2.0 Discussion and Analysis
2.1 The definition of sustainability
Frank Dixon (2006) believes that sustainability relates to ensuring society survives and prospers over the long-term. Dow Jones defined “corporate sustainability” as “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social development (Nidumolu 2009).” Zhao (1996) stated that when people talk about sustainability, they normally first point to the systems that are designed into the facility. Sustainability, however, goes far beyond that. It includes the cartons that the material comes packed in as well as the trucks that we unload and load each day.
As is said above, it can come to a conclusion that business sustainability is a long and sustainable development, While in Wal-Mart’s operation strategy, and sustainability means initiative, which wants to implant something green into Wal-Mart’s DNA. It means its commitment to sustainable development as ensuring a better quality of goods and services for everyone, now and for generations to come and had sustainability programs throughout its worldwide operations. It requires significant changes in its resources, its logistics centers, its suppliers as well as its distribution systems.
2.2 What sustainability means in operations strategy?
In operations strategy, sustainability means Wal-Mart’s commitment to sustainable development as ensuring a better quality of goods and services for everyone, now and for generations to come, and it also has sustainability programs throughout its worldwide operations. Supply chain management has been the cornerstone to Wal-Mart’s success and remains their primary competitive advantage in the retail/department store industry. Their distribution system is generally regarded as the most efficient and they have an approach to supply chain management that has long emphasized visibility through the sharing of information with their suppliers. Although there are hundreds of logistical functions which allow Wal-Mart to be the price and logistics leader, the focus will be primarily on the company’s newly adopted strategy of making logistical processes “green” and more environmentally conscious. According to the Supply Chain Management Review, Wal-Mart CEO Lee Scott committed the company to three ambitious goals: to be supplied 100 percent by renewable energy; to create zero waste; and to sell products that sustain Wal-Mart’s resources and the environment. To achieve this, it requires challenging the usual business approach, to shift towards eco-efficiency to derive economic benefits from improved environmental conditions. This shift manifests in a complex initiative that stretches deep into the operations, management, and strategy of the firm.
It is obvious that Wal-Mart is trying to differentiate itself in an area where it is considered as a laggard. Although these goals seem very ambitious, they are not impossible to achieve, considering Wal-Mart’s past success with seemingly unreachable goals.
2.3 “Sustainability”, Wal-Mart and its balanced definition
For different people, sustainability has different meanings. For the whole Wal-Mart, sustainability means the long surviving and prospers. In order to put sustainability into practice, Wal-Mart organizes its efforts in the USA into 14 sustainability value networks that included categories such as store operations, electronic products and packaging (Adam 2009). While Wal-Mart began to draw widely upon many outside resources for recommendations and ideas, there were only a few associates tasked full-time with developing these sustainability value networks.
While in China, Wal-Mart’s associates, customers, supplier base and the surrounding communities are significantly differently from the stakeholders of other international operations. Therefore, although the solutions and standards that have been pioneered in other regions could provide direction to Wal-Mart China’s sustainability initiative, but would not necessarily result in immediate wins. To achieve this, Wal-Mart should contextualize its sustainability value networks and associated projects to the unique challenges and values of the China market.
After the survey, Wal-Mart finds that in China, customers are significantly more cost-sensitive than those in other countries and there existed a strong, established culture of frequently shopping around to find the absolute lowest prices (Adam 2009). Different from America and other countries, the customer satisfaction level influence customer loyalty greatly in China. While service, check-out process and store policy are less significant in affecting customer satisfaction. Therefore, Wal-Mart China should pay more attention to the cost management and looking for strategies suitable to China.
As for Chinese customers, whether current or potential ones, the question is whether Wal-Mart’s current pricing structure could attract customers in sufficient numbers in China’s smaller cities. And sustainability requires Wal-Mart to reduce its cost. For Chinese customers has more cost sensitivity and smaller purchase amounts which were compounded by the restrictions on where Wal-Mart was allowed to locate. And it was still known whether it could extend its distribution network into the smaller cities and maintain prices that were attractive to customers in these cities (Nidumolu 2009). Therefore, to Chinese customer, sustainability means more available products and lower costs, for this can bring high customer loyalty.
So, as to the balanced definition of the sustainability, it means that the company should put the networks together by giving top performing managers the responsibility of integrating the sustainability initiatives alongside their current workload, including quick wins, innovation projects and game changers, as well as the company should look for the long surviving and prospers.
2.4 The distinguishing features of its distribution system and operations
Operationally, Wal-Mart China offered around 25,000 stock keeping units per store, while this variety was only a quarter of that provided in its U.S. stores. In comparison to its distribution centers, Wal-Mart China had been much more limited in opportunities to design sustainability into its supercenters (Adam 2009). Store managers felt their greatest contribution to sustainability came through the types of products they promoted and the shopping behaviors they encourages.
Moving forward with sustainability in China, Wal-Mart reorganized the original 14 sustainability value networks into five, which encompassed the original networks team while providing a simpler structure (Hopwood 2009). They are: sustainable stores and operations, sustainable products, supply chain compliance and standards, supply chain efficiencies and communications.
As to sustainable stores and operations, Wal-Mart’s goal was primarily to decrease the company’s overall footprint of operations and to reduce cost. So it outsourced distribution centers, retail stores and office spaces.
As to sustainable products, the current areas were food, electronics, textiles and product packaging.
As to supply chain compliance and standards, it covered all of the standards Wal-Mart required and the compliance set by local governments, it also included oversight of manufacturing processes.
As to supply chain efficiencies, it aimed to determine what actions would most improve efficiency, reduce cost and reduce the footprint of the entire chain. This included areas like Fleet Management best practices and supplier relationships and explored indirect ways Wal-Mart could offer assistance to its vendors and also encouraged its suppliers.
As to communications, the communications sustainability value networks sought to implement best practices for communicating to all of Wal-Mart China’s stakeholders.
In China, Wal-Mart built up an operations group to oversee relevant departments. All domestic procurement was handles by Supercenter merchandizing. Now Wal-Mart is building its new distribution centers to as next-generation sustainable logistics centers. The Tianjin DC participated in standard sustainability practices and the light of warehouse areas was supplemented with day lighting and T5 energy, which saved light bulbs and then saved 20-30% of energy (Bianchi 2004). Air conditioning and heat recycling systems maintained consistent temperatures with less waste. Ten solar energy water heaters provided 1.7 tons of hot water and the DC prominently displayed two solar cells and two wind power generators, which could generate up to 7300 kilowatt hours per year. As a result, these systems helped each distribution center reduce 31 tons of CQ2 emissions every year.
Different from the USA, only 40% of Wal-Mart China’s sales were supplied by its distribution centers, while in America it was over 90 per cent. Many fresh products were sent directly to the supercenters by suppliers.
2.5 How sustainability should be incorporated in the process of selection and evaluation of suppliers/vendors
Wal-Mart has over 65,000 suppliers. Many are largely or completely dependent on the company for their continued success. As a result, Wal-Mart has unprecedented power to drive change in many industry sectors. It is seeking opportunities to use its scale to drive commercialization of more efficient technologies in areas including transport, refrigeration, lighting and HVAC (Hopwood 2009). The company’s size and aggressive approach can help make sustainability a major focus of business in the 21st century.
Wal-Mart China’s merchandizing group is continuing to build sustainability into the evaluation tools it used for supplier selection and on-going evaluation of purchase quantities. However, moving towards sustainability often involves working with vendors over long periods of time to allow them to make the changes necessary to come into compliance (Jerry Adler 2006).
At the center of the business sustainability strategy pursued by Wal-Mart is a shift from generating additional value through price-based interactions, relationships with nonprofits, suppliers, and other stakeholders. Through the above networks, Wal-Mart is gaining a system perspective which helps retailers find ways to address environmental issues. In exchange for these suppliers addressing the issues, nonprofit network members gain huge leaps towards their overall missions because of the scale of the operations at Wal-Mart. Suppliers also enjoy not only the stability that more intimate relationships with Wal-Mart brings, but also the guidance and support from Wal-Mart’s nonprofit partners.
The Wal-Mart sustainability strategy no doubt looks to be off to a promising start; they must not become complacent and must press-on carefully in order to make these networks sustainable and able to expand without interruption (Hopwood 2009). The first thing they need to do is manage these partnerships carefully in order to keep costs down. They also need to be able to manage the balance between offering “green” and conventional “non-green” products in its stores. Finally, because of the very high number of nonprofits in the network, Wal-Mart must manage the loss of these partnerships. Individual groups may be unable to get credit for a large reduction on environmental impact. Over time, these groups’ inability to be able to demonstrate their impact may cause some problems with their fundraising because donors will demand more and more data on their performance. These problems could eventually cause the nonprofit groups to withdrawal from the networks.
In pursuit of its ambitious environmental goals, Wal-Mart has established many sub-goals and initiatives, such as establish a US program within 18 months that gives preference to suppliers who aggressively reduce emissions. And Work with suppliers to reduce packaging, increase recycled content, and expand recycling of packaging.
Establish independent monitoring of Wal-Mart’s factory certification program; separate the factory certification and buying functions; cease doing business with supplier factories that fail to meet Wal-Mart’s ethical standards; collaborate with industry, government and NGOs to improve sourcing in developing countries.
2.6 How sustainability can be improved in Wal-Mart’s distribution and retail operations.
Firstly, working on sustainability projects can accelerate careers within Wal-Mart, and compensation schemes can be adjusted to provide substantial incentives for improving sustainability performance.
Secondly, building the next-generation sustainable logistics centers can improve Wal-Mart’s distribution and retail operations. The distribution and retail operations should be not only by land, but also by sea and air, and it should also aim to use renewable energy to reduce the global greenhouse gas and seek alternative fuel (Frank 2006). To carry out the distribution and retail operations, it has to pay more attention to the cost, both the building cost as well as these facilities, it can even compelled Wal-Mart to look for new alternative resources, which of course, correspondently improve its sustainability. By improving its social conditions, Wal-Mart can then improve its distribution and retail operations.
3.0 Recommendations
It can see that it is the operation strategy proposed in 2005 required the company to carry out sustainability as a tactic to achieve its operation strategy. During the process, firstly, Wal-Mart should pay attention to the whole environment, and take positive actions to search for new energies and reduce waste, which in turn, brings initiative to its usual business running and saves cost and improves its competence as a result. Secondly, as for different countries, while in China, Wal-Mart should also take some special measures to win Chinese customers, which requires reducing its price or supplying more goods with high value. Thirdly, pursuing sustainability is not alone, and Wal-Mart should incorporate it into the selection of its suppliers, calling for the buyer-supplier to co-work to achieve this goal.
4.0 Conclusion
Wal-Mart’s pioneering approach to sustainability has the potential to lead the sustainability movement to a new level. By improving its own operations, forming business networks and addressing systemic issues in a practical way, the company is implementing what may be the first sustainability strategy that actually has the potential to achieve sustainability. They are also modeling what is likely to be the primary strategy for achieving business success in the 21st century. To achieve that goal, Wal-Mart should pay more attention to the supplier, the customer and the resources it needs. All things are correlated, and no one can get success out of the circle.
References
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Bianchi, D., 2004. ‘Wal-Mart: A Destructive Force for Chicago Communities and Companies’. Center for Labor and Community Research, 25, pp.52-54.
Frank, D., 2006. ‘Sustainability and System Change: Wal-Mart’s Pioneering Strategy’. Published on CSRwire.com, 18(10), pp.23-24.
Hopwood, B., 2009. ‘WAL-MART CHINA: SUSTAINABLE OPOERATIONS STRATEGY’. Richard Ivey School of Business, 21(3), pp.21-23.
Jerry Adler, 2006. ‘Going Green’. Newsweek, 17(2), pp. 17-18.
Ram Nidumolu, C., 2009. ‘Why Sustainability Is Now the Key Driver of Innovation’. Harvard Business Review, 9(5), pp. 57-64
Shi-dong Zhao, 1996. ‘The conception and the connotation of sustainability development’. Journal of Natural Resources, 11(3), pp.32-24.