Purchasing Transformation

Earlier this week; Lee Scott, president and CEO of Wal-Mart Stores, Inc. and Mike Duke, vice chairman for Wal-Mart’s international division addressed more than 1000 of Wal-Mart’s leading suppliers, Chinese officials and NGOs at a Wal-Mart supplier conference in Beijing, China.

Lee Scott sent a crystal clear message to Wal-Mart’s Chinese supply base:

My intention here is to send a message about how serious we are. Meeting social and environmental standards is not optional… And let me say to our own associates, an environmentally and socially responsible supply chain will not be optional for Wal-mart, we will hold our own associates accountable… Make no mistake; we expect from suppliers a firm commitment to meet strict social and environmental standards; to be open to rigorous audits; and to publicly disclose all appropriate information.

He continues to state that suppliers that do not meet the standards set by Wal-Mart are expected to put forth a plan to fix the problem and those who still do not improve will be banned. Mr Scott drove his point home by saying that:

No-one should be under any illusion that moving a factory to another country will avoid accountability.

Before Mr. Scott took the stage; Mike Duke had outlined Wal-Mart’s strategic sustainability goals.

• To build an environmentally and socially responsible supply chain.
• To make our stores more sustainable.
• To bring our customers products that are more sustainable; how they are made, how they are packaged and how they are used.

Wal-Mart has issued a press release detailing most of the points delivered at the summit in Beijing which can be found here. But the best thing is (although it doesn’t show the audience response); videos of both Mr. Scott’s and Mr. Duke’s speeches can be seen in the video section of the Wal-Mart corporate web site.

One can only wait and see which impact this will have on the Chinese manufacturing industry, in the last few years labor costs have gone up 70 to 100 percent, yet many factories have been able to raise their prices because companies such as Wal-Mart are saying no price increases. One indication of what might be in store was published earlier this week. The official Xinhua News Agency reported that 3,631 toy exporters — 52.7 percent of the industry’s enterprises — went out of business in 2008. The causes: higher production costs, wage increases for workers and the rising value of the yuan.