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Green Supply Chain Expert Insight
By Dan Gilmore
March 1 , 2010
 

Green Supply Chain Comment: Could Walmart’s Green Supply Chain Push Lead to Different SKU Bases?

 

New Walmart Program Can be seen as Successor to Top-Down Cost Reduction of GM's Lopez 20 Years Ago;  What Happens when GHG Emissions Reduction and Supply Chain Cost Decreases Diverge?

Hopefully you saw our TheGreenSupplyChain.com piece on Walmart’s plan to drive reductions in greenhouse gas emissions from its global supply chain. (See Walmart Ups Greenhouse Gas Goals, but Numbers Show Challenge of Making Impact on Total CO2.)

 

Here is the basic idea: Walmart says partly directly, partly indirectly, that is going to apply its Green supply chain experts into its supply base to help its vendors reduce greenhouse gas emissions in manufacturing, logistics, packaging, etc. It set a goal from this new program of reducing the greenhouse gas emissions from its extended supply chain by 1.5 times what the increase would have been otherwise without the new program.

 

I am surprised that to the best of my knowledge, no one else has made what seems to me to be the obvious parallel: the vigorous efforts of former GM procurement chief J. Ignacio Lopez, who in the late 1980s spent a turbulent year trying to drive costs out of GM’s supply chain. He tried that in part by simple fiatM, ordering supplier price decreases, and in part by sending GM experts out to suppliers to supposedly identify process and other inefficiencies that GM vendors could improve upon and that would ultimately result in lower part prices to GM.

 

The results were at best mixed, and by some viewed as negative for GM and its suppliers in the long run.

 

Can Walmart, unlike GM, really make this sort of top-down approach happen?

 

It will involve, it would seem, a tremendous deployment of resources, which in the past Walmart has not shown any affinity to stepping up to.

 

Walmart does note that it believes often the subsequent reduction in GHG emissions from the program will also cause its suppliers to reduce energy usage and also total supply chains costs. Certainly, this may often be true. Its low prices are driven by low overhead as much as anything.

 

But what will be the rules around the inevitable tradeoffs between carbon emissions reduction and cost? This, as usual in the Green supply chain debate, is not clear.

 

But let’s assume for a minute that Walmart, with its unparalleled clout, decides to take the “high road” and force/coerce GHG emissions from its suppliers that are not also clear supply chain cost winners.

 

Some really interesting scenarios start to emerge.

 

For example, what if the less Green packaging platform actually results in better sales at the shelf level? What if the most Green logistics flows result in higher levels of inventory than a Walmart vendor wants to incur?

 

While Walmart is obviously highly focused on price, will it really bend here to go more Green?

 

And if so, could some companies find it makes sense to buy, make, or move a given SKU one way just for Walmart, but be able to offer that SKU at a lower price to other retailers without the GHG reduction burden?

 

At that point, is it a different SKU? Surely Yes if it has different packaging, but what if there is something else different about manufacturing, sourcing, logistics, etc.

 

Maybe given the share of Walmart business to  most consumer goods manufacturers, whatever they do for Walmart will simply roll over to everyone else, but I kind of hope not.

 

This could be very interesting.

Could you see any case where companies will have one version of a SKU for Walmart that has low a low carbon footprint, and another lower priced one? Is Walmart going to far into its suppliers' business with this and other programs? Let us know your thoughts at the Feedack button below. Feedback anonymous upon request.

 

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ABOUT THE AUTHOR
 
Dan Gilmore is Editor of Supply Chain Digest and The Green Supply Chain.com
 
Gilmore Says:

Could some companies find it makes sense to buy, make, or move a given SKU one way just for Walmart, but be able to offer that SKU at a lower price to other retailers without the GHG reduction burden?

 
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