Wal-Mart Goes Green with New Packaging and Scorecard Strategies
By Matthew Harrison
Date Posted: 1/21/2007
Wal-Mart recently announced that it was “going green” by incorporating environmental sustainability into its corporate framework. While this new eco-friendly initiate may appeal to consumers and conservationists alike, the changes promoted by Wal-Mart are likely to profoundly impact pallets and packaging.
A major aspect of the program is a packaging reduction effort that will affect everything from retail in-store displays to supply chain logistical strategies.
“This is very big,” said Gary Garkowski of OptiLogistics, Inc., a logistics group that works with Wal-Mart. “It’s a very comprehensive program measuring materials going into products.” It covers everything from strip mines to waste in packaging.”
Wal-Mart has an ambitious ten year plan. The retail giant wants to reduce its total worldwide packaging by 5%, which would save the company roughly $11 billion in package over that time frame.
“Even small changes to packaging have a ripple effect,” said Wal-Mart Chief Executive Lee Scott during the plan’s unveiling at the Clinton Global Initiative. “Improved packaging means less waste, fewer materials used, and savings on transportation, manufacturing, shipping, and storage.”
Wal-Mart estimated that the new plan will drastically reduce the sheer volume of resources dedicated to retail packaging. Matt Kistler, Wal-Mart’s vice president of packaging and product innovation, said in a conference call that he expects the retailer’s packaging reduction plan to ultimately change the entire business system.
Smaller Boxes in a Big Box Store
Similar to what the retailer has attempted with radio frequency identification technology, Wal-Mart knows the scope of the packaging initiative is huge. In order to be successful, the retailer must rely on manufacturers and producers to play along. Reducing transportation usage is just one of the ways in which suppliers and manufacturers can meet Wal-Mart’s environmental challenge. The easiest way to shrink a delivery fleet’s workload is to increase the productivity of each trip.
According to Wal-Mart’s stated goals, “We intend to reach the point in the near future where there will be no dumpsters at our stores and no landfills with Wal-Mart throwaways.”
The driving force behind Wal-Mart’s packaging reduction program is size. For example, let’s say you bought your son a brand new Power Rangers: Mystic Force Playset for Christmas. The toy is only about 18” long, but it requires lots of packaging to protect all the intricate little parts that will inevitably be broken off in about three days anyway.
The dimensions of the box are approximately 18” x 14” by 6” (give or take several hundredths of an inch), which is equivalent to a surface area of 888 square inches, or over 6 square feet of cardboard packaging material. That equals roughly 1512 cubic inches, or 0.875 cubic feet, so the toy manufacturer is likely to fit at the very most 56 of these things on a standard GMA unit load.
To further illustrate Wal-Mart’s proposal, let’s deduct two inches from two sides of the packaging. This changes the box dimensions to 18” x 12” x 4”. The hypothetical packaging reduction results in a 672 square inch (4.67 square feet) surface area and an 864 cubic inch (0.5 cubic feet) volume for the new box. With these new dimensions, the manufacturer could possibly squeeze 106 of the toys onto one pallet, nearly doubling the pallet’s capacity by shaving off just a few inches.
Granted, this is one isolated case, but the implications are very important. Wal-Mart believes it can reduce solid waste from its stores by 25% within the next three years. There are some products where the reduction strategy will not work. For example, canned goods or other grocery products where larger boxes are necessary to protect foodstuff during palletized transport. But there are enough products that can be optimized for the initiative to be attractive.
Grading Green Progress
One of the ways in which Wal-Mart hopes to influence suppliers is by implementing a “score card” system. Suppliers will be graded on their overall environmental efficiency, as well as their ability to reduce carbon emissions. Those who aggressively initiate environmental sustainability programs will receive preferential treatment for business contracts.
Wal-Mart stated, “We want to ensure that our goods come in the right size package and that the materials in that packaging are made from renewable or recyclable materials.”
The official criteria for the scorecard have not been released. What Wal-Mart considers green will go a long way in deciding the initiatives impact on the wood pallet market. Wood pallets should be considered better for the environment than plastic. But marketers of other materials have done a good job convincing people that anything made out of wood is by nature anti-environment. The forest products industry must make its case known now because waiting to raise objections could cause problems in the future.
The idea is to encourage some friendly competition among companies that do business with Wal-Mart. Furthermore, the scorecard will evaluate specific performance in several areas of packaging:
- 15% will be based on GHG / CO2 per ton of Production
- 15% will be based on Material Value
- 15% will be based on Product / Package Ratio
- 15% will be based on Cube Utilization
- 10% will be based on Transportation
- 10% will be based on Recycled Content
- 10% will be based on Recovery Value
- 5% will be based on Renewable Energy
- 5% will be based on Innovation
For each category, companies will receive an overall score, as well as a rank that compares their performance with logistics and supply industry peers. Wal-Mart believes it can promote change by allowing companies to focus on and improve specific areas of concern. For example, a particular company may do exceedingly well in Material Value, but a lower score in the Product/Package Ratio may negate their success, as well as any profits derived from Material Value.
Wal-Mart plans to unveil a one-year trail version on February 1, 2007 to over 60,000 global suppliers. Companies can critique the scorecard system and provided necessary input before the final version is released in 2008. A guided walk-through is available at www.scorecardlibrary.com.
Tomorrow’s Packaging is Today’s Concern
Financial incentives may be enough to facilitate cooperation from its business partners. This is what happened with RFID and would likely happen with the packaging initiative.
The concept is similar to the Big Idea that Dr. Mark White, the former director of the Center for Unit Load Design at Virginia Tech, promoted earlier in 2006. Most companies look at the pallet, the packaging and the materials handling equipment as three distinct elements, not a complete system. Dr. White set out to change that mindset and reduce cost and packaging waste in the process. Turning from component-based to systems-based design" in our materials handling world could help make the entire supply chain more efficient.
Virginia Tech’s Center for Unit Load Design plans to be a pioneer and active participant in promoting this systems-based view of packaging. While it remains to be seen how the Big Idea will interface with Wal-Mart’s packaging goals, there certainly is significant overlap.
The end result is likely to be fewer pallets used in Wal-Mart’s system. If a company can fit more goods on a pallet, then there will be fewer pallets in use, fewer cargo containers needed, and drastic reduction in shipping and transportation costs.
Wal-Mart has already experimented with the packaging reduction program on one of its private toy lines. The corporate giant found that “by making the packaging just a little bit smaller…we will use 497 fewer containers and generate freight savings of more than $2.4 million per year.”
The company estimated that packaging reductions in only one product line will save nearly 3,800 trees and more than 1,000 barrels of oil annually.
