The Sustainability Squeeze

It's rare to get an advance peek at a trend that could fundamentally alter the way business is done. Rarer still is a business trend that, if it proves out, is almost guaranteed to leave the world a better place. Tyler Elm, senior director of corporate strategy and business sustainability for Wal-Mart, says his company wants to take actions to sustain business, society, the environment, and ultimately, the quality of life of its customer base. With 136 million Americans using its stores every week, and an economic impact that -- if expressed in terms of gross domestic product (GDP) -- would make it the world's 20th largest economy, such ambitions do not seem all that out-sized. Indeed, when Elm wrapped up his recent Institute I-Seminar on Wal-Mart's Business Sustainability initiatives by describing it as "free advice," irony abounded. You're free to ignore the 800-pound gorilla's "advice" that the sofa won't be your safest perch in a few moments, but you'd better brace yourself for some costly squeezing. Nonetheless, Elm did a wonderful job explaining why the company is taking a leadership position on environmental issues and how it will influence retail design and product presentation. Society, he said, has transitioned from a model built around making things -- production -- to a model of buying and selling things -- transactions. In this brave new world, a company like Wal-Mart is at the hub. "What if the modern corporation were seen as the primary means for socio-economic development?" he asked. "What skillsets would be required?" After hearing how 1.7 billion people lack access to good drinking water, or that consumption rates are increasing every year, one would be forgiven for thinking that Al Gore had wandered into the Bentonville corporate headquarters. "I am not here to tell you that society needs to address these problems," Elm said. "You already know that. I am here to pose several questions and ponder some answers that will help explain our company's strategy going forward." In a nutshell: Be 100% supplied by renewable energy. Stores should be 25% more efficient within the next seven years. The shipping fleet should be 25% more efficient within three years. Create zero waste. Achieve a 25% reduction in solid waste within three years. Sell products that sustain resources and the environment. Get 20% of the supply base aligned this way within three years. Elm says Wal-Mart is reaching out to thought-leaders in all areas -- academia, government, and suppliers -- to form "Sustainable Value Networks" that can help find methods to achieve these goals. Their first target will be packaging. During the past 12 months alone, he said, 200 "packaging stakeholders" got on board with the company's goals, called "the Seven R's": 1. Remove packaging 2. Reduce packaging 3. Reuse packaging 4. Renew (able) packaging 5. Recycle (able) packaging 6. Revenue (Economic benefits) 7. Read (Education)Elm illustrated the power of the "Seven R's" through a "right-sizing" exercise with its private-label-toy suppliers. By making the packages for 300 toys just a bit smaller, Wal-Mart found that it needed 727 fewer containers to ship them in from overseas. "We estimate that it reduced the amount of corrugate by 3,500 tons," Elm said. "It reduced fiber from about 5,000 trees and conserved about 1,350 barrels of oil in just one year. What started out as a simple exercise in trying to reduce material packaging costs wound up saving more than $3.5 million in transportation costs." Wal-Mart will use an "Online Scorecard" to rate suppliers, with an initial launch focusing on 2,000 private-label companies. Suppliers will supply the data for nine metrics that, via Wal-Mart algorithms, will result in a score for each product. The packaging scorecard metrics will be: Distance-to-transport energy savings; Cube utilization; Greenhouse gas (GHG) reduction; Renewable energy aspects; Product-to-package waste; Package recovery (recycling); Material type; Recycled content; and Package innovation.Suppliers can focus on all or some of the metrics -- whichever ones make the most sense. Suppliers will be given access to calculations, but they will not be told how to do things. "We're leaving the innovating up to the marketplace," he said. While voluntary, suppliers will be rewarded for participating with quarterly recognition and -- most importantly -- they will be ranked against competitors. Elm said that eventually, the "sustainability score" will be a mathematical variable that Wal-Mart buyers will factor into their cost calculations. In November, Wal-Mart is launching a "virtual trade show" online that will allow 2,000 suppliers to exchange ideas. By Feb. 1, 2007, it should open up further to another 60,000 suppliers worldwide.

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