Why Walmart's better supplier scorecard is a big deal
Why Walmart's better supplier scorecard is a big deal
[Editor's note: Read more about Walmart's Global Responsibility Report and sustainability announcements this week in "Walmart creeps forward on its sustainability goals" and "How much of a difference can Walmart really make?"]
Walmart (NYSE: WMT) is poised to transform the sustainability and retailing world -- again -- with a significant expansion of its highly influential supplier scorecard program. This week in a webinar and its Global Responsibility Report, Walmart announced that it will broaden its initial 15-question scorecard to 100 major categories, with category-specific questions, by the end of this year.
When Walmart introduced its initial scorecard, tens of thousands of suppliers increased their investments in sustainability. This expanded scorecard promises to have an even bigger impact. Not only will it shift the landscape for Walmart suppliers, but it also could greatly influence supplier scorecard programs at many other companies.
With more than 100,000 suppliers and $420 billion in revenue, Walmart is simply massive. It sales are equivalent to 3 percent of the U.S. gross domestic product. When Walmart focuses on a certain initiative, its influence is pervasive.
The merchandising wing of the company is clearly behind this growth of its sustainability program. At its Global Sustainability Milestone Meeting webinar this week, Walmart involved key merchant executives, including Duncan MacNaughton, chief merchandising officer for Walmart U.S.; Lisa Hefner, executive vice president of merchandising for Sam’s Club; and Ed Kolodzieski, executive vice president of global sourcing; among others.
A replay of the webinar is available here: http://www.walmartstores.com/Sustainability/10823.aspx?p=232.
The role of The Sustainability Consortium
The key to Walmart’s efforts is the use of scientifically derived assessment criteria developed by The Sustainability Consortium (TSC). Members of the consortium -- which include many of the world’s largest consumer goods manufacturers and brands, as well as leading nongovernmental organizations -- are providing much of the rigor used to develop the criteria. Moreover, Walmart is far from the only retailer in TSC. If other retailer members, such as Safeway (NYSE: SWE), Marks & Spencer and Best Buy (NYSE: BBY), develop similar scorecard programs, consumer product sustainability will be pushed to record heights.
“The move to build sustainability into the merchandizing side of the business is a game changer for the consumer products industry,” says Tim Greiner, managing director of Pure Strategies, whose firm is working with Walmart to build category-specific evaluation tools. According to Greiner, Walmart’s aggressive move into category scorecards will have a profound effect on other retailers' programs and on the entire consumer products value chain.
New category-specific scorecards
Instead of a single 15-question scorecard for all suppliers, Walmart said it will now use category-specific scorecards. Categories -- such as cereal, apparel, hardware, toys and electronics -- will each have their own scorecard questions.
For each category, suppliers will be ranked according to sustainability progress and action items. Scorecard items will include many of the traditional questions for greenhouse gas emissions, energy efficiency and waste, but will also include questions relevant to each category. For example, for laptops, the surveys will include questions about the energy used during component manufacturing and chemical exposure to workers; for laundry detergent, the surveys will ask about cold-water-wash messaging
and chemical ingredients.
Walmart executives stated that it will roll out the 100 category-specific scorecards in 2012 and add more categories in 2013. The categories targeted this year will be based on The Sustainability Consortium's development and rollout plans.
Suppliers who score well will be recognized and rewarded by Walmart, while suppliers who don't perform well will have “family meetings” with Walmart to develop improvement plans.
In 2013, the new scorecards will be integrated with formal supplier reviews. In addition, sustainability will become part of the business objectives for every Walmart buyer.
More sustainability tools for Walmart buyers and merchants
The category-specific scorecards will help Walmart buyers and merchants work with their suppliers to achieve more efficient operations and to deliver more sustainable products. Buyers and merchants will easily be able to understand the sustainability of each supplier’s operations and products.
Private brands at Walmart are also included in this program.
Walmart executives repeatedly mentioned that consumers want more sustainable products, but are not willing to pay for it. The challenge is to find changes that are both sustainable and cost effective.
The toy category is one area that Walmart has already influenced: Toy manufacturers now use less toxins and packaging in their products. Walmart aims to replicate this success in many other categories.
Implications for industry and suppliers
Given Walmart’s size, involvement in The Sustainability Consortium and influence, the broadening of its supplier scorecard program has implications that will likely ripple through hundreds of industries.
Walmart is often the top customer for many suppliers and can represent 30 percent -- or even 50 percent -- of a supplier’s business. Walmart suppliers, especially private-label suppliers, obviously need to participate.
Aggressive suppliers have an opportunity to stand out from their competition by getting a higher score. With an increased emphasis on education and incentives for Walmart buyers and merchants, leading suppliers may get rewards in 2013 for their sustainability investments this year.
"For the first time, our buyers will have easy to understand tools that identify the biggest issues and opportunities in their category, and a simple scorecard that let’s them know how their suppliers are doing against those topics,“ Brittni Furrow, senior manager of sustainability at Walmart, told GreenBiz on Thursday. "As we build these tools into our core merchandising processes, we’ll accelerate and deepen our impact on sustainability in consumer goods."
Suppliers that approach scorecard programs with a “compliance” approach -- in other words, those that do the least amount of work required – may find themselves at a competitive disadvantage next year.
Companies that have emulated part of the Walmart scorecard program should continue to build on Walmart’s leadership, especially around product packaging and energy efficiency. Other large retailers also will need to decide if they want to move to a category-specific approach for their own supplier scorecard programs.