Green Logistics The Walmart Way
Why sustainability best practices are part of the retailer's supply chain DNA.
Every once in a while, a company comes along that separates from the herd and differentiates itself through leadership, vision, innovation, and a capacity to change the marketplace. Walmart is one of those companies.
In a marketing and consumption-driven world, where being green often costs more, the Bentonville, Ark.-based big box retailer broke the mold by rolling back prices and preconceptions in the interest of both the environment and economy. It created a business case for sustainability that permeates all facets of its organization—and extends to suppliers and customers, as well.
"Early in our journey toward sustainability, it was clear that any efforts we undertook had to make good business sense," explains Jeff Smith, senior director of logistics maintenance and purchasing, Walmart. "We have never been interested in trying to create an image of sustainability just for the sake of the image. Every idea is challenged from a business standpoint, and has to demonstrate that it is a good use of our resources."
In 2009, when Walmart announced it was introducing a sustainability index to evaluate product supplier performance, it pushed the needle forward in a seismic way. Others have innovated more, and some have pushed carbon-less further, but no company has spread the gospel of green quite like Walmart.
Going Green in a Big Way
The five-and-dime thrift shop that Sam Walton built into the world's largest retailer is changing expectations in a big way. Consider that Walmart is succeeding where many governments have failed: legislating behavioral change by raising awareness, facilitating best practices, sharing information, and holding suppliers and partners accountable—all within the framework of sound business principles.
Green is not a contrived part of the business that preys on consumer conscience at the store shelf, then fails to deliver at the loading dock. Business strategy and sustainability go hand-in-hand.
For Elizabeth Fretheim, Walmart's director of business strategy and sustainability, the retailer's ethos is an augmented reality.
"Within the transportation function, for example, we want to accomplish three goals: fill every trailer to capacity; drive those trailers the fewest miles possible; and use the most efficient equipment," she explains. "All these efforts drive sustainability, as well as operational efficiency."
Walmart's green strategy is centrally organized; it has a clear roadmap for where it wants to go. In its quest for a 100-percent renewable energy power supply, for example, the company aims to procure seven billion kilowatt hours of renewable energy globally every year by 2021—a 600-percent increase over 2010 levels—and reduce by 20 percent the kilowatt-hour-per-square-foot energy intensity required to power its buildings globally during the same period.
Thriving on Collaboration
With that direction, Walmart has made a concerted effort over the past several years to put in place organizational structures that ensure broad support for various business units, and that each unit has the autonomy to pursue projects that support these goals. Such an approach thrives on collaboration.
"We need to be well-aligned with buyers to ensure we can fill trailers both inbound and outbound," says Fretheim. "Without that collaboration, it is difficult for us to achieve our goals. Even though our metrics are logistics-focused, what we are trying to do affects the entire company."
Smith recalls attending a recent training class for senior directors where they focused on collaboration to help achieve strategic execution.
"Sustainability is an ideal gateway to establishing relationships internally with other business units and externally with business partners," he says. "The sustainability projects I work on drive collaboration, which can then be leveraged in many other areas of the business."
The organization is filled with examples of this type of collaboration—from the real estate division's efforts in developing renewable energy projects and vetting new technologies, to the logistics department testing and implementing the use of hydrogen fuel cells in the warehouse. Everyone is accountable for Walmart's performance.
"For Walmart to be successful, we rely on associates at every level to help us not only drive the strategy, but also raise new ideas," Fretheim says. "I need people on the DC dock to tell me when trailers are coming in less than full. Even though I have sustainability in my title, a lot of people within Walmart carry that responsibility."
A Corporate Culture of Green
Walmart's success is no doubt partly attributed to its leadership. CEO Mike Duke, an engineer by trade, relishes detail. Speaking at Walmart's semi-annual Sustainability Milestones meeting in July 2009, Duke stated: "The engineer in me likes data. I like research. I like metrics. More than anything, I love an elegant process for arriving at innovative solutions that are both profitable and sustainable."
It's not hard to see the impetus for much of what Walmart has endeavored to do. And the company's success demonstrates the importance of having executive-level buy in. Equally important is growing an organizational culture that embraces the CEO's mission. Walmart employees are an integral part of its sustainability program, and the company invests in their development.
For example, the company engineered its My Sustainability Plan program, with the guidance of consultancy BBMG, to provide a framework for individuals and organizations to augment their respective well-being. It provides a tailored scorecard to help users incorporate sustainability into their own lives. It's pragmatic in the sense that developing happier employees reduces costly turnover. But it also contributes to a happier shopping experience for the customer. It's the essence of the iconic Walmart greeter or yellow smiley-face sign.
"As associates bring these sustainable best practices into their personal lives, we believe they'll carry them back to work—if you get into the habit of turning off lights at home, you will do the same when leaving a meeting room," says Fretheim.
In this manner, employees become invested in green. When you consider the breadth of Walmart's global workforce—2.2 million people in nearly 30 countries—that's a sizable group of disciples living and breathing Walmart's word.
Walmart's mission, though, extends well beyond the enterprise—and that's where the company has earned its reputation. The much-ballyhooed supplier sustainability index introduced in 2009—which measures a product's sustainability using various metrics across nearly 200 product categories and more than 100,000 global suppliers—has some aggressive targets.
By 2017, Walmart expects to buy 70 percent of the goods it sells in U.S. stores and U.S. Sam's Clubs from suppliers that use the index to evaluate and share the sustainability of their products. Taking it one step further, the company hopes to begin using these same standards to influence the design of its U.S. private brand products.
Spreading the Word, Worldwide
The Walmart Foundation has also provided a $2-million grant to help support the launch of The Sustainability Consortium—a group of green-minded global companies—in China, to help provide training and develop partnerships that will improve sustainability in-country.
Those are future aspirations. The returns are equally bold.
In 2012, the EPA Green Power Partnership recognized Walmart as the largest on-site green power generator in the United States, with more than 200 solar projects across the country. Renewable energy now provides 21 percent of Walmart's electricity globally. In 2012, the company delivered 297 million more cases while driving 11 million fewer miles, increasing fleet efficiency by 10 percent in 2012 alone—and by 80 percent since 2005. Walmart also fulfilled its 2009 pledge to reduce greenhouse gas emissions 20 percent by 2012—one year early.
Walmart's achievements resonate internally. But they are more persuasive beyond the organization.
"Few companies have the size and scale to communicate with and potentially influence other companies," says Smith. "We have a platform to show our peers where we see success both as a business and as a responsible corporate citizen, then encourage and challenge them to do the same."
The sustainability index is the embodiment of this advocacy. It provides a platform for companies to jump from and climb back on as they follow their own unique green journeys. Many companies have already made significant progress pushing sustainability projects, but have no means to benchmark performance.
"Sustainability can be a complex subject," explains Fretheim. "Trying to understand if a process is greener than what you're already doing—when you're trying to drive that down into every level of your business—is difficult. The business understands the business goals. It's more difficult to perform sustainability assessments at every level."
The index has become a de-facto standard for businesses to follow. If nothing else, it gives partners an idea of the types of questions they should be asking themselves, or areas of the business where they should focus attention—whether it's renewable energies, energy efficiency, or waste reduction.
"The idea is to help suppliers understand how they can improve their logistics functions—not only from their plant to our DC or store, but also back through their supply chain to raw material sources," Fretheim says.
Christopher Schraeder, senior manager of sustainability communications for Walmart, goes one step further, suggesting, "It starts to shift the conversation from 'Should we be doing this?' to 'How do we do this?'"
In time, the expectation is these suppliers will return the favor and say, "Hey Walmart, look at what we're doing."
One challenge organizations encounter as they chase sustainability gains is distilling the true value of their investments so they can demonstrate ROI to the CFO and continue to raise expectations and inject capital in new projects. If business and sustainability strategy aren't aligned, that task is difficult.
At Walmart, the two objectives are firmly knotted. One supports the other. An efficient supply chain is a green one—and vice versa. Everything is measured and benchmarked, and the company goes to great lengths to track ROI on each investment.
"If a sustainable initiative is good for the business in general—and we believe this is true—then each project we implement supports our business, and empowers our efforts to be more sustainable," says Smith.
Making a Positive Impact
There is no downside when it comes to sustainability, provided companies approach it with the right motivations and perspective. "Based on the positive impact our efforts have had on our business, you'd have to question why companies would choose not to engage in this area to improve their performance when the opportunity is before them," says Smith.
Walmart's objective is to make sustainable best practices a standard course of doing business—so companies will eventually have no other option than to follow a new status quo. Bringing customers into the fold will require a similar metamorphosis. Consumers today have a choice. When that decision pits cost against conscience, especially in today's economy, the answer for many is simple—with no regrets.
"We don't think our customers should have to make a choice or trade-off between a product that is sustainable and a product that's not," Schraeder concludes. "We're trying to look at how we conduct our business, work with suppliers, and approach and view our entire supply chain to make sure that every product we put on our shelves is driven by sustainable practices."