Sunday, November 23, 2014

Walmart: Advanced Energy Efficiency in China

Walmart recently announced a new commitment to advance the energy efficiency of its China-based manufacturers, further strengthening the sustainability of its global supply chain. Effectively, this announcement (to boost energy efficiency and reduce environmental impact on China supply chain) will continually pave the way for operations to become a more sustainable (global) force.

Currently, 40 factories in China have participated in a 2014 pilot program; moreover, approximately 500 factories will be invited to participate in the program by 2017. To achieve this goal for China-based manufacturers, Walmart will assist in providing tools and resources to help suppliers identify energy efficient projects custom-tailored for each facility. Moreover, Walmart will also track overall project performance and impact, as well as coordinate necessary training when needed to overcome implementation barriers.

Sean Clarke, CEO of Walmart China stated: “China is a key market for Walmart’s long-term sustainability strategy, and as a company, we’re focused on being part of a solution to help improve environmental issues facing the country.” Additionally, he states, “Walmart has made significant progress in advancing factory efficiency in China in recent years, and today’s announcement [on energy efficiency] is an expansion of our efforts to drive a larger impact.”

Walmart has a deep-rooted history of collaboration with key partners in China, including government representatives, local NGOs and suppliers; moreover, it has been built on experience and lessons learned to create new, innovative solutions and models for sustainable growth. Henceforth, the company’s operations in China have been able to successfully reduce environmental impact while providing benefits that translate into their ‘everyday low costs’ for customers. Since early 2008, Walmart has successfully implemented an energy efficiency program in its China facilities, resulting in a 20 percent energy reduction in 2010 ($279 million savings in energy costs).

Over the past two years, Walmart’s China operations have had several other successful milestones. One such milestone included invested over $16 million to provide LED lighting to China facilities, which avoided 33,000 tons of CO2 emissions. Additionally, they retrofitted refrigerators at 250 China stores with glass doors, effectively reducing energy consumption by nearly 30 percent (new stores will be equipped with such next-generation refrigerators with glass doors, which will further avoid 30,000 tons of CO2 emissions). Finally, in 2010, Walmart completed the installation of solar system mounted on the roof at Walmart’s Xiangmihu store in Shenzhen; this roof was the first non-state owned solar power project under China’s ‘Golden Sun Solar Program.’ Finally, Walmart announced a $2 million grant to launch The Sustainability Consortium (TSC) in China. TSC is an independent research organization that engages industries, universities and other global experts to develop specific measuring and reporting systems for product sustainability for consumer goods.

By interpreting Walmart’s success on a global level, one can understand its many different paths to success. As a result of being so efficient, their strategic edge against other competitors allows for such high achievements. Walmart depends on huge-scale operations to keep profit margins low; its return on assets of around 8.39 percent results from an asset turnover of 2.39 percent with a net profit margin of 3.51 percent. Although some competitors have higher profit margins (Target, for example), Walmart uses its assets more efficiently and leverages its superior size to achieve economies of scale that allows it to maintain lower prices. Does global energy efficiency provide a deeper insight as to how well Walmart operates? More specifically, what can we learn from Walmart’s global efficiencies in relation to their successful financial outcomes?


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