impact—and arguing
that the two can go hand-in-hand. At its "Sustainability Summit" in
Beijing Wednesday, Wal-Mart announced the launch of a new set of
stringent environmental standards, energy reduction targets and ethical
compliance procedures that will apply initially to its thousands of
suppliers in China and eventually to all suppliers. The company kicked
off the day-long summit, attended by more than 600 of its suppliers, by
spelling out ambitious targets that, if implemented, have the potential
to make a significant impact. The goal is to set new standards for
responsible sourcing in its global supply chain and create a model of
best practice in China. The main points:
Environmental efficiency: The top 200 factories that supply Wal-Mart
must improve energy efficiency by 20 percent by 2012, while China's 113
Wal-Mart stores must cut energy use by 30 percent and halve water use
in all stores by 2010, and get suppliers to reduce packaging by five
percent by 2013.
Stricter enforcement of ethical standards: All new suppliers must
pledge to comply with local labor and environmental laws (existing
suppliers already face an audit that checks such things). By 2012
direct suppliers must source 95 percent of their production from
factories with high social and environmental audit scores.
Supply chain transparency: Wal-Mart will demand suppliers can provide
the name and location of every factory they use to make any products
Wal-Mart sells. The rule will start with clothing and cover all
merchandise by the end of 2009.
All of which sounds good, as does the urgent timeframe with
implementation of many targets starting in 2009--a date that's only a
couple of months away. But is Wal-Mart serious about making this
happen? There are several reasons to think so. One of the most
convincing was offered by Mike Duke, Vice Chairman, Wal-Mart
International in the opening session when he said, "If we don't pose
these questions, our customers will. In the age of YouTube, social
networks and bloggers, there is no trust without transparency and
ownership." Wal-Mart's embarrassments over China-sourced goods include
baby cribs with defective safety pegs (also sold by Kmart.com and
Target) just this week.
China is a sensible place to start rolling out these policies. It plays
a pivotal role in Wal-Mart's overall sourcing, and the retailer's
Global Purchasing and Supply HQ is in Shenzhen. When it comes to
capturing the world's largest consumer market, there are brand-building
incentives as well. Chinese consumers have plentiful reasons to fear
poor product quality; the latest food poisoning scandal has sickened
54,000 children who drank melamine-tainted milk. In China, Wal-Mart has
a unique opportunity to position itself "almost as a high-end store",
explained Terrence Cullen, vice-president of development for Wal-Mart
China. As a foreign store, it enjoys a reputation for quality compared
to local retailers.
Finally, there's the role of socially responsible policies in warming
relationships with officials. Working constructively on something that
benefits society offers "a platform for developing a mutual
understanding that you might not otherwise achieve", says Felicia
Pullman, head of the regional corporate social responsibility team at
APCO Worldwide in Hong Kong. China's rulers are seeking solutions to
its environmental crisis, and senior officials are trawling for
workable ideas and technologies. Wal-Mart's summit was attended by
vice-ministers for commerce, and science and technology.
Wal-Mart CEO Lee Scott argues that sustainability and transparency are
simply good business. They can save costs and win consumers to "better
products that people are willing to pay a fair value for." The
argument: Wal-Mart's extra-large footprint in the marketplace means it
can have an outsize impact on how suppliers manufacture their product
while at the same time bringing low-cost, eco-friendly products to the
masses. The new policies represent a logical upgrade for both Wal-Mart
and China's manufacturers, Scott says. Past purchasing policies have
been "very transactional" and failed to "create a relationship that
allows your supplier to invest in new capital, new equipment, new
technology."
Transparency doesn't always come naturally to the often secretive
retail giant, and questions to Wal-Mart executives over the last two
days frequently drew the answer "We don't disclose that figure." That
will have to change if the company is serious about the value of
promoting corporate openness.
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