06/11/2008 11:16 AM

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The Greening of Wal-Mart Page 3

Wal-Mart is also cultivating closer relationships with its suppliers. Previously, textile buyers selected manufacturers on the basis of the cost and product quality. Relationships with suppliers therefore tended to be transactional and short-lived. Now Wal-Mart employees interact with more suppliers, more often, more directly, and for a greater duration, creating closer relationships that are necessary to sustain initiatives like the organic cotton project.

A major transformation within Wal-Mart has made it easier to have closer relationships with suppliers. In the past, textile buyers had been generalists, handling a variety of responsibilities. Now the textiles network divides the buyer role into four different job categories so that some buyers are dedicated to maintaining long-term relationships with suppliers. These employees are encouraged to hold their positions for many years, as opposed to the 12-18-month rotations that Wal-Mart buyers typically complete.

According to Brandner, these organizational changes, backed by the company's focus on sustainability, have not only supported the objectives of the textile network, but also led the team to ask better questions. "It's helping us become smarter merchants," he says.

Another way that Wal-Mart is using its network is to build bridges between suppliers and environmental nonprofit organizations. For instance, when the Chinese government threatened to shut down a number of textile dye houses in Beijing, including one of Wal-Mart's suppliers, to reduce pollution in time for the 2008 Olympics, Wal-Mart immediately took action.

"We put the dye house in touch with one of the NGOs in our network, which helped it formulate a more environmentally friendly process that reduced its toxic output very quickly," says Brandner. "Although other retailers were negatively affected by the shutdown of their Chinese dye suppliers, we did not have any of our production capacity cut with this vendor."

To boost supplies of organic cotton and help more farmers make the transition from conventional to organic farming, Wal-Mart has begun making longer-term commitments. For example, rather than working season to season, as the company has done in the past, it made a five-year commitment to buy organic cotton from a group of farmers. "It gives them confidence and stability," says Lucy Cindric, senior vice president and general merchandise manager of Wal-Mart's ladies wear division and captain of the textiles network.

The company is also helping farmers manage some of organic farming's challenges. "Organic farmers can't grow cotton in the same field for an extended time because it depletes the soil of nutrients," explains Rothschild. This forces farmers to alternate cotton with legumes, vegetables, and other crops to rejuvenate the soil. To meet organic standards, however, farmers must grow their alternate crops organically. Because alternate crops are not as lucrative as organic cotton, "this creates the temptation for farmers to turn to non-organic farming," she says.

To help solve this problem, Wal-Mart agreed to purchase some of the organic cotton farmers' alternate crops - an initiative that was synergistic with the efforts of the company's sustainable value network focused on food and agriculture.

Eco-Friendly Electronics

In 2004, the U.S. exported 80% of its electronic waste to developing countries, where the waste led to pollution levels hundreds of thousands of times higher than those allowed in developed countries. Despite this, computers and other electronics still account for 40% of the lead in U.S. landfills.

One of the objectives of Wal-Mart's electronics network is to reduce these environmental impacts by recycling or disposing of e-waste more safely, as well as by designing electronics that don't contain hazardous materials in the first place. Another objective is to increase the energy efficiency of its electronics.

The network has encountered challenges in managing e-waste because of the complexity of electronics design and sourcing, the difficulty of measuring the hazardous content of electronics, and the necessity of consumer behavior change to accomplish recycling and safe disposal of used electronics. In contrast, the network has more readily increased energy efficiency because this outcome is easier to measure and to market to consumers.

The sheer complexity of electronic products and the electronics supply chain makes certifying  they are free of hazardous materials costly and difficult. Most electronic products contain sophisticated components sourced through complicated, multilevel supply chains. One set of suppliers sources raw materials, another set assembles those materials into components, yet another set aggregates these components into more complex parts, and so on.

At each link in the supply chain, suppliers have technical expertise and proprietary information that Wal-Mart can't access. When Wal-Mart can't ensure that all components in a product are free of hazardous materials, the company cannot promote the product as "green" to customers.

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