Wal-Mart Stores, Inc.

; Improving components of the supply chain to reduce cost and environmental impact

This case study illustrates which measures can be taken to reduce logistic costs and environmental impact of freight transport. Measures include: order optimization, energy efficiency, consolidation network of centerpoint facilities and improved packaging design. Lessons to be learned from this case study are that major companies have a cost incentive to become more energy efficient and reduce waste in the supply chain and that changes to supply chain efficiency requires involvement from suppliers as well as retailers.

Context
Wal-Mart Stores, Inc. (branded as Walmart) is a U.S.-based, low-cost retailer and the largest corporation in the world in terms of revenue in 2009.24 Walmart is a multinational corporation with an expansive supply chain network which delivers goods from suppliers to its stores. Walmart has a total of 242 distribution centers (DCs) and 8,423 stores worldwide.25 Within the United States, the company has a total of 49 DCs. Imports into the United States move through the ports of Los Angeles/Long Beach, California; Norfolk, Virginia; Savannah, Georgia; Houston, Texas; and Elwood, Illinois. Goods are moved within the U.S. by 7,950 truck drivers, 7,200 tractors, and 53,000 trailers. As a shipper/receiver, goods are brought to the Walmart distribution network by all modes. Walmarts private truck fleet (i.e., owned and operated by Walmart) is critical to moving goods. Other modes include intermodal rail, air carriers, and ocean carriers. Express truck carriers, dry/refrigerated truck carriers, less-than-truckload motor carriers, and small package/express carriers are also essential for goods movement within the Walmart supply chain.26 In 2005, the company made the decision to revamp many facets of the company and the supply chain to go green. A 2004 confidential report prepared by McKinsey &
24

Forbes Website Global 2000 as of 4.21.2010. http://www.forbes.com/lists/2010/18/global-2000-10_The-Global2000_Sales.html 25 Presentation at the I-95 Corridor Coalitions Freight Academy by Mike Parker, Senior Director of Grocery Traffic, Walmart. Date: April 22, 2010. Statistics above are from August 2009. 26 Ibid

48

Freight Transport for Development, a policy toolkit

Company for Walmart revealed that two to eight percent of Walmart consumers surveyed had ceased shopping at the chain because of negative press they heard. This included concerns about the companys environmental record. 27 At this point, the company moved to improve its environmental footprint by instituting a number of changes, including major changes to its supply chain. Walmart joined the United States Environmental Protection Agencys (EPA) SmartWay Partnership Program, which encourages and recognizes energy conservation in freight transportation.28 By joining this program, Walmart voluntarily agreed to implement energy improvements within their freight network. In return, EPA encourages companies such as Walmart to use the SmartWay logo in advertising to let customers, suppliers, and the public know about their effort to become more environmentally friendly. Information and data about energy and cost savings are shared with the EPA, which often publicizes this information. Overall, the SmartWay program is intended to reduce energy use and emissions from freight transportation.

Objectives
The objectives of Walmarts effort to become more environmentally friendly include the following high level goals:
x x x

To be supplied 100 percent by renewable energy; To create zero waste; and To sell products that sustain Walmarts resources and the environment

These are comprehensive objectives of Walmarts going green strategy. Walmart is also focusing specifically on making its supply chain environmentally friendly: the company announced in 2010 that it plans to eeliminate 20 million metric tons of greenhouse gas (GHG) emissions from Walmarts global supply chain by the end of 2015 (2010 baseline).29 A green supply chain is being pursued through various initiatives, including:
x

Order optimization, including: x Shipment point optimization, which involves aligning ship points with Walmart DCs. As opposed to a product having one main ship point (for example, in Long Beach) for all U.S. stores and DCs, shipments to Walmart DCs are coordinated so that the lowest possible distance is traveled; x Shipment optimization an example is improving how boxes are stacked in trucks so that more boxes fit into the truck; this reduces total truckloads moved; and x Packaging improvements to reduce or eliminate packaging and make it easier to stack shipments in trucks and containers as well as on store display racks.30

27 28

Green-Light Specials, Now at Wal-Mart. New York Times, Jan. 24, 2009. http://refrigeratedtrans.com/news/Tyson-Wal-Mart-SmartWay/ 29 Walmart Global Sustainability Report. http://walmartstores.com/sites/sustainabilityreport/2010/commitments_products.aspx 30 Presentation at the I-95 Corridor Coalitions Freight Academy by Mike Parker, Senior Director of Grocery Traffic, Walmart. Date: April 22, 2010. Statistics above are from August 2009.

Freight Transport for Development, a policy toolkit

49

Improved truck miles per gallon (MPG). Goals that relate to this include a) a 25 percent increase in fleet efficiency between 2005 and 2008 and b) doubling truck fleet efficiency by 2015.31 These goals were and are being achieved through: x Improved truck aerodynamics; x Use of alternative fuels; x Introduction of more fuel-efficient turbine engines; x Addition of auxiliary power units (battery or small engine powered) to reduce fuel consumption and emissions caused by idling the main engine; x Adoption of fuel efficient tires; x Use of nitrogen filled tires to improve truck rolling efficiency; x Introduction of long-life synthetic engine oils; x Driver training programs to teach drivers how to operate their trucks most fuelefficiently; and x Frequent recalibration heavy truck engines to maintain energy efficiency and low emission rates. 32 Efficient consolidation network. Walmart has created a network of consolidation centers or centerpoint facilities that intercept small shipments from suppliers before they go to Walmart DCs. At these centerpoint facilities, small shipments that do not constitute a full truckload are bundled and then sent off to Walmart DCs (after which they are brought to Walmart stores). Walmart has 19 of these centerpoint facilities. Other Steps to Develop a Green Supply Chain. x Identify goals, metrics, and new technologies; x Certify environmentally sustainable products; x Provide network partner assistance to suppliers; x Commit to larger volumes of environmentally sustainable products; x Cut out the middleman; x Consolidate direct suppliers; x Restructure the buyer role; and x License environmental innovations.33

Achievements
The EPA SmartWay Partnership program gave Walmarts freight fleet the top score possible for relative fuel efficiency and environmental performance. Walmart scored a 1.25, which represents outstanding environmental performance. These Partners already are utilizing most of the commercially available fuel saving strategies and are actively evaluating the latest emerging technologies. Partners with scores of 1.25 are awarded the honor of displaying the SmartWay Transport Partner logo, EPA's symbol for superior fuel efficiency and environmental performance.34 The steps that
31 32

Plambeck, Erica. The Greening of Wal-Marts Supply Chain, Supply Chain Management Review, July 1, 2007. http://www.scmr.com/article/CA6457969.html
34

Walmart Global Sustainability Report. http://walmartstores.com/sites/sustainabilityreport/2010/commitments_energy.aspx Presentation to The Freight Academy by Mike Parker, Sr. Director of Grocery Traffic, Walmart. Date: April 22, 2010. Statistics above are from August 2009. 33

http://www.epa.gov/smartway/transport/partner-resources/carrier-scores-explain.htm

50

Freight Transport for Development, a policy toolkit

Walmart has taken to make its supply chain more environmentally friendly allow the company to display the SmartWay logo, which is a way for the company to further promote its sustainable practices with the backing of the U.S. EPA. A program to improve carton design led to significant impacts on cost and emissions. Annually, the change impacted 21.9 million product units. The improved carton design resulting in the use of 14 million less square feet of corrugated cardboard...This meant that 1.6 million less pounds of corrugated cardboard moved through the freight network, equivalent to a reduction of 1,800 annual truckloads and estimated savings of $2.1 million.35 Walmart is working with suppliers to reduce package size for a number of products. One example is the reduction of packaging from a toys supplier. A small change in toy package size led to a reduction of 727 shipping containers and $3.5 million in transportation costs. This action saved the equivalent of 5,100 trees and 1,300 barrels of oil. This significant impact was completed with a change to only 277 stock keeping units (SKUs). Other examples of product packaging changes that resulted in environmental and cost benefits includes repacking of Charmins and Bountys paper products and Krafts foods packaging.36 Walmart developed a packaging scorecard that measures the sustainability of supplier packaging. As a result of the scorecard measures, Cosco decided to take their car seat products out of boxes and ship them clear plastic bags. This reduced packaging weight, led to more efficient transportation of the product, and displayed better in Walmarts stores.37 Walmart is in the process of developing a worldwide sustainable product index. Walmart is working with suppliers in all its supplier countries to fill out the supplier sustainability index. The sustainability index takes into consideration the location of product production, distance traveled and many other criteria that help determine sustainability of the product. A simple numbering system will be available for consumers at the time of purchase to understand how sustainable a product is. This will bring greater transparency to the supply chain and its impact on the environment, the consumer will be aware of the sustainability of individual products at the point of purchase. 38

Results
In numerical terms:
x

Walmart surpassed the 2008 goal for a 25 percent increase in truck fleet efficiency compared to 2005. By 2010, the truck fleet was become 60 percent more efficient

35

Presentation to The Freight Academy by Mike Parker, Sr. Director of Grocery Traffic, Walmart. Date: April 22, 2010. Statistics above are from August 2009. 36 Ibid 37 Presentation to The Freight Academy by Mike Parker, Sr. Director of Grocery Traffic, Walmart. Date: April 22, 2010. Statistics above are from August 2009. 38 http://walmartstores.com/pressroom/news/9277.aspx

Freight Transport for Development, a policy toolkit

51

compared to 2005 levels and on track to meet the goal of increasing efficiency by 100 percent by 2015 compared to 2005 levels;
x

Delivered three percent (150 million) more cases driving seven percent (90 million) less miles; Reduced costs by almost $200 million in fiscal year 2009; and Avoided emitting 200,000 metric tons of CO2

x x

Lessons Learned
Major corporations have a cost incentive to become green and reduce waste in their supply chain. Walmart focuses on the fact that they look to save money for their consumers. A reduction in energy costs and waste has led to significant cost savings for the company and has enabled them to begin to build their reputation as a green company. Government programs such as SmartWay, which promote shippers/carriers that make significant improvements in the efficiency of their freight systems, are not the main reason why Walmart chose to embrace sustainability. However, having a program in place that rewards sustainable freight provides an added marketing benefit to a company like Walmart. It also puts the weight of the government behind the statement that a companys freight fleet has gone green. Changes to supply chain efficiency requires involvement from suppliers as well as retailers. In Walmarts case, the company would not have been able to reduce truck movements had they not worked with suppliers to reduce packaging. The interaction and cooperation of all parties in the supply chain is necessary to reduce waste and costs. Once all parties in the supply chain are in agreement with the strategies to reduce waste, environmental and economic benefits are increased exponentially.

Case study prepared by

52

Freight Transport for Development, a policy toolkit