Supply chain management: How big is your (carbon) footprint? Wal-Mart wants to know.

How green is your supply chain?

It’s not an idle question if you’re one of the 100,000 suppliers to Wal-Mart. Last week, the retail giant announced a plan to have its suppliers calculate the full environmental costs of making their products. Wal-Mart will translate that info into a label that will appear along with the price of the product and other consumer information.

The idea is to let consumers make more informed choices about the products they buy: Do they want the lowest possible price, damn our dependence on fossil fuel, or are they willing to pay a little more for a product with a smaller carbon footprint? Now, you’ll have the data to make that choice.

When we’ll begin to see these new labels is anyone’s guess. According to The Wall Street Journal, Wal-Mart says it could take five years or longer to put the systems in place to accurately capture the data, do the math and create a label. Some outside experts claim it could be up and running by 2011. And, hey, they’re already doing something like this in the U.K. Tesco, the large British grocer, has been labeling some of the products in its stores since the spring of 2008. 

Is this a good idea?

First, a little background. While most people think low prices when they think Wal-Mart, I think green. And I’m not just talking about the sales the world’s largest retailer rings up every day at its checkout lanes. For the last several years, Wal-Mart has been focused on meaningful reductions in its carbon footprint and selling more energy-efficient products. 

Here are three examples of what I mean: 

• Wal-Mart has opened four new stores utilizing designs that use up to 25% less energy that a typical Supercenter; the goal is to create a prototype that is 30% more efficient and produces 30% fewer greenhouse-gas emissions by the end of 2009. 
• On the highway, Wal-Mart’s trucks are 25% more efficient than they were in 2005; the goal is to double fleet efficiency by 2015.
• In the home electronics department, Wal-Mart is working with suppliers to increase the efficiency of flat screen TVs by 30% by 2010.

The results are impressive, which I’m sure is part of the reason that Wal-Mart wants to push its efforts out to its suppliers. But Stephen Stokes, vice president of sustainability and green technologies at AMR Research and a champion of sustainable business practices, wonders whether this is really a good use of resources.

He gives Wal-Mart kudos for their internal sustainability efforts, but ultimately believes a supplier mandate will be “unpopular, ineffective and unsuccessful.” Remember, Stokes thinks the company is doing a great job internally.

Here’s the problem: “This has enormous supply chain implications,” says Stokes. “If suppliers are forced to spend their resources to calculate their carbon footprint and slap a label on everything, the compliance costs will be enormous.” How expensive. According to Stokes, Pepsico UK told AMR it took them four years and $40,000 to calculate the carbon footprint on Walkers potato crisps and that moving forward they expect to spend between $10,000 and $12,000 per product to do the math. Simple multiplication pegs the cost of calculating the carbon for the 20,000 to 25,000 SKUs in a typical grocery store at $250 million. That’s a lot of potato crisps.

To Stokes’ way of thinking, that money could be better spent to drive down the supply chain costs – and, an organization’s carbon footprint in the process – across an enterprise.

Take it one step further, and Stokes challenges whether it’s possible to come up with a valid number. “A lot of groups say this is just like creating a nutritional label and it’s not even close,” says Stokes. “If you want to challenge the label on a jar of baby food, you can send it to a laboratory and have it tested. When it comes to challenging supply chain costs, you can’t do a reverse calculation the way you can on a nutritional label.”

Example: A consumer packaged goods or food manufacturer may shift the production of a specific product from one plant to another on a monthly, or even weekly, basis. “The supply chain is not static,” says Stokes. “Our networks and supply chains are dynamic. I don’t know how you accurately capture that and put it as a label on a can.”

What’s more, Tesco discovered that how you and I use a product after the sale may have more impact on the environment than what went into manufacturing it. More than half the carbon expended to grow, sell and consume a baked potato is the result of how we cook it at home. Tesco can make the agricultural company jump through hoops to reduce its footprint, or you and I can do our part by microwaving our baked potato rather than baking it.

By his own admission, Stokes is passionate in his objection. His advice to Wal-Mart, or anyone else interested in sustainability, is simple. Rather than focus on product labels, put the onus on the corporation. “Environmentally-appropriate products are made by environmentally-appropriate corporations,” he says. “If we focus on actions at the corporate level, every SKU can benefit. Rather than spending our time sticking labels on things, we can end up making a difference.”

I have no idea whether this new initiative will stick or not. It does strike me that there’s a real opportunity for the materials handling and supply chain software industries. Wal-Mart suppliers that decide to compete on their carbon labels as well as the price of their product will need to get more productive and efficient in their operations. This is an opportunity for the industry to tie the benefits of our solutions not only to reducing operational costs, but to driving top line sales growth as well.

Let me know how your company intends to meet the new Wal-Mart mandate.