Walmart Sustainability … Essay
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Wal-Mart has taken on the mantle of the environment not out of a sense of goodwill towards the environment, but because it has found that a lot of the things that will improve its environmental outcomes will also reduce its costs. The company hit upon this congruence at some point, and has become creative at finding ways to reduce waste. The key equation is that waste = money has brought Wal-Mart to realize that there is a lot of waste within its system.
As a result, Wal-Mart works with suppliers to streamline their packaging. Less packaging tends to mean less waste diverted to landfills, and less petroleum used in the creation of plastic, but it also means more product can fit onto a truckload, thereby improving the company's transportation efficiency. The result is a win-win situation for the environment and for Wal-Mart (and its customers). Thus, the approach that Wal-Mart takes towards environmental stewardship tends to be efficiency-driven. The company seldom if ever willingly engages in environmental efforts that would increase its costs, in part out of corporate philosophy but also because the company realizes that raising prices to make such accommodations would run counter to its business model and would be a problem for its customers.
By seeking out these win-win situations, Wal-Mart is effectively using the principles of sustainability to improve its bottom line. The company works with suppliers as well, to improve efficiency throughout its entire supply chain. Working with suppliers has always been part of Wal-Mart's strategy, using its bargaining to improve efficiency throughout the supply chain, rather than just at its own operations. The result for Wal-Mart is that doing this with sustainability is just an extension of a strategy it already utilized. The key difference is that once Wal-Mart realized that there was a link between waste and money, it was able to look to sustainability and environmental science for ideas of things it could look at, and now Wal-Mart actively seeks out opportunities for this win-win situation.
For the sake of this question, I will look at the networks for seafood. Seafood is an area where Wal-Mart saw a logical need for change. Wild seafood is generally inefficient in terms of its production, and with many species is unethical because those species are threatened, at risk, or worse. The scarcity of fish due to overfishing was only creating an even worse situation with respect to the inefficiency of wild fish. One of the outcomes of this is that wild fish is becoming more expensive, which is unlikely to appeal to Wal-Mart customers. Fishing for wild seafood also represented 1.2% of total global oil use, a major drain on scarce energy resources, chasing scarce fish. The natural response to this has been to increase the use of farmed seafood. For Wal-Mart, farmed seafood represents both opportunity and challenge in that farmed seafood has lower nutritional value but it can be produced to a much higher level of efficiency than wild fishing could ever hope to achieve. Further, Wal-Mart was facing supply shortages as it increased its share of the seafood market in the United States.
One of the responses of Wal-Mart to the fish problem was to utilize the MSC program, which was developed by Unilever and the World Wildlife Fund to label sustainable seafood products as such, to discourage consumers from purchasing species deemed to be in danger of collapse. From this beginning, the networks were developed that would help Wal-Mart meet its challenges with respect to seafood. The company wanted to focus on sustainable wild-caught fish only. Wal-Mart also focused on an initiative called cluster farming, that is used in southeast Asia for shrimp farms, this region being a major source of the world's farmed shrimp supply. Cluster farming helps to enforce standards and provide better livelihoods for small-scale farmers. Wal-Mart also support initiatives to create marine reserves and public awareness of seafood-related issues.
The MSC certification was important to Wal-Mart because it focuses on sustainable fisheries "from boat to plate," which means that there is control over the entire supply chain. Wal-Mart has always been in favor of control over the supply chain. Wal-Mart taking greater control of the supply chain allowed for better control over the supply of fish on the market. This reduced the likelihood of fraud -- the example in the case is of Russian illegally-caught salmon being passed off as Alaskan legal salmon. With Wal-Mart level control of the supply chain, it would be very difficult to do this. As it turned out there were a lot of illegal fish in the market, and a lot of inefficiency in the supply chain that was adding to the cost and degrading the quality of the fish. Wal-Mart was generally unaware of the extent of this, and took steps with its suppliers to eliminate such waste. The result was a consolidation of the supply chain.
This partnership has generally worked out well for Wal-Mart. It has added complexity and cost to the suppliers in the short-run, because the MSC program requires a lot more bookkeeping, but over time these suppliers will find a way to reduce their costs associated with the paperwork. For its part, Wal-Mart gets better, cheaper fish that are sustainable. The company has even taken to increasing its degree of vertical integration as a means of increasing the amount of MSC fish on the market. The program has been successful because there is a vested interest among all stakeholders. Fishermen need fish to earn a living and so does Wal-Mart, so nobody has an interest in overfishing. There is further interest in meeting Wal-Mart's criteria because they are one of the largest buyers of fish in the U.S., and they thus command the attention of anybody looking to sell fish.
Wal-Mart motivates its suppliers to reduce their environmental impacts in a few ways. The first is that they leverage the traditional Wal-Mart way of getting their suppliers to do anything, which is to pressure them. Wal-Mart has tremendous bargaining power over its suppliers, many of whom are dependent on Wal-Mart for their business. The result is that when Wal-Mart asks their suppliers to do something, the suppliers tend to take that seriously. Wal-Mart does work with its suppliers as well, because this presents a situation where both parties win. The result is that Wal-Mart helps its suppliers with ideas to improve their performance with respect to the environment, and both parties reap the benefits of improved efficiency.
Wal-Mart is also developing metrics for measuring sustainability. Typically, it is easier to make improvements when there are accurate measures. Thus, when Wal-Mart develops such measures, the supplier will have a better sense of what its current performance is, and what Wal-Mart needs that performance to be. The development of sustainability measures ends up being different for each different product, so it is important that measures are devised. Wal-Mart doing so helps the cause of sustainability, and helps Wal-Mart frame its own sustainability efforts.
Wal-Mart also seeks to communicate with the public about its efforts. This has a few different effects. The first is that it helps Wal-Mart's brand image, but this also creates a brand association with the public because the public starts to expect such performance from Wal-Mart. It is easier to convince suppliers to get on board with the program when it is clear that Wal-Mart has gone public with the strategy, is seeking the cooperation of suppliers and will be creating expectation among customers with respect to environmental policy. This is the company's way of holding everybody accountable, by broadcasting its intentions through communication with the public.
Wal-Mart does not just lean on suppliers to improve its environmental performance, the company also does a lot internally to improve its environmental record. The company has a small core sustainability team, but opted against having a sustainability division or anything of that nature. Instead, Wal-Mart has sought to make sustainability the responsibility of everybody at the company. The result is that all of the associates are expected to make their own contributions to sustainability initiatives. In some instances, Wal-Mart will measure its associates on their contributions, which has the effect of creating a higher degree of motivation among them to perform. Leveraging the associates is also intuitive -- the associates know their stores better, and their operations better, than do most managers and certainly more than the people who are on the sustainability core team. The result of engaging the associates is that more and better ideas for environmental stewardship and efficiency have come about than would have been possible had the employees not been so engaged.
A real game-changer would be for Wal-Mart to work to get more local sourcing on its products. There are a few different things at work that would make this a good thing environmentally, and in terms of efficiency. Right now Wal-Mart is sourcing a large amount of its goods from China, which comes with a lot of… [END OF PREVIEW]
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