Walmart Leads in Linking Supplier Scorecards to Operations - its 5 Lessons

Walmart continues to outdistance other firms with the sophistication and scale of its sustainability program for its more than 100,000 suppliers.  Many firms now have supplier sustainability programs, but few have made this program such an integral part of operations. Jeff Rice, Walmart's director of sustainability, shared with us how Walmart operates its program. The company's 5 lessons, outlined below, apply to supplier programs at firms of all sizes.

Some supplier scorecard programs are not integrated with the business

Supplier scorecard programs at some companies are simply not integrated with operations. They are often run as silo programs from the sustainability office with little involvement from essential internal groups, such as buyers at retailers or product designers and supply chain managers at manufacturers. These less-effective programs typically have poor internal and external buy-in and adoption.   

In these programs, suppliers realize that data provided through supplier surveys may not be used. One Fortune 500 manufacturer was completing the Carbon Disclosure Project Supply Chain survey for its top customer but could not find a person at the customer organization that could answer basic questions, such as how the data would be used. This program is a "half-built bridge to nowhere," lamented the frustrated manufacturer.

Even after data are collected, internal stakeholders often do not understand the benefits of the program or have the training or incentives to drive improvement. Sustainability is viewed as "yet another thing to do."

The Walmart program for supplier sustainability

From the initial rollout of its supplier sustainability program, Walmart has aimed for broad scale, impact, and organizational buy-in. The program started with 15 basic questions for all its suppliers and is expanding to 100 category-specific questions on the supply chain scorecard this year.

Unlike many other programs, Walmart suppliers receive specific feedback. Suppliers' submittals are scored (the scale ranges from 1 to 100), and suppliers are ranked within a category (a rank of, say, 2 out of 7), but a supplier can't see the ranking of competing suppliers.  

Importantly, the program identifies areas for improvement, as Walmart has learned that a score or rank by itself is useless without improvement steps. Improvements are identified through category-specific metrics and Category Sustainability Profiles being delivered by The Sustainability Consortium. For a laptop manufacturer, a metric may be the percent of a supplier's products that meet the highest Energy Star recommendations. A computer supplier may, for example, learn that competing suppliers are at 90 percent, but it's at 45 percent.  Other examples include the percentage of responsibility-sourced palm oil for food or personal care products and the percentage of product revenue for laundry detergent that includes educational messages about the environmental benefits of washing in cold water.

Five keys to make supplier scorecards a part of core business

Rice and Walmart have refined their program over the years and share below their top lessons learned that ensure tight program integration with operations.

1. Management buy-in at key levels

Buy-in is obviously essential at the CEO and senior management level, but equally  

critical is support at the management level one or two levels above buyers, such as senior and division merchandising managers. This is the management level that can steer consistent program execution across hundreds of buyers and categories. Division and business unit managers must have sustainability as part of their group's objectives.

2. Incentives

Financial rewards and recognition send clear signals to the organization about the importance of sustainability. Walmart is applying a two-pronged approach for incentives: recognize leaders (both buyers and suppliers) and ensure that everyone, even laggards, is doing something.

Buyers will have sustainability goals as part of their performance objectives and yearly review in 2013 (few retailers have gone this far), and Walmart awards a "Sustainable Buyer of the Year" in each business unit. Buyers will receive both recognition and financial incentives.

Supplier incentives will include external and internal acknowledgments, additional access to Walmart executives, and other items like special placement on e-commerce sites focused on sustainability leadership. Underachieving suppliers find themselves in a Walmart "family meeting" to work on specific improvements.

3. Right training, tools, and support

Awareness and motivation are only part of the mix needed for success. The correct type and level of training, tools, and support are vital.  For buyers, Walmart is adding training about the sustainability program to existing buyer development and is rolling out "Buyer Tool Kits."  Buyers can access online tools, reports, and resources to help, all of which aim to make the program extremely relevant and simple for the buyer.

Suppliers will have access to support materials, training, and free guides for help.

The program goal is to enhance the buyer and supplier relationship to drive improvements in sustainability in the supplier's operations and products. Given the large number of buyers and suppliers at Walmart, this goal is only achievable if all buyers and suppliers have easy access to the tools and support.

4. Make the scorecard program a part of existing business processes

Walmart did not want to develop "yet another business process" to support sustainability. The supplier sustainability program is being integrated with existing business processes, such as the joint business planning and annual supplier reviews, and core merchandising processes, such as category strategy development and line reviews. From a buyer and supplier viewpoint, sustainability is thus an extension of an existing business process, not a separate process. This subtle but important distinction differentiates the Walmart program from most other programs.

5. Celebrate, celebrate, celebrate

Informally and repeatedly celebrating success is critical throughout the organization. Managers and buyers share short success stories in meetings, during internal town hall gatherings, and on company blogs.

Lessons for everyone

The scale and sophistication of the Walmart program is a competitive advantage, as it will take some rival retailers one to three years to gain internal management and process alignment to replicate this level of success.

Any firm with a sustainability supplier program, however, can use these lessons, even if a program is several questions for a handful of tier-one suppliers.