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Wal-Mart's Sustainability Strategy

SCM 479
by

Dawson Rauch

on 26 April 2011

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Transcript of Wal-Mart's Sustainability Strategy

A Sustainability Strategy Supply Chain Gang: Dawson Rauch
Josh Davis-Welty
Meagan Hall
Meghan Pedroza In 2005, Lee Scott, the CEO of Wal-Mart, announced that the company would be launching a business sustainability strategy. To become "the most competitive and innovative company in the world".
Create partnerships with suppliers and other stakeholders
Develop sustainable value networks within Wal-Mart Cost leadership through economies of scale and purchasing power
Expand market share Sustainability Strategy: Wal-Mart's current business strategy: Strategy Overview Situation Analysis Internal: Environment: Wal-Mart’s internal structure in 2005 was focused on establishing functional networks to effectively introduce sustainability strategies. Quick-wins
Innovation projects
Game changers Goal of the sustainable value networks: Established 14 sustainable value networks
Value networks sought ideas from outside the organization
Challenged to focus on both economic and environmental benefits
Integrated sustainable practices into the culture of Wal-Mart Sustainable Value Networks: Energy
Waste
Products Three focuses:

Governmental regulations on emissions and pollution can add significant costs to Wal-Mart’s business

Consumers are more eco-concious and are changing their spending habits based on Wal-Mart's reputation

International governments are imposing varying regulations that add complexity to business practices

Technological developments in the various product categories could lead to more sustainable products In 2005, environmental concerns drove Wal-Mart to analyze its entire supply chain – itself, its suppliers, and multi-tier suppliers Changing Business Environment: Threats of New Entrants Supplier Power Buyer Power Competition Low threat of individual entrants competing directly with Wal-Mart
Established supplier relationships, high market share and purchasing power
Wal-Mart leverages economies of scale to create high barriers to entry
Wal-Mart is focused on developing, “discipline and efficiency in its supply chain”.
Large consumer base - 84 percent of Americans



Recent slowing of sales growth
Local community resistance to Wal-Mart expansion Current Threats: Future Threats: Motivating Suppliers
60,000-plus suppliers
Wal-Mart emphasizes low cost, efficiency, value, and speed
Suppliers, eager to secure additional business from the company


The Fishin’ Company, pursued the MSC Certification program, “even though it added significantly more complexity, time, and effort”
The Fishin’ Company’s only benefited from a profit margin of 1.94% for Alaskan Fish and 2.4% for farmed Chilean fish.
Wal-Mart's has ability to re-source


Wal-Mart's supply chain power may change as Wal-Mart becomes more dependent on suppliers to adopt sustainable practices. Supply Base The Fishin' Company Future Supply Base Consumers have limited ability to switch to another retailer without paying higher prices


Wal-Mart’s consumer reputation began deteriorating from lawsuits and environmental costs.
New sustainable product offerings succeed based on consumer acceptance
Wal-Mart must educate consumers on the benefits of their green initiatives without over-cannibalizing “sales of conventional products” Distingushed Position from Substitutes Little direct competitors
Costs of Reputation
Relevant initiatives
Power over suppliers Affordability and Value Porter's Five Forces Threat of Substitutes
Substitutes have little power to compete on price
Higher costs of goods
To retain its current customers and introduce quality, green products, Wal-Mart must emphasize the products’ affordability Strengths High market penetration
Strong purchasing position
Influence suppliers and defer cost
Efficient supply chain operations Opportunities Sustainable business can hedge against long-term supply risks
Sustainably reduce supply chain waste
Enhance the public reputation and market valuation Weaknesses Consumer switching behavior
Poor corporate reputation
Target of lawsuits and fines for business practices Threats Government regulation
Higher costs from disjointed regional legislation
Long-term resource depletion SWOT Analysis Motivation Strategies Strategy 1: Strategy 2: Strategy 3: However... Metrics for each of the 14 sustainable value networks
Link the metrics to the preferred sustainable supplier program
Adapt the metrics to the business realities of each value network
Metrics should drive improvements in the 3 focuses: Preferred Sustainable Supplier Program Industry: Why Pursue a Sustainable Strategy? Supplier and Supply Chain Benefits Cost Leadership Government Regulations Marine Stewardship Council's Certification:
help secure fishery output, increased supply chain visibility, tap into all potential opportunities
Better, more sustainable suppliers help drive effectiveness in transportation segment
Reduce costs and eliminate stock-outs

Focused on 20 of the 50,000 Chinese suppliers
Develop “collaborative, long-term, influential relationships with suppliers.”
Utilize a similar system across the board to further consolidate and efficiently manage its supply base Supplier Development Textiles Supplier Performance
Measurment Cooperation from suppliers is necessary for
sustainability strategy implementation Motivate key suppliers through measurement
*EX. Goal – reducing packaging used by suppliers
by 5% between 2008 and 2013
*Web-based scorecard system evaluating suppliers
on inputs which include sustainability variables
 *Asked 60,000 plus suppliers to participate in trial program Incorrect measurement focuses could cause set-backs *right metric input key China Facts of Influence
$23 billion in exports for 2005
50,000 suppliers
Wal-Mart = 7th largest trading partner for China Motivation
Challenge:
engaging 50,000 suppliers
Solution:
*Pinpoint 20 of its top suppliers
*Create collaborative relationships
*Share information
*EX. Dye Factories Sustainable Value Networks Future Outlook
2006 - “All species of wild seafood are greatly depleted and predicted to collapse within 50 years.”
*Challenge is the continuity of supply of seafood
*Wal-Mart spent $750 million in sourcing seafood
Change
Marine Stewardship Council’s certification program
*Broad set of certification standards
*Wal-Mart presented it to its suppliers
 *Insurance of continue fishing capabilities
 *New market entries
 *Benefits from collaborative/cooperative relation
with Wal-Mart Electronics Strong Presence Domestically:
2006 – Wal-Mart second highest market share of Electronic sales in the U.S.
New Strategy focuses – materials innovation, e-waste, legislation, green engineering, metrics, and training/education.
Change:
Alex Cook – buyer for Wal-Mart on a visit to an electronic supplier
2 different production lines for same product
*U.S. Line – computer manufacturing without regulation
*Europe Line – computer manufacturingfollowing RoHS
(Restriction on Hazardous Substances)-compliance
Wal-Mart committed to longer contract in order to have RoHS compliant computer
*12 weeks vs. 4 weeks Sustainability History:
Organic cotton yoga outfits offered at Sam’s Club in 2004
*Highly successful – 190,000 units within 10 weeks
No visibility past first tier supplier of cotton
Change:
Work with cotton farmers to have more supply of organic cotton.
*Buyer team that worked with farmers
*Specialized roles allowed for strategic approaches
*Pushed cost of organic cotton farming on to end-consumer
*Quality and value perception allow for higher prices
*Long-term commitments to organic cotton suppliers Seafood Capitalize on economies-of-scale
Textile industry: collaborate with suppliers to eliminate toxicity and ensure reasonable prices
Probe entire supply chain for improvements
Pass additional price premiums to consumers Energy
Waste
Products China: large number of suppliers creates interdependence, incentive to prevent environmental crisis, establish guidelines to protect supply
European electronics regulations: RoHS electronics standards to standardize between Europe and US
No nationalized sustainability standard in US, and diverse statewide regulations could be costly to Wal-Mart
Benefit from instituting a US standard to control for complexity
First-mover advantage – reap financial benefits of cap-and-trade CO2 emissions program Tiered levels of supplier status based upon performance to Wal-Mart’s sustainability goals
No direct monetary benefit to the suppliers
Consolidate sourcing with preferred sustainable suppliers
Increased sales volume motivates suppliers to achiever preferred supplier status Supply Consolidation and Continuity Metric System Connect suppliers with knowledge and resources: Non-Governmental Organizations (NGOs)
Collaborate with suppliers, capitalize on knowledge and experience
Develop collaborative, mutually beneficial relationships and ultimately support Wal-Mart’s business moving forward Preferred Sustainable Supplier Program Directly incentivize suppliers by offering short-term financial incentives and supplier development
Requires less captial investment to meet Wal-Mart's sustainability goals
Wal-Mart's investment demonstrates a long-term commitment to sustainability in the supply chain


Suppliers are hesitant to invest in new chemical formulas
Investment in the supplier’s alternative chemical research
Wal-Mart shares the research with additional chemical suppliers


Departure from Wal-Mart’s traditional business practices
Requires support from executive management and clear guidelines for network captains
The motivation strategy is a finite program
Transition to standard business practices Supplier Investment and Development Chemical Intensive Products Challenges for Wal-Mart Motivating Factors Wal-Mart would equally share all sustainability cost savings
Motivates closer collaboration and open communication between Wal-Mart and the suppliers
Guarantees financial return to the supplier for their sustainability initiatives


Wal-Mart only benefits from a percentage of the sustainability program savings
Complicates supplier relationships in the future when pushing for lower prices


“All Small & Mighty" triple concentrate laundry detergent
Joint venture product launch
Use two thirds less water and packaging material as the regular detergent
Overall Supply Chain savings of $1.3 million Shared Gains Motivating Factors Program Disadvantages Unilever Example Recommended Strategy: Preferred Sustainable Supplier Program Strategy Implementation No direct supplier investment
Measurement and information sharing
Incentivizes supplier involvement
Consolidates Wal-Mart’s buying power Strategy Justification Implementation Immediate Actions: Develop a supplier performance metric system customized to each sustainable value network
Balance of standard metrics must be maintained across value networks
Web-based supplier scorecard


Sustainable value networks must develop a supplier scorecard system
One year trial period to use the scorecards
Suppliers demonstrate an ability to meet quick-win sustainability goals


Develop a finalized preferred supplier ranking system based upon the metrics in the supplier scorecard
Communicate the details of the preferred supplier program to each supplier


The scorecard system becomes policy
Supplier performance will be ranked in the preferred supplier program


Gradually transition purchase volumes to the highest performing suppliers
Minimize internal disruptions and reduce stress on suppliers
The process of supply consolidation is dynamic and must be flexible to changes in the market 2 Months: 6 Months: 1 Year: Moving Forward: Thank you Questions? Indentifying and Categorizing Two goals:
Direct – making changes within Wal-Mart stores and controlled operations (10% environmental impact)
Indirect – having its suppliers make changes (90% environmental impact) Focus of Indirect goals:
China Presence
3 of the 14 value networks – Seafood, Electronics, and Textiles
Supplier Performance Measurement Reference: Denend, L. (2008). Wal-mart's sustainbility strategy.
Stanford Graduate School of Business, OIT-71, 1-45.
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