Wal-Mart Exposes the De-Value Chain

Wal-Mart’s announcement of its new sustainability index marks the dawning of the age of ecological transparency in the marketplace. This is not just idle speculation; Wal-Mart has signaled that suppliers who ignore the requirements for ecological transparency will become “less relevant” to them. In other words, suppliers may one day compete for shelf space on the basis of their transparency about the ecological impacts of their products.

The retailer’s 100,000 suppliers around the world will have to calculate and disclose the total ecological costs of their products — and that data will be boiled down into a single rating that shoppers will see right next to the price tag. For consumers, this will drop to zero the “effort cost” of finding an item’s ecological impacts, which today often means digging through a confusing forest of rating systems online, then trying to recall that information while strolling the aisles of a store.

As consumer surveys have shown for years, only a small portion, maybe ten percent, of shoppers are passionate about shopping their values; around 25 percent couldn’t care less. The action is the two-thirds in the middle, who say they would value shop if they didn’t have to make any extra effort, and if prices are comparable. And Wal-Mart has the knack for keeping costs down.

The sustainability index will be built from answers to detailed questions about impacts that range from a company’s greenhouse gas emissions and solid waste reduction targets to worker’s wages and human rights — and positive contributions to the local community. Third party certifications will be built into the system. As the 900-pound gorilla of retail presses its suppliers for greener products, it is also inviting other huge retailers like Target and Cosco to adopt the same sustainability index. That will simplify things for both suppliers and consumers. And as more and more major retailers join in, we will see a growing business imperative for perpetually upgrading the ecological impacts of consumer products.

The value chain concept gauges how each step in a product’s life adds to its worth. But value can be seen from another angle, as embodied in the index: all the environmental, health, and social impacts of a product throughout its life cycle. By creating a single standard for evaluation, Wal-Mart opens a window on products that reveals any negatives — what might be called the “devalue chain” — and puts them into competitive play.

The strategic value of these metrics is that every negative value offers a potential for upgrading, as each upgrade improves the item’s overall score. Assessing the ecological pluses and minuses throughout a product’s life cycle offers a metric for business decisions that will boost the pluses and lessen the minuses.

The new metrics Wal-Mart imposes on its suppliers suggest a performance standard for ecological impacts all along the supply chain and throughout a product’s life cycle. This reinvents “green” as a process, not a static label, a verb rather than an adjective. To stay competitive in this arena, companies need to think of themselves as greening, continually looking for ways to improve their ecological footprint.

Andy Ruben was appointed by Wal-Mart CEO Lee Scott as the first vice president of the company’s sustainability initiative. Now he heads Wal-Mart’s private brand sourcing strategy; we spoke while I was writing Ecological Intelligence: How Knowing the Hidden Impacts of What We Buy Can Change Everything. His perspective, as quoted in the book, was telling:

“To me, all negative impacts of products are a discovery about unintended consequences. There can be thousands of consequences from a single decision, and we may be seeing just ten of these unintended impacts. The most competitive companies will engage to uncover these unnoticed impacts and make better decisions. Simply put, they will become more competitive by seeing their business in a broader light.”

The potential business upside here for upgrade innovations is enormous. As Ruben also told me, “This is the largest strategic opportunity companies will see for the next 50 years. This is the most exciting time to be in business, with more opportunity to create change in the world than ever.”

Originally posted at HarvardBusiness.org

5 thoughts on “Wal-Mart Exposes the De-Value Chain

  1. Im not sure that I believe that this will work. I think that if Wal Mart starts favoring suppliers who take on the additional costs associated with this transparency it will make them less competitive in what they do best…. keep prices down. I will do my best to support them with my individual shopping power, but I am not totally convinced that this will work. I think that it will open the door for a competitor to move in on their low price turf.

  2. The Myth of the Sustainable Lifestyle
    Michael J. Vandeman, Ph.D.
    July 14, 2001

    “Documenting human impacts on genetic diversity in forest trees and other wildland plants is a difficult matter; little quantitative data exist. Most evidence is anecdotal, and only in the extreme case of extinction can we unequivocally demonstrate a reduction in diversity. … Research is particularly needed to document changes in allele frequency under various types of forest management; very few studies exist on the impact of harvest methods on genetic diversity.” (Ledig, pp.87-8)

    “Comparison of pre- and post-harvest gene pools indicated a substantial loss of genetic diversity as a result of harvesting. … In postharvest stand A about one-half of the 30 lost alleles were rare … and one-half were low frequency alleles. … Eighty percent of all rare alleles were lost from the two gene pools, whereas about 40% of all low frequency alleles were lost. … ‘Private’ alleles, or those unique to either stand A or stand B, were especially vulnerable to harvest-induced elimination from the gene pools. … This suggests genetic diversity losses of 25% or more may be common when forests of this type are harvested at these intensities. … The loss of private alleles from both stands gives concern for the integrity of locally-adapted gene pools after harvesting.” (Buchert et al, pp.751-4)

    “Sustainability” is the Holy Grail of the twenty-first century. Everyone and his brother claim to have found it, or at least to be able to describe what it would look like. We are told that sustainable recreation, agriculture, fishing, hunting, and even logging are within reach. But, like all such “campaign promises”, they aren’t fulfilled, and, in fact, cannot be fulfilled!

    In order to understand this, we first have to put the subject on a solid foundation. “Sustainable” means “indefinitely repeatable, without harm”. Take “sustainable logging”, for example. The implication is that a proper method and rate of logging can be continued forever, without diminishing the forest’s resources — in other words, without harming it. It is implied (and usually not explicitly stated) that the quantity of trees would be the same, with or without logging. But if the logged species of tree would, absent logging, naturally increase its population, holding it at a fixed population would constitute a “harm” (at least from the point of view of that species).

    But population size is a rather subjective value. Humans are very good at rationalizing any level they see as convenient. So let’s take a more concrete value: biodiversity, as exemplified by genetic diversity. I think that biodiversity is a generally accepted value, maybe even our highest value. Biodiversity supplies almost everything that we like: satisfying, attractive foods, clean air, clean water, effective medicines, beautiful places to live and recreate, etc.

    Biodiversity is also finite. Although new (unique) genes are continually being created, the rate of creation of new genes (that survive) is far lower than the rate at which we are able to destroy them. Thus, the number of different genes (or alleles) on the Earth is a large, but finite, number. (By the way, the creation of new genes does not “compensate” for the loss of other genes, except in a simple mathematical sense; this is like comparing apples and oranges. The creation of a new variety of apple doesn’t “compensate” for the loss of a variety of orange. We like the species that we have, and are not consoled, upon their loss, by the creation of new ones.)

    How does biodiversity get created? By mutation. Where does it get created? In individuals. The very first time that a new gene (or allele) is created, it most likely exists in a single individual. The probability that the same genetic “accident” would happen simultaneously in more than one individual is even lower than the already low probability of its occurrence in the first individual. Suppose, for example, that one of our to-be-logged trees contains a mutation that would allow the species to survive global warming. Then by killing even one tree, we could destroy biodiversity (a gene or allele that exists nowhere else in the world), and have a significant negative effect on the species!

    Thus, logging (and any other killing of reproducing organisms) can never be “sustainable”: one can never guarantee that it won’t destroy a piece of that finite set, the world’s store of genetic biodiversity. Repeated often enough, it could, and probably would, reduce the genetic diversity of the logged species, or even drive it to extinction. If you continually destroy members of a finite set, however large, it will eventually be empty. The probability of destroying a unique gene may be low, but the consequences can be very serious, so the killing of reproducing organisms must not be taken lightly.

    To bring this closer to home, look at the set of all humans, alive or dead. (Assume that we have a concrete way of determining, e.g. genetically, whether a given organism is a human being — call it gene H. Personally, I think that this distinguishing factor probably involves a leap in memory capacity.) This is a finite set. Therefore, it has a first member. There was a first organism having the H gene. What if that first human were killed? Then it would be extremely unlikely that humans would have evolved, at least in the relatively short 6 (?) million years that we have been here.

    Every biology textbook identifies “overharvesting” as one of the major causes of the loss of biodiversity. However, as far as I know, none of them define “over”, and none of them discuss the loss of biodiversity caused by harvesting that is not “overharvesting”. If they did, they would have to include the practice of “collecting” (killing) organisms for scientific study. To the contrary, as recently as 1979 (Wilkins and Peterson, p. 178), we find statements like “Populations of wild animals can have the annual surplus cropped without harm”. Insect field guides, e.g. Powell and Hogue (1979), recommend collecting insects as “an exciting and satisfying hobby for anyone” (p. 359). An entomologist at the University of Phoenix told me that collecting insects causes students to become excited about studying biology. Okay, but I wonder how many of them end up benefiting the species that they killed, and how many of them, on the contrary, end up supporting practices (e.g. pest control) that harm it? Is there really a net benefit to the organisms whose lives are sacrificed to research? I doubt it.

    Promoting the collecting of living organisms, besides teaching biology, also teaches people (nonverbally — the most powerful way of teaching) that the killing of other species is to be taken lightly, and that human concerns take precedence over the lives and wishes of those species. That learning goes on even if the teacher verbally expresses regret over the need to kill. (If a smoking parent tells his children not to use drugs, what do the children actually learn?) Who knows what other consequences it may have?

    My intention, however, is not to single out any one form of killing, but to explain why there can be no such thing as a sustainable lifestyle: we all kill to eat, and therefore we risk doing significant harm. At a minimum, the killing of living organisms, especially reproducing organisms, should never be taken lightly. Furthermore, the notion of a “sustainable yield” is a myth. It assumes that the preservation of species is all that is important, and ignores loss of diversity below the species level.

    And there are other reasons why sustainability is unattainable: for example, all organisms produce wastes that are incompatible with their own existence. Trees produce oxygen. That seems like a good thing, but oxygen is poisonous to many organisms. And if there weren’t mechanisms to remove excess oxygen from the atmosphere, all of our forests would spontaneously combust (“An increase in oxygen of only 4 percent could ignite the entire atmosphere”, James Lovelock in Newbold, p.9). I also wonder what would happen to species of trees whose fallen leaves (and dead ancestors) were not broken down by animals and fungi. So even a tree can’t sustain itself without the help of other organisms.

    I think that the best we can say about sustainability is that it is a worthy goal, approachable, but not actually attainable.

    References:

    Aczel, Amir D., The Mystery of the Aleph — Mathematics, the Kabbalah, and the Search for Infinity. New York: Four Walls Eight Windows, 2000.

    Buchert, George P., Om P. Rajora, James V. Hood, and Bruce P. Dancik, “Effects of Harvesting on Genetic Diversity in Old-Growth Eastern White Pine in Ontario, Canada”. Conservation Biology, Vol. 11, No. 3, June 1997, pp.747-758.

    Ehrlich, Paul R. and Ehrlich, Anne H., Extinction: The Causes and Consequences of the Disappearances of Species. New York: Random House, 1981.

    Knight, Richard L. and Kevin J. Gutzwiller, eds. Wildlife and Recreationists. Covelo, California: Island Press, c.1995.

    Ledig, F. Thomas, “Human Impacts on Genetic Diversity in Forest Ecosystems”. Oikos, Vol. 63, 1992, pp.87-108.

    Liddle, Michael, Recreation Ecology. Chapman & Hall: London, c.1997.

    Myers, Norman, ed., Gaia: An Atlas of Planet Management, Garden City, NY: Anchor Books, 1984.

    Newbold, Heather, ed., Life Stories: World-Renowned Scientists Reflect on their Lives and the Future of Life on Earth. Berkeley: University of California Press, 2000.

    Noss, Reed F. and Allen Y. Cooperrider, Saving Nature’s Legacy: Protecting and Restoring Biodiversity. Island Press, Covelo, California, 1994.

    Powell, Jerry A. and Charles L. Hogue, California Insects. Berkeley: University of California Press, c. 1979.

    Stone, Christopher D., Should Trees Have Standing? Toward Legal Rights for Natural Objects. Los Altos, California: William Kaufmann, Inc., 1973.

    Vandeman, Michael J., http://home.pacbell.net/mjvande, especially “Wildlife and the Ecocity”, “Rethinking the Impacts of Recreation”, and “Wildlife Need Habitat Off-Limits to Humans”.

    Ward, Peter Douglas, The End of Evolution: On Mass Extinctions and the Preservation of Biodiversity. New York: Bantam Books, 1994.

    Wilkins, Bruce J. and Steven R. Peterson, “Nongame Wildlife”, in Wildlife Conservation: Principles and Practices, Richard D. Teague and Eugene Decker, eds. Washington, D. C.: The Wildlife Society, c. 1979.

    Wilson, Edward O., The Diversity of Life. Cambridge, Massachusetts: Harvard University Press, 1992.

  3. I have been in the Green Industry for 5 years now , this book is very helpful in many ways . If more people would read it they would really learn a lot about being more ECOLOGICAL INTELLIGENCE. Keep up the super work Daniel.
    Have a green day.

  4. Thank you for posting this and banging the drum. I have read Eco-Intelligence and admire your dedication to moving this initiative forward. I have quoted you numerous times on my blog – http://www.thegreenboriin.com. – The meetings industry is creating transparency with new standards under final review for industry concensus. I sit on the panel charged with this development by the Convention Industry Council – http://www.wp.apexsolution.com

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