Looking to cut cost, reduce waste and save the environment at the same time, Wal-Mart Stores Inc. has unveiled its sustainability and packaging reduction initiatives. These programs could have significant impacts on all packaging used by Wal-Mart and its suppliers. To a lesser extent this includes pallets and transport packaging.
Wal-Mart’s sustainability initiative includes a push to reduce the amount of packaging used in its stores while making the products that are used friendlier to the environment. Attempting to improve its public reputation, last year Wal-Mart made a few suggestions to the Clinton Global Initiative of ways it could help the world.
The Clinton Global Initiative (CGI) brings together public and private leaders to foster solutions to pressing global problems. CGI chose Wal-Mart’s packaging project as one of the key programs it would support, which is one of the reasons that the company has put so much of its weight behind the idea.
The retail giant has developed a “sustainable scorecard” system to assist its 60,000 suppliers in complying with new goals. The scorecard evaluates packaging based on a number of key factors. These are greenhouse gas emissions related to production, material value, product to packaging ratio, cube utilization, recycled content usage, innovation, energy required to make the packaging, recovery value, and the emissions involved with transporting the packaging materials.
The retailer’s major objectives are a 5% reduction in packaging by 2013, increased utilization of renewable materials and reductions in energy consumption. Achieving these goals would significantly reduce the amount of packaging material headed for landfills as well as reduce the amount of carbon dioxide released into the atmosphere.
Although consumer packaging is the primary target of the program, it also could have an impact on transport packaging. At the very least, Wal-Mart’s program could cause ripple effects that impact pallets and crates.
For starters, more products per unit load means fewer pallets needed in its system. The total number of pallets should continue to go up as the U.S. population increases, but the ratio of pallets to goods shipped should decrease as Wal-Mart attempts to get more on each unit load.
Second, an increased focus on reducing waste and energy consumption will encourage more suppliers to manage based on the total unit load cost throughout the system and not just the original purchase price. This could help those suppliers who can develop systems that encourage reuse and measure the environmental impact. Wood pallets are heavily recycled. However, the wood pallet industry needs to develop better data to show Wal-Mart and the world why it is a better option than other alternatives.
Third, Wal-Mart is a trend setter in the retail landscape. Not everything it tries catches on with other retailers. Just look at reusable plastic containers (RPCs); Wal-Mart remains the lone supporter among the top grocery chains. While Kroger and other grocery retailers looked at the option, these companies decided to stay with corrugated packaging after the industry mounted a serious effort to improve design and counter the benefits of RPCs. Wal-Mart’s packaging focus will at least get the other big guys looking at the topic although each retailer may choose its own unique path.
Just as Wal-Mart’s radio frequency identification (RFID) push has not had a major impact on the pallet market in the short term, the packaging initiative will likely have minimal initial impact. In the long run, both of these efforts could drive major changes that impact everyone in the distribution or packaging businesses, including wood pallets and crates. It’s just too early to tell.
Fourth, the program does cover all packaging. This could eventually trickle down to the transport side after consumer packaging addresses Wal-Mart’s green goals.
Fifth, the outcome of Wal-Mart’s program may help define what is considered environmentally friendly packaging and what is not. In the past, plastic has presented itself as the greenest option because it reduces the amount of trees that are harvested. But the sustainability issue pushes the environmental discussion back to a side that plastic has a much harder time winning. Wood’s competitors will not lose this argument without a fight. This requires the industry and its leaders to act to ensure market share.
While Wal-Mart wants to use the packaging initiative to bolster its reputation, make no mistake, the guiding factor remains cost reduction and increased sales. Less packaging means more products on the shelves and fewer out-of- stock issues. It translates into freight and fuel savings. Excess packaging tends to frustrate consumers who hate having to open and dispose of it.
Wal-Mart is using a packaging scorecard (www.scorecardlibrary.com) and virtual trade show for packaging suppliers (www.marketgate.com/packaging) to facilitate its environmental goals. The packaging scorecard allows suppliers to enter data and see how they compare with other suppliers. This information is not open to the public.
All of this can get quite complex very quickly. Terms such as “biodegradable,” “renewable,” “recyclable” or “life cycle” are open to interpretation. In the ramp up stage, Wal-Mart is working with industry groups, suppliers, researchers, standards bodies and others to develop the best metrics possible. The retailer has developed networks on various product categories, including forest products. These groups are helping to shape Wal-Mart policy.
Amy Zettlemoyer, director of packaging for Sam’s Club, “Sustainability has been a gray area of interpretation, and we’re hoping that the scorecard will actually provide some data and similar language to have discussions around.”
Here are some simple guidelines on Wal-Mart’s initial packaging scorecard:
• Packaging suppliers with more than one location do not have to provide detailed data on every production location as long as it can prove that the information it provides is the average for all of their facilities.
• Scorecard numbers are not to be placed on the packaging itself.
• While the scorecard covers many common areas, it provides room for innovation and areas not covered. For example, running a facility off renewable energy or buying energy credits can give you what amounts to extra credit. These points need to be verified by a third party.
• Use the criteria required by Wal-Mart to properly classify your packaging. For example, if you have recyclable material, it will need to meet the FTC guidelines on recyclables.
• Scorecard rankings can change daily as innovations develop and standards change. Just because you’re at the top of the category one moment, your competitor could leapfrog ahead of you tomorrow.
The virtual trade show offers one Web site where packaging suppliers can share their innovations and network with product manufacturers that are looking to comply with new environmental guidelines.
Wal-Mart will begin to evaluate employee performance beyond just financials beginning next year. This means that Wal-Mart’s buyers will have environmental goals associated with their performance. The retailer has first started with private label brands because those are the suppliers it has most direct control over.
There does not seem to be a specific formula to how this will all work. It appears to be quite subjective. Wal-Mart wants greener packaging and less of it. At the same time, it is a business with shareholders and customers.
Kistler explained, “In an area where, let’s say, there is a dead heat or dead tie on an item, obviously this could be a tiebreaker…Potentially, in an area where it’s a commodity item, and it comes down to two products being the same price, that this could be a way of making a decision a little bit easier at least for our buyer group.”
The new initiative might even lead to higher cost packaging at first. Kistler said, “While the actual cost of the packaging may go up, the improvements that remain across the entire business system have been cost savings. So, we may actually design or spec a higher quality package.”
Better packaging would likely result in transportation savings as well as less product damage. Wal-Mart expects the domestic side of its business to implement the new goals faster than international units.
The most active player from the forest products industry on the packaging initiative has been the corrugated box manufacturers.
So far, representatives from packaging and logistics industries believe that Wal-Mart’s initiatives are good for business as well as the environment. Brian O’Banion, Vice President of the Fibre Box Association, thinks that the packaging reduction program was inevitable, with or without Wal-Mart’s direction.
“This really isn’t anything new, but this is an announcement of a goal that would have happened anyway,” said O’Banion. “The truth of the matter is our industry works with their customers, and has for a long time in efforts to reduce packaging incrementally over time.” Members of the Fibre Box Association reportedly supply 90% of corrugated boxes manufactured in the U.S.
Some companies view Wal-Mart’s initiatives as business opportunities. Matt Dannenfeldt, general manager of logistics provider Rehrig Penn, thinks the sustainability initiative will help his employer provide packaging solutions to Wal-Mart’s suppliers. “The potential is that they are looking at that scorecard and trying to evaluate ways of improving their score by virtue of using a returnable or reusable package.”
Dannenfeldt added that environmental sustainability coincides with reusable packaging.
“We very much are a believer in returnable/reusable packaging just as a general business and environment purpose,” said Dannenfeldt, alluding to his company’s core products. “If we can make good economic sense out of an otherwise good environmental solution, then everybody stands to win.”
“From our perspective, the scorecards are going to help motivate and derive opportunities for us,” said Bill Mashy of Rehrig Pacific’s Materials Handling Division. Rehrig Pacific, Rehrig Penn’s parent company, manufactures plastics pallets, crates, and containers.
Representatives from the logistics and packaging industry differ on how retail sustainability initiatives will affect new pallet manufacturers over the long haul.
Mashy said that the purpose of Rehrig Penn’s business model is to benefit the end-user of its plastic container products. “The whole basis for buying our product is based on an economic benefit versus corrugated boxes or wood pallets,” he commented.
In Mashy’s opinion, the future of wooden pallets is determined by whether or not the end-user “can hold onto the pallet.” He added that sustainability initiatives will continue to shrink the pallet market “unless [companies] can pool a pallet.”
Wal-Mart’s primary pallet supplier, CHEP, has made sure to emphasize the importance of sustainability in its wooden block pallets. “Pooling with CHEP is a sustainable practice, and an important reason why many manufacturers, Wal-Mart vendors and not, are switching to CHEP,” said CHEP Marketing Director Per Ohstrom.
Ohstrom countered Mashy’s perspective by stating that “plastic pallets are not particularly friendly to the environment.” He cited plastic’s petroleum base as the primary reason for their lack of sustainability. “Wood pallets, in contrast, are made from a renewable resource and are very sustainable in a pooled environment,” Ohstrom concluded.
So where does that leave those millions of unpainted pallets?
Due to his experience in the logistics arena, Dannenfeldt was a little more optimistic about the future of pallets beyond the realm of CHEP and IFCO. “There’s always going to be space for good, white wood pallet providers,” he said.
Dannenfeldt added that pallet businesses should attempt to spur some sort of evolution in their overall strategy in order to remain competitive with pallet pools.
On the other hand, a recent study published by researchers Chuck Ray and Judd Michael from Penn State suggests that grocers who use pooled pallets spent more money than grocers who used pallets outside of a rental pool system. The National Wooden Pallet & Container Association sponsored the research.
The report, entitled “Supply-Chain System Costs of Alternative Grocery Industry Pallet Systems,” was published in October’s Forest Products Journal. The study not only outlines the economic viability of purchased pallets, but it also promotes them as being environmentally friendly, since only “10% of the annual total purchased pallet system would be flowing through the system at new pallet cost.”
Wal-Mart’s ambiguity regarding how much environmental sustainability will play into awarding contracts leaves some wondering how big of a deal it will be. For pallet companies, it is just something to have on the radar screen. Smart pallet suppliers should be ready to talk intelligently with customers and be able to explain why wood is eco friendly.
Hopefully, purchased woods pallets will continue to fit in Wal-Mart’s
system.
