@Risk

Supplier risk comes in many forms –financial solvency, price, compliance, to name just a few. Today, a day after Wal-Mart announced that it will begin measuring the sustainability of all the products it sells, it’s no surprise that I’m thinking about supplier risks related to sustainability and (even broader) CSR issues. The big question looming is this: If you sell to Wal-Mart, are you –and your suppliers –ready for the new Wal-Mart Sustainable Product Index?

Wal-Mart is introducing this initiative in three phases, beginning with a survey of its more than 100,000 suppliers around the world. This survey includes 15 questions, and according to John Fleming, chief merchandising officer, Wal-Mart U.S, it is a key first step toward establishing real transparency in the corporation’s supply chain.

To give you an idea of the breadth and depth of information Wal-Mart is asking for, I’ve copied the 15 questions here:

Energy and Climate
1. Have you measured you corporate GHG emissions?
2. Have you opted to report your GHG emissions to the Carbon Disclosure Project?
3. What is your total annual GHG emissions reported in the most recent year measured?
4. Have you set publicly available GHG reduction targets? If yes, what are those targets?

Material Efficiency
1. If measured, please report the total amount of solid waste generated from the facilities that produce your product(s) for Wal-Mart of the most recent year measured.
2. Have you set publicly available solid waste reduction targets? If yes, what are those targets?
3. If measured, please report total water use from facilities that produce your product(s) from Wal-Mart for the most recent year measured.
4. Have you set publicly available water use reduction targets? If yes, what are those targets?

Natural Resources
1. Have you established publicly available sustainability purchasing guidelines for your direct suppliers that address issues such as environmental compliance, employment practices and product/ingredient safety?
2. Have you obtained 3rd party certifications for any of the products that you sell to Wal-Mart?

People and Community
1. Do you know the location of 100% of the facilities that produce your product(s)?
2. Before beginning a business relationship with a manufacturing facility, do you evaluate the quality of, and capacity for, production?
3. Do you have a process for managing social compliance at the manufacturing level?
4. Do you work with your supply base to resolve issues found during social compliance evaluations and also document specific corrections and improvements?
5. Do you invest in community development activities in the markets you source from and/or operate within?

The second step in the Wal-Mart Sustainable Product Index initiative is to create a consortium of universities that will collaborate with suppliers, retailers, NGOs and government to develop a global database of information on the lifecycle of products – from raw materials to disposal. Then, in the third step, Wal-Mart plans to create sustainability labels for products to provide customers with simple, convenient information.

“I envision the day that you look at a piece of apparel, you flip a tag over, and learn about how sustainable it really is.  It would be like nutritional labeling is today. But there is some standardization that needs to take place,” says Fleming in today’s Wall Street Journal.

There’s no question that Wal-Mart’s Sustainable Product Index has the potential to revolutionize the consumer goods industry, and I certainly join the loud chorus of applause for the company’s efforts to develop global sustainability standards and metrics. However, I’m somewhat skeptical of Wal-Mart’s time table. Can a revolution like this happen in only three, or even five, years? If so –and if you don’t want to be left behind–it looks like you need to begin digging into the answers to those 15 questions and recalibrating your own supplier risk, beginning today.