The Gunther Report

Game on: Why Walmart is ranking suppliers on sustainability

This is the first of a three-part series about Walmart's supplier sustainability index. 

Since launching its sustainability program in 2006, Walmart has reduced energy consumption in its stores, installed solar panels on its rooftops, curbed emissions from its trucks and recycled millions of tons of its trash. Now that the world’s biggest retailer has streamlined its own operations, it is turning its attention elsewhere — actually, almost everywhere.

Since last fall, Walmart has rolled out what it calls a supplier sustainability index to thousands of suppliers, asking them pointed questions about their operations and prodding them to better understand and manage their own supply chains.

It’s Walmart’s most ambitious environmental project ever, and if all goes according to plan, it will change the way all kinds of consumer products — clothes, toys, electronics, food and beverages — are made. The typical Walmart stocks 125,000 to 150,000 products (!), and the environmental and social performance of most companies that make them soon will be rated and ranked in Bentonville, Ark.

So Walmart is asking lots of questions of its suppliers. Among them:

How can wheat be grown with less water and fertilizer? How can chemicals of concern be removed from toys? What mining practices were used to extract copper, gold and silver for computers or jewelry? What percentage of your televisions sold last year were Energy Star certified? Do the grapes in a bottle of wine come from a farm with a biodiversity management plan? How much water was needed to produce those polyester pants?

fiendishly complicated undertaking

If this sounds like a massive and fiendishly complicated undertaking, well, it is. It has been in the works since 2009, when Walmart unveiled The Sustainability Consortium, a nonprofit coalition led by the University of Arkansas and Arizona State University that was set up to provide scientific research to undergird the effort. Since then, a few other retailers (Tesco, Kroger, Ahold, Best Buy) and dozens of consumer products brands (Coca-Cola, Disney, Kellogg’s, Mars) have signed on to the consortium.

Working with research produced by the consortium and its scientists, Walmart last year sent questions to suppliers in about 200 product categories. Hundreds more will be surveyed this year. The surveys will cover about half of the products sold in Walmart, which had revenues of $469 billion last year.

Walmart is ranking its suppliers, from best to worst in each category. The rankings will be shared with its buyers, who are known as “merchants"; they decide what gets onto store shelves and play a vital role inside Walmart. The merchants, in turn, will be compensated in part based on the sustainability performance of their category.

Jeff Rice, who as senior director of sustainability at Walmart oversees the index, told me that it has four broad goals:

  • To improve the environmental performance of its most popular products.
  • To further integrate sustainability into Walmart by giving responsibility to the merchants.
  • To drive a productivity loop that reduce costs and ultimately benefits customers.
  • To increase customer trust in Walmart and its brands.

Driving change at scale

As always with Walmart, the opportunity is to drive change at scale. “We’re really trying to accelerate the scale of sustainability innovation, not just identify green niche products,” Rice said.

Will it have an impact? It’s too early to answer that question with any certainty.

Several Walmart suppliers who were willing to talk -- and many were not -- told me that the index will help build a stronger business case for their own sustainability efforts. “The index challenges us to continually improve,” said Kim Marotta, chief sustainability officer at Miller Coors, which is working with the farmers who grow its barley to reduce their use of water and pesticides. It also helps her make the case inside the company that “sustainability is very important to our business,” she told me.

Dave Stangis, vice president of corporate responsibility at Campbell’s Soup, believes the index will make a difference. “The index validates people who are doing the good work. It’s a wakeup call to others,” he said. Campbell’s, he said, is working with The Sustainability Consortium to develop a mapping tool that will help buyers of agricultural commodities such as soybeans, sweet potatoes or sugar beets avoid purchasing them from places with water risk, or where biodiversity is threatened. “We’re trying to be cognizant of the priorities that Walmart has, as well as those of our other customers,” he said.

By contrast, Len Sauers, vice president of sustainability at Procter & Gamble, said Walmart's questions had not pushed the company into new directions. “They are basic questions that any company that is operating responsibly should be able to answer,” he said. P&G, says Sauers, which has 80,000 suppliers of its own, is gradually rolling out its own scorecard to measure their progress.

I asked Walmart where the index is making a difference. They came back with these examples:

  • Small appliances: Buyers are working to change their supplier agreements to require suppliers to find alternative uses for any products returned to stores, to keep them out of landfills.
  • Televisions: The company hosted a summit aimed at reducing emissions of PFCs, a potent greenhouse gas, in screen manufacturing. Buyers now connect TV manufacturers with chip manufacturers, who have found ways to curb PFCs, so they can share best practices.
  • Produce: Buyers now work directly with producers and suppliers to set goals to reduce or eliminate food waste at each step of the supply chain.

None of that is glamorous or earth-shaking, but it's early.

Michelle Harvey, an Environmental Defense Fund executive based in Bentonville, is confident that Walmart is taking the index seriously — and says its suppliers should do the same. What's encouraging, she said, is that the solid scientific work of The Sustainability Consortium is getting into the hands of buyers, who have a financial incentive to push for change.

“They are really trying to figure out how to use the work of the TSC to bring new insight of the buyers,” Harvey says. “It’s going fast and furiously.”

If nothing else, Walmart is learning from past mistakes: The company has surveyed its suppliers twice in recent years — once around packaging, in 2006, and with a 15-question survey in 2009. The packaging survey actually produced too much information, Rice admitted. “It ended up being burdensome for our suppliers, too detailed for our buyers and not really actionable,” he said. The 15-question survey asked the same questions of each supplier, but it didn’t rank or grade them and, as far as anyone can tell, had scant impact. One supplier told me that his company got a thank you from the sustainability team for filling out the survey, and never heard about it again.

This time should be different. Partly that’s because suppliers will be ranked against their peers; each supplier will get a score from 0 to 100. Walmart won’t make the rankings public, but it will identify the best- and worst-performing companies. “It gives us a ranking of suppliers, not a ranking of items,” said Rice. So, in the cereal category, buyers will be able to compare Kellogg’s, General Mills, Post Foods and Quaker Oats (a unit of PepsiCo), but they won’t be able to rank Corn Flakes, Cheerios and Grape-Nuts. Buyers and suppliers then will talk about how to improve performance.

“How can we make this useful and actionable for the buyer? That’s really the leverage point in Walmart,” Rice said. “The buyers will have a lot of flexibility in framing and defining their own goals and objectives.”

Buyers have a financial incentive to persuade their suppliers to do better. Some 5 percent of their performance evaluation, which impacts their annual raise, will be based on their sustainability work. “Every buyer, beginning next year, is going to have sustainability metrics built into their annual performance evaluations,” Rice said. “That has not happened before.”

The incentives for suppliers to invest in sustainability are not as clear-cut. Walmart has not made any explicit promises to reward suppliers who top their rankings, or to punish laggards. Several suppliers told me that they are putting a good deal of work into dealing with the index, and have yet to see a return.

Oakhurst Dairy, a family-owned company in Maine that markets milk and dairy products, has been reporting its greenhouse gas emissions to the Carbon Disclosure Project, at Walmart’s request. Now the dairy is working with the small and mid-sized farmers who send it milk, encouraging them to become more energy efficient and, if possible, invest in renewable energy.

All of those efforts are worthwhile but they take time and money, said Bill Bennett, chairman of the board at Oakhurst. He is hoping that the dairy will benefit by working closely with Walmart, and sees opportunities to encourage his own suppliers to become more efficient.

But he has yet to see a payoff. “If we didn’t have to do it, we wouldn’t be worse off. It’s a lot of work,” Bennett told me. “More questions always lead to more questions.”

Walmart’s suppliers — all 60,000 of them — had better get used to it.

Image by mamagio via Shutterstock