Logistics and Supply Chain "walmart's Sustainability Strategy"

LOGISTICS AND SUPPLY CHAIN "Walmart's Sustainability Strategy"

Ahmad Nasrallah Basel Ziyadeh Firas Abiad Hazem Abdallah Talal Alsayegh

EMBA / Class 11 & 12 American University of Beirut

1- How is Walmart deriving business value from its sustainability strategy?

Since 1962, the year that witnessed the opening of its first store in Arkansas, Walmart has grown to become the retail giant of all times, with over 1.6 million employees and posted revenues exceeding $ 400 billion.1

Despite the dominant market position it enjoyed, the level of criticism that Walmart faced was increasingly worrying. In this context, Walmart has been accused and then sentenced to pay millions of dollars in fines for violating air and water pollution laws. The level of Walmart's environmental impact was extremely big for the simple fact of its huge operations.

Sustainability strategy wasn't only a remedy to Walmart's growing environmental concerns, but also a winning strategy that consolidated market position and boosted company's supply chain to new frontiers.

Through the very early environmental initiatives Walmart has undertaken, they realized that most of the consumers were not willing to pay additional cost for "environmental friendly" products, the fact that has guided Walmart through strategy design and execution.

Walmart had an innate believe that sustainability strategies will not only help the company re-establish good reputation for environmental impact, but will also help dive into one of the greatest business opportunities of the 21st century.

Through the design and execution of different sustainability initiatives, Walmart has derived business value that supported strategy and gave it the needed breadth and width.

Walmart has succeeded to achieve business value through its sustainability strategy both in terms of short term gains "quick wins" as well as strategic long term ones. These can be summarized as follows:

a) Cost cuts down the line in the value chain:  Transportation cost reduction through increased fuel efficiency initiatives

and re-design of some of the activities in the value chain. This has resulted in combined savings of around $ 100 million from different initiatives in addition to a substantial decrease in CO2 emissions.

1 Walmart Annual Report, 2010

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 Decrease in the cost of packaging material through size reduction and standardization which saved around $14 million. For instance, by making the packaging of its Kid Connection line a bit smaller, the company has achieved a cost reduction of more than $2.4 million a year.

 Introduction of more efficient refrigerated displays has helped achieve 66% reduction in energy consumption.

 Energy saving initiative of promoting the use of compact fluorescent light bulbs (CFLs) should potentially save customers around $3 billion in electricity cost.

b) Recycling initiatives which have promoted environmental positive impact and helped generate additional revenues in the value chain. As a matter of fact, Walmart has benefitted from selling carbon credits that has succeeded to cut down the line in the value chain. "State records show Walmart paid $22.6 million in cash last year for the right to claim $33.6 million in energy tax credits. The cash went to seven projects, including two eastern Oregon wind farms and SolarWorld's manufacturing plant in Hillsboro. In return, Walmart profits $11 million on the deal because that's the difference between what it paid for the tax credit and the amount of its tax reduction".2

c) Minimize waste which substantially reduced environmental impact as well as the disposal cost.

d) Consolidate relationships with existing suppliers and enhanced alliance of standards, goals and objectives.

e) The close collaboration between Walmart and its key suppliers has helped these increase their efficiency, reduce cost and eliminate excess inventory in some cases. This has pumped extra efficiency in Walmart's supply chain enhancing competitiveness among its rivals.

f) Walmart has gained the opportunity to have better understanding to suppliers supply chain impacting the negotiation power and control over further breadth in the supply chain.

2 Mike Shedlock, Global Economic Analysis, 2010

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g) Secure long term supplies of scarce resources, e.g. seafood, in addition to providing high quality supply which sustains competitiveness.

h) Helped Walmart pioneer the introduction of new lines of products such as RoHS compliant computers, organic cotton textiles, etc...

2- Imagine you are Andy Ruben and Tyler Elm, evaluating the progress of the electronics, seafood and Textile networks. Which of these networks have been most successful in creating business value by reducing environment impacts? What factors explain the success (or lack of success) of these networks (use maybe a table to summarize your answer).

The aforementioned networks where made up of projects of different sizes. The projects where categorized, for each network, into three main categories; Quick wins that the business and stakeholders can immediately go after, Innovation Projects which may take one to three years, and Game Changers that would be pursued on an ongoing basis and were intended to result in a radical departure from traditional business practices.3

The following table will demonstrate an analytical overview of the progress made by the networks in creating business value through reducing environment impacts and the associated factors that contributed toward such success or lack of success.

3 "Walmart's Sustainability Strategy (A)", STANFORD Graduate School of Business, April 17,2007, P.6

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Network

Seafood Electronics Textiles

Factors

Environmental Impacts

Network initiatives

* Depleted wild seafood resources.

* Inefficient industry in terms of fuel use.

* Increased health risks of harmful chemicals and antibiotics used in fish farming environment.

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