How Walmart aims to spread sustainability, one factory at a time

How Walmart aims to spread sustainability, one factory at a time

Catch Zach Freeze in person at VERGE SF 2014, Oct. 27-30.

Zach Freeze joined Walmart, Inc. in 2006. After earning his chops as a senior strategy manager of environmental compliance, he became director of product sustainability in January 2013, overseeing all product categories in general merchandise and soft lines — a wide area which includes electronics, home goods, apparel, toys and seasonal merchandise.

Last month he launched the RedE program in China, an initiative designed to support factory energy efficiency among Walmart's suppliers. The software platform that it is based on, RedE, was developed and is operated by McKinsey & Company. It is to be rolled out as a non-proprietary mechanism with a view to having a global impact on manufacturing energy efficiency. Zach will present RedE next month at VERGE SF 2014 along with Steve Swartz of McKinsey.

Ahead of the event, he gave us some perspective on his efforts to push sustainability forward in the complex world that is the biggest global retailer's supply chain.

Laetitia Mailhes: For how long have you been championing sustainability at Walmart?

Freeze: I joined the company in 2006. Walmart had just recently launched its sustainability platform with three aspirational goals: to be powered by 100 percent renewable energy, to create zero waste and to sell products that sustain people and the environment. Some immediate work went into consumable products to reduce the use of hazard chemicals in our supply chain, starting with household chemicals like detergents and soaps. I have a background in chemistry, and so I started working on sustainable chemistry in 2007. I was involved with chemicals for six years. Then I shifted to production, more specifically focusing on trying to make production as energy-efficient as possible. That's actually our biggest opportunity to improve supply-chain sustainability.

Mailhes: How did that realization come about?

Freeze: In order to address our third sustainability goal, we launched the Sustainability Index in 2009 in conjunction with the Sustainability Consortium, which is a multi-stakeholder group. The purpose of the index is to enable us to look at each product category so that we can address relevant hotspots for those products and come up with a way to score how suppliers are doing. Across my area — general merchandise and soft lines including apparel — factory-energy efficiency emerged as the biggest opportunity: as we looked across categories, from plastic toys to electronic accessories, we noticed that there was a real need for assistance and education.

Mailhes: How does the Sustainability Index work?

Freeze: The survey questionnaire is sent out every year — the next one will be sent out next January to thousands of suppliers who have a six-week window to complete it. The Index was originally a set of 15 questions to survey our suppliers at the company level. In 2012 we moved to category-specific questions, starting with high-selling categories such as plastic toys, TVs and milk. We've rapidly expanded the index across our business since. We're now covering over 50 percent of the volume of the products we sell. With the help of the Sustainability Consortium, our goal is to continue to roll out relevant questions to address hotspots in materials used, manufacturing and even throughout the life cycle of the products.

Mailhes: How much progress have you been able to track, including through the Index?

Freeze: We're still just at the baseline for many categories. But awareness has clearly been growing. One of the roadblocks at the beginning, when we would gather our suppliers and stakeholders, was the reluctance of people to elaborate on sensitive subjects. Over time, as we've been pushing sustainability an as important issue for the industry to solve, and people have had the opportunity to think about it in a bigger way, they start to think about what they can do to make their products better. There's still ways to go but we've ultimately seen progress, and we're happy with the direction most suppliers are taking.

With regard to the Index specifically, we're increasing the numbers of responses to the survey year over year. We had over 60 percent of the suppliers covered by the Index (by sales volume) respond this year. And we're working hard on improving the response rate. We're taking a lot of lessons from the past, such as making questions more specific, providing more information and allowing a larger window of response time. As we get results back, we make modifications to make sure we're as specific as we can and quantitative, so suppliers know what to work on and how to improve.

Mailhes: How do you communicate your sustainability goals to your suppliers?

Freeze: We have a large merchandising organization in charge of procuring products and working with suppliers on a day-to-day basis. The leverage really lies with them. So we work through them to implement these initiatives. We identify priorities, thanks to the results of the survey, and we work with the business to make sure they understand where the possibilities are and what the potential for improvement is — that's the bulk of the sustainability education we provide. We can take a company-level view, but we can also dig in specific product categories for those merchants who want to find out more about their specific suppliers.

Mailhes: How do you get suppliers to comply?

Freeze: It depends on the business. We try to supply the right information, and let our merchants infuse it in the process that they're used to so it's less work for them. For instance, some of them have joint business-planning sessions with some of the key suppliers, and sustainability goals provide a new way to talk about working more closely together for the long-term.

As another example, we have a team going to China this week to review products and talk with our sourcing teams about the products for next year. They're taking the results of the survey with them and they will go with the suppliers over their scores, asking them what they're working on and what they're going to improve for next year. It's our mission to keep bringing sustainability up and making sure it's on their radar.

Mailhes: You went to Walmart's global suppliers' summit in China at the end of August to launch the RedE Tool. What is it?

Freeze: The RedE Tool is a way to scale suppliers' education about energy efficiency. It is designed to be a tool that any factory can use. It was originally used internally by McKinsey & Co. As it became clear that sending a consultant on site for a week was too costly and not scalable, we started wondering how to develop a scalable solution so that all suppliers, from the smallest to the biggest, could start working on energy efficiency without delays. We saw that opportunity, specifically in China where we have a large amount of production, and we knew we wanted to do something about it. We created the tool so as to make it extremely relevant to our Chinese suppliers, based on our past experience in China. It aligns with the overall goal of reducing greenhouse gas emissions and optimizing energy use. It's also a way to generate savings. Of course their Sustainability Index scores will also rise. We're hoping suppliers will be using the tool for their own benefit.

Mailhes: You've mentioned energy efficiency; what about water and waste management?

Freeze: The tool itself is designed to look at more than just energy. We want to be very focused to start off with, and get suppliers on board. Ultimately the tool will allow them to manage other flows than energy, like water and waste.

Mailhes: What kind of solutions does the RedE Tool prescribe to improve factory energy efficiency?

Freeze: It depends on the type of operations or the equipment suppliers use.The RedE Tool provides a variety of options. It helps suppliers identify the amount of investment capital required, as well as the return on investment they can expect. They may not be able, or educated enough, to make all the changes that the tool recommends, but they can definitely get started with some projects that they need the least amount of help on. We want to keep enriching the tool with information so it becomes more and more helpful, and even allow suppliers themselves to populate it with information that can benefit other suppliers.

Mailhes: How much support is Walmart planning to provide?

Freeze: We know from past experience that suppliers typically take on the low-capital projects to start with, so they can get a feel for what they are comfortable with. I think over time we'll see a shift toward taking on some of the more capital-intensive projects. Our goal is to offer solutions there as well, as we continue working with this program, either through assisting with financing or introducing solutions providers who can invest an/or install the equipments and share in the return. We want to make sure suppliers are rewarded with the changes they are making.

We have about 400 retail stores in China. So there's that angle of working with suppliers in a country that we're strategically committed to.

Mailhes: What accountability model does the RedE Tool allow for?

Freeze: It will allow Walmart to track in real time how factories are performing. We won't be able to see individual results, but only aggregates: we want there to be trust in using the tool; we also want to be able to see what progress is being made overall, what the easiest opportunities have been and what pending work will require us to assist through training, for instance.

Mailhes: How do you envision the roll out adoption?

Freeze: We're starting with China, where the majority of our manufacturing is taking place, and the USA. Our hope is to have upward of 500 facilities participating by the end of next year. We understand it's important for regions like these to invest in using resources more efficiently. The program is available only in English and Mandarin for now but those are the only geographic limitations. The RedE Tool is essentially available anywhere. It is important to note that this was intentionally developed to be an industry mechanism, not a Walmart mechanism. So that if you're a facility supplying multiple retailers, you can use the same tool and submit the same information, and then multiple retailers can view the results. As we roll out this tool to more facilities and are able to show progress, my hope is that we'll have additional companies join us. We have the drive internally. Walmart is committed to being more sustainable. And it's in for the long-haul.