Interview: Examining Wal-Mart’s Sustainability Index

Most of us know that Wal-Mart has been a big player in the “green” movement. The world’s biggest retailer takes the whole “let’s save the planet” talk very seriously. So it wasn’t with much shock that in July the company announced a worldwide sustainability index initiative—a single source of data for evaluating the sustainability of products.

The index will be introduced in three phases. First, the giant retailer will perform a supplier assessment through a survey to evaluate the suppliers’ own sustainability.

As a second step, the company is helping create a consortium of universities that will collaborate with suppliers, retailers, nongovernment organizations, and the government to develop a global database of information on the life cycle of products—from raw materials to disposal.

Finally, it will provide customers with all of the product’s information in an easy-to-understand manner so that they can make informed consumption choices.

Quality Digest staff tried to contact Wal-Mart directly to ask about the implications of such an index on the industry, but Wal-Mart’s sustainability department sent a note saying that there wasn’t much information to provide beyond the information and press release on its web site.

As an alternate source, we reached out to the Society of Manufacturing Engineers where Robert B. Pojasek, Ph.D., serves on its Lean-to-Green working group. He also acts as sustainability practice leader of Capaccio Environmental Engineering Inc. in Marlborough, Massachusetts. www.capaccio.com

Following is the interview with Pojasek, where he reveals his view of the sustainability index, green manufacturing and how they relate to quality.

 

Quality Digest: What kind of information is crucial to assess an environmental footprint and how can manufacturers quickly gather this data?

Pojasek: The environmental footprint is created when the manufacturing company uses an environmental management system standard such as ISO 14001. It is important for companies to know the activities associated with their products and services, as these activities use resources (i.e., energy, water, and materials). Furthermore, these activities “lose” resources (e.g., to water, air, land, and spills and leaks). Companies use process maps and value-stream maps to examine their processes and determine the resource intensity (what resources are used the most) and the resource productivity (using less resources and making sure that these resources are being effectively converted into products).

An environmental footprint is a detailed planning tool and provides the foundation for the entire environmental management system or the sustainable management system. It takes considerable effort to gather and organize the information into a footprint that provides such a foundation. There is no standard method for doing this yet. It is my experience that companies are not likely to put together an environmental footprint unless they are required to do so—especially small- and medium-sized businesses. However, if they understand the concept of resource productivity, they would see the value of this effort and be more likely to consider it. After all, the competitiveness of their operation really depends on their ability to increase resource productivity. This effort just so happens to have a positive impact on the environment and makes them "sustainable" and "green."

QD: Is there an estimate of how much suppliers/manufacturers are going to spend to get “green?”

Pojasek: There is no standard or measurement that determines "green" absolutely. Many of us believe that becoming green happens through the process of continuous improvement. Without a footprint and a risk management program (e.g., ISO 36000), there is no means for a company to determine how effectively it is addressing resource productivity. This is a key measure. Every company would spend different amounts of money to continually improve. Risk management allows you to financially quantify the positive benefits that help offset the costs. In my experience, companies that use this method can make significant improvements in resource productivity, the major green metric, with little to no capital improvement. This is accomplished using operating expenses and going after the quick wins with feedback on operational risk reduction and changes in the environmental footprint.

Most companies are amazed how a concerted effort with good risk management metrics can spur management into making the operating resources available for these efforts—a requirement in ISO 14001. Most ISO 14001 program coordinators do not yet know how to effectively use risk management techniques—environmental impacts can create substantial risks to the business and these risks can be expressed in financial terms. By the way, Sarbanes-Oxley Section 404, financial controls, is basically a risk management program.

Lean is used for process improvement in many manufacturing companies. At SME, we are trying to encourage the involvement of environmental professionals in the use of lean process improvement. This will help the companies address environmental management and sustainability using a proven method.

QD: Wal-Mart recently announced a sustainability index, which will include information from suppliers worldwide. How is this index going to affect manufacturers?

Pojasek: All manufacturers that find themselves sufficiently involved in the Wal-Mart supply chain will have to pay attention to this index. Joel Makower (executive editor, GreenBiz.com) has written that many of the larger suppliers of Wal-Mart paid $50,000 for a membership in the group that oversees the implementation of this sustainability index. So you can see that they feel that they need to be involved.

I believe that Wal-Mart could have required ISO 14001 with some explicit requirements for resource productivity instead of issuing a set of 15 questions with a bevy of lagging indicators to measure what suppliers are doing. If Wal-Mart believes that sustainability comes from attention to manufacturing basics and that continuous improvement is the key to driving sustainability, they might have sought to influence their supply chain to pay attention to risk management, environmental management systems, and leading indicators to help drive the improvement rather than creating a de facto enforcement program of having suppliers meet the numbers.

Compliance does drive many companies. However, a program to drive continuous improvement is in everyone’s best interest and will allow Wal-Mart and its supply chain to keep costs down—their ultimate goal. Wal-Mart has the clout to make improvement happen, one way or the other.

QD: What happens if many suppliers don’t meet Wal-Mart’s sustainability index or any other sustainability standards, once their environmental footprint information becomes available?

Pojasek: Environmental footprint information is not very valuable unless it is kept up to date and is used effectively within an environmental management system to drive continuous improvement.

The definition of a management system is to make the program (environmental improvement, green manufacturing, or sustainability) part of what every employee does every day when they perform those vital activities. It also means that it needs to be part of every management decision.

Meeting a Wal-Mart number—that may just be assigned to a manager who will be rewarded or punished depending on whether the numbers were met—does not drive this into the organizational culture. This does not drive change to be more sustainable.

Even Wal-Mart has found that its associates like to do sustainability projects.Wal-Mart has contracts with suppliers that get their interest. Many of the suppliers depend on the revenues from their Wal-Mart involvement to meet their own revenue goals. So they will listen. Wal-Mart feels that their sustainability index will help them achieve their goals. They are very likely to demand performance against this scorecard, just as they did with their packaging scorecard.

They are really serious about this program.

QD: Is an index of this sort going to positively affect the supplier’s bottom line, what with the extra money and resources spent on green registration, certification, training, auditing, etc.?

Pojasek: The Wal-Mart Sustainability Index Program does not provide the tools that companies need to make these things happen. When a large customer tells you to do something, you do what you are able to do so that you can demonstrate you are doing what was asked.

Wal-Mart could have used existing programs (ISO 14001, risk management, performance excellence frameworks, lean, Six Sigma, etc.) to help their suppliers improve their resource productivity. They could have created a standard that measures how well companies have been doing in using these programs and demonstrate continual improvement. Wal-Mart has done this in the past when using the British Standard PAS 2050 to measure the embedded energy in certain products. This standard can be used to show the effectiveness of life cycle changes in a product.

This sustainability index is their index, not an international standard.

QD: How is this initiative going to affect your suppliers and final customer?

Pojasek: Many of the companies will hire consultants to help them create the response to the 15 questions in the sustainability index. It will be great for my business! I will stress how suppliers should be using basic and proven methods to drive their formal action plans that will provide the objective evidence that Wal-Mart will be demanding as they move forward with the sustainability index.

Let’s hope that creative accounting cannot be used to meet the sustainability index. How will Wal-Mart audit the tens of thousands of returns? Is the sustainability index sufficient to audit against? Hopefully they have addressed these questions.

QD: Is it logical that the local suppliers would have more advantage over the outsourced ones? Do you see a possible shift from outsourcing toward getting supplied more locally?

Pojasek: If local suppliers can use resource productivity and the other basic methodologies to drive down their costs (and score well on the sustainability index), they will become more competitive vs. the outsourced suppliers that will not immediately see the logic of this index. Wal-Mart has held a summit in China to make sure that the index is taken seriously there. Their goal is to lower cost, whether it is done in China or here in North America. 

QD: Can you give a practical example of how sustainability of products is going to be evaluated and/or measured?

Pojasek: The American National Standards Institute (ANSI) has been developing sustainable product standards. The carpet standard (ANSI NSF 140) has already been issued. There are a number of other sustainable product standards being developed at this time. Standards are useful since they provide a basis for measurement and evaluation. 

Wal-Mart could get into the product standard business or become involved in programs established by independent standards setting organizations such as ANSI. The key will be the credibility of the standards setting process. These processes are not expedient. Consensus takes time to achieve. Many organizations are trying to get into this business.

You may remember the quality guru, Phillip Crosby, saying, “Quality is free!” I wonder if by giving the proper attention to resource productivity and by driving it into the operation with a sustainability management system standard, we might best drive sustainability in a way that is more effective than a bunch of lagging indicators hiding behind a sustainability index.

About The Author