Jiangsu Redbud Dyeing Technology is a poster child for China's effort to clean up manufacturing. The textile maker, based in Changshu City, Jiangsu Province, slashed electricity use by one-tenth, banished most toxic emissions from its dyeing operations, and garnered more than 150 patents for its environment-friendly jute-based materials. Behind the scenes, it has a demanding mentor: Wal-Mart Stores (NYSE:WMT - News).
Wal-Mart has always been an intimidating taskmaster in China, extracting the lowest possible prices from suppliers. Last year it raised the bar a notch for these thousands of mostly small manufacturers, requiring that they meet or exceed all local environmental regulations. Wal-Mart gives them tips on how to boost energy efficiency and cut consumption of raw materials. It also delivers a blunt threat: Manufacturers have until 2012 to meet the new standards or risk being cut from the supply chain.
Is sustainability a distraction for Wal-Mart? Not according to Andrew Hutson, a supply chain expert at the nonprofit advocacy group the Environmental Defense Fund, who advises Wal-Mart without pay. He argues that the eco-focus ultimately serves the company's low-price goals. Having helped its suppliers cut waste and reduce spending on energy, Wal-Mart expects to pass some of those savings along to its customers in lower prices. "Lowest cost doesn't have to come from past methods -- the squeeze-'em-till-they-bleed approach. If anything, that approach leads to environmental degradation," says Hutson.
Meanwhile, Wal-Mart's campaign has an amplifier effect. Manufacturers in the supply chain generally don't commit more than one-eighth of their plant capacity to any one sales outlet. So when a factory accepts Wal-Mart's standards, the others who buy from it enjoy lower costs based on improved efficiency, "and the factories will carry these practices through to all their customers," Hutson says.
