Wal-Mart applies clout

Dec. 5, 2006
Wal-Mart Stores, Inc., previously committed to reduce by 5% the packaging used by its 60,000 suppliers by 2013. Now, a new initiative uses a scorecard to tackle wasteful packaging.

As the nation marked the 10th anniversary of America Recycles Day on November 15, many businesses concentrated on waste minimization as a preferred environmental-protection option, where appropriate. Americans produce almost 240 million tons of municipal solid waste each year, or about four-and-a-half pounds of waste per person per day, says the Environmental Protection Agency (EPA). Most of this waste is recyclable, and that’s good news. Commercial retailers are increasingly reaffirming their commitment to the environment and demonstrating market muscle by advancing waste minimization strategies.

Market-based mechanisms

Market-based mechanisms, such as air trading, designed to improve environmental performance aren’t new. Domestic trading is used for sulfur dioxide and nitrogen dioxide under the Clean Air Act. Trading greenhouse gases is the next frontier, and perhaps a key component of any national climate-change policy. These and many other trading schemes are growing as new and innovative ways to diminish pollution prove effective.

Wal-Mart Stores, Inc., on November 1, added a new twist to the stream of market-based mechanisms intended to achieve a targeted environmental goal. The retailing behemoth previously committed to reduce by 5% the packaging used by its 60,000 suppliers by 2013. To that end, Wal-Mart recently made a “scorecard” available to manufacturers. More than an academic exercise, a supplier’s packaging score will be used by Wal-Mart in its purchasing and product placement decisions.

How the scorecard works

The scorecard is a tool that allows suppliers to evaluate their packaging relative to other suppliers based on specific metrics. The metrics evolved from the “7 Rs of Packaging:” remove, reduce, reuse, recycle, renew, revenue, and read, says Wal-Mart. The Packaging Sustainable Value Network, a group of 200 global packaging industry leaders outlined the following metrics for the scorecard:

  • 15% greenhouse gases/carbon dioxide per ton of production;
  • 15% material value — how much raw material is used to create the package;
  • 15% product/package ratio — how small a package is used for the product;
  • 15% cube utilization — ratio of packaging to the product;
  • 10% transportation impacts;
  • 10% recycled content in the package;
  • 10% recovery value of the packaging material;
  • 5% renewable energy used to produce the package; and
  • 5% packaging innovation.

Suppliers will use the criteria to determine how their packaging innovations, environmental standards, energy efficiencies, and use of materials match up against those of their peers. Suppliers will receive a score relative to other suppliers, as well as relative scores in each category. For example, a supplier may be in the 50th percentile in “Cube Utilization” for effectively using space in pallets and shipping containers, but may only be in the 20th percentile in “Recycled Content.” The category model “gives suppliers the opportunity to focus on specific changes within the context of a fluid environment, driving constant change and improvement in the supply chain,” according to Wal-Mart.

Wal-Mart, by February 1, 2007, will share the scorecard with its suppliers. For a one-year trial period, suppliers will be able to input, store, and track packaging data. In February 2008, Wal-Mart will use the scorecard to “measure and recognize its entire supply chain based upon each company’s ability to use less packaging, use more effective materials in packaging, and source these materials more efficiently relative to other suppliers.” Wal-Mart also hopes its scorecard will enable it to reduce its own emissions and save energy costs.

Conforming to customers

It’s no surprise that Wal-Mart would use its market strength muscle to change the way its suppliers do business. Large companies are increasingly under pressure from socially responsible investors and other stakeholders to improve their environmental performance and bring suppliers along with them, while reducing operating costs.

The scorecard illustrates a trend of innovative market-based mechanisms that we can expect to see increase. Companies wishing to remain providers of big retailers will need to do more than merely stay in compliance; they will need to conform to the dictates of their customers, or risk the commercial consequences of neglecting to do so.

Lynn Bergeson, regulatory editor, is the managing director of Bergeson & Campbell, P.C., a Washington, D.C.-based law firm that concentrates on chemical industry issues. Contact her at [email protected]. The views expressed herein are solely those of the author. This column is not intended to provide, nor should be construed as, legal advice.

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