Blog: Wal-Mart's green deal
Leonie Barrie | 24 October 2008
The 1000 or so suppliers attending the sourcing summit organised in Beijing earlier this week by US retail giant Wal-Mart Stores witnessed the start of a sea change in global sourcing. The message that came across loud and clear is that responsibility is now firmly on their shoulders to eliminate poor quality and factory abuses, not just in their own firms but right along the supply chain as well.
In what is seen as one of the starkest warnings yet that that its current controls clearly aren’t working, Wal-Mart is ushering in strict new standards in environmental and social compliance from the companies making its products.
It wants to make suppliers responsible for everything from the quality of merchandise to greater transparency and accountability in the way they source products.
From the beginning of next year, factories in China will have to meet rigorous social and environmental standards, they will be checked on their emissions and how they manage and dispose of hazardous substances. They will also be required to improve energy efficiency and use fewer natural resources.
For apparel firms, perhaps the most ambitious of the new demands is that Wal-Mart wants to know the name and location of every factory used to make the products it sells. Not just all direct import suppliers and all suppliers of private label and non-branded products, but every factory they deal with too.
It’s not clear whether the new standards will be applied only to garment factories, or whether raw material and component suppliers will be linked in as well. But Wal-Mart’s recent decision to ban suppliers from using cotton and cotton materials from Uzbekistan, where forced child labour is endemic in cotton harvesting, suggests this could well be a possibility.
And if it is the case, it more than raises the bar on sourcing as we know it. The majority of garment supply chains are so complicated that most retailers confine ethical audits to garment and raw material factories alone. Tracing the origins of all components that go into a single item of clothing is difficult because it involves multiple factories – just think about the firms making fabrics, linings, labels and buttons to name a few.
Suppliers have just two years to meet Wal-Mart’s new demands – and by 2012 the retailer says all suppliers it buys from directly must source 95% of their production from factories that receive the highest ratings on environmental and social practices.
The world’s largest retailer has also decided to raise the bar on the number of environmentally sustainable products on its shelves, and by 2012 it expects to see an end to returns on defective merchandise.
Its demands are partly in response to a slew of damaging recalls of ‘Made in China’ products last year, including dangerous levels of contamination in children's bibs and pyjamas, as well as allegations of child labour in its factories and worries about high levels of industrial pollution.
And they come at a time when Chinese exporters battle slumping consumer confidence in western markets and higher costs at home.
Wal-Mart describes the new goals as “the next step in its sustainability journey,” says its actions are driven by customer expectations, and will make factories more efficient by stripping out excess costs. But sceptics fear putting all the responsibility on the factories is simply a cost-cutting exercise, and ask who will pay for investments in a cleaner supply chain?
There also seems to be a disparity between Wal-Mart’s low-price model and its quest to be environmentally friendly. I spent yesterday at the Ethical Trading Initiative’s tenth anniversary conference and the recurring message was that the practice of driving down lead times and prices is almost solely responsible for workforce exploitation – and clearly doesn’t go hand-in-hand with a socially responsible business model. Maybe Wal-Mart should re-think this too.
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