Wednesday, February 21, 2007

Walmart demonstrates some leadership

From the Wall Street Journal via Daniel Gross(I have added bold highlights):


Wal-Mart Stores Inc.'s effort to increase the efficiency of its trucking fleet -- a key part of the its plans to cut costs and portray itself as more environmentally friendly -- is running ahead of schedule.

In October, the Bentonville, Ark., retailer unveiled plans to make its trucking fleet 25% more fuel-efficient within three years. The fleet of 7,100 trucks already is on track to become 18% more efficient over the next year alone, said Johnnie Dobbs, Wal-Mart's executive vice president of logistics. "At this point, we feel pretty comfortable we can make the 25% goal," Mr. Dobbs said.

The high-throttle progress is a boost to Wal-Mart's recent efforts to curb its operating expenses amid soaring prices for energy and health care. Last fall in an interview with The Wall Street Journal, Chief Financial Officer Tom Schoewe singled out Wal-Mart's trucking fleet along with work-shift management as a top priority for reining in costs.

By increasing its trucks' fuel-efficiency by one mile a gallon from their recent average of 6.5 miles a gallon -- a 15% improvement -- Wal-Mart could add $50 million a year to its income, Mr. Schoewe said.

The effort comes as the price of fuel is again soaring. The Energy Department said this week the U.S. price of diesel fuel averaged $2.765 a gallon, more than 50 cents higher than the year before.

Mr. Dobbs said the bulk of the savings for Wal-Mart's trucking fleet thus far have come from the installation of auxiliary units that power the air conditioning when a truck is parked, eliminating the need to run the engine. Wal-Mart's trucks also are benefiting from wider tires that can carry bigger payloads, aerodynamic skirts and cowlings that cut wind resistance, and new additives that give diesel more bang for the buck.

Wal-Mart executives said they are surprised to be exceeding their near-term goals so early. The company also has set a longer-term goal to double the efficiency of its truck fleet in 10 years. While the early gains have come from "low-hanging fruit," meeting the 10-year target "will be the real stretch," as most of the energy savings are to come from technology that is still being developed, Mr. Dobbs said.

Future improvements may come from lighter truck designs, more efficient engines and transmissions, and hybrid technologies that use electricity and hydrogen power, Mr. Dobbs said. Researchers also are testing "biodiesel" manufactured from animal and vegetable oils, but "the jury is still out on that," Mr. Dobbs said.

The plans are a pillar of an environmental initiative that Wal-Mart announced with much fanfare in October. In addition to slashing transportation costs, the program also seeks to reduce greenhouse gases from existing stores and distribution centers by 20% over the next seven years.

As for new stores, Wal-Mart aims to introduce a design within four years that is at least 25% more energy-efficient. Those developments could also pay off, as the price of electricity and natural gas have soared along with the price of oil.

In addition to upgrading its truck fleet, Wal-Mart this year has purchased 100 hybrid cars for the company's market managers, who typically oversee eight to 15 stores each. "They tend to do a lot of driving in between stores, so that could be a real savings," Mr. Dobbs said.


Increased fuel efficiency is a worthwhile goal from the shareholders' perspective regardless of the PR benefits.

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