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What is driving the growth of the green building industry?

Increasing energy prices
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Courtesy Wal-Mart
Companies aim to get goods from here to there with less waste.
FOUR | Supply chain demand
by Amy Westervelt - 1.4.08

In the late 1980s, as economies and markets became increasingly global, companies shifted from traditional, vertically integrated business models to models in which various activities were outsourced. Companies began to focus on core competencies that delivered high value and left low-value parts of the production process—such as manufacturing— to other companies.

The result was a near-total loss of control of the manufacturing process. In the beginning, companies didn’t really care about this lack of control, so long as products appeared on time and at a low cost. Then unregulated suppliers began making headlines that made customer companies look bad. Widely publicized human-rights and labor abuses by companies such as Nike (NYSE: NKE) and Gap (NYSE: GPS) suppliers sparked a global and sudden interest in regaining control of the supply chain, focused primarily on human rights and labor regulations.

Ten years later, food safety scares and public awareness of climate change issues have sparked the same sort of attention toward the environmental impact of the supply chain. As some of the largest U.S. companies, starting with retailers, begin to pay attention to how goods are delivered to the shelves, or even to retailers, a host of start-ups are gaining traction with new technologies that aim to help deliver safer goods more efficiently.

It’s probably no surprise that Wal-Mart (NYSE: WMT) is at the epicenter of the changes. Although the company is notoriously tightlipped about the specifics of its sales, profits and margins, Wal-Mart represents an estimated 10 percent of the U.S. retail economy. Its shelves are stocked with name-brand and private- label products from around the globe, and suppliers often relate stories of intensely competitive bidding wars to retain prized shelf space.

Since the company turned its eye on environmental issues, it has already used its clout with suppliers to make demands on product labeling and packaging, and has made known its interest in purchasing more third-party certified goods. In October 2007, Wal-Mart CEO Lee Scott addressed the CEOs of his company’s suppliers. In his address, Scott said he had realized Wal-Mart could not continue to have simply transactional relationships with its suppliers, that it would have to move toward deeper relationships in order to achieve its environmental impact reduction goals.

“It’s unclear how Wal-Mart will achieve that goal yet, but it’s clear that it has to if it wants to see big changes in the products it carries in terms of sourcing and design,” says Dr. Andrew Hutson of Environmental Defense (formerly the Environmental Defense Fund), who is currently working with Wal-Mart to “green” its supply chain. “If Wal- Mart says, “This is what we want,” you’ll see rest of the retail industry and various product industries follow,” Hutson says. “That’s why we’re here—to guide them on the right path to doing that correctly.”


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