Wal-Mart Announces Responsible Sourcing Initiative For China

October 22, 2008

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Wal-Mart has hosted a summit which gathered more than 1,000 leading suppliers, Chinese officials and NGOs in Beijing, China. At the summit, Wal-Mart announced it is aiming to make Wal-Mart China a leader in sustainability, and will require its suppliers to follow a series of responsible sourcing initiatives.

The company says it will design and open a new store prototype in China that uses 40 percent less energy and will reduce energy use at existing stores by 30 percent in two years. In addition, during the next two years, Wal-Mart China will aim to cut water use in all of its stores in half by investing in new hardware and systems and developing best practices that will help its associates and stores use water more efficiently. The company also pledged to bring more environmentally sustainable products to its store shelves.

The Wall Street Journal brought up an interesting point in its coverage of the new energy efficient store:

But when will such measures become economically viable enough to be rolled out on a large scale? And could the global economic crisis dampen the discount giant’s green initiatives? The company prides itself on low prices everyday, and the measures instituted at Wangjing are still fairly expensive, say executives, who declined to give specifics. The 6,000 LED light fixtures had to be specially produced by supplier Honeywell, for example, as did the freezers by Sanyo.

The big question, 24/7 Wall Street asks, is who is going to pay for all of these efficiency upgrades:

Of course the one paying will be Wal-Mart’s customers. Wal-Mart spokesman David Tovar postulated somewhat ludicrously that suppliers could compensate for the increased expense by “taking waste out of the system.” But Wal-Mart’s ruthless negotiations and the razor-thin margins it imposes on suppliers might make that tough — not to mention the logistical nightmare for suppliers that will have to improve environmental efficiency while simultaneously cutting costs. That could lead to some Faded Glory t-shirts with three legs and a zipper.

Last year, it was noted that Wal-Mart’s sustainability initiative to downsize packaging could cost Procter & Gamble, part of Wal-Mart’s effort to concentrate certain products, $200 million by one estimate.

At the summit, Wal-Mart laid out a series of requirements for companies who want to do business with Wal-Mart, including the following.

- Demonstrate compliance with environmental laws and regulations
Wal-Mart will also create a new supplier agreement, which requires factories to certify compliance with laws and regulations as well as social and environmental standards. The agreement will be phased in beginning with suppliers in China in January 2009 and expand to suppliers around the world by 2011.

- Partner with suppliers to improve energy efficiency and use fewer natural resources
Wal-Mart will partner with suppliers to improve energy efficiency in the top 200 factories it sources from directly in China by 20 percent by 2012. The company also will share information and best practices with all of the factories it sources from as well as its competitors.

- Greater transparency and ownership
Wal-Mart says by 2009, it will require all direct import suppliers plus all suppliers of private label and non-branded products to provide the name and location of every factory they use to make the products it sells. By 2012, Wal-Mart will also require suppliers it buys from directly to source 95 percent of their production from factories that receive the highest ratings on environmental and social practices.

Wal-Mart Packaging Scorecard launched eight months ago, and has since been driving sustainability and cutting GHG emissions.

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