Jason Busch on Wal-Mart\'s Sustainability

Tag : trim chain

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 ofWal-Mart’s ongoing effort to reduce the carbon footprint,packaging, and waste in its supply chain to just another example ofthe retail giant beating up suppliers on price. (For the record,Wal-Mart wasn’t asking for price cuts. Instead, the articlequotes Wal-Mart purchasing execs saying they won’t acceptprice increases from suppliers.) Jason likened Wal-Mart’ssupply approach to the “whack-a-mole” game. “If asupplier complains [about Wal-Mart’s request], threaten tomove elsewhere.”
Jason went on to chastise the retailer for driving suppliers toembrace sustainable practices to reduce costs further, “evenin the inflationary environment that many food producers arefacing.”
My thoughts: Good for Wal-Mart.
An inflationary economy is exactly the time for spend managementorganizations to pump up the volume of their cost-reductionefforts. (I would have thought that a free market capitalist likeJason would have been giving Wal-Mart props; not criticism. Nextthing you know he’ll be backing Senator Hillary’s callto repeal NAFTA.) In fact, the CPOs I’ve been speaking within U.S. and Europe over the past month report that their bosses andboards are demanding greater cost reductions – not less.
Wal-Mart is no different. Just because it is among theworld’s largest companies doesn’t mean it is immune tothe effects of rising energy, commodity, and food prices. Nor doesit mean that Wal-Mart should subsidize mediocrity in its supplychain.
On the contrary, Wal-Mart’s competitive advantage has alwaysbeen having the most efficient and effective supply chain.Accepting anything less than continuous improvement in cost andperformance from its suppliers would shake the very foundation uponwhich the retailer’s business is built.
Wal-Mart’s refusal to blindly accept price increases in theseinflationary times forces its suppliers to find ways to operatemore efficiently. In fact, Wal-Mart’s sustainability strategy is less about the environment than it is about cuttinginefficiency, waste, and costs within its stores and across itssupply chain.
Wal-Mart’s call for all suppliers to trim packaging by 5%over the next five years actually reduces material and shippingcosts both for the retailer and for suppliers. (Improving theenvironment is merely a positive by product.) Smaller packagingreduces waste and lowers overall transportation costs, allowingtrucks to use less fuel and enabling suppliers to fit more productinto a single truckload. It also cuts material costs for suppliers.Quite simply, smaller packaging means suppliers can buy lessmaterial for every unit sold. That can add up to big savings.
By Wal-Mart’s estimates, this package reduction initiativealone is equal to removing 213,000 trucks from the road, savingabout 324,000 tons of coal, and 67 million gallons of diesel fuelper year. It also curbs the emission of 667,000 metric tons ofcarbon dioxide.
It should also be noted that Wal-Mart is not shoving the full onusof sustainability and cost reduction on suppliers. The retailer haspartnered with suppliers to uncover ways to remove waste and costsfrom the entire supply chain. It has also rewarded suppliers fortheir efforts – and not solely with additional business(although it has done that too.) For example, under the packagereduction initiative, the retailer wisely promised to keepsuppliers whole by reserving them the same amount of store shelf.With slimmer packaging, suppliers can get more product onto everyshelf, increasing their profitability per store.
For evidence of the positive impact slimmer packaging requirementscan have for Wal-Mart suppliers, look no further than Nestle. Thechocolate giant recently reported that it has saved £500million by reducing slimming the packaging for the chocolates,beverages, and other food products it produces.
Facts like these suggest that Wal-Mart’s sustainable supplystrategies will be more boon than burden for its suppliers.