Walmart to suppliers: Are you energy efficient?

In late February, the world's largest retailer announced a goal that could have far-reaching ramifications for its suppliers: Walmart wants to eliminate 20 million metric tons of greenhouse gas (GHG) emissions from its global supply chain over the next five years.

Analysts think the retailer's goal could be a harbinger of things to come for all kinds of firms supplying the retail sector. “Walmart's efforts are making consumer-goods manufacturers reevaluate packaging in terms of environmental friendliness. Walmart is often these companies' largest customer and they risk losing significant business if they don't make changes,” says Esther Palevsky, an analyst at The Freedonia Group Inc.

Walmart also gets attention for its efforts because there are few standard practices when it comes to efficiency or sustainability. So measures undertaken to satisfy the Bentonville, Ark., retailer could become a de facto model for behavior in this area.

“There's a lot of uncertainty on the regulatory front these days,” says Adrian Gonzales, director of logistics viewpoints for the ARC Advisory Group. “Before manufacturers begin to make big changes regarding energy efficiency, they want to know what the rules are. Walmart is acting as a catalyst for supply-chain efficiency, but other retailers need to participate for industry-wide standards to emerge. When we start to see an alignment between what Walmart wants from its suppliers and what makes sense for suppliers from a business standpoint, then we'll begin to see some real progress.”

Signs are that the push for emission reductions and energy savings will go better than Walmart's RFID initiatives. “In that case, suppliers were being asked to spend a lot of money up front, but Walmart would be getting all or most of the benefit,” says Gonzales. “Saving energy costs is something every business cares about. With energy savings, it's more of a win-win scenario.”

Although Walmart says it won't force its 100,000 suppliers to make any changes, it plans to work with them on projects aimed at reducing emissions as well as costs. In the same vein, Walmart has said it will spearhead development of a global “Sustainable Product Index” designed to calculate the sustainability of products and to let consumers know where products fall on the “green” continuum. A supplier assessment is the first step, to be followed by development of a lifecycle analysis database. Eventually Walmart wants to create a simple marking, such as a color-coded label or other symbol, that lets consumers determine a product's sustainability.

“The index will bring about a more transparent supply chain, drive product innovation and, ultimately, provide consumers the information they need to assess the sustainability of products,” says Mike Duke, President and CEO of Walmart Stores Inc.

No question that even small changes can have a major impact when projected across all of Walmart's stores. Two years ago Walmart asked DVD supplier 20th Century Fox to lighten up its packaging. The result was 28% less energy used, reducing lifecycle carbon emissions of DVDs sold to Walmart by 25,000 tons. The new packaging went to other retailers as well, and the changes made their way to video games and software, too.

In another case, Walmart had suppliers analyze emissions associated with a gallon of milk, from farm to distribution center. They discovered ways of reducing emissions such as changing fertilizer management at farms and improving energy efficiency at processing plants. Walmart dairy supplier Dean Foods is now making some of these changes, which will cut carbon emissions by 300,000 tons.

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Walmart is now giving each supplier a 15-question survey to evaluate its level of sustainability in areas such as greenhouse gas emissions, factory locations, water usage, and solid waste production. The retailer is looking for improvements but doesn't specify definite targets. Typical survey questions: “Have you measured and taken steps to reduce your corporate greenhouse gas emissions? Have you opted to report your greenhouse gas emissions and climate change strategy to the Carbon Disclosure Project (CDP)? What are your total annual greenhouse gas emissions in the most recent year measured?” The 33-page assessment also provides tools and resources to help companies accurately answer the questions.

Almost all Walmart top-tier U.S. suppliers have completed the survey, according to Walmart spokesman Kory Lundberg. Outside the U.S., the company is developing assessment deadlines that are country-specific. Lundberg notes that the product index is not a Walmart-exclusive project. To date, three retailers, 30 suppliers, and about a dozen universities have signed on to the project, she says.

Walmart worked with the Environmental Defense Fund (EDF) to survey its supply chain about GHG emissions. Also involved were PricewaterhouseCoopers, ClearCarbon Inc., the Carbon Disclosure Project, and the Applied Sustainability Center (ASC) at the University of Arkansas. This group will be responsible for identifying projects, quantifying reductions, engaging suppliers, and ensuring proper compliance for each GHG reduction claim.

To reduce GHGs, Walmart will focus on product areas with the highest embedded carbon, defined as the amount of lifecycle GHG emissions per unit, multiplied by the amount the company sells. To find the embedded carbon, the ASC reviewed the GHG emissions associated with all Walmart product categories; this approach ensures a focus on categories that have the greatest opportunity for reductions, which can come from any part of a product's life cycle.

“Basically, we're looking at the entire lifecycle of each product we sell and searching for the carbon hotspots. Where can we have the greatest impact? At what point is the most energy consumed? For example, it might be used in transporting groceries from one geographic area to another. In this case, partnership with local farmers would cut down on fuel costs,” explains Lundberg. “In another product category, such as apparel, the main energy costs might come from consumer behavior. What if we could sell clothing that only needed to be laundered in cold water and was made of a material that dried quickly? These are the types of areas we're looking into.”

Besides encouraging its suppliers, Walmart has undertaken efforts to reduce its own energy footprint. Every new retail facility it builds includes a skylight/dimming system. As daylight increases, skylights permit reducing artificial light levels to reduce the demand for electricity during peak hours. It also uses heating and cooling units having an energy-efficiency ratio of between 10.1 and 11.0, better than the standard 9.0 rating of most units. The retailer manages the heating and cooling of all its stores worldwide from its Bentonville, Ark. headquarters to get better control of energy consumption. And Walmart stores in California have white membrane roofs that reflect heat, a measure that is said to lower their cooling load by about 8%.