Building an ethical supply chain

Because we buy products in stores, we tend to hold retailers responsible for what they sell. And of course, retailers are responsible - but sometimes we assume they have more control over product manufacturing and their environmental footprint than they truly do. The consequence? Without an understanding of how the current system leads to environmental hazard and human suffering, it is impossible to re-design a future with better outcomes.

Let's focus on everyone's favorite villain, Wal-Mart. The average Wal-Mart store carries products from over 60,000 suppliers worldwide. The Center for American Progress mapped out where these goods come from:



This collection of products and suppliers (along with all the cargo ships, warehouses, railroad lines, and everything else it takes to get stuff from factory to store) is known as a supply chain.

This unwieldy quantity of stuff creates huge problems for companies that want to ensure they are selling ethically-produced goods. (Whether Wal-Mart belongs in this group of concerned companies I leave to the reader to decide.) Regardless of your views on this question, Wal-Mart's efforts to build an ethical supply chain are fascinating to track because:

1. Wal-Mart is far and away the biggest US retail chain by sales. This gives the company more power with suppliers than any other outlet.

2. Wal-Mart has taken so much hot water for being unethical that they have put forth more effort (and press releases) on ethical sourcing than any other company.

3. For all the fair criticism of how Wal-Mart stores create waste, the majority of environmental impact comes "upstream" - before a product gets dropped off at the store.

Suppliers are the David to Wal-Mart's Goliath. What's shocking, then, is the extent to which suppliers have defied Wal-Mart's dictates.

First, there was the ID tag fiasco. In 2003, Wal-Mart mandated that all suppliers stick an ID tag on shipping crates by 2005. Now it's 2008 and the great majority of suppliers still don't do it.

Why did suppliers rebel? Basically, the benefit of ID tags (superior inventory management) accrued to Wal-Mart, while the cost (buying equipment and setting up processes to tag everything) accrued to the supplier.

Now, the same story is playing out again with Wal-Mart's latest effort to reduce the quantity of packaging in a product. (Hat tip: Watching Wal-Mart at Green Options.)

Suppliers are perfecting the art of the hold-out. On the one hand, go David! But on the other... what are the implications for companies passionate about building an ethical supply chain?

As these issues continue to gain attention, look for more manufacturers in China, Vietnam, etc. to specialize in eco-friendly production. I'm sure some must do so already. There's simply too much money in green products for it not to be in many manufacturers' business interest to be known as a green supplier.