Value of Green Supply Chain Management (GSCM)

Organizations worldwide are continuously trying to develop new and innovative ways to enhance their competitiveness. Bacallan (2000) suggests that some of these organizations are enhancing their competitiveness through improvements in their environmental performance to comply with mounting environmental regulations, to address the environmental concerns of their customers, and to mitigate the environmental impact of their production and service activities. Green supply chain management as a form of environmental improvement is an operational initiative that many organizations are adopting to address such environmental issues.

Currently, the “green concept” is a critical issue for companies, but when the majority of businesses are cost focused, the idea of implementing and moving toward green practices is often seen as a costly strategy. Bowen et al. (2001) state that organizations will adopt green supply chain management practices if they identify that this will result in specific financial and operational benefits.

According to Routroy (2009), Greening the manufacturing supply chain may result in one or more benefits, in terms of cost reduction, operational efficiency improvement, flexibility improvement, sales enhancement, customer value enhancement, and societal image improvement.

Green supply chain management is also to enhance firms’ environmental performance through inter-organizational collaboration with business partners and increase efficiency by cost saving programs and proactive risk management practices (Hervani et al., 2005; Rao and Holt, 2005; Zhu and Sarkis, 2007).

We will review the literature about Green Supply Chain Management (GSCM) concept and then we will see how it is translated within the supply chains. Then, the common purpose of this research will be to identify the link between GSCM and overall firm performance. We decided, based on the literature and on a specific framework (Rao & Holt, 2005) applied in Asia, to tackle the concept of green supply chain management in Western Europe by including environmental initiatives in:

(1) Inbound logistics;

(2) Production or the internal supply chain;

(3) Outbound logistics, including reverse logistics.

Nowadays, how organisations are implementing GSCM and what are the impacts on their business? At the end of this research we will identify the best practices, and the way they are they measured. Moreover, we will see in what extent an effective Green Supply Chain Management could be a driver for innovation and business performance in manufacturing firms? Finally, we will see if Green Supply Chain Management lead to profitability and competitiveness. Our study will consider manufacturing companies in Western Europe.

II Literature review

Definition

Green supply chain management

Several studies have considered the concept of ecological sustainability as a framework for studying management practices in both operational and strategic contexts (Sarkis and Rasheed, 1995; Klassen and McLaughlin, 1996; King and Lenox, 2001). As part of this effort, other studies have examined the greening of supply chains within various contexts including in product design (Allenby, 1993; Gupta, 1995), process design (Porter and Van der Linde, 1995a; Klassen and McLaughlin, 1996), manufacturing practices (Winsemius and Guntram, 1992), purchasing (Handfield et al., 2002) and a broad mixture of these elements (Bowen et al., 2001a).

It is not surprising that GSCM finds its definition in supply chain management.

Adding the ‘green’ component to supply chain management involves addressing the influence and relationships of supply chain management to the natural environment.

Motivated by an environmentally-conscious mindset, it can also stem from a competitiveness motive within organizations.

In this paper GSCM is defined as:

Green Supply Chain Management GSCM

= Green Purchasing + Green Manufacturing/Materials Management

+ Green Distribution=Marketing + Reverse Logistics

Figure 1 shows this GSCM equation graphically, where reverse logistics ‘closes the loop’ of a typical forward supply chain and includes reuse, remanufacturing, and/or recycling of materials into new materials or other products with value in the marketplace. The idea is to eliminate or minimize waste (energy, emissions, chemical/hazardous, solid wastes).

This figure is representative of a single organization’s internal supply chain, its major operational elements and the linkage to external organizations. A number of environmentally conscious practices are evident throughout the supply chain ranging from green design (marketing and engineering), green procurement practices (e.g. certifying suppliers, purchasing environmentally sound materials/products), total quality environmental management (internal performance measurement, pollution prevention), environmentally friendly packaging and transportation, to the various product end-of-life practices defined by the ‘Re’s’ of reduction, reuse, remanufacturing, recycling. Expanding this figure, a number of organizational relationships could be found at various stages of thismodel, including customers and their chains, as well as suppliers and their chains, forming webs of relationships.

Figure 1. GSCM graph

The development of industrial ecosystems would be greatly supported by GSCM practices. Korhonen and Niutanen (2003) in their study of material and energy flows in the local forest industry in Finland suggested these flows were comparable to other economic and industrial systems. In the last two decades, the product-based systems perspective and the geographically defined local-regional industrial ecosystem have Porter (1991) argues the pressure to innovate from an environmental perspective comes from regulatory pressure, as firms respond in creative and dynamic ways to environmental regulation by introducing innovations improving environmental outcomes.

Other studies concluded environmental innovation is the result of market pressures causing firms to become more efficient. Porter and Van der Linde (1995a, b) concluded firms respond to competitive conditions and regulatory pressure by developing strategies to maximize resource productivity, enabling them to simultaneously improve their industrial and environmental performance.

Furthering this issue, Greffen and Rothenberg (2000) suggest suppliers can be an important source of enhanced competency for radical environmental innovation, which, in relation to an integrated technological system, demands capabilities beyond those likely to exist within a single company. The added competency brought by the supply chain partners is important.

Other external pressures do exist and include environmental compliance, liability, issues of business continuity, the call for benchmarking to national, international, or industry standards, customer attitudes toward product take-back, and even pressures from inter-organizational information technology/data management systems.

The innovation of GSCM/Performance Measurement is necessary for a number of reasons in response to external pressures. For example, business performance measurement, for purposes of external reporting, is fundamentally driven by the creation, maximization and defence of economic rents or surplus. These surpluses or rents in business come from distinctive capabilities such as brands and reputation, strategic assets, innovations, and the distinctive structure of relationships firms enjoy both internally with their employees and/or externally with their customers and suppliers. External reporting is also necessary to maintain organizational legitimacy with respect to environmental issues (Harvey and Schaefer, 2001).

Sustainability.

One of the major definitions of sustainability and certainly most well known is that of the Brundtland Commission (World Commission on Environment and Development, 1987, p.8):

‘development that meets the needs of the present without compromising the ability of future generations to meet their needs.’ This short definition includes the interest of understanding the environmental impact of economic activity in both developing and industrialized economies (Erlich and Erlich, 1991); ensuring worldwide food safety (Lal et al., 2002); ensuring that vital human needs are met (Savitz and Weber, 2006); and assuring the protection of non-renewable resources (Whiteman and Cooper, 2000). Unfortunately, the societal aspect of sustainability is complicated for firms to apply and provides little explanation regarding how organizations might recognize future versus present needs, determine the technologies and resources necessary to meet those needs, and understand how to balance organizational responsibilities to numerous stakeholders such as shareholders, employees, society and the natural environment (Hart, 1995; Starik and Rands, 1995).

Sustainability has been also investigated in the fields of management, operations, and engineering. Within the management literature, most of the current conceptualizations of organizational sustainability have focused on ecological sustainability (the natural environment), with little recognition of social and economic responsibilities (Jennings and Zandbergen, 1995; Shrivastava, 1995a; Starik and Rands, 1995). Sustainable refers to the triple bottom line, for economic, social and environmental.

An approach to competitive advantage.

A particular organization has competitive advantage when it achieves a higher return on investment than its competitors, or it is able to do so (Grant, 1996). Therefore, in order to have competitive advantage organizations must have the ability to obtain higher profit margins than other companies in the industry.

Organizations with competitive advantage, however, might show not the highest profit rate. For example, competitive organizations might prefer, for one or another reason, to sell their products and services at a lower price than the maximum price it could mark.

Two major types of competitive advantage can be enjoyed by organizations (Porter, 1985): cost advantage, which is the result of supplying similar products and/or services to low prices; and differentiation advantage, which comes from offering differentiated products and/or services to customers, who, in turn, are ready to pay an additional price which overcomes the additional differentiation costs. While the cost advantage position implies to have the lowest costs in the industry, differentiation advantage refers to offering something unique which is valued by customers.

Competitive advantage can derive from one or more factors or sources. Firstly, literature on strategic management suggests the following major sources of cost advantage (e.g., Porter, 1985; Grant, 1996): scale economies, learning economies, production capacity management, product design, cost of inputs, process technology, and management efficiency.

Secondly, sources of differentiation advantage include tangible and intangible aspects which are significantly valued by potential customers as to be ready to pay an additional price for them (e.g., Porter,

1985; Grant, 1996); tangible aspects refer to observable characteristics of the products and services, their performance, and complementary products and services; intangible aspects, in turn, include social, emotional, psychological and aesthetic considerations which are present in any choice of products and services.

Recently, a major theoretical framework has been developed in strategic management literature which seems to be particularly appropriate for identifying the characteristics that a particular resource or capability must show in order to be a major source of competitive advantage. This theoretical framework is the resource based view of the firm theory.

Performance

Corporate performance measurement and its field application continues to grow. The diversity and level of performance measures are linked to the goal of the company or the individual strategic business unit’s features. For instance, when measuring performance, organizations have to think about existing financial measures such as return on investment, profitability, market share and revenue growth at a competitive and strategic level. Other measures are more operationally focused, but may inevitably be linked to strategic level measures and issues. This is the case of customer service and inventory performance (supply, turnover).

GSCM implementation

Where to begin?

Viable environmental sustainability programs require meaningful action across a broad range of processes. Some of the most impactful areas include:

Production planning: The most valuable members of a supply chain are able to provide accurate forecasts and deliver reliably so as to help reduce over purchasing, over-production and waste

Manufacturing: The adoption of techniques such as lean process improvement should result in less over processing as well as reduced energy intensive storage and waste

Distribution: Network redesign. Smart routing, backhauling, fill optimization and mode switching — all are likely to result in fewer freight miles

Green design: The electronics and related high-tech industries practice collaboration as a means of optimizing the green aspects of their components and end-products; proactive and/or influential members of a supply chain can promote/pursue similar collaboration/ innovation

Packaging: The greenest firms seek to minimize the environmental impact of packaging, not only by using less, but also by evaluating the energy, waste, recovery and other life cycle impacts of their packaging choices

Recycled content: Companies score green points by maximizing their use. of these materials as well as by using materials in products that are in turn easily recyclable

Warehousing: Challenge existing assumptions in light of higher energy costs and the need to reduce carbon footprints

Green energy: More green points are available by using green or renewable energy sources — although this can be difficult in regulated energy markets (and a factor in future location decisions) IT: Videoconferencing and remote servicing can reduce business travel;

Energy Star rated PCs along with optimized power consumption settings can significantly pare energy costs

Server farms: Energy efficient servers arrayed according to state-of-the-art cooling practices can generate enormous energy savings

Ridesharing/telecommuting: A growing number of companies are working with municipalities to better optimize public transportation to their facilities. More companies are also enabling more workdays “at home” as well as providing incentives for carpooling

Estates: Investments in building air tightness, insulation and energy efficient heating, cooling, lighting, plant and equipment can significantly reduce carbon footprints

Green procurement: It is possible to reduce your carbon footprint by paying more attention to your own procurement. Supplier carbon footprint, ISO certifications, procurement distance have to be part of the selection criterias.

Conceptual framework

Greening the inbound function

It is argued that greening the supply chain has numerous benefits to an organization, ranging from cost reduction, to integrating suppliers in a participative decision-making process that promotes environmental innovation (Bowen et al., 2001; Hall, 1993; Rao, 2002). Critical parts of the inbound function are the purchasing and supply field. Green purchasing strategies are adopted by organizations in response to the increasing global concerns of environmental sustainability. The Green purchasing should be able address reduction of waste produced, material substitution through environmental sourcing of raw materials, and waste minimization of hazardous materials. (Rao & Holt, 2005) The involvement and support of suppliers’ is crucial to achieving such goals. (Vachon and Klassen, 2006).

Furthermore, organizations are managing more and more their suppliers’ environmental performance to ensure that the materials and equipments supplied by them are environmentally-friendly in nature and are produced using environmentally-friendly processes.

Min and Galle (1997) explore ‘green purchasing’ to determine the key factors affecting a buying firm’s choice of suppliers, the key barriers and the obstacles to green purchasing initiatives. They also investigated the impact of green purchasing on a corporation’s environmental goals.

Below listed subjects to get information on the green inbound phase of a supply chain:

(1) Guiding suppliers to set up their own environmental programs; (2) bringing together suppliers in the same industry to share their know-how and problems; (3) informing suppliers about the benefits of cleaner production and technologies; (4) urging/pressuring suppliers to take environmental actions; and (5) choice of suppliers by environmental criteria.

Greening the production phase or the internal supply chain

In this phase, there are a number of concepts that can be explored, such as cleaner production, design for environment, remanufacturing and lean production. Hong, He-Boong, & Jungbae Roh, (2009) highlight through their research that strategic green management needs the combination of integrated product development (IPD) and supply chain coordination (SCC) for desired business outcomes. Thanks to a survey on 580 manufacturing plants in the US, adopting cleaner production techniques, Florida and Davison (2001) showed that green corporations are innovative in their environmental practices, and these strategies emerge from a real commitment towards reducing waste and pollution. Lean production/manufacturing is also an important consideration in reducing the environmental impact of the production phase.

In their research King and Lenox (2001), concludes that lean production is complementary to improvements in environmental performance and it often lowers the marginal cost of pollution reduction thus enhancing competitiveness.

In addition, Rothenberg et al. (2001) identify that lean plants aim to minimize waste and buffers, leading not only to reduce buffers in environmental technology and management, but also in an overall approach to manufacturing that minimizes waste products.

(1) Environment-friendly raw materials; (2) substitution of environmentally questionable materials; (3) taking environmental criteria into consideration; (4) environmental design considerations; (5) optimization of process to reduce solid waste and emissions; (6) use of cleaner technology processes to make savings in energy, water, and waste; (7) internal recycling of materials within the production phase; and (8) incorporating environmental total quality management principles such as worker empowerment.

Greening the outbound function

On the outbound side of the green supply chain, green logistics comprises all links from the manufacturer to the end users and includes products, processes, packaging, transport, and disposal (Skjoett-Larsen, 2000).

Rao, (2003) and Sarkis, (1999) argue on the fact that green marketing, environment-friendly packaging, and environment-friendly distribution, are all initiatives that might improve the environmental performance of an organization and its supply chain. Reverse logistics and waste exchange and ore generally management of wastes in the outbound function can lead to cost savings and enhanced competitiveness (Rao, 2003).

In order to address these environmental impacts of packaging, many countries now have programs and legislation that aims to minimize the amount of packaging that enters the waste stream, such as the Packaging Directive in the EU.

The distribution, for the whole supply chain is a huge stake for green management. In fact the distribution results of a trade-off between efficiency and effectiveness firm strategy. For this reason is difficult to handle

As part of outbound logistics, green marketing has an important part to play in the link between environmental innovation and competitive advantage (Menon and Menon, 1997).

Encouraging suppliers to take back packaging is a form of reverse logistics that can be an important consideration in greening the outbound function, with a study by Dorn (1996) identifying an increase in market share amongst companies that implemented an environmentally-friendly packaging scheme. The product design step is more and more integrated within green supply chain issues because 80% of the environmental burden and cost of a product is fixed during this phase (Carbone, Moatti, 2008).

Strategic variables to take in account for an empirical study;

(1) Environment-friendly waste management; (2) environmental improvement of packaging; (3) taking back packaging; (4) eco-labeling; (5) recovery of company’s end-of-life products; (6) providing consumers with information on environmental friendly products

and/or production methods; and (7) use of environmentally-friendly transportation.

Competitiveness & Economic performance

Bacallan (2000) suggests that organizations are enhancing their competitiveness through improvements in their environmental performance to comply with mounting environmental regulations, to address the environmental concerns of their customers (…).

However, an interesting point to notice is that, as long as the market does not seek environmental value-drivers in the products and services it purchases, environmental issues are not necessarily considered by organizations and consumers. (Rao & Holt, 2005) Fortunately, over the last few years there has been a growth in environmental awareness of consumers in general. Clearly a growing number of corporations are developing company-wide environmental programs and ‘green’ products sourced from markets around the world. Therefore, environmental issues are becoming a source of competitiveness.

All these efforts aim to improve environmental performance, enhance corporate image, reduce costs, reduce risks of non-compliance and improve marketing advantage. Nevertheless, some organizations are still looking upon green initiatives as involving trade-offs between environmental performance and economic performance. The financial performance of firms is affected by environmental performance in a variety of ways. When waste, both hazardous and non-hazardous, is minimized as part of environmental management, it results in better utilization of natural resources, improved efficiency, higher productivity and reduces operating costs (Rao & Holt, 2005). Nowadays and in the future, a good ‘green player’ could expect to increase its brand image and its market share and then improve its profitability against company without enough green concern while saving costs by innovative processes.

To investigate the link between green supply chain management and economic performance we could refers to those key aspects:

(1) New market opportunities; (2) product price increase; (3) profit margin;(4) sales; and (5) market share.

And competitiveness:

(1) Improved efficiency; (2) quality improvement; (3) productivity improvement; and (4) cost savings.

Methodology

To validate our research, an empirical, survey-based research approach will be taken. Based on the empirical studies through the literature, and a meaningful framework used in the relevant research of Rao & Holt in 2005 applied on Asian companies. We choose to follow a common technique to validate the framework presented in the preceding section, a linear SEM (Stochastic Expectation Maximization) approach is used (Jöreskog and Sörbom, 1993) to validate the causal relationships between the different latent constructs of: greening the inbound function; greening production; greening the outbound function; competitiveness and; economic performance.

The questionnaire will be distributed to the supply chain managers and/or environmental management representative (EMR) or the chief executive of manufacturing organizations in Western Europe. In order to have both MNCs and SMEs (< 500 employees) results, we will send the same number of questionnaire for each type. The respondents will be selected randomly in France, UK, Spain, Sweden, Germany, Italy, Poland, Holland, and Switzerland. The questionnaire will be web-administered with e-mail and phone calls to ensure of the good understanding and response of the respondents. Here too, the significance of the overall models will be determined by the chi-square value. The individual linkages between any two variables tested using the critical ratio, which is an observation on a random variable that has an approximate standard normal distribution. The conventional t-test is exact under the assumptions of normality and independence of observations, no matter what the sample size. All the same, the critical ratio is interpreted as: if there were a significant link between, say, greening the inbound function and economic performance, it would imply that the former latent construct directly influences the latter, exactly as it was done in our reference research by Rao and Hold (2005).

Responses will be collected on a four-point and five-point Likert scale, and open-ended questions. The four-point scale served to force the respondents to check either on the negative side or on the positive side.

The choice not to focus only on the ‘leading edge’ ISO14001 accredited organizations (running environmental management) allow us to broader our research and then make a comparison between those without formal environmental management accreditation, and best players accredited.

In terms of financial performance, this strategy will be interesting for identifying benefits and again do comparisons.

Expected results.

As this type of research was already done in South-Est Asia, our results will allow us to compare our findings and trend with those in South-Est Asia. We expect a response of 10%, therefore we will send to a consequent sample to get sufficient and tangible return. We will probably be able to confirm that greening the supply chain also has potential to lead to competitiveness and economic performance.

As the current environmental concern in Europe is high, including governmental and customers pressures these research findings would probably show that firms that are greening their supply chains not only achieve substantial cost savings, but also enhance either sales, market share or exploit new market opportunities. The cost aspect will be important to assess as it is directly connected to the overall performance.

The main limitation of this research will be probably the small sample of organizations, but the lack of empirical research in Europe will be also one of the main strengths of this paper.

Therefore, the findings cannot be generalized to all organizations in this region or around the world.

Finally, future research should empirically test the relationships suggested in this paper in different countries, to enable comparative studies. For further research, a larger sample will allow detailed cross-sectoral comparisons and establish international patterns regarding benefits from GSCM.

Performance Measurement for Green Supply chain management:

Context

In supply chains with multiple actors, (vendors manufacturers, distributors and retailers) whether regionally or globally dispersed, it is difficult to attribute performance results to one particular entity within the chain, by the way performance measurement is really challenging. There are difficulties in measuring performance within organizations and even more difficulties arise in inter-organizational environmental performance measurement.

The reasons for lack of systems to measure performance across organizations are multidimensional, including non-standardized data, poor technological integration, geographical and cultural differences, differences in organizational policy, lack of agreed upon metrics, or poor understanding of the need for inter-organizational performance measurement. (Hervani, A. Helms, M. & Sarkis, J., 2005)

Performance measurement in supply chains is difficult for additional reasons, especially when looking at numerous tiers within a supply chain, and green supply chain management performance measurement, or GSCM/PM, is virtually non-existent. With these barriers and difficulties in mind, GSCM/PM is needed for a number of reasons (including regulatory, marketing and competitiveness reasons).

Overcoming these barriers is not a trivial issue, but the long-term sustainability (environmental and otherwise) and competitiveness of organizations may rely on successful adoption of GSCM/PM.

The basic purposes of GSCM/PM are: external reporting (economic rent), internal control (managing the business better) and internal analysis (understanding the business better and continuous improvement). These are the fundamental issues that drive the development of frameworks for business performance measurement. It is important to consider both purpose, as well as the interrelationships of these various measurements.

Supply chain management

Supply chain management is the coordination and management of a complex network of activities involved in delivering a finished product to the end-user or customer. It is a vital business function and the process includes sourcing raw materials and parts, manufacturing and assembling products, storage, order entry and tracking, distribution through the various channels and finally delivery to the customer. A company’s supply chain structure consists of external suppliers, internal functions of the company, and external distributors, as well as customers (commercial or end-user). Firms may be members of multiple supply chains simultaneously. The management and coordination is further complicated by global players spread across geographic boundaries and multiple time zones. The successful management of a supply chain is also influenced by customer expectations, globalization, information technology, government regulation, competition and the environment.

Performance management and measurement

Corporate performance measurement and its application continue to grow and encompass both quantitative and qualitative measurements and approaches.

The variety and level of performance measures depends greatly on the goal of the organization or the individual strategic business unit’s characteristics. For example, when measuring performance, companies must consider existing financial measures such as return on investment, profitability, market share and revenue growth at a more competitive and strategic level. Other measures such as customer service and inventory performance (supply, turnover) are more operationally focused, but may necessarily be linked to strategic level measures and issues.

Overall, these difficulties in developing standards for performance measurement are traced to the various measurement taxonomies. Example taxonomic considerations include: management level to measure – strategic, tactical, or operational; tangible versus intangible measures; variations in collection and reporting; an organization’s location along the supply chain or functional differentiation within organizations (e.g. accounting, versus marketing or operations).

Similar to the performance measurement used, the performance measurement system may be unique to each individual organization, or unit within an organization, reflecting its fundamental purpose and its environment. Several studies have investigated the universal principles of performance measurement (Adams et al., 1995; Gunasekaran et al., 2001; Sink and Tuttle, 1990). These studies arrived at a number of conclus