06/11/2008 11:16 AM

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The Greening of Wal-Mart Page 4

For example, Wal-Mart wanted to be the first retailer in the United States to sell personal computers that complied with the European Union's Restriction on Hazardous Substances (RoHS). And so the retailer negotiated a deal with Toshiba to supply RoHS-compliant com- puters to Wal-Mart stores. In exchange for buying 12 weeks' worth of these computers (as opposed to a typical 4-week commitment), Wal-Mart procured the environmentally preferable PCs at no additional cost.

Nevertheless, because the company had no way of guaranteeing that the computers did, in fact, meet RoHS standards, Wal-Mart decided to play it safe and not promote the computers' environmental benefits.

Another way to reduce e-waste is to encourage consumers to recycle their electronics. Yet recycling offers no immediate personal benefit to consumers, and instead requires additional cost and effort. Because changing consumer behavior without palpable benefits is extremely difficult, the electronics team has not gained much ground on the recycling front.

In the area of increasing energy efficiency, the electronics network has had more success - largely because Wal- Mart can easily test product performance. The nonprofit Green Electronics Council (GEC), which works with electronics manufacturers and other stakeholders to improve the environmental and social performance of electronic products, helped.

With the GEC, Wal-Mart designed an Internet-based scorecard on which suppliers indicate how environmentally sustainable their products are. This scorecard includes measures of energy efficiency, durability, and end-of-life solutions. The GEC and Wal-Mart are also co-sponsoring a contest to design consumer electronics that excel on all of the scorecard's metrics. Wal-Mart will carry the winner's product in its U.S. stores.

A New Kind of Networking

At the heart of Wal-Mart's business sustainability strategy is a shift from generating value through price-based, transactional interactions toward generating value from longer-term, collaborative relationships with nonprofits, suppliers, and other external stakeholders.

Through its sustainable value networks, Wal-Mart gains a whole-system perspective that helps the retailer find profitable ways to address environmental issues such as fishery depletion, climate change, and pollution. In exchange, nonprofit network members stand to make giant leaps toward their missions because of the scale of Wal-Mart's operations. And suppliers enjoy not only the stability that closer relationships with the retail giant brings, but also the assistance and guidance of Wal-Mart's nonprofit partners.

Although Wal-Mart's sustainability strategy appears to be off to a promising start, the company must proceed carefully as it seeks to sustain and expand its network approach. First, Wal-Mart must carefully manage its partnerships to avoid increasing its costs. The company's reputation is on the line as it makes ambitious promises - for example, to sell only MSC-certified wild-caught fish. Because Wal-Mart depends on suppliers to fulfill those promises, they may try to leverage their improved position of power to negotiate higher prices, particularly in times of scarcity.

More dependent on longer-term relationships with fewer suppliers, Wal-Mart might also lose its ability to buy products from lower-cost sources. In addition, as its ties with nonprofit organizations deepen, Wal-Mart may face pressure to reduce its environmental impacts in ways that increase production costs.

To resist upward pressure on costs, Wal-Mart can become still more efficient. It can also continue to partner with nonprofits to develop and implement innovations. And in its relations with suppliers, it can keep prices for green products low by committing to purchase greater quantities on the front end, rather than paying price premiums on the open market.

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Erica Plambeck is an associate professor at the Stanford Graduate School of Business and a senior fellow at the Woods Institute for the Environment at Stanford. She received the Presidential Early Career Award for her research on relational contracting in supply chain management.

Lyn Denend is a research associate at the Stanford Graduate School of Business, where she works with faculty members to develop case studies in a variety of fields.

Adapted from Stanford Social Innovation Review, a SustainableBusiness.com Content Partner. 

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