Wal-Mart keeps green initiatives under way, seeks to eliminate product returns by 2012

Wal-Mart is sustaining its sometimes-costly pursuit of sustainability despite slower than expected sales and the threat of a prolonged recession. That’s because, sooner or later, all of Wal-Mart’s initiatives are “green” for the sake of green.

“We’re a publicly held retailer who has millions of shareholders who are interested in making a return on their investment, so to say that this is an altruistic type of a venture for us would not be true,” said Kelly Abney, Wal-Mart’s vice president of corporate transportation. “We had to show a (return on investment).”

Wal-Mart’s strategy of linking carbon-reducing initiatives with quantifiable cost reductions may point the way to maintaining corporate enthusiasm for sustainability in the midst of a financial crisis — even when sustainability is costly in the short run.

Wal-Mart expects to reduce waste 25 percent companywide by year’s end, Abney said, and to be supplied 100 percent by renewable energy by 2015, in line with Chief Executive Lee Scott’s pledges starting in 2007. “We believe that there is a substantial return on investment and that we have already taken a lot of that to the bank, and that was just looking at some very low hanging fruit,” Abney said.

The very scope of Wal-Mart’s green ambitions and its varied approaches may help it get the return on investment it needs to justify its plans.

“When companies talk about initiatives around sustainability, it can vary on many different dimensions,” said David Simchi-Levi, professor of engineering systems at the Massachusetts Institute of Technology and editor of Operations Research magazine.

Some results (reduced carbon footprints) are more difficult to measure definitively than others (cube utilization resulting in lower carbon emissions), he said. “What I like about Wal-Mart’s approach is that they are attacking from different directions.”

Looking at both direct-cost savings and harder to quantify indirect benefits from better truck utilization is more likely to produce results, Simchi-Levi said. “They are not relying on one method.”

Through its more than 3,000 stores and 200-plus distribution centers on six of the world’s seven continents, Wal-Mart is uniquely positioned to promote sustainable manufacturing and transportation, Abney said.

“Both our ability to directly influence those moves, along with our indirect ability to influence our suppliers, that’s a significant amount of carbon dioxide, etc., that we have a little bit of an influence over,” he said at the recent annual meeting of the Council of Supply Chain Management Professionals in Denver.

The world’s biggest merchandiser has already enjoyed substantial results. The company decided to start small with its packaging optimization program, focusing on just 277 SKUs in its private brand toy lines. Reducing the size of boxes for just its toy tea sets saved $3.5 million in shipping costs, eliminated 277 shipping containers, 5,100 trees cut down for packaging and 1,300 barrels of oil for container ship fuel, Abney said.

Redesigning milk jugs to be taller and more square at Sam’s Clubs improved refrigerated truckload cube utilization 50 percent, resulting in 11,000 fewer trucks moving each year, he said. Stores that used to take five deliveries a week now take as few as two.

“Sandwich bale” waste plastic and cardboard recycling, in a form suggested by a Wal-Mart employee, transformed the paper and plastic garbage into a $13 million source of revenue and eliminated $17 million in hauling expenses to landfills, Abney said. It also took 150 million pounds of plastic out of the waste stream, he said.

Wal-Mart has also been experimenting with auxiliary power units for its private fleet of trucks, saving $25 million a year in idling expenses. “APUs have been a big winner for us,” Abney said.

Yet some of the company’s programs produce new challenges for its supply chains.

For example, although Wal-Mart maintains internal systems to recycle mercury-tainted compact fluorescent light bulbs it has aggressively marketed for their energy-saving benefits, customers are left to their own devices when it comes to disposing of the new bulbs, which can be hazardous if broken or carted off to landfills. That may be an area for a new Wal-Mart program, Abney said.

Wal-Mart has also had mixed results testing additives and devices that were supposed to improve engine and fuel efficiency. “We tried those and either did not get the advertised result or we got no result,” Abney said.

Whether for the short- or longer-term, Abney said Wal-Mart’s sustainability initiatives are always undertaken in expectation of a financially positive result. Wal-Mart’s new, environmentally conscious stores, with skylights and energy efficient heating, may not pay off for years, he said, while its APUs saved millions of dollars on its truck fleets in just months.

“So there’s everything from almost what I’d call instant gratification to some things that are still losers at this point, but that we believe ultimately will pay us dividends in the future.”

The world’s biggest retailer is also setting an ambitious goal of eliminating virtually all defective product returns from its supply chains by 2012. A recent directive to eliminate defective merchandise returns will change Wal-Mart’s returns management and reverse logistics processes, said Jeff Karrenbauer, president of supply-chain consultant Insight. While details of the merchandiser’s plans are still emerging, the zero-returns goal would affect tens of thousands of suppliers, he said, about 80 percent of them in the Pacific Basin.

“Realistically, can they achieve 100 percent no product returns across their product mix?” Karrenbauer said. “That would be a stretch. Zero defects is pretty much impossible.”

Wal-Mart’s initiatives also come at a problematic time for many suppliers, squeezed by the global credit crunch and battered by a widening and deepening economic slowdown in the very retail markets upon which they and their patrons depend.

On the plus side, a zero-returns policy could produce substantial savings, although the company wouldn’t put a number on that. “My guess is that this is an initiative to lower their returns-management cost,” Karrenbauer said.”

It could also signal an effort by Wal-Mart to discreetly winnow its supplier base, thus consolidating operations and lowering those costs, as well as costs associated with transportation and logistics. “It would not surprise me, but I certainly don’t know,” Karrenbauer said.

Wal-Mart’s latest round of sustainability initiatives is consistent with a global trend among manufacturers rethinking their sourcing strategies. “We’re not going to see the apparel industry come back to North Carolina,” Karrenbauer said, but Mexico and other less-distant sources, such as Africa, may be next in line for global manufacturing’s version of musical chairs.

“We’re starting to run out of continents,” he said.