Chinese Suppliers Face New Wal-Mart Mandates
Wal-Mart Stores Inc. is hitting its Chinese suppliers with a slate of stringent environmental and safety mandates, just as the manufacturers face rising costs and dwindling demand for their products.
The world's largest retailer by revenue will issue the potentially costly dictums this week in Beijing at its first global supply-chain summit. The event is expected to be attended by hundreds of suppliers, nongovernmental organizations and Chinese government officials.
An apparel manufacturer said the company's targets 'could not have come at a worst time. What [Wal-Mart] needs to make clear is, who's paying? Us or them?'
Wal-Mart said it will phase in energy-efficiency requirements with its Chinese suppliers next year, and expand the program world-wide by 2010. Manufacturers that sell directly to Wal-Mart also must provide the retailer with lists of their suppliers. The companies should be able to recoup their costs 'by taking waste out of the system,' said Wal-Mart spokesman David Tovar.
The effort is the next stage in the Bentonville, Ark.-based company's three-year-old initiative to improve energy efficiency and cut waste across its more than 7,400 locations globally.
Wal-Mart said it will require third-party certification that suppliers are meeting all the safety, labor and environmental standards required by local laws. This summer, Wal-Mart began requiring outside audits of suppliers' labor-law compliance.
In addition, Wal-Mart said it is committing to make its 113 existing stores in China more environmentally friendly by reducing energy use at each store 30%, and cutting water use in half by 2010. Wal-Mart also plans to open a prototype store in China that will cut energy use by 40%.
Wal-Mart Chief Executive Officer Lee Scott, in a phone interview from Beijing, said he expects to hear objections from suppliers that find themselves under growing pressure from the rent economic downturn, as well as Wal-Mart's continuing expectation of lower prices.
Thousands of factories in southern China -- the world's primary source of low-cost goods -- have closed this year due to soaring costs and tougher environmental and labor rules, increasing public unrest in the nation. Earlier this month, thousands of laid-off workers demonstrated outside the gates of Smart Union, a defunct supplier to toymaker Mattel Inc. and Walt Disney Co.
'Some people's primary concern will be what will this do to cost?' Mr. Scott said. 'But when we rolled out our sustainability initiative at Wal-Mart we found that eliminating waste, downsizing packaging and improving transportation fuel efficiency led to a whole lot of savings.'
He added, 'I don't expect people to immediately jump off their chairs and say this is wonderful. There will be a healthy dose of skepticism on some people's part.'
Wal-Mart is taking a risk by making its environmental and efficiency goals in China public. Now, 'we have a measurable timeline to judge them,' said Julia Bovey, a spokeswoman for New York-based Natural Resources Defense Council.
Not all of Wal-Mart's demands will require suppliers to implement costly measures or buy new equipment, said Linda Greer, a director of the environmental advocacy group. 'There's a lot of low-hanging fruit,' she said, citing an assessment trip the group conducted this summer of Chinese textile factories. The group found that in some factories, 20% of goods produced were rejected as not up to quality standards, resulting in a lot of waste.
Mr. Scott said Wal-Mart will join with nongovernmental organizations, such as environmental watchdog groups, to monitor compliance. It will use its own internal inspectors, outside auditors hired by Wal-Mart and inspectors from the Chinese government.
Wal-Mart said if it denies a company certification, it will work with the company to see where it falls short and give it a period of time to come up to standards.
Chinese products have been riddled with safety issues in the past year, including the current tainted milk scandal, poisonous pet food and toys with high lead levels, among other problems.
By 2009, Wal-Mart will require some of its suppliers to provide the name and location of every factory they use to make their products. Mr. Scott said instituting 'an identifiable trail,' from raw materials to suppliers, will ensure that products are safe, in part due to concerns they will lose Wal-Mart business if they don't comply.
The company said it is aiming to eliminate customer returns due to defective merchandise by 2012.
In addition, Wal-Mart plans to join with suppliers to improve energy efficiency by 20% in the next four years at the top 200 Chinese factories it buys from directly.
In its own energy-efficiency initiative, a Wal-Mart store in northern Beijing boasts an array of energy-saving measures which, if proven effective, could eventually be rolled out throughout China, say executives. The store uses low-power LED (light-emitting diode) lighting that will reduce the store's energy consumption by 15%, motion sensors in low-traffic areas that shut off unneeded lights, and sliding doors on freezers that better contain the cool air than open-air models.
But the measures are still fairly expensive, say executives, who declined to give specifics. The 6,000 LED light fixtures had to be specially produced by supplier Honeywell International Inc., for example, as did the freezers by Sanyo Electric Co. |
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