Developing Strategies for Green Supply Chain Management

Document Sample
Developing Strategies for Green Supply Chain Management Powered By Docstoc

� DANIEL A. SAMSON, Feature Editor, University of Melbourne, Australia

                                                       Developing Strategies for Green
                                                       Supply Chain Management
                                                       by Dayna Simpson, Oregon State University, and
                                                       Danny Samson, University of Melbourne

                                                       T    he field of supply chain management
                                                            has more recently directed its atten-
                                                       tion to the role of the supply chain in both
                                                                                                      suppliers to meet guidelines for sustain-
                                                                                                      able farming. Other organizations have
                                                                                                      introduced purchasing requirements that
                                                       (a) impacts to the natural environment         ensure suppliers avoid specific materials
                                                       and (b) the generation of environmental        such as chemicals that may be deemed
                     Dayna Simpson                     performance change. This shift in our          hazardous to the environment (DuPont,
                       is an assistant professor of    expectations for the supply chain has          Seventh Generation, and organic supply
                       supply chain and operations     arisen from growing social pressure,           chains). An increasing number of supply
                       management at Oregon State      legislative changes around packaging           chains invest in recycling systems intend-
                       University. She earned a PhD
                                                       and end-of-life goods, identified supply        ed to retrieve waste or used product from
                       in management from the Uni-
                       versity of Melbourne. Her       chain risks, and increasing use of envi-       customers (Kodak, Hewlett Packard, and
                       research interests are in the   ronmental requirements being cascaded          Fuji-Xerox).
area of environmentally sound supply chain strate-     from customers to suppliers. Several                 Much is still unknown, however,
gies. She previously worked as an environmental        years of research into the occurrence          regarding the management efficacy and
scientist in the petroleum, automotive, and agri-
                                                       of green-supply-chain-management               likely costs to the supply chain from
cultural industries. She has recent publications on
relational strategies for managing the green supply    activity (GSCM) has led to a general ac-       altering its traditional focus of cost, qual-
chain, sustainable operations and reverse logistics,   ceptance of its relevance and purpose.         ity, and service to include environmental
and has continued this work most recently in the       At this point in the field’s development,       performance. The extent of the supply
banking and non-profit sectors. She is a member of      however, there is substantial scope for        chain’s legitimate control over such envi-
the Academy of Management and of the European
                                                       improving our understanding of poten-          ronmentally focused activity is an area of
Operations Management Association.
                                                       tial strategies of GSCM rather than just       active debate. For example, the organiza-
                                                       a series of related greening practices         tion that claims ‘carbon neutrality’ for its
                                                       without a definite purpose. Owing to            product supply chain may be unlikely to
                     Danny Samson                      increasing and rapid developments in the       effectively monitor or control the carbon
                      is a professor of manage-        field of green supply chain management,         generating activities of upstream suppli-
                      ment in the Department of        we describe an evolving set of distinct        ers. The supply chain is comprised of a
                      Management and Marketing,        supply chain strategies in support of          series of entities, activities, customers,
                      University of Melbourne. He
                                                       this type of activity and propose some         cultures, and goals that frequently fail to
                      has served as head of the de-
                      partment and associate dean      directions for the future. In the manner       find alignment on anything but the most
                      in the Faculty of Economics      of Fisher (1997) —what might be the            basic of concerns. Very few activities in a
and Commerce. He holds a BEng and a PhD in             most appropriate GSCM strategy for a           supply chain are likely to succeed if they
management from the University of New South            particular product, process, or industry       are not accompanied by some form of re-
Wales. He has previously held academic positions
                                                       context?                                       lationship control that will (a) justify the
at the University of Illinois and Melbourne Busi-
ness School. He has published many dozens of                                                          level of investment for both parties and
scholarly articles and eight books in areas ranging    Background                                     (b) guarantee its implementation.
from management science, operations manage-
                                                       An increasing number of organizations                The explosion of GSCM activity in
ment, and general management. He serves on                                                            the practical realm has led to an increas-
numerous editorial boards including as associate       have introduced ‘greening’ requirements
                                                       to both upstream and downstream sup-           ing body of empirical work regarding
editor of the Journal of Operations Manage-
ment. He is a member of the Global Manufactur-         ply chain activity—purchasing clauses,         both external influences leading to the
ing Research Group and recently finished a term         targets, practices, and technologies.          uptake of green supply chain manage-
as GMRG president. He has consulted widely to
                                                       Automotive firms frequently require            ment practices, and their impact on
business organisations around the world in indus-                                                     firm performance. Investigation in this
tries ranging from manufacturing to banking and        suppliers to certify to ISO 14001 (Toyota
                                                       and Ford). Starbucks Coffee as well as         area has generally fallen into four main
professional services.
                                                       Ben and Jerry’s require raw material           categories:

12                                                                                                                         Decision Line, July 2008
•� Use of compliance-based strategies         altering or improving aspects of sup-         2003), (b) third party or arms-length man-
   that support the cascading of basic en-    ply chain performance. These are es-          agement of performance, and (c) a system
   vironmental requirements generically       sentially competitive pressure (rely on       recognized globally by other organiza-
   across all suppliers (Melnyk, Sroufe,      the market); evaluation or certification       tions. This third aspect improves the
   & Calantone, 2003; King, Lenox, &          schemes (rely on a third party); incen-       efficacy of uptake by suppliers because
   Terlaak, 2005)                             tives; and direct involvement (Krause         the system is recognized by the market
•� Aligning supply chain goals for both       et al, 2000; Modi & Mabert, 2007). All        and other industry members, reducing
   efficiency and pollution-reduction         modes are possible—though with dif-           the ambiguity of desired performance
   (Corbett & Klassen, 2006; Rothenberg,      ferent outcomes—regardless of whether         levels and minimizing the need for cus-
   Pil, & Maxwell, 2001)                      the climate of a relationship is more co-     tomer involvement. From the perspective
• Transfer of environmentally specific         ercive or collaborative. We draw on the       of competitive advantage, however, the
   innovations or technologies from cus-      relationship implications of supply chain     benefits are limited because of the ease
   tomers to suppliers (Geffen & Rothen-      performance improvement as well as the        of implementation, a lack of unique-
   berg, 2000; Klassen & Vachon, 2003)        possible pathways to development of           ness, and a growing use by other supply
                                              supply chain resources to establish a ty-     chains. A similar approach to basic certi-
•� Collaboration or competition between
                                              pology of strategies for GSCM. We move        fication schemes is the use of broad state-
   firms to develop re-manufacturing or
                                              away from the traditional discussion of       ments within purchasing guidance or
   closed-loop recycling systems (Guide
                                              GSCM strategies built around reputa-          principles to include ‘supplier activities’
   & Van Wassenhove, 2002; Pagell, Wu,
                                              tional or societal pressures and instead      among the organization’s environmental
   & Murthy, 2007).
                                              build a typology based in more tradi-         responsibilities. Such systems based on
                                              tional supply chain management theories       risk minimization only and managed in a
Relevance of the Supply Chain                 to move the GSCM field forward.                climate of low relational investment only
Relationship                                                                                guarantee supply chain compliance with
Supply chains achieve performance             Strategies of Green Supply Chain              local or national regulations. The end re-
improvements or resource development          Management                                    sult being that risk can be minimized and
through either building-specific capabili-                                                   reputation enhancement is possible, but
ties over time or by looking to the sup-      Risk-based Strategies                         no additional innovation or complemen-
ply relationships to gain access to new                                                     tary economic benefits are likely.
                                              The simplest strategy of GSCM with
resources (Eisenhardt & Schoonhoven,
                                              regard to inter-organizational invest-        Efficiency-based Strategies
1996). This may occur through either:
                                              ment resource development is one of risk
(a) coercive pressure—pass responsibil-                                                     A more complex and developing strat-
                                              minimization. Firms adopting this strat-
ity upstream or introduce contractual                                                       egy in recent years has been the ‘eco-ef-
                                              egy are proposed to do so in response
clauses for suppliers (Pagell et al, 2007;                                                  ficiency’ or ‘lean-and-green’ approach
                                              ostensibly to stakeholder requirements.
Zhu & Sarkis, 2007); or (b) collabora-                                                      to GSCM. This type of strategy derives
                                              Such a strategy is ideal for the orga-
tion—utilize social capital within existing                                                 environmental performance benefits for
                                              nization that retains minimal internal
relationships to develop new competen-                                                      the supply chain beyond mere regulatory
                                              environmental management resources
cies (Liker & Choi, 2004; Paulraj, Lado, &                                                  compliance through the requirement
                                              or has only recently begun to consider
Chen, 2008). With regard to environmen-                                                     for suppliers to meet operations-based
                                              the introduction of a supply chain green-
tal performance management, coercive                                                        efficiency targets. Much of the environ-
                                              ing program. It is based on minimal
pressure provides a minimum level of                                                        mental performance benefit arises from
                                              inter-organizational engagement. Such
compliance to requirements amongst                                                          specific manufacturing practices that
                                              efforts might involve the inclusion of
suppliers but tends to be limited in its                                                    have been found to provide secondary
                                              basic clauses in purchasing contracts for
capacity to encourage advanced perfor-                                                      environmental performance benefits.
                                              suppliers to meet all relevant regulatory
mance outcomes such as new knowledge                                                        The point of departure for the efficiency-
                                              requirements. Most frequently used with
or innovation. Collaboration on envi-                                                       based strategy from the risk-based strat-
                                              this approach is the cascading of an estab-
ronmental performance issues tends to                                                       egy is the availability of dual economic
                                              lished international standard such as ISO
increase the range and complexity of pos-                                                   and environmental performance benefits
                                              14001 (King, Lenox, & Terlaak, 2005). The
sible outcomes—such as new products or                                                      to the supply chain and the requirement
                                              use of an existing performance standard,
technologies—but requires a far greater                                                     for higher levels of engagement between
                                              an approach used initially by the Ford
level of involvement for customers and                                                      customers and suppliers. The efficien-
                                              Motor Company with its suppliers and
suppliers.                                                                                  cy-based strategy ties environmental
                                              now more frequently by other organiza-
     Several modes of interaction be-                                                       performance to operational processes
                                              tions for their supply chains, offers: (a)
tween a customer and its suppliers are                                                      in the supply chain, and this strategy
                                              established environmental performance
available with the express purpose of                                                       allows the extension of performance
                                              benefits (Melnyk, Sroufe, & Calantone,

Decision Line, July 2008                                                                                                            13
requirements into the supply chain          begun to guarantee more comprehen-              disposable cameras, Hewlett Packard’s
that maximize economic performance          sive product life-cycle considerations          retrieval of used printer cartridges, and
and provide secondary environmental         for consumers of their products. Once a         BMW’s end-of-life vehicle requirements
performance benefits through waste          supply chain begins to consider special-        for suppliers (Guide et al, 2002). The
and resource use reductions. It requires    ized processes, technologies, or complex        motivation for a closed-loop strategy
more comprehensive and supply chain         performance standards for suppliers             remains low for basic reasons of poor
specific performance specifications than      such as chemical avoidance, the level of        and distributed control over the reverse
the simpler risk-based strategy. It also    knowledge exchange and relational in-           supply chain, lack of available infrastruc-
requires a higher level of involvement      vestment begins to change. Moving from          ture, and the inability of supply chains to
between supply chain partners arising       an efficiency-based GSCM strategy to a           believe that such activity is economically
from the use of more complex inter-firm      greater level of innovation or integration      viable. Designing and successfully using
performance requirements. Using this        of environmental performance in supply          a closed-loop strategy presents one of the
strategy to facilitate greater efficiency    chain and product design requires spe-          most complex endeavours for a single or-
in the supply chain does not require the    cialized environmental resources (Lenox         ganization to undertake within its supply
development of co-specialized resources     & King, 2004). Keeping up-to-date with          chain (Richey et al, 2005). In its simplest
specific to environmental performance.       environmental legislation changes and           form, ‘closing the loop’ may involve
The necessity for collaboration on ef-      training suppliers in environmentally           product take-back and reverse logistics
ficiency, however, provides a facilitat-     relevant process changes requires more          implemented only in the retail portion
ing role for context-specific, complex      dedicated environmental resources,              of the supply chain. In more complex
problems such as waste reduction and        specialized personnel, and design. The          ‘closed-loop’ systems, used or obsolete
recycling (Geffen & Rothenberg, 2000;       development of such resources provides          products and waste are taken back by
Klassen & Vachon, 2003). The strategy       the conditions for an organization to shift     the producer and remanufactured or
can provide a cost-reduction advantage      from an efficiency-based to an innova-           recycled rather than being disposed
to the supply chain and readily fits with    tion-based GSCM strategy. For products,         of to landfill. The closed-loop strategy,
pre-existing organizational goals of        the resources developed could be used           however, represents an approach that
optimization. But the efficiency-based       to incorporate innovative environmental         seamlessly integrates issues of economic,
supply chain strategy does not allow        planning into specific product designs,          operational, and environmental per-
for more knowledge-intensive environ-       characteristics, functionality, or life-cycle   formance. Organizations considering
mental management activities such as        related activities (e.g., service, repair,      implementation of a closed loop supply
product design, material substitution, or   and recycling). At the process level they       chain require high levels of control over
innovation. Product recalls because of a    could be deployed to develop environ-           the capture and return of used materials.
poor choice of low-cost but hazardous       mentally robust methods and systems             Goods need to be managed for qual-
materials represent the inherent risk in    for the production, distribution, and use       ity considerations and aggregation of
focusing only on efficiency in the sup-      of products.                                    collection and sorting activities allows
ply chain. The efficiency-based strategy                                                     for the creation of economies of scale.
is considered technically weak but more     Closed-loop Strategies                          Such a high level of integration, coor-
socially complex than the risk-based        Closed-loop strategies are a more recent        dination across partners, and socially
strategy.                                   type of GSCM strategy and represent the         complex knowledge requires years of
                                            most complex and collaborative form of          development effort. Socially complex,
Innovation-based Strategies                 this type of activity. Often referred to in     collaborative relationships provide the
The innovation-based green supply chain     its simplest form as ‘reverse logistics,’       basic foundation for a closed-loop supply
management strategy is distinct from the    closing the loop involves the capture and       chain strategy.
efficiency-based approach because of        recovery of materials for either re-manu-
its use of a supply chain environmental     facture (high-value) or recycling (low          Directions for Future Research
performance strategy that is more en-       value) (Kocabasoglou et al, 2007). These        There are many issues that require fur-
vironmentally specific. Organizations are    materials can arise during production, as       ther scholarly research, which needs to be
increasingly aware of the potential for     returned goods, post-use, and at end-of-        of ‘best practice’ case studies, and larger
narrow purchasing policies to in-source     life. The closed-loop strategy ties or inte-    field studies that map the field and its
components or services from suppli-         grates environmental performance to the         progress. We also need to extend existing
ers that may be legally non-compliant       whole supply chain. Very few examples           theories and principles of competitive
with environmental regulations or who       of coordinated recycling or closed-loop         advantage, operations management/
themselves procure goods in an envi-        activity in the supply chain currently ex-      SCM, resource-based view of the firm
ronmentally irresponsible way (Bowen        ist however. Prominent examples include         and others, to fully take account of ma-
et al, 2001). Some organizations have       Kodak’s return and re-manufacture of its        ture GSCM practices and their integra-

14                                                                                                              Decision Line, July 2008
tion into the mainstream of managerial         requirements will likely secure a pool           The impact on plant-level environmental
work. Some suggested research areas and        of suppliers unavailable to other sup-           investment. Production and Operations
issues follow.                                 ply chains providing exclusive access to         Management, 12(3), 336-352.
     As raw material costs increase and        limited resources.                             Kocabasoglu, C., Prahinski, C., & Klassen,
environmental protection legislation be-            Firms wishing to rapidly release            R. (2007). Linking forward and reverse
comes increasingly stringent, a focus on       environmentally themed products and              supply chain investments: The role of
one firm’s green operational excellence         services, or make claims to such endea-          business uncertainty. Journal of Operations
is becoming the norm in organizations.         vours, cannot bypass the earlier phases          Management, 25(6), 1141-1160.
To attain even greater cost savings from       of supply chain strategy development.          Krause, D., Scannell, T., & Calantone, R.
waste reduction, meet comprehensive so-        Supply chain strategies that are designed        (2000). A structural analysis of the ef-
cial and environmental responsibility tar-     for resource use efficiency and capture           fectiveness of buying firms’ strategies to
gets and find new products with smaller         of all waste or by-products through the          improve supplier performance. Decision
ecological footprints, firms are now           product life-cycle provide not just high         Sciences, 31(1), 33-55.
extending their goals for environmental        levels of environmental performance            Lenox, M., & King, A. (2004). Prospects for
performance into their suppliers’ opera-       but also the capacity to withstand ap-           developing absorptive capacity through
tions. This type of activity is an effective   proaching resource scarcity or legislative       internal information provision. Strategic
mechanism for firms to improve their            changes that affect and often re-define           Management Journal, 25, 331-345.
record on corporate social responsibility,     industries.                                    Liker, J., & Choi, T. (2004). Building deep
lower reputational risks, reduce wastes,                                                        supplier relationships. Harvard Business
and improve supply chain response-time         References                                       Review, December.
to new environmental regulations.                                                             Melnyk S., Sroufe R., & Calantone, R. (2003).
                                               Bowen, F., Cousins, P., Lamming, R., &
     As possible GSCM strategies become                                                        Assessing the impact of environmental
                                                 Faruk, A. (2001a). The role of supply
more complex and involve greater levels                                                        management systems on corporate and
                                                 management capabilities in green supply.
of relationship investment, their potential                                                    environmental performance. Journal of
                                                 Production and Operations Management,
for competitive advantage also increases.                                                      Operations Management, 21(3), 329-351.
                                                 10(2), 174-189.
Several supply chains have already de-                                                        Modi, S., & Mabert, V. (2007). Supplier
                                               Corbett & Klassen. (2006). Extending the
veloped systems of green supply chain                                                          development: Improving supplier per-
                                                 horizons: Environmental excellence as
management that may be many years                                                              formance through knowledge transfer.
                                                 key to improving operations. Manufactur-
ahead of or perhaps entirely out of reach                                                      Journal of Operations Management, 25(1),
                                                 ing and Service Operations Management,
for other supply chains (i.e., Hewlett                                                         42-64.
                                                 8(1), 5–22.
Packard, Toyota, and Ben and Jerry’s ice-                                                     Pagell, M., Wu, Z., & Murthy, N. (2007). The
                                               Eisenhardt, K., & Schoonhoven, C. (1996).
cream). Other supply chains may only                                                            supply chain implications of recycling.
                                                 Resource-based view of strategic alliance
require the addition of environmental                                                           Business Horizon, 50, 133-143.
                                                 formation: Strategic and social effects in
performance clauses into purchasing              entrepreneurial firms. Organization Sci-      Paulraj A., Lado, A., & Chen, I. (2008). In-
activities to adapt their supply chain to        ence, 7(2), 136–150.                           ter-organizational communication as a
changing industry norms. More complex                                                           relational competency: Antecedents and
                                               Fisher, M. (1997). What is the right supply
types of green supply chain strategy,                                                           performance outcomes in collaborative
                                                 chain for your product? Harvard Business
however, offer increasing levels of eco-                                                        buyer–supplier relationships. Journal of
                                                 Review, March-April, 105-116.
                                                                                                Operations Management, 26, 45–64.
nomic, operational, and environmental          Geffen, C., & Rothenberg, S. (2000). Suppli-
performance.                                                                                  Richey, R., Chen, H., Genchev, S., & Daugh-
                                                 ers and environmental innovation: The
     At the supply chain level, orga-                                                           erty, P. (2005). Developing effective
                                                 automotive paint process. International
nizations that involve suppliers and                                                            reverse logistics programs. Industrial
                                                 Journal of Operations and Production Man-
third parties in the greening process                                                           Marketing Management, 34(8), 830-840.
                                                 agement, 20(2), 166-186.
early—and well in advance of com-                                                             Rothenberg, S., Pil, F., & Maxwell, J. (2001).
                                               Guide, D., & Van Wassenhove, L. (2002).
petitors—start a development path that                                                          Lean, green and the quest for superior en-
                                                The reverse supply chain. Harvard Busi-
may provide a sustained competitive                                                             vironmental performance. Production and
                                                ness Review, 80(2), 25-26.
advantage that lasts well into the future.                                                      Operations Management, 10(3), 228-243.
                                               King, A., Lenox, M., & Terlaak, A. (2005).
For example, selecting and developing                                                         Zhu, Q., & Sarkis, J. (2007). The moderat-
                                                 The strategic use of decentralized in-
suppliers who retain unique capabilities                                                        ing effects of institutional pressures on
                                                 stitutions, Exploring certification with
in product take-back or re-processing or                                                        emergent green supply chain practices
                                                 the ISO14001 management standard.
who exhibit high levels of environmental                                                        and performance. International Journal of
                                                 Academy of Management Journal, 48(6),
                                                                                                Production Research, 45(18-19), 4333–4355.
performance can provide a first-mover             1091-1106.
competitive advantage. Early selection of      Klassen, R., & Vachon, S. (2003). Collabora-
suppliers that are capable of delivering         tion and evaluation in the supply chain:
environmentally focused performance

Decision Line, July 2008                                                                                                                15