Recently, the New York Times has twice featured Wal-Mart in reference to their attempts to implement changes into their supply chain. Both Thomas Wailgum and Stephanie Rosenbloom report that at the company’s annual sustainability summit, held this year in Beijing, CEO Lee Scott made the call to suppliers to live up to a vision of environmentally friendly manufacturing and higher standards of product safety. Ultimately, the goal is for higher manufacturing and operations standards to enable the realization of “a more environmentally and socially responsible global supply chain.” In the presence of not just suppliers, but Chinese government officials as well, CEO Lee Scott said:
“A company that cheats on overtime and on the age of its labor, that dumps its scraps and chemicals in our rivers, that does not pay its taxes or honor its contracts–will ultimately cheat on the quality of its products. And cheating on the quality of products is the same as cheating on customers […] We will not tolerate that at Wal-Mart.”
The policies outlined in what was named as the “Global Responsible Sourcing Initiative,” are broad and comprehensive, but they are not particularly ambitious. Among these policies were that suppliers would comply with their respective local regulations and social and environmental standards set by government agencies, initiate improvements to energy efficiency with an improvement target of 20% by 2012, the elimination of defective merchandise in the supply chain, that production be sourced from factories with “the highest ratings on environmental and social practices,” and that suppliers apply comprehensive labels to identify the material history of all products. In effect, Wal-Mart is asking suppliers to implement the very quality standards it had foregone in favor of its high production low cost strategy.
Wailgum notes that these policies reflect Wal-Mart’s attempt to repair its corporate image in the United States, one that has to a certain extent been directly affected by its dependence on China, a manufacturing powerhouse that has garnered little in the way of plus points with regards to product safety and quality. Wailgum notes that 70 percent of the products retailed by the company come from China, and as such these policies could be classified as ‘risk management’ rather than any overwhelming environmentalist ethos driving the company. However, Rosenbloom also opines that such changes are reflective of a new Wal-Mart that is moving away from short-term supplier relationships to long-term ones with a smaller set of manufacturers. Hypothetically, by developing longer-lasting relationships with manufacturers, they can leverage their ability to obtain lower prices, and scrutinize them better as well. Furthermore, Rosenbloom points out that Wal-Mart’s environmental shift has not been without precedence, as it has in recent years, made environmental and labor initiatives a key aspect of company policy.
Regardless of motivation, the critical question is whether Wal-Mart can really meet the goals outlined above, and Wailgum reports that most industry watchers remain skeptical. Such skepticism is directed towards a broad number of those policies. The complexity of supply networks, Chinese or otherwise, makes the notion that defective merchandise can be eliminated from it in four years rather far-fetched. Furthermore, Wal-Mart’s core strategy is about making suppliers compete in their ability to offer low prices, and one watchdog group director argues that this only gives suppliers an incentive to cheat. Additionally, incorporating the kind of transparency that allows both customers to investigate the veracity of environmental claims is problematic, never mind the cost of an IT infrastructure to small suppliers to enable these checks.
CEO Lee Scott has a simple rebuttal: “People will judge us based on the results.” Simply put, no matter how lofty Wal-Mart’s goals are, and no matter what track record they have what counts the company will have to put its money where its blue light special is.
Wailgum, Thomas. “Wal-Mart aims to go green with global supply chain makeover.” The New York Times. 24 October 2008. Retrieved on November 5, 2008 from: http://www.nytimes.com/external/idg/2008/10/24/24idg-Wal-Mart-aims-t.html?pagewanted=all
Rosenbloom, Stephanie. “Wal-Mart promises to tighten standards for suppliers.” The New York Times. 23 October 2008. Retrieved on November 5, 2008 from: http://www.reclaimdemocracy.org/walmart/2008/tighter_standards_suppliers.php