The Green Multiplier: A Study of Environmental Protection and the Supply Chain

The Green Multiplier A Study of Environmental Protection and the Supply Chain

Lutz Preuss

The Green Multiplier

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The Green Multiplier A Study of Environmental Protection and the Supply Chain Lutz Preuss

© Lutz Preuss 2005 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2005 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978–1–4039–3209–9 ISBN-10: 1–4039–3209–3 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Preuss, Lutz, 1965– The green multiplier : a study of environmental protection and the supply chain / by Lutz Preuss. p. cm. Includes bibliographical references and index. ISBN 1–4039–3209–3 (cloth) 1. Business logistics. 2. Business logistics—Environmental aspects. I. Title HD38.5.P79 2005 658.7—dc22 2004066298 10 14

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Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne

Contents List of Tables and Figures

vi

Acknowledgements

vii

List of Abbreviations

viii

1 Setting the Scene

1

2 Managing the Natural Environment

6

3 A Strategic Role for Purchasing and Supply

28

4 The Green Multiplier

47

5 Supply Chain Managers: What They Say and What They Do

67

6 Some Good Guys: Electronics, Chemicals and Paper

94

7 Barriers to Change in Manufacturing Supply

114

8 Towards a Greener Future

129

Appendix A: Research Methodology

149

Appendix B: Schedule of Interview Questions

154

Appendix C: Summary Results

155

Notes

168

Bibliography

170

Index

183

v

List of Tables and Figures Tables 5.1

Content of environmental policy statements by UK manufacturing companies 5.2 Importance of environmental issues to UK environmental and production managers C.1 Supplier selection and evaluation criteria in the sample of UK manufacturers C.2 Perceived environmental issues in the supply chains of UK manufacturers C.3 The distribution of strategic and reactive time for supply chain managers

70 87 155 160 164

Figures 2.1 Cost leadership and differentiation through sustainability-centred management 4.1 The green multiplier 7.1 Constraints on a supply chain manager 8.1 The role of supply chain management in strategic planning 8.2 The green multiplier expanded 8.3 A triad of factors influencing greener supply

vi

19 55 127 133 137 144

Acknowledgements My thanks are extended to the purchasing and supply chain managers in the sample companies for giving up their valuable time to participate in this study. Their technical expertise and personal values formed the basis of this book. I would also like to thank my colleagues at Royal Holloway College, University of London, King’s College London and Heriot-Watt University, Edinburgh, in particular Dr Tom Keenoy, Professor Colin Haslam, Professor Ian Mason, Dr Cyrille Guiat, Dr Anja Schaefer and Dr Lynne Baxter. Both the author and publishers are grateful to the following for permission to reproduce the following copyright material: Table 5.2 with kind permission of the Anglo-German Foundation for the Study of Industrial Society. Figure 7.1 with kind permission of Springer Science and Business Media. Figure 8.1 with kind permission of Blackwell Publishing and Palgrave Macmillan.

vii

List of Abbreviations ACCA CEM CIPS DEFRA DETR DIY DoE DTI EC EDI EU FAO HSE ISM JIT MRP NGO NHS OEM R&D TQM UK UN UNECE US(A) VOC WCED

Association of Certified Chartered Accountants contract electronic manufacturer Chartered Institute of Purchasing and Supply (UK) Department for Environment, Food and Rural Affairs Department of the Environment, Transport and the Regions do-it-yourself Department of the Environment Department of Trade and Industry European Communities electronic data interchange European Union Food and Agriculture Organization of the United Nations health, safety and environment (department) Institute of Supply Management (USA) just-in-time materials requirements planning non-governmental organisation National Health Service (UK) original equipment manufacturer research and development total quality management United Kingdom United Nations United Nations Economic Commission for Europe United States (of America) volatile organic compound World Commission on Environment and Development

viii

1 Setting the Scene

‘We are trying to operate on this site as if we are not here. So that finally if we tore the plant down again, you could return it to be a farmer’s field, as it was twenty-eight years ago.’ Purchasing manager, tyre plant Birds flap their wings in oil-infested coastal waters, unable to take off. Trees in a coniferous forest have lost all but a handful of their needles. An empty landscape is scarred by open-cast mining. These are just some of the images that have brought home the enormous costs to the natural environment of industrial development. Environmental damage is even more noticeable since an ever-increasing share of the population in industrialised countries has grown up without the experience of direct military confrontation. The end of the Cold War and the European integration process, with the Eastern expansion of the European Union as its apex, have all contributed to an unprecedented era of peace, stability and general wealth for the Old World. As prosperity and stability have come to be taken for granted, the negative external effects of industrial development and Western consumer society have become increasingly visible. Popular protest against environmental degradation has been growing. Environmental activists, such as Greenpeace members, have chained themselves to chimneys or oil platforms to protest against environmental damage. Rejection by consumers forced Monsanto to announce, in May 2004, that it would not continue further development or open field trials of its genetically engineered wheat. Road construction through ecologically rich habitats has been attracting groups of activists who try to bring the work to 1

2 The Green Multiplier

a standstill. At a political level, the major parties across the industrialised world have absorbed ‘green’ ideas into their own manifestos. Hence UK Prime Minister Tony Blair declared: Labour recognises that the environment, its health and its attractiveness, contribute to our well-being and quality of life. Our vision of the future is of a world in which climate change and environmental degradation continue to be recognised and addressed by all nations and where low carbon emissions and the efficient use of environmental resources are at the heart of our whole way of life.1 The Conservative Party manifesto, Common Sense for the Environment,2 similarly suggests that ‘Conservatives are committed to preserving and enhancing the natural world and the built environment for current and future generations.’ The Party promotes ‘a distinctive “Blue-Green” Agenda, which promotes sustainable development by working with individual choice and free markets’. Across the Atlantic, US President Bush announced a common goal for America and the world: ‘We must encourage growth that will provide a better life for citizens, while protecting the land, the water, and the air that sustain life.’3 The early twenty-first century is thus a time when environmental damage is becoming a stable source of concern for governments and citizens of industrialised countries. Much of this concern is directed against industry, but industry has a double role in this process. On the one hand its activities are a major cause of air and water pollution, or a source of toxic waste that needs to be disposed of. Industry is responsible for major industrial disasters, such as the fire at Swiss chemical company Sandoz in 1986 during which large quantities of chemicals were washed into the River Rhine, or the leak from the oil tanker Prestige off the north-western coast of Spain in November 2002. Furthermore, industrial activity causes the rapid exhaustion of non-renewable resources, such as fossil fuels and minerals. On the other hand, industrial development is the prime source of the unprecedented prosperity that the majority of the population in industrialised countries is able to enjoy today. The dilemma arising for industry from simultaneous wealth creation and environmental degradation is exacerbated by the pressures of globalisation. Manufacturers in industrialised countries are already under cost pressure from competitors in developing and newly-industrialised countries. Ever more stringent environmental legislation in industrialised countries further increases production costs in those nations, and reduces their competitiveness. A transfer of manufacturing facilities to lower-cost

Setting the Scene 3

locations not only reduces employment possibilities in developed economies, but the increasing imports of manufactured goods also become associated with an export of environmental problems. Given the interwovenness and fragility of the world’s ecosystem, this is not a sustainable strategy. There is thus an urgent need to ask what contribution industry can make to environmental protection while at the same time maintaining the benefits it provides in terms of employment and social welfare. Studying the link between business and the environment is, of course, not a novel idea. For decades, green marketing has received plenty of academic attention, environmentally friendly product design has been studied from an engineering perspective, and even greener accounting is becoming a mainstream business subject. There is, however, one corporate function that has so far remained largely outside the academic limelight, namely purchasing and supply chain management. For the purposes of this book these two terms will be used interchangeably for the management of the value creation processes across organisational boundaries that enable companies to meet the needs of their customers. This book focuses on managing supply, because this corporate function occupies a particularly important – if generally rather overlooked – position, from where it can affect both the financial and environmental performance of a manufacturing company. In most manufacturing companies, expenditure on purchasing and supply is by far the largest budget item, offering a tremendous leverage effect to achieve cost savings. The supply chain manager is also the gatekeeper of the organisation, the person who decides which goods enter and which do not. Environmental protection in manufacturing companies is seemingly impossible without the involvement of the purchasing and supply management function. Hence this book aims to establish to what degree the purchasing function can be involved in environmental initiatives in the supply chain: whether its growing economic role can be matched by an equally increasing contribution to environmental protection. To answer this question, an empirical study was carried out among manufacturing companies across the United Kingdom, the methodology of which is presented in Appendix A. Appendix B contains the schedule of interview questions, and Appendix C offers summary results for the sample companies. Following this introduction, our discussion begins in Chapter 2 with a review of the relationship between the natural environment and industry. The major environmental issues affecting humanity in general, and the United Kingdom in particular, are discussed. These environmental issues are to a large degree socially constructed, and the implications of

4 The Green Multiplier

this process for business are examined. None the less, the notions of sustainability and environmental soundness do permit the request that industry should contribute to environmental protection. The chapter also asks what experiences manufacturing companies have had on their journey towards sustainability. Chapter 3 focuses on the role of purchasing and supply chain management in manufacturing organisations. Charting the evolution of purchasing and supply from a clerical function to one of increasingly strategic importance, the main areas for a supply chain management contribution to improved manufacturing efficiency and profitability are discussed. The implications of a strategic approach to managing the supply base for the buying process are examined, as is the distribution of its benefits among companies in the supply chain. Bringing the two strands of enquiry together, Chapter 4 presents the theoretical underpinnings for a greater supply chain management contribution to environmental protection. It asks what scope there is for supply chain managers to address environmental initiatives in both the upstream and downstream channels as well as within the organisation. The chapter then hypothesises a green multiplier effect where the function can initiate environmental improvements along the supply chain and become the most effective change agent of the whole organisation. The hypothesis is then compared to empirical evidence in neighbouring areas, such as greener supply in retailing and in the public sector. This is the backdrop against which Chapter 5 presents the general findings of our study into greener supply in manufacturing companies. Environmental commitment is analysed at three different organisational levels. At the most general, the organisational level, we ask how widespread environmental policies are among manufacturers, and what role environmental management systems can play in greener supply. Moving to the interaction between companies in the supply chain, we inquire what role the environment plays in the criteria used for supplier assessment as well as in what mode, whether reactive or collaborative, environmental initiatives are undertaken. At the level of the supply chain manager, the environmental issues cited by individuals are examined, as well as their motives for environmental initiatives. Some industries were found to offer an outstanding approach to the environment, and these are discussed in greater detail in Chapter 6. The book continues in Chapter 7 with an elaboration of the reasons why the optimistic hypothesis of a green multiplier effect is not borne out by reality. We consider what technical limitations there are to greener supply, whether organisational factors (or even the nature of the function) hamper purchasing and supply chain managers in addressing

Setting the Scene 5

environmental challenges in their supply chains. Chapter 8 concludes by offering some suggestions as to how the potential of a purchasing and supply chain manager input into environmental initiatives can be better utilised. Can the personal convictions of individual managers be strengthened, what changes to both organisational design and the supply process might encourage attention to the environment, and what influences outside the manufacturing company could help bring about greener supply? A number of limitations need to be stated. Some of these result from the fact that a single person and a single volume of work cannot hope to achieve an all-encompassing answer to a scientific question. For example, the data gathering and analysis was carried out over a period of time, hence the research might have captured different organisations at different points in time and hence at different stages of their journey towards sustainability. Further limitations arise from the size of the empirical sample. A claim is made, for example, that paper-making is the only industry that applies environmental instruments systematically across all companies in the sample. It is conceivable that a different selection of companies might have produced somewhat different results, yet given the steps taken to increase reliability, validity and generalisability of the study, such dangers appear slight. Another factor concerns the regional boundaries of the economy in question, as all the companies are based in the UK. However, none of the manufacturing techniques applied by the sample firms are inherent only to that country, and results are thus broadly representative of manufacturing in industrialised countries.

2 Managing the Natural Environment

‘The benefit of the environmental policies that have been put into place over the last two to three years is that people had to look at different ways of making tissue. They had to find different chemicals from the ones that they were using, and they had to be more selective in the suppliers. And it has produced, at the end of the day, a better product.’ Purchasing manager, manufacturer of tissue paper This chapter begins with a survey of the major environmental problems that affect humanity in general, and the United Kingdom in particular. Dealing with these problems, in particular establishing to what degree industry should contribute to solutions, is complicated by the fact that environmental issues are to a large extent socially constructed. There is, for example, no normative starting point for marking a measure as an environmental improvement. For lack of an absolute standard, attention has focused on the concept of sustainability. No commonly accepted definition of sustainability exists either, yet the concept has become a widely applied approach for dealing with environmental issues. The discussion then moves to the reception of sustainability within management studies, where the extension of Michael Porter’s (1985) cost reduction and differentiation strategies into environmental strategies is discussed. It is argued that business should play a role in environmental initiatives, and is able to do so. This normative part is followed by a review of the experiences companies have made in the adoption of a green strategy. Finally, the chapter considers what motives individual organisations and their managers have for undertaking environmental initiatives. 6

Managing the Natural Environment 7

Environmental issues at the beginning of the twenty-first century Environmental problems resulting from industrial activity affect the human population at the start of the twenty-first century to an unprecedented degree at global, national and regional levels. This section offers an overview of the main current environmental issues, together with major pieces of legislation that affect the United Kingdom. The list of laws and directives does not claim to be complete, as by the early 1990s Brussels alone had passed some 200 pieces of legislation dealing with environmental aspects ranging from aircraft noise to lead in petrol. The EU has also instituted a series of European Community Environment Action Programmes, the sixth of which came into force in 2001. Entitled Environment 2010: Our Future, Our Choice (European Commission, 2001), it calls for a better implementation of existing legislation, a deeper integration of the environment into other policies, and for working with the market through business and consumer interests. Beyond the EU, international environmental policy has been generated principally by the United Nations. The first UN conference on the environment was in 1972, and the most important one so far was the 1992 Earth Summit in Rio de Janeiro, attended by some 180 government leaders and more than 10,000 non-governmental organisations. It set up a number of international agreements, most importantly the Rio Declaration on Environment and Development, the United Nations Framework Convention on Climate Change, and Agenda 21, a blueprint detailing how to make development socially, economically and environmentally sustainable. International commitment to the Rio agreements was reaffirmed at the 2002 World Summit on Sustainable Development held in Johannesburg. Humanity is today faced with two distinct types of environmental problem, on the one hand the depletion of non-renewable resources, and on the other the pollution of air, water and soil beyond their natural carrying limits. Over the course of the twentieth century, industrial output increased some hundredfold. This brought an improvement in the standard of living for many people, notably in the Northern hemisphere, undreamt of by their ancestors. At the same time it has become clear that this growth has led to a serious degradation of the natural environment. Increases in global manufacturing output and trade have been accompanied by a dramatic increase in the use of resources. Between 1950 and 1997, fossil fuel consumption quadrupled, the use of timber tripled, and the use of paper increased sixfold (Clayton et al., 1999).

8 The Green Multiplier

Such an exponential increase in resource use has led to huge pressure on ecosystems and biodiversity, and the world is witnessing an accelerating decline in the diversity of species. An estimated 80 per cent of the original forests that existed 8,000 years ago have been cleared, damaged or fragmented. Some experts assess the rate at which species are becoming extinct at 1,000 to 10,000 times higher than the natural rate would be (European Commission, 2004). Important ecosystems, such as forests and wetlands, are being destroyed or impaired. Wetlands, for example, provide a habitat for thousands of plant and animal species, they absorb excess rain water and slow down flood waters. Yet despite their importance to both nature and humans, wetlands are shrinking. The USA, for example, loses some 60,000 acres of wetlands each year. The second category of environmental issues – pollution – affects humanity at global, national and regional levels. At a global level, life is affected by stratospheric ozone depletion and climatic change. The ozone layer, a thin shield of ozone molecules, protects the earth from excessive ultraviolet radiation. Since the early 1970s, evidence has been mounting that certain artificial chemicals, in particular chlorofluorocarbons and halons, are depleting the ozone layer. This concern eventually led to the signing in 1987 of the Montreal Protocol on Substances that Deplete the Ozone Layer, which requires the complete phasing-out of many ozone-depleting substances between 1996 and 2030. Another global impact of industrial activity is the increase in atmospheric concentration of greenhouse gases – carbon dioxide from fossil fuel combustion, methane from agriculture, and nitrous oxides from agriculture and industry – which are increasing the surface temperature of the earth and will probably lead to dramatically altered weather patterns. Hence the United Nations Framework Convention on Climate Change, adopted in 1992 in Rio de Janeiro and signed by the UK government in 1993, aims for the ‘stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system’. The UK appears to be on target, largely because of reduced emissions from power plants, but pollution from transport is rising. At the EU level, the Gothenburg summit in June 2001 included discussions on CO2 reductions under the European Climate Change Programme by creating a European CO2 emissions trading system by 2005. A further global impact, and one that is difficult to legislate about, concerns the loss of biodiversity, where increasing numbers of plant and animal species are crowded out by expanding human economic activity.

Managing the Natural Environment 9

For the United Kingdom at the national level, the most important environmental issues relating to industrial activity are acid rain and volatile organic compounds. Acidic emissions, mainly sulphur and nitrogen oxides from power generation, industrial production and transport, are linked to extensive forest damage and acidification of lakes and streams. Major European regulatory initiatives include the 1979 Geneva Convention on Long-Range Transboundary Air Pollution by the United Nations Economic Commission for Europe. The UK signed the Protocol in 1984 and met the reduction target. Another major initiative is the 1988 European Union Large Combustion Plants Directive (revised in 2001), under which the UK is developing a national plan to reduce progressively emissions from such plants. Volatile organic compound emissions (VOCs) result from the use of hydrocarbons in many aspects of the production, use and disposal of commercial and domestic products – 15 per cent from petrol evaporation alone during car refuelling and petrol distribution. VOCs lead to the formation of photochemical oxidants, in particular tropospheric ozone (not to be confused with the stratospheric ozone that shields ultraviolet radiation), which are toxic to humans, damage ecosystems and exacerbate the problem of acid rain. Legislative initiatives include the United Nations Economic Commission for Europe’s Gothenburg Protocol to the Convention on Long Range Transboundary Air Pollution, under which the UK agreed that its VOC emissions will be below 1,200 thousand tonnes by 2010. This target was met by 2002, as emissions fell by 51 per cent between 1990 and 2002. Important regional and local environmental issues in the UK include water quality, waste and contaminated land. In 1990, a survey by the National Rivers Authority found a decline in water quality compared to 1985, but subsequent years brought a notable improvement, reflecting a huge investment by water companies. The major piece of legislation concerned with water quality is the EU Framework Directive in the field of water policy, adopted in 2000, which builds on earlier EU regulation regarding drinking, bathing and waste water. It requires all member states to ensure that ground and surface water are of ‘good quality’ by 2015. Somewhat unusually for Brussels, the Directive represents a clear use of economic instruments, as it asks member states to ensure full recovery of the costs from households, industry and agriculture by 2010. England and Wales produce some 400 million tonnes of waste every year, about five million tonnes of which is hazardous. Hazardous waste, as defined by the European Commission, includes substances such as

10 The Green Multiplier

chemicals, asbestos, fluorescent tubes, computer monitors and scrap cars (Environment Agency, 2004). Contaminated land is increasingly becoming topical because of a concern over lender’s liability and a pressure to develop ‘brownfield’ sites. Estimates reckon that in the UK as much as 100,000 to 200,000 hectares might be contaminated, which could involve clean-up costs of £10 billion to £30 billion. The major piece of UK legislation in this area is the 1995 Environment Act, which gives local authorities the power to serve clean-up notices to owners or users of contaminated land. However, the land need only be cleaned to a state where it is suitable for the intended use, an approach that has been criticised as minimalist. Further localised environmental degradation has resulted from industrial and transportation accidents, such as the explosion at the Union Carbide plant in Bhopal, India in 1984, the oil spillage from the Exxon Valdez tanker in Prince William Sound, Alaska in 1989, and the cyanide leak in Baia Mare, Romania in 2000, which polluted the Tisza and Danube rivers. The current mode of industrial production, while desirable in terms of its contribution to the Western standard of living, clearly does produce negative environmental effects. In the words of Carl Frankel (1998, p. 13), ‘Our currently unsustainable living conditions are everybody’s problem. The public sector, civil society, individuals acting as parents and consumers and voters – all have crucial parts to play in the struggle for sustainability. Industry, however, may have the most vital role of all.’ Before the contribution of industry to addressing environmental problems can be studied, however, it is necessary to discuss how environmental issues come to be perceived as such; how they are, in a sense, ‘created’ in the public sphere.

The social construction of environmental problems Environmental degradation does exist in an objective sense – that is, independent of human observation – yet environmental issues are to a large degree also socially constructed. This ontological status of environmental problems has important repercussions, as normative demands for business to contribute to the cleaning up of environmental damage could meet counter-demands arising from a different construction of the environmental issue. The social construction process begins with the observation that there often is no single clear solution to an environmental issue. However, once a certain level of investment into a technology has been made, society becomes locked into it, and locked out of alternative technologies.

Managing the Natural Environment 11

As technological systems develop a self-enforcing momentum, future decision-makers no longer have the full sub-set of possible development trajectories available (Berkhout and Gouldson, 2003). This process can be illustrated by the debate on curbing the impact of car exhaust emissions in the 1980s and early 1990s (Howes et al., 1997). Emission reduction was to be achieved either by a three-way catalyst or by a lean-burn engine. The three-way catalyst turns carbon monoxide, nitrogen oxides and hydrocarbons into water vapour, nitrogen and carbon dioxide. Its major drawback is that it needs temperatures of 200 °C to 250 °C to start the reaction. It was also not known at the time what problems the handling of the catalyst at the end of its lifetime would present. The alternative was a lean-burn engine, which reduces carbon dioxide emissions through improved fuel efficiency. In Europe, UK manufacturers had undertaken significant research into lean-burn engines, partly because it was recognised that the requirement of a catalyst would hit the ailing UK car industry badly. On the other hand, German car manufacturers, after initial resistance, opted for the catalyst. Many automotive suppliers and the electronics industry also had more to gain from the introduction of the catalyst than from the lean-burn engine. Thus, in 1990, a number of European countries passed legislation requiring catalysts to be fitted to all new cars. European Community legislation did not prescribe any particular solution, but once national legislation in some countries had made such a decision, it would have been difficult for other EC members to support alternative solutions. The circumstances had favoured what is essentially an end-of-pipe solution, with potentially unknown follow-on problems, over the cleaner technology of lean-burn. Dealing with environmental issues is made more complex by the nature of political decision-making in pluralist democracies. Different groups in society are likely to have different views on solutions to environmental issues, in particular where the costs and benefits are distributed unevenly. This inequality is often transferred into the political sphere, where it translates into various influences of the political decisionmaking process. This was emphasised by Crenson (1971) in his classic study on air pollution in the two American cities of Gary and East Chicago. Both cities had comparable levels of air pollution, but in Gary the role of a single large steel plant as the major employer, together with the dominance of a single political party, prevented air pollution from becoming a political issue, whereas the more diverse political and employment structures in East Chicago led to air pollution becoming accepted as a political issue much earlier.

12 The Green Multiplier

Environmental problems suffer from a political mobilisation bias in favour of narrow special interests with a loud voice (Ehrlich et al., 1999). Of two policies that produce a comparable amount of net benefits to society, the policy that produces larger benefits for a smaller group offers a much greater incentive for the individuals to become involved and influence the political decision-making process. Thus environmental issues often attract more interest among middle-aged and middle-class citizens than the ‘ordinary person on the streets’ (Petts, 2001). Important limitations in political choice also arise from the fact that politics based on a small number of competing parties results in decisions not being made on individual policy positions, such as global warming, but rather on packages that include an array of environmental and non-environmental issues. Finding political solutions to environmental problems hence involves a trade-off between environmental and extra-environmental, often economic, criteria. In addition to the bias introduced in the political arena, dealing with environmental issues is further complicated by differences in the evaluation of environmental issues between individuals, most importantly discrepancies that can arise between a lay view and a scientific opinion of environmental risk. Scientific risk assessment uses methods such as statistical inference from observations – for example, medical epidemiology links exposure to disease or death. Alternatively, scientific tools are based on predictive models developed as a result of understanding the processes involved, as, for example, those used in assessing the risks associated with infectious diseases or flooding (Krebs and Kacelnik, 1997). In both cases, a full understanding of the processes involved is rarely available. Rather, a complex environmental issue is shrunk into a computer simulation to make problems manageable, while other factors are classified as being merely subjective or contextual. The focus on technical details obscures the fact that such decisions are often explicit or implicit value judgements. In contrast to scientific risk assessment, the lay view of environmental risk is generally much broader, if less systematic. It usually covers at least some form of intuitive evaluation of uncertainty, catastrophic potential, controllability, immediacy of effects, and risk to future generations. Such a lay evaluation cannot be disregarded as ignorant or irrational, as it shows a growing sensitivity to psychological and social qualities of hazards that are not well captured by technical risk assessment procedures (Slovic, 2001; Hansson, 2004). The difficulties in evaluating environmental issues are compounded by the fact that finding evidence takes time, and such evidence is rarely unanimous. Furthermore, nature

Managing the Natural Environment 13

operates with a built-in time-lag, as many of the ‘natural’ disasters we see today may have been caused by human behaviour thirty to fifty years ago. Thus most decisions regarding the natural environment, whether at corporate or political levels, have to be taken on the basis of incomplete information and sometimes in circumstances of uncertainty. The problem of getting a clear grip on environmental issues has even deeper roots. Not only is information on environmental issues incomplete and ambiguous, there is also no all-encompassing normative standard for marking environmental initiatives as improvement vis-à-vis the status quo. The traditional normative standard for the evaluation and critique of societal, and in particular technological, developments used to be the concept of nature. Building on Plato’s distinction between objective and subjective reality, classical industrial society up to the early twentieth century applied the dichotomy between nature and society as a conceptual tool for marking injuries to human health or the destruction of the natural environment as ‘modernisation risks’ (Beck, 1992, p. 81). However, appealing to the status quo of nature is of questionable value today, as there is in fact little nature left with which to compare societal development. Nature ‘can no longer rid itself of the attributes of human (co-)creation’ (Beck, 1995, p. 37); it can no longer serve as a normative standard from which to criticise industrial development. This discussion has shown that environmental initiatives are hampered by imperfections in the measurement and evaluation of environmental risks, hence different measurements and evaluations can contradict each other. Environmental initiatives are subject to trade-offs, both between different solutions to an environmental risk and between risk and other factors, in particular economic considerations. Proposed environmental initiatives may, furthermore, be significantly modified in the political sphere, as the risk perception of safety experts does not always match that of the public, and the political process is subject to lobbying attempts by interested parties, such as business interests or pressure groups. There is also no clear definition of what constitutes an environmental risk, as there is no absolute normative standard to identify environmental initiatives as improvements or otherwise. The latter problem has led to the rise of the concept of sustainability.

The concept of sustainability Sustainability has its roots in age-old agricultural practices,1 but probably the best known definition is that of the Brundtland Report (WCED, 1987, p. 8). It defines sustainability as ‘development that meets the needs

14 The Green Multiplier

of the present without compromising the ability of future generations to meet their own needs’. Following this definition, sustainability has three major implications. Recognising the limitations in the ability of the environment to support present and future needs, the environment can no longer be treated as a free good. Both the use of non-renewable resources and emissions of pollutants into air, water or soil should be reduced to a minimum. Furthermore, sustainability entails recognising human needs, especially those of people in the poorest countries. This calls for a change of values, particularly in the richer countries, to limit consumption to a level that is sustainable ecologically and that all humans can attain. Finally, sustainability requires intergenerational equity. The planning horizon for economic activity needs to be longer than that provided by the short-termism of the market economy. The Brundtland Report stresses that sustainability is not just concerned with ecological issues; rather, they need to be addressed at the same time as social and economic problems such as poverty and human rights abuses in the developing world as well as unemployment and exclusion in the developed world. Since its publication in 1987, the Brundtland Report has come to represent mainstream thinking on sustainable development and has been, at least in part, subscribed to by a number of international organisations, including the European Union (for its Environment Action Programmes), the United Nations Environment Programme, the United Nations Commission for Sustainable Development, and the World Bank. The UK government, for example, sees four central aims in its strategy for sustainable development (DETR, 1999):

• • • •

social progress which recognises the needs of everyone; effective protection of the environment; prudent use of natural resources; and maintenance of high and stable levels of economic growth and employment.

The concept of sustainability has been criticised as seeking global management of resources and ecological systems without offering a proper understanding of all the issues involved. It has been described as Western-centric, as it is based on concepts of development and progress that emanate from the developed world. It infringes, for example, the right of indigenous people to determine their own resource use (Shrivastava, 1995b). Sustainable development also is not free from internal contradictions, since it seeks to conserve the natural environment while simultaneously finding ways to maintain technological and economic

Managing the Natural Environment 15

expansion, even if this is achieved by more efficient technology. Last but not least, the Brundtland definition is rather vague. It does not set any objective boundaries for the scope of human needs. If these cannot be labelled genuine or false, then sustainability becomes a purely political matter. The time horizon for future generations is not discussed, neither is the role of the environment in the development process (Starik and Rands, 1995). The latter was taken up at the United Nations Conference on the Environment and Development in Rio de Janeiro in 1992, where the final documents established that environment and economic development should be seen as inseparable and equal in importance. Hence the Brundtland definition has led to a whole array of additional definitions of sustainable development, of which Baker et al. (1997) distinguish four types. A first approach, termed a ‘treadmill’ approach, stresses that, given the freedom to innovate, the human mind can solve any environmental or technical problem. The natural environment is seen primarily in terms of its utility, and sustainable development becomes almost synonymous with conventional growth, expressed as GDP growth. ‘Weak’ sustainable development aims to integrate growth and environmental concerns. A sustainable use of the environment implies a rate of use that will not deplete the environment’s capital value, in the same fashion as sustainable economic growth would not deplete a nation’s capital stock. The main policy objective remains economic growth, but environmental costs are taken into account through special accounting procedures. A ‘strong’ sustainable development approach is presented by authors who see environmental protection as a precondition of economic development. Similar to the Brundtland Report itself, the economic development foreseen is of a different kind to previous approaches, with a focus on qualitative rather than quantitative growth. This approach thus takes into account a wider range of social issues than the ‘weak’ model, and uses a broader range of indicators to measure development. The ‘ideal model’ or deep ecology approach envisages a ‘pure’ sustainable development, a radical restriction in economic activity, where no overall growth in quantitative terms takes place. The improvement of material conditions in developing countries, for example, would be offset by a reduction of consumption in the developed world. This approach requires a radical change in social values, especially a greater recognition of work outside formal employment relationships and an emphasis on small communities and grass-roots movements. Of the four approaches, the ‘treadmill’ offers no significant support for the environment, while the ‘ideal model’ is too idealistic and hence

16 The Green Multiplier

not suitable as an analytical tool to study the extent of managerial involvement in environmental initiatives. This leaves the ‘weak’ and ‘strong’ approaches, of which the ‘weak’ has the advantage of providing a background for much thinking on environmental management systems, as it has, for example, shaped the approach taken by the World Bank and the United Nations. Thus a position between the ‘weak’ and the ‘strong’ approach will guide the further discussion in this study. Sustainable development may not be the final answer to ecological problems, but it is a step in the right direction, as its proponents are more mindful of energy use, nature conservation and waste minimisation than adherents of conventional growth strategies, while more radical suggestions overshoot the mark in favour of ecological conservation. The lack of a single unchallenged definition need not be too problematic if sustainability is understood as a process of improving society and individual companies (Welford, 2000). This still leaves an operational difficulty, namely that the complexity of sustainable development requires the co-operation of a number of agents. Governments may have to pay a political price if voters do not agree with their environmental policies; consumers in developed countries have become accustomed to present levels of consumption; and financial realities and organisational inertia may hamper ecological improvements in private-sector organisations. It is in particular towards the role of the latter organisations that the focus of the discussion now turns.

Sustainability and business Since Adam Smith (1776/2002), the discussion of the role that business should play in society – and, by extension, in environmental issues – has been dominated by the neoclassical view of business centred upon notions of a free market and economic efficiency. The principle of efficiency has advantages as it avoids waste and matches technological possibility and achievement to human wants and needs. To some extent, the principle of efficiency has served humanity well and, though in a limited sense, it does link to sustainability. To be sustainable, a company or an economic activity has to make a sufficient profit or surplus to continue its operations, hence economic efficiency is a component of sustainability. The partial success of the neoclassical paradigm was achieved only under the unique conditions of the past 300 years, when the earth’s resources were plentiful and its waste absorption capacity far from exploited to the full. The major downside of the neoclassical model is

Managing the Natural Environment 17

that it treats the environment as an externality to the organisation: air, water and land are seen as free goods that can be exploited at will. For the individual business, costs arise only as far as legislation imposes them, while environmental damage, such as pollution, turns into common costs for the whole of society to bear. Today, however, environmental risks are putting the entire biophysical foundation of human life in jeopardy. Hence radically different principles of social organisation are needed, which are attentive to environmental risks. At the current stage of human development, the neoclassical view offers at best a partial approach to dealing with environmental problems. Gladwin et al. (1995, p. 874) speak more strongly of ‘a profound epistemological crisis’ in management theory and research, which is illustrated by Shrivastava’s (1994) memorable, if somewhat laboured acronym CASTRATED: management research as being shaped by Competition, Abstraction, Shallowness, Theoretical immaturity, Reductionism, Anthropocentrism, Time independence, Exploitability and being Denaturalised. The urgent rethinking of management theory needs to place the organisation in its social and ecological context within the framework of sustainability (Shrivastava, 1994; Welford, 2000). This requires a change in the ontological status of organisations, as they need to be seen as just one part of a larger universe. Management studies thus conceived would stress the systemic interconnectedness between organisations: ‘Such a view would see organizations both partially causing and being affected by biodiversity loss, climate change, freshwater scarcity, food insecurity, population growth, persistent poverty, gender bias, and explosion of megacities’ (Gladwin et al., 1995, p. 897). Furthermore, management must shift from the prevailing metaphor of greening towards a scenario where the holistic nature of sustainability is addressed in corporate strategy. This concerns the social aspect of sustainability as much as it does production and consumption. ‘Throwaway’ products need to be replaced by durable products that create less waste over their life-cycle. Production needs to be considered less as the making of something new, and more as the conversion of materials from one state into another. In other words, the production of something also always implies the destruction of something else. Such a view of production leads Welford (1998) to introduce the concept of product justifiability, which suggests that companies need to carry out consultation with a wide range of stakeholders regarding the needs and costs of their products. The demand side of sustainability could be addressed more comprehensively than is currently the case by a move towards what Vergragt

18 The Green Multiplier

and van der Wel (1998) call ‘service products’ – a movement away from physical products to the offering of services with physical products fulfilling only an intermediary role in the meeting of a need. A car manufacturer, for example, could redefine itself as a provider of mobility and offer access to car-share pools rather than continue to sell vehicles for individual ownership. In many industries, such changes are viable at the time of writing, but the challenge is to find ways of consumers receiving the same level of comfort, providers achieving a reasonable amount of profit, while there is a reduction in the environmental impact. A strategic framework for a company wanting to move towards sustainable development is offered by an adaptation of Porter’s (1985) model of competitive advantage as based on either cost reduction or differentiation (Shrivastava, 1994; Welford, 2000). Any company needs to consider the factors that influence its general competitive situation, but these have to be seen in conjunction with environmental and social factors. All three factors together should influence the formulation of a corporate strategy to improve competitiveness, which can either aim at cost reduction or product and company image differentiation. As part of a cost reduction strategy, a company could reduce the number of components in its products and increase their recyclability. Costs can be further reduced by better waste management, greater energy efficiency, and reduced emissions and effluents. Cost can also be saved by better transport planning and the use of optimal vehicle loads, or by increasing vehicle fuel efficiency. A differentiation strategy is designed to improve the perception of the company and its products, which should result in the ability to charge higher prices or sell more products. Sustainability can offer a competitive advantage for ecologically friendly products or production processes, which would enable early movers to distinguish themselves from other firms in their industry. Apart from a positive public relations impact, moving towards sustainability reduces long-term risks associated with product liability, resource depletion, waste management and fluctuations in energy costs. Attention to sustainability also allows the organisation to move ahead of regulation and implement environmental protection initiatives in their own time. Sustainability could thus offer a double dividend, of both economic gain and ecological improvement (Porter and van der Linde, 1995). There are, however, a number of reasons for being less optimistic about the possibility of a double dividend. The availability of clean technology varies between industries and companies. Some industries, especially mature ones, are operating near the theoretical limits of resource

Managing the Natural Environment 19

Environmental pressures

Cost leadership

Management process

or

Differentiation Social pressures

Figure 2.1 Cost leadership and differentiation through sustainability-centred management

efficiency and would not have much scope for further improvement. Environmental innovation may just pick the low-hanging fruits, and the successful initial steps might not lead to a continuous improvement process. The savings from waste minimisation, improved energy efficiency and resource productivity, while significant in themselves, are often insignificant in relation to a company’s overall spending on environmental issues (Howes et al., 1997). Even if a double dividend is possible at national level, at the level of individual companies it will create winners and losers. Among the winners would be the manufacturers of environmental technology, whereas losers would comprise companies locked into outdated technology. With increased environmental regulation they are more likely to face closure than higher profits. The literature on the greening of business has been called ‘technicist’ in orientation (Newton and Harte, 1997), because the successful change towards a more environmentally friendly organisation is presented as being just a matter of adopting the appropriate environmental technology and management system. In reality, however, many of the instruments do not correlate automatically with environmental improvement. Accreditation to ISO 14001, for example, could in theory acknowledge

20 The Green Multiplier

little more than legal compliance. Furthermore, the case studies in the greening-of-business literature often present selective evidence. While the general image is evoked that any company can achieve environmental excellence, the presented cases often deal with companies in specific sectors, predominantly those that benefit directly from increased environmental attention, such as manufacturers of pollution abatement technology, or companies that have been under the environmental spotlight. While the benefits of adopting environmentally conscious measures are spelt out extensively, the disadvantages remain underexposed. Equally, the notion that progress towards sustainability may not be possible without organisational conflict dissolves into the background. Sustainability, while helpful in a general sense, may not be particularly well suited to giving a precise definition of what corporate greening should be, however, since the biological criteria that form the basis of sustainability do not register directly changes in the way that corporations and their key actors operate (Räsänen et al., 1994; Welford, 2000). Authors on sustainability often stress the need to address sustainability on several different levels, from individual sustainability, through organisational sustainability to sustainability in the regional economy, and finally sustainability at a global level. The crucial issue for private-sector companies here is that in view of these interlinking systems their own influence is rather limited. While companies have been successful in realising some environmental benefits from better resource utilisation and waste reduction, many are only beginning to address environmental issues in their supply chains – as will be discussed later in the book. Equally, some success in reducing local and regional pollution contrasts with unresolved global environmental issues, such as fossil fuel use or biodiversity. Furthermore, corporate efforts have concentrated on the supply side of sustainability, whereas attempts to address consumption issues, such as obesity or traffic congestion, remain rare. Companies interested in moving towards sustainability face a similar incompatibility in terms of time-scale. The time-scale to which privatesector organisations are working is determined by the impact, economic and increasingly environmental, of their products and services, as well as of their technology and processes. This leads to a time-frame that is usually relatively short, as a company’s capacity to project the development of its products, markets and societal impact declines seriously after some ten years. Sustainability, however, is framed in terms of intergenerational justice. There is no consensus as to how many generations can realistically be considered, but a planning horizon of up to 200 years has been suggested as appropriate (Roome, 1998). Such an age is rarely reached

Managing the Natural Environment 21

by private-sector organisations. The operational goals for sustainability are also unlikely to remain static; they will change over time and require a continuous process of renegotiation of the trade-off between economic, environmental and social aspects. A further point concerns the aspects of social change included in sustainable development, where the Brundtland Report refers specifically to issues such as food security, access to democratic processes, health care and population control. Some authors argue that these issues should properly be the concern of governments and not be applied generally to individual businesses. Lamming et al. (1999, p. 178) argue that ‘sustainability is meaningful only at the global level and that to attempt to affect it at the corporate level leads inevitably to rhetoric and sophistry’, and suggest a concept of environmental soundness as a more realistic alternative to sustainability. The debate about the ‘right’ approaches to sustainability and the greening of business cannot be settled here. It is sufficient to conclude that industry is partly responsible for causing environmental problems and thus has some responsibility for dealing with them. Even if the environment is not addressed within the concept of sustainability, a weaker notion such as environmental soundness does still require business to contribute to environmental improvement. This leads us to discuss what experiences companies have had in their attempts to address environmental concerns, before considering finally managerial motivations for undertaking environmental initiatives.

Empirical studies into greening strategy and process A normative claim – even if not an undisputed one – has been established above: business should address environmental issues. In order to implement the claim successfully, one needs to ask what such a process of corporate greening can mean in an organisational and managerial sense. Early empirical research into the greening process has led to progression models of environmental management, according to which companies go through a number of stages determined by the ability of their management to identify and respond to the pressures for organisational change (Kolk and Mauser, 2002). Typically, the lowest stage is a defensive strategy, where the company tries to resist having to deal with environmental issues. Any measures taken are end-of-pipe measures, which are added to existing production processes. Environmental protection is seen as merely creating additional costs, and as damaging competitiveness. Hence managers at this stage

22 The Green Multiplier

try to hide their heads in the sand and resist government regulation for as long as possible. A second stage, a preventive strategy, sees a more systematic approach to the environment. The company attempts to limit waste, to control its emissions, and to reduce its consumption of raw materials. The managerial focus is on the considerable cost savings gained by good housekeeping (such as the Pollution Prevention Pays programme at 3M). The company at this stage accepts legislation and no longer opposes it as matter of principle. A third stage sees the company and its managers adopting an offensive strategy. A broader view of environmental protection issues lets managers recognise the advantages in cost savings but also additional benefits in terms of market share and better image. The managerial focus shifts from waste prevention to environmental improvements in their products. Activities are no longer dictated by what environmental regulation stipulates, as the company looks to meet the actual or potential requirements of its stakeholders. The company has also become confident enough to communicate its stance on the environment to the public. In a fourth stage of sustainable business, the company would address economic, social and environmental aspects simultaneously. Social value arises in the opportunities for development provided to employees, customers and suppliers. Ecological value is generated in the sustainable level of resource use, where the environmental burden is kept below the absorption capacities of the environment. Financial value is provided in the surplus needed for the continued existence of the organisation, but also in the wages and other benefits to its employees and suppliers. The fourth stage describes a currently idealistic scenario, but it serves as a trajectory for future development. Such stage models have been criticised as being lifted directly from strategic management models, and thus share their shortcomings. Both are based on an assumption that having the ‘right’ vision is sufficient to steer managers through the implementation of their strategic plan, while in reality managers may act less on an economic rationale as much as follow numerous personal, political, emotional or affective motives. Managers may not have all the information available to make a fully rational decision in the first place, and their use of information may bias hard, objective data over soft, qualitative information. Stage models are also highly prescriptive, as their intention has been to motivate managers to address environmental issues. There is doubt as to whether they reflect very accurately the way in which organisational greening occurs, as companies do not necessarily progress from one stage to the next, higher, one. For example, Vickers (2000) studied a washing machine

Managing the Natural Environment 23

manufacturing company, which appeared to display signs of being an organisation experimenting with a more proactive approach, but then regressed into a more inward-looking and reactive mode. The linear progression at the heart of the stage models does not seem to fit the real process of greening very well. The critique of strategy stage models has shifted attention towards the process of greening itself, the study of which is still quite limited. Important insights into greening as a process are offered by a study into environmental initiatives of printed-circuit-board manufacturers in the USA (King, 2000). In the early 1980s, American printed-circuit-board manufacturers were confronted with increasingly stringent regulation on waste water. This pressure levelled off in 1983, when the federal government introduced standards for the industry. The initial response in all companies was to install new waste water treatment plants, which in all cases were enormously oversized. New staff were hired to deal with pollution control, and their jobs were narrowly defined as dealing with the waste problem. By the 1990s, little had changed for many pollution control managers; they interacted infrequently with production personnel and had little influence over changes to production processes. They remained the buffer layer with which top management intended to insulate the organisation from outside pressures. In some, more proactive, organisations, however, the pollution control department mutated into agents of change, who instigated significant improvements to process performance and product quality. This mutation came about in numerous incremental steps, which usually began with planned changes to the treatment technology that increased the sensitivity of this technology to changes in the production processes. Pollution control staff had to familiarise themselves with the manufacturing processes and in doing so not only gained information but also became motivated to improve production processes. As the processes improved, the relationship with other functions also improved, and pollution control began to play a greater role in process design. Pollution control staff thus had their power base in being a new and more comprehensive source of information, as the effective handling of waste needs information about the whole production process, not just segments of it. On this basis they were able to set in motion processes of incremental, but eventually fundamental, change. The introduction of environmental initiatives is a contradictory, complex process that does not proceed in a linear fashion. Environmental goals are often formulated as ‘add-ons’ to corporate strategy; changes in the one are not seen as inducing change in the other (Schaltegger et al., 2003).

24 The Green Multiplier

Progress towards environmental initiatives is likely to differ from one organisation to another, even within the same industry. Commitment to environmental initiatives in all likelihood does not just exist at the beginning; rather, it often emerges during the journey towards a solution to the environmental challenge. The stimulation for environmental initiatives can be transmitted top-down as well as bottom-up, which highlights the role of middle managers – including the purchasing and supply chain managers. This discussion will now be complemented by a review of the motives for environmental initiatives that empirical studies have established.

Motives for environmental protection initiatives Observers of industry increasingly report evidence for corporate strategy being driven by environmental pressure (Welford, 1998; Gutowski et al., 2005). However, to gauge this process, it is important to study why companies adopt such policies. For many industries, regulation and anticipated changes in legislation are the most important drivers of environmental initiatives. This applies in particular to industries that require authorisation under the Integrated Pollution Prevention and Control System in the UK, such as metals, chemicals, paper and energy generation, where companies devote considerable resources to preparing for authorisation and discussions with regulators. Such companies are also generally keen to pre-empt anticipated legislation. The traditional view of regulation has been an adversarial one, stressing the negative effects of regulation on companies and the national economy. Regulation can impose high costs on companies, divert funds from innovation and make companies risk averse. A pressure for immediate compliance also tends to encourage the adoption of quick-fix end-of-pipe measures over cleaner technology. The challenge is thus to establish a regulatory system that encourages companies to solve the problem at source, and that stimulates a proactive approach with environmental improvement as an ongoing process. Another important motive for environmental initiatives concerns the competitive advantage resulting from improved technology or the conservation of raw materials. Reductions in waste, toxins or energy consumed all contribute to savings at the bottom line, not to mention the reduced costs of regulatory compliance and environmental liability. Furthermore, efficiency improvements often provide the starting point for environmental initiatives in manufacturing companies and then provide the necessary success stories to ‘sell’ environmental initiatives within the company (Gutowski et al., 2005). The increasing popularity

Managing the Natural Environment 25

of environmental management standards, such as the ISO 14000 series, is also encouraging companies to follow early adopters. Pressure from consumers and industrial customers is another important pressure for environmental improvement. This pressure applies in particular to industries that are close to the retailing market, such as household products. However, the somewhat optimistic expectations of greener marketing have not been fulfilled, because there are relatively few genuinely green products, and the gap between consumer attitude and behaviour remains wide. Outside a narrow range of products in the household commodities sector, most consumers still concentrate on performance and price criteria when choosing a product. Important by-products of consumer pressure, however, are the efforts, particularly of larger corporations, to develop an environmentally responsible image as part of their corporate branding. Investor pressure for environmental improvement is limited at present, but likely to increase in the future. Given the global and competitive financial markets, financial institutions are at present reluctant to coerce their clients into environmental protection measures. The financial sector also needs better information to judge the environmental risk of investment decisions. Instruments are being developed to make such pressure more powerful, such as insurance and liability issues, the concept of lender responsibility for contaminated land, and environmental auditing and reporting (ACCA, 2004). The ethical policy adopted by the Co-operative Bank in the UK documents that it is possible to pursue a niche strategy of appealing to socially and environmentally concerned customers. It is often not possible to split up a bunch of motives. Cramer (2000) studied environmental initiatives in operating units of the Dutch chemical corporation Akzo Nobel. Whether environmental initiatives are undertaken depends first and foremost on the degree of external pressure from customers, suppliers, governments and other stakeholders. Where such pressure is limited, companies show little inclination to introduce environmental measures, particularly if these are costly. Where pressure is medium to high, the response depends on the influence the company has over the whole product chain and its flexibility to change products or processes. Motivation for environmental changes was found to be highest where external pressure coincided with a large degree of influence over the product chain and high flexibility, as well as with an opportunity to use environmental initiatives to give a company a competitive edge. The most prominent reasons for environmental initiatives are thus regulation, cost savings, pressure from consumers and customers, green

26 The Green Multiplier

marketing, and investor pressure. There are differences between individual companies and industries in the degree to which these motives apply. While extractive and basic metal processing industries react first and foremost to regulation, for industries closer to final consumers green products and green branding become more important. There are also differences relating to company size, where smaller companies, being less well resourced, are often less active. Irrespective of individual proactive companies, a reactive mode prevails in corporate environmental initiatives. In the words of Howes et al. (1997, p. 3), ‘Many company strategies are motivated by the fear of environmental failure, rather than the anticipation of environmental success.’

Conclusions Our discussion began with the environmental effects of industrial activity that confront humanity at the start of the twenty-first century. Some problems are caused directly by business, such as oil spills and nuclear power plant accidents, and here business has a responsibility to repair the damage. However, the majority of environmental problems – greenhouse gases, acid rain or volatile organic compounds – cannot be allocated to any single agent; rather, they are a by-product of industrial development and the case that business should contribute to the clean-up is less straightforward here. The case is further complicated by the social construction of environmental problems. The assessment of the problems and the proposed solutions are far from straightforward, there may be competing solutions to an environmental issue, and the whole process may be watered down in the political arena – not least by the lobbying of business itself. While there is no normative standard by which to judge environmental initiatives, the concept of sustainability provides a generally accepted relative yardstick, although sustainability itself has been differently interpreted from a ‘weak’ to a ‘strong’ approach. Sustainability, or rather the alternative concept of ecological soundness, allows a request from industry to take into account the natural environment – for example, by conserving energy and resources in the design of manufacturing processes and products. The link between sustainability and management literature has long been obscured by the neoclassical view of business, yet recently authors have suggested avenues for a more fruitful debate between the two. The possibility of a double dividend of economic and ecological benefits or a ‘win–win–win’ scenario has been raised, where customer, supplier and the environment all benefit. This debate

Managing the Natural Environment 27

has produced encouraging results in some companies, such as savings from reduced waste, improved processes and products, and a better corporate image. However, this optimistic picture does not apply evenly across all companies and all industries. In all likelihood there will be winners and losers, and the application of environmental initiatives hence differs between industries. Early empirical studies of the adoption of environmental initiatives developed a number of models concerning the stages that companies appear to go through, but these stage models have been criticised on empirical – since reality is much more complex – and normative grounds, as being merely bolted on to conventional strategic management models. The focus of empirical research has since shifted to the process of transforming an organisation into one that is environmentally friendlier. Case studies of the application of environmental initiatives stress that the process is unlikely to be linear, and that companies can stagnate or even slip back in their environmental commitment. Among organisational members, environmental commitment does not necessarily exist beforehand, but rather is constructed during the greening process. Organisation-specific differences are to be expected, as even companies within a single industry approach environmental issues differently. The studies also stress the importance of middle managers, which includes the supply chain management function. Among the motives given for environmental initiatives, legislation is predominant, but cost savings and efficiency gains have also been cited as important, followed by pressure from customers and financial investors. Overall, a reactive mode prevails, and the likelihood of environmental initiatives also depends on whether the company has any room for manoeuvre by changing processes or products and by influencing its supply chain. This highlights once more the role of the supply chain management function in manufacturing companies, which the next chapter will discuss in greater detail.

3 A Strategic Role for Purchasing and Supply

‘You will not get money out of a job by beating the table with the supplier and saying: I want 30 per cent out of the cost. All you get is two, three, four, five per cent at best. We can remove 70 per cent in cost by working closely with some suppliers, and that is to their benefit as well.’ Supply chain development manager, military electronics company Following the review of environmental issues concerning industrial activity, this chapter will introduce the subject area of the study – purchasing and supply chain management in manufacturing companies. Charting the evolution of supply chain management from a largely clerical to a function of increasingly strategic importance, its main contributions to increasing manufacturing efficiency and profitability are discussed. Supply chain management can achieve cost reduction and quality improvements by tapping into supply chain capabilities, and hence can largely influence the success of a manufacturing company. Because of its boundary-spanning role, purchasing and supply also acts as an early warning system to detect changes in the corporate environment. A strategic approach to purchasing and supply requires not only the co-ordination of supply base activities but also collaboration with other internal functions, such as engineering or marketing. Strategic supply also necessitates new forms of relationship, such as alliances and partnerships. Supply increasingly takes on a global outlook and utilises information and communication technology. A strategic approach to supply, furthermore, has implications in terms of power and trust in supply base relationships. Some forms of power may strengthen supplier commitment to co-operation, while others will induce the supplier to develop its 28

A Strategic Role for Purchasing and Supply 29

own power base. Equally, a high level of trust in the supply relationship can have benefits and disadvantages for the buying company.

From organisational buying to managing supply The idea of a supply chain is not a new one. It has been perceived traditionally as a linear sequence of organisations ranging from the extraction of raw materials through various processing and assembly stages to the distribution of the finished product to the user. Supporting organisations provide transportation, communication and other specialised services. In this view, the supply chain is essentially a series of independent companies connected through their individual buying and selling activities (Schary and Skjott-Larsen, 2001). Such an initial model of a supply chain can be expanded in a horizontal direction into a supply network, as it usually is a number of companies that perform the individual transformation stages. In recent years, the supply chain or network has also expanded beyond the traditional end-point, the user or consumer, to take into account product take-back and recycling initiatives. The supply chain is increasingly becoming an important concept in modern manufacturing. Since technology and customer requirements are changing ever more rapidly, companies struggle to master all the individual steps involved in manufacturing their products. Competition increasingly takes place not between individual companies but rather between networks of companies. The challenge is thus to co-ordinate the activities of one’s own supply chain in a better way than those of competing chains. Supply chain management needs to move from providing an interface to creating integration along the whole chain and connecting upstream and downstream activities. The management of these often complex systems can be defined as encompassing three elements; (i) all the activities associated with the flow and transformation of goods from the raw materials stages to the final user; (ii) the associated information flows up and down the supply chain, and (iii) the management of supply chain relationships with the aim of achieving a sustainable competitive advantage (Handfield and Nichols, 1999, p. 2). Supply chain management is thus perceived as the management activities that link together all the stages of manufacturing within a supply chain or network. It is understood here as a function, as opposed to a designated person or department, and includes companies, often smaller ones, where buying may be undertaken by employees who are not dedicated exclusively to managing supply.

30 The Green Multiplier

In terms of materials flow, purchasing and supply chain management activities begin with identifying organisational needs through purchase requisitions, inventory checks or demand forecasts. Suppliers that are considered suitable in terms of quality and price of their components or materials are identified, and the buying company negotiates a supply agreement. Supply chain management then deals with the implementation of the purchasing agreement, including receiving goods, their storage, maintaining inventories and arranging payment. The function is also responsible for the periodic evaluation of suppliers. Supply chain management often includes activities to manage the supply base, such as monitoring and benchmarking supplier performance. Managers may be involved in activities to optimise production processes across the whole supply chain, which can range from make-or-buy decisions through the introduction of tiering to the supply chain, to developing individual suppliers beyond their current technical capabilities. The greatest challenge in terms of information management arises from uncoordinated demand planning and ordering at each stage of the supply chain. Since intermediate companies usually do not receive sales information directly from the consumer, managers try to guess what is happening further upstream or downstream along the supply chain. As each stage uses optimistic forecasts and/or applies safety buffers, demand is increased artificially along the chain. Sequences of higher and lower order levels equally can become amplified into a rogue seasonality (Towill, 1997). As a consequence, the supply chain binds disproportionately more material and components than the same processes would in a vertically integrated company. The challenge thus lies in better management of the information that exists in the supply chain but is not made available to all partners. A better synchronisation of production and demand cycles can be achieved, for example, by making point-of-sale data available to the supply chain or by joint demand forecasting for the whole value chain. In the management of relationships in the supply chain, a traditional arm’s-length approach can be distinguished from collaborative relationships, which aim to gain a competitive advantage from improved positioning of the whole supply chain. As competition is moving from competing firms to competing networks, co-operation within the supply chain can generate significant ‘relational rents’ (Dyer and Singh, 1998). Since building and maintaining co-operative relationships binds time and resources, companies should use a portfolio of different relationships depending on the desired outcome from the relationship. If all that is required is a price reduction, there is no need to set up a partnership with

A Strategic Role for Purchasing and Supply 31

the supplier. However, where a firm’s dependence on key suppliers is high, it should explore ways to establish commitment on the part of the supplier (or to reduce its dependence by diversifying into related activities). It is a striking feature of organisational buying that the function has undergone a dramatic transformation in recent decades. There have been examples of companies establishing separate purchasing departments as early as the nineteenth century, such as the Supplying Department the Pennsylvania Railroad Company set up in 1866 (Burt et al., 2003), but in general little attention was paid to the purchasing function prior to 1900 and up to the 1970s it remained in a clerical phase. The period of unprecedented growth during the 1950s and 1960s in the major developed economies had created a seller’s market for most products. Purchasing fulfilled a narrow supportive role in being responsible for purchasing, inventory control, receiving goods and storage. The function did little more than expedite other departments’ orders. The main focus for the buyer were purchase price and the prevention of line shutdown, and they generally used manual inventory management systems. By the late 1970s, purchasing had entered a mechanical stage, shaped by the introduction of the first computers, but the mode of operation was still driven by individual transactions. By the early 1980s, companies began to focus on savings from improved inventory control as oil embargoes and inflation had sharpened a concern about the cost of materials. Supply markets had become more international, and companies searched for new markets or products to sustain their competitive advantage. Purchasing entered a proactive phase, characterised by increasingly professional staff with some cross-functional support. Two distinct roles emerged in the purchasing department: that of buyers doing the operational and tactical side of the work, and that of procurement managers involved in development of broader strategic aspects of the function. Longer-term supply contracts emerged, and computerised materials requirements planning (MRP), together with improvements in supplier discipline, allowed companies to reduce their inventories significantly. The ability of purchasing and materials management to make a contribution to the financial success of the organisation was recognised by top management, but there was no change in the relationships with other departments. By the late 1980s, leading corporations began to concentrate their activities on their core competences. They downsized their own operations and outsourced to their supply chains those activities in which they had less of an expertise. The share of material costs in many manufacturing companies had risen to well over 50 per cent of total expenditure. The

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importance of speed was recognised, as the supply chain can influence the time-to-market for new products. Purchasing changed from a tactical to a strategic outlook, which included the integration of the supply strategy into the overall corporate strategy, the identification of threats and opportunities in the supply markets, and the establishment of a costeffective and comprehensive communication system with suppliers. Electronic purchasing systems were being used increasingly. The focus of purchasing shifted from internal processes to value-adding benefits, such as driving down the number of defect parts, reducing the total cost of ownership, and ensuring that the firm’s supply base provided appropriate technology. Procurement became responsible for the management of value-analysis activities and the management of supplier quality. Responsibilities often also included logistics and investment recovery activities, such as the salvage of surplus stock. The journey ‘from Taylor to Toyota’ (Voss, 1995) was completed by many procurement staff from leading organisations. Since the mid-1990s some commentators have seen a trend towards an integrative approach. According to Quinn (2002) the success strategy of cutting-edge companies combines the development of a few core competencies of world-best standard with a maximum leverage of organisational resources through alliances with (and strategic outsourcing to) world-best outside parties. Given the tremendous growth of international supply networks, it is no longer sufficient to optimise the flow of materials, components and information between the buying company and its immediate suppliers. To sustain a superior performance, supply management needs to apply a systems perspective covering all the supply chain stages from raw material extraction to product disposal after use. This necessitates extending the remit of supply management further into the early stages of product design, and the continuous identification of threats and opportunities in the supply markets. Supply managers increasingly see it as being within their remit to manage the technological capabilities of the supply chain. Where the necessary capabilities do not exist, supply management may even encourage existing suppliers to develop such capabilities. A radically different development is predicted by other authors (McKinsey & Company/CAPS Research, 2000; Buchholz, 2002), namely supply network management turning into a business in its own right. The main argument here is that the Internet will revolutionise supply activities to such an extent as to allow the emergence of a new kind of service provider where supply is their main area of business rather than merely being a support function. The debate regarding the future of

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supply chain management cannot be settled here. It is beyond doubt, however, that the remit of the function has expanded in four directions more or less simultaneously. Its handling of supply markets has evolved from a reactive into a proactive outlook. An awareness of the strategic importance of supply has superseded the former operational and tactical outlook. In terms of the geographical spread of its activities, supply chain management has moved from exploiting local, regional or national markets to tapping into the advantages of global sourcing. Its former clerical support role has given way to increasing co-operation with other corporate functions, such as production, research and development, marketing and finance.

Supply chain management and the bottom line The evolution of supply chain management leads to a closer examination of the function’s importance in manufacturing companies at the start of the twenty-first century. It is a banal, yet rarely expressed, observation that acquiring external input is one of the most basic functions of any organisation. Hence managing supply is as fundamental a business function as are designing products, financing operations, converting input into output, and marketing and selling its products. More specifically, the purchasing and supply chain management function has a direct impact on the two aspects that determine the profitability of a company – namely, sales and costs. Today the supply chain already represents the largest budget share in most manufacturing companies. By the year 2000, the average North American manufacturing company spent over 65 per cent of its total expenditure on incoming goods and components (Burt et al., 2003), and similar percentages have been reported for Europe. Given the magnitude of expenditure on materials and components in manufacturing, there is a tremendous leverage effect in reducing material costs. Perhaps the greatest opportunities for a supply management contribution to the bottom line comes from co-operation between customer and supplier regarding the design of the product or component to be supplied. Using the model of a value chain (Porter, 1985), which describes value creation as a series of discrete steps from raw materials extraction, via conversion, manufacture and retailing to the consumer, managers can identify how much value is created at each step. Such value analysis aims to avoid costs during the initial engineering design stage, where some 70–80 per cent of the total cost of ownership is built into the specifications. Where a company consists of several sites that have been undertaking

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their own buying, supply chain management can also save money by standardising the purchasing terms and conditions. It is important to note too that the share of purchasing expenditure is far from being static: as the trend of larger manufacturers to outsource non-core activities continues, their share of purchasing expenditure increases even further. The second important aspect in which efficient supply chain management can contribute to company profitability concerns a contribution to higher sales. Companies can experience unexpected upsurges in demand, in which case it is important to have a responsive supply base. Successful supply chain management can also influence a product’s quality by tapping into the skills of the supply base. Perhaps even more important is the supply chain contribution to a shorter time to market. Once early mover advantages have been achieved, the company is much more likely to enjoy a sustained success, in terms of both market share and profitability. The contribution of supply chain management to the bottom line is most striking in so-called virtual companies, which have almost all of their manufacturing undertaken by the supply base. Such companies are atypical examples, but they do illustrate very clearly to what extent the economic success of a company can depend on the quality of its supply chain management. Being responsible for the management of an organisation’s external resources, the supply chain management function has its finger on the pulse of the supply markets and will become aware of changes in the organisational context long before internally focused functions do. Supply chain management is thus an early warning system for the whole corporation. The importance of this gatekeeping role in terms of guaranteeing the quality of incoming goods has for some time been stressed in the total quality management (TQM) literature, and this importance can only increase with the current trend for major manufacturers to outsource their non-core activities. With its boundary-spanning role, supply chain management is well placed to initiate adaptation processes within the organisation as a reaction to changes in the corporate context. Examples of such external changes in the supply base are the emergence of a more sophisticated technology, increases in the price of important raw materials, changes to supplier power, pending regulation, or looming political instability. Companies react to such changes of necessity, but often the signals could have been identified earlier and valuable time gained. Supply chain management is well placed to pick up such signals about changes in the corporate environment. Although the value of externally sourced components is increasing at the expense of those produced in-house, companies need to maintain

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a holistic perspective of their total value chain to avoid a partial optimisation of value creation processes at a level below the entire chain. Supply chain management must thus become a hub for interaction with other internal departments, and bridge the interfaces that have arisen as a result of the division of labour. Supply chain managers need to work with their colleagues in engineering. Engineers are responsible for developing the initial technical specifications for the company products and their components, and these specifications determine a large proportion of the product costs, in particular those associated with the required quality, the type of material and its required conversion. Technical specifications can widen or narrow the range of eligible suppliers, hence the amount of competition and leeway that supply chain management has over vendors. Because of their training, engineers may seek to design the ‘ideal’ product, but supply managers need to consider the impact of technical specifications on the bottom line. The importance of close co-operation between supply chain management and engineering becomes even more obvious in simultaneous engineering initiatives, which aim for the earliest possible involvement of suppliers in the design of new products. Purchasing and supply chain managers need to work together with operations managers. Production schedules are influenced significantly by the lead times of incoming materials and components, especially when working in just-in-time mode. If supply managers are not given sufficient time by operations, they will not be able to take full advantage of the supply base and may end up paying a higher price for speedier delivery or accepting inferior quality in readily available components. Both have a clear impact on cost. The imperative for a close co-operation between operations and supply chain management is most obvious among process manufacturers, such as those making chemicals or dyes, where insufficient lead time or sub-standard inputs can bring about a shutdown of the production line. There are good reasons why the marketing and supply chain departments should have a close relationship too. If the company aims for a marketing strategy based on a superior product quality, this strategy needs to be co-ordinated with the in-house and supply base capabilities. Equally, a marketing strategy to increase sales has to take into account possible bottlenecks in the supply base, otherwise more profit than necessary will have to be passed on to suppliers. The timing of a new product introduction again needs to be co-ordinated with operations and supply. All these strategies require speedy communication of sales figures to manufacturing and the supply chain, and ideally the replacement of the traditional system (of pushing production through by scheduling) with a system where market demand pulls products through.

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Last but not least, supply chain and logistics management need to be co-ordinated, which includes both external and internal transportation. The interdependence between sourcing and logistics strategies becomes clear in decisions on single versus multiple sourcing. While the former requires a concerted materials and information flow, the latter presents challenges in bundling items sourced from several suppliers. The co-ordination needs are greatest in just-in-time supply, which requires (ideally) a stockless production where small quantities of components are delivered at short intervals. Such production and transportation arrangements entail no small degree of vulnerability, which necessitates intensive communication and relationship management to handle the logistical challenges. Supply chain management is becoming a business function of increasing financial importance. The supply chain accounts for the largest budget share in manufacturing organisations, which gives tremendous leverage for cost reduction measures. Total cost can be further reduced by joint design initiatives, where customer and supplier discuss changes to the product during the design stage. Additional scope for savings is offered by a standardised approach to procurement in multi-site companies. Better information management aids flexible production and encourages lower stock-holding. In addition to cost reduction, supply management can contribute to quality improvements and to a faster time to market, both of which aid product sales. Supply chain management thus needs to optimise value creation across the whole supply chain to avoid partial optimisation at levels below the entire chain. Cost reduction and quality improvements necessitate close co-operation between supply chain management and neighbouring functions, such as operations, engineering, R&D, marketing and logistics. To avoid goal conflicts and to overcome functional egoism, supply chain management needs to be a highly integrated interface management function. In addition to this internal boundary-spanning role, it also has an important gatekeeping role: it is the function that determines which goods enter the company and which do not. Thus what was once seen as a clerical function, the purpose of which was merely to get a certain quantity of goods into the plant, can in fact largely influence the success, and in some cases even decide the fate, of the whole company.

A strategic approach to managing supply The previous section highlighted the growing economic importance of supply chain management, yet the question arises whether and how supply

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chain management can make a strategic contribution to an organisation. Strategic management can be defined as ‘the direction and scope of an organisation over the long term, which achieves advantages for the organisation through its configuration of resources within a changing environment and to fulfil stakeholder expectations’ (Johnson and Scholes, 2002, p. 10). Strategic management comprises both internal and external factors. Internal variables include the firm’s relative strengths and weaknesses, or the contribution of key employees, while an important external variable can be found in the fit between internal and supplier capabilities. Here a clear link emerges between organisational strategy and supply chain management, as corporate strategy is hence as much concerned with direction and scope in output markets as it is with direction and scope in input markets. However, tapping into supplier competencies to match these with internal competencies means dealing with products and know-how that are readily available in the market place and can be replicated by competitors (Ramsay, 2001). Since a sustained competitive advantage cannot be purchased from a supply base, how can the supply chain management function be of strategic importance? Supply chain management does have some non-substitutable resources at its disposal, since companies differ in their organisational structure and in their purchasing power, as well as in the knowledge, experience and commitment of their supply chain management personnel. These differences between firms in the handling of their supply management process can lead to longer-term organisational advantages through the configuration of supply chain resources. Such an advantage can arise from differences in the access to information, as real markets hardly ever allow perfect competitor information. Supply chain managers, who have been able to develop a competitive advantage in the mix of core competencies and outsourcing, or in the handling of the supplier–buyer interface, might be able to prevent competitors from learning how their advantage has been achieved and thus protect and sustain it. A further non-substitutable resource can develop in the relationship with a supplier. After entering a supply relationship, the vendor’s output is modified to suit the requirements of the buying company. A growing asset-specificity decreases the mobility of the resource. Matching these supply resources would then require an increasing investment by competitors, and where such imitation costs exceed the anticipated gains from the otherwise superior supply arrangement, the resource in question has become immobile. Supply chain managers can also generate first-mover advantages from the development of unknown suppliers, which tend to reinforce themselves cumulatively (Leenders and Blenkhorn, 1988). The important point to

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make here is that asset specificity does not require outright ownership of an asset; in order to exploit resources, the firm must merely control them. Hence a long-term relationship with a supplier constitutes a form of control without owning the resources in question (Mol, 2003). The argument is thus made here that supply chain management can indeed make a strategic contribution to the firm. This contribution lies in the accumulation of know-how regarding supply chain competencies and in managing these competencies in such a way that they complement those of the buying organisation. The strategic contribution of supply chain management also lies in the management of relationships with these suppliers and with internal user departments. Both the accumulated know-how and the relationship management are highly contextual and therefore difficult to imitate. It is thus justified to speak of a strategic contribution. Supply chain management is the more strategic the more it succeeds in restricting the freedom of strategically important suppliers to deal with competitors, and the more it is able to structure its relationships with these suppliers in such a way that they are difficult for a competitor to imitate. Having said this, it is important to distinguish between the function and the individual manager. Even if supply chain management as a function can be of strategic importance, this does not necessarily mean that the individual manager will be involved in strategic decision-making. Neither does stressing the possibility of a strategic contribution mean that the majority of supply chain management activities are of a strategic nature. The strategic approach is not relevant to all bought-in materials and components. Because of the time and resources required to manage suppliers and accumulate knowledge, it is best reserved for high-value items that account for a large share of purchasing expenditure. The head of procurement of a UK-based quality paper maker uses the following segmentation of supply markets. Some markets are virtual monopoly markets, where very few suppliers exist but the items they supply are critical. Paper-making machinery is sold by very few suppliers, and quality control equipment for paper-making machines is only offered at the time of writing by two suppliers in the UK. A second market is strategic items, such as chemicals. There are several players in the market, and the company forms strategic alliances with a number of key partners – for example, to gain technical input for product development. Third, there are leverage markets – for example, for wood pulp – where the company’s spend is significant and the market allows a certain leverage over suppliers to reduce their price. Competitive markets also exist for energy, which is purchased purely on a lowest-price basis. A fourth type

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is acquisition markets, such as stationery, where the strategic rationale is to choose one supplier and to incur as small an administrative burden as possible. Having established the possibility of strategic purchasing and supply, what consequences does such an approach bring for the relationships in the supply chain?

Implications of a strategic approach to supply A strategic approach to supply has implications for the shape of the supply chain and the total number of suppliers. A recent development in this respect is described by the model of lean purchasing (Lamming, 1993). Large manufacturers have gradually been turning into assemblers and have organised their suppliers into tiers, differentiated in terms of direct access to the customer and the technological complexity of their products and operations. The first tier of suppliers will continue to have a close relationship with the customer, and in addition to their existing role are becoming responsible for organising the second-tier suppliers that supply them. Second-tier suppliers are responsible for organising the third-level suppliers, and so on. First-tier suppliers – also referred to as systems or module suppliers – often deliver a complete sub-assembly – for example, a car door complete with window glass, winding mechanism, loudspeakers and so on. The objective of lean supply is to make better use of the complementary competencies of the firms involved, buttressed by the mutual transfer of know-how between supplying and buying firms. For the buying company, a reduction in the number of suppliers has the added advantage of reducing the time, effort (and hence cost) spent on managing suppliers. However, it also increases the dependence of the buying firm on its supply base, especially since a significant part of R&D is now undertaken by first-tier suppliers. The risk for the supplier is increasing too, as higher asset-specific investment cannot be transferred easily to another customer. Such supply base rationalisation proceeds in parallel with an increase in international sourcing. Advantages companies cite for buying overseas are lower costs, better quality, tapping into the technological potential of other nations or broadening the supply base and thus reducing supply risk. These have to be balanced against the disadvantages of global sourcing: differences in culture and legal systems, differences in payment terms and conditions, risks associated with dealing in foreign currencies, higher costs of the buying process, more difficult communication, longer lead times, additional inventories, customs and local content rules. Last but not least, social issues can play a role, such as negative publicity at

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home over a (perceived) exploitation of cheap foreign labour. For some industries, buying from abroad has long been a reality. UK paper-makers, for example, import woodpulp from Latin America and North America, the Iberian peninsula or Scandinavia; and tyre manufacturers source rubber from Thailand and Indonesia and carbon black from Russia. Another, and equally unsurprising, case of widespread global sourcing concerns multinational corporations, which often stipulate that a component supplier must supply to all the corporation’s plants. Increasingly, small and medium-sized companies are also attempting to tap into the potential of international buying. Strategic management of suppliers is linked to new forms of interorganisational relationships, such as alliances and collaborative relationships, which are often termed ‘partnerships’. With their longer-term perspective collaborative relationships contrast with the traditional adversarial supply chain relationship, characterised by a short-term, competitive sourcing approach with ‘win–lose results’ as the expected outcome. Collaborative relationships are characterised by information-sharing, longer-term contracts and an emphasis on mutual advantage, whereas transactional relationships see purchasing from multiple sources, the use of competitive bidding and short-term contracts to achieve a low purchase price (Krause et al., 1998). A collaborative relationship with suppliers is a move away from the classic market relationship to a hybrid combination of market and hierarchy. The co-operation between the two sides is stronger than in ‘pure’ market relations, where suppliers are under constant pressure to reduce prices as even a small price reduction by a competitor leads to a large shift in order volume. On the other hand, co-ordination between the two organisations is not as rigid as co-ordination in a vertically integrated corporation would be. Supply chain partnerships are thus an institutional innovation developed as an adaptation to changing market conditions. A collaborative or partnership approach is, however, not free from problems. Problems may lurk in a lack of agreement about the goals of the new arrangement, in insufficient resources and structures for the management of the partnership, or in a lack of control devices. Companies can become locked into a relationship with a certain supplier or customer. For example, a UK-based chemicals manufacturer spent roughly a million pounds on a new processing line and then realised the company did not have sufficient skills and know-how to maintain it. ‘We actually became heavily dependent on the vendor’s service organisation,’ its purchasing manager commented, ‘and we realised that it wasn’t the equipment that a lot of people focused on, the issue was getting the service.’ Collaborative

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relationships are not necessarily of a friendlier nature than transactional ones either (Gadde and Snehota, 2000). In an arm’s-length relationship there may be frequent disagreements about price, delivery terms and quality levels, but beyond these there are no further sources of disagreement. The higher level of involvement and greater interdependence in collaborative relationships, on the other hand, carries the potential for more pronounced conflict. Often the driving force for a move towards partnership seems to be a desire to cut cost rather than a holistic philosophy of improving the company’s products and processes. Hence critics of the concept of a supply chain partnership suggest that best practice is the exception rather than the rule, and that changes are only partially implemented and happen mainly in selected industries such as car manufacture or electronics. A strategic approach to supply management is also built on an increasing use of information technology. In just-in-time (JIT) buying, for example, individual operations – not just within the firm but along the whole value chain – are to be aligned with each other. This should lead ideally to stockless production, where market demand pulls only the exact quantities of material needed into the production facility. To work smoothly, just-in-time purchasing needs electronic data interchange (EDI), which allows the direct electronic transmission of standard business forms, such as purchase orders, shipping notices or invoices between two organisations (Baily et al., 1998; Leenders et al., 2002). EDI allows a car manufacturer, for example, to pay a supplier according to the number of vehicles that roll off its conveyor belt rather than the received number of components. EDI is available at low cost and, in particular, enables small and medium-sized companies to compete more effectively and with a wider horizon. It removes the need for printed information, such as a catalogue of parts, which is difficult to update and expensive to communicate. EDI is much faster than traditional channels of communication and enables companies to cut lead-time, which is especially important for JIT. EDI also reduces the time and effort taken up by processing and expediting orders, and frees supply chain managers to concentrate on other tasks. Another technological innovation that is having an impact on supply relationships is electronic buying (Brewer et al., 2001; Poirer and Bauer, 2001). For example, in spring 2000, three major automotive corporations – DaimlerChrysler, Ford and General Motors – created the joint Internet trading platform Covisint.1 In parallel with the physical networks, standards for data exchange between international trade partners have been developed, culminating in the UN-sponsored United Nations

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Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) syntax rules for transmitting electronic data. Generally speaking, electronic marketplaces are at the time of writing still in their infancy, and there is disagreement regarding their benefits. On the one hand, electronic buying could offer inventory reductions of 30–75 per cent through lower levels of safety stock. Purchase transaction costs could be reduced by 50–90 per cent, and the time between order and delivery could be shortened by 30–60 per cent. It has been declared that ‘Electronic commerce will be a necessity to sustain a competitive advantage’ (Poirer and Bauer, 2001, p. 38), but on the other hand, companies have found that electronic trading has so far neither delivered repeatable price cuts nor has it offered a solution for all the buying needs of a company. Most current portals still lack the critical mass of suppliers that offer economies of scale. E-commerce also has an important sunken-cost effect: as the market is still fluid, an early link-up with a provider carries the risk of having backed the wrong horse. Electronic buying also requires substantial investment into IT and supply chain manager knowledge as well as organisational change. Instead of a general ‘yes/no’ to electronic procurement, companies should take into account the different types of electronic marketplaces and match these to their buying needs (McKinsey & Company/CAPS Research, 2000). The concepts of strategic supply chain management, partnership sourcing and supply base rationalisation are being applied successfully by manufacturing companies, and tremendous economic advantages can be gained from a closer relationship between customer and suppliers, such as cost savings, better technical support and security of supply. However, each organisation must take into account its unique strategy and position in the supply chain, and strategic supply chain management cannot be applied uniformly to all companies. There is also doubt whether all supply chain relationships that go by the name of a ‘partnership’ really deserve the title. Equally, it is far from clear that the benefits are being distributed evenly between supplier and customer. Empirical studies have also shown that suppliers will develop alternatives to partnership sourcing if they feel that their strategic aims are better served by an arm’s-length relationship.

Power and trust in the supply chain The discussion of a strategic approach to supply chain management, with its move from an adversarial relationship to a mutual win–win scenario necessitates a reference to the concepts of trust and power in

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the supply chain. Power is an exceptionally hazy notion. Dahl (1957) defines it thus: ‘A has power over B to the extent that he can get B to do something that B would not otherwise do.’ For Emerson (1962) the ‘power of actor A over actor B is the amount of resistance on the part of B which can be potentially overcome by A.’2 The concept of power is clearly applicable to the supply chain. As the main aim of business is to appropriate value, a company is not going to pass value to customers, employees, competitors or suppliers unless doing so provides the only way to continue operating. As every company in the supply chain is seeking to appropriate value, there must be objective conflicts of interest between them. For example, Hewlett-Packard has been able to pursue a successful outsourcing strategy and become an assembler, because the company has retained power over its suppliers by achieving effective control and avoiding dependence on outsourced resources (Lonsdale, 1999). The outsourcing of IT system suppliers is usually the exact opposite of this: here, suppliers remain in power. The information asymmetry and the superior knowledge of suppliers allows them to earn above-average margins from relatively dependent customers (Ireland, 1999). In the UK electricity industry, ownership of critical assets would allow dominant players to appropriate value, but government regulation requires them to pass a significant share of this value directly to customers (Sanderson, 1999). Further insights can be gained by studying the different bases of power an organisation can have over its suppliers or customers (French and Raven, 1959; Maloni and Benton, 2000). The customer can apply coercive power where it has the ability to mete out ‘punishment’ to the supplier, such as cancelling business. Alternatively, the buying company can exercise reward power by promising additional business. Legal power refers to a legally established right to influence the other party – for example, a formal sales contract. In the case of expert power, an organisation has access to skills and knowledge that are valued by the other party. It is also important to stress countervailing power (Ogbonna and Wilkinson, 1998). In the food industry, for example, supermarkets attempt to lessen a manufacturer’s brand power by placing an own-label product against it. The different power bases influence supply chain relationships in contrasting ways. The use of coercive or legal power has been found to lower genuine commitment and to erode the performance of the targeted organisation, because the target resents its use. On the other hand, expert power significantly increases commitment to co-operation, as the supplier (or customer) values the expertise and desires closer co-operation (Brown et al., 1995; Maloni and Benton, 2000). Different power bases can thus have different effects on the performance of the supply chain, and companies,

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especially larger corporations, need to understand what supply chain partners value in the co-operation with them and manage this power base effectively. The argument for including power in the discussion of supply chain relationships can be strengthened by looking at the literature regarding its antidote: trust. Trust, like power, is notoriously difficult to define, but most definitions share three elements (Lane, 1998): trust presumes an interdependence between actors, it provides a way of coping with risk or uncertainty in exchange relationships, and involves the expectation that one partner’s vulnerability resulting from the acceptance of risk will not be taken advantage of by the other party. Trust can reduce the complexity of interorganisational (and interpersonal) relationships, since some potential developments can be excluded from consideration. Trust can improve communication and co-operation in finding solutions to mutual problems and creating common strategic visions. Firms in a high-trust relationship can relax their formal safeguards, which may have been difficult to enforce in any case. Checking the other party’s performance can move from detailed to more symbolic checks, which are much less demanding in terms of time and effort. Last but not least, trust tends to encourage employees to take on responsibility, which in turn leads to higher creativity and lower costs. Although generally seen in a positive light, trust need not automatically be good in an ethical sense. Trust in an organisation can also lead to injustices – for example, the exclusion of specific groups from participation or promotion – and can bring about an economically inefficient allocation of resources. It is thus desirable for organisations to manage the amount of trust in their interorganisational relationships. As trust does not necessarily exist at the beginning of the relationship, it needs to be built – for example, by a decision not to use competitive tendering to show commitment to a supplier. To strengthen trust, the parties should reward previous demonstrations of it. Building trust is thus a process of small steps, leading to a virtuous cycle where trust reinforces itself (Handfield and Bechtel, 2002). Companies should, however, aim for an optimum, rather than a maximum, level of trust. They need to retain an ability to exercise sanctions, otherwise the lack of alternatives will simply have manoeuvred them into dependency. Companies also make extensive use of safeguards to limit the possibility of opportunistic behaviour. Customers may, for example, diversify their client base, but suppliers may also diversify their customer base. Interorganisational trust thus requires a delicate balance of autonomy and dependency.

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Trust is clearly part of the vocabulary that supply chain managers use to describe their relationship with some important suppliers. An antenna manufacturer, for example, has a special order call-off arrangement with its major customer, Motorola: ‘Motorola have permission to enter their own orders into our parent company’s system. They have their own people, who are able to come into our own system and put in their requirements for us to ship out to them.’ When customer employees access the company’s internal computer system, they are privy to a large amount of commercially sensitive information. However, the potential disadvantages of such opportunistic behaviour are mitigated by the advantages of lower supplier risk and cost, as the supplier is less likely to build up unnecessary stock. A trusting supply chain relationship still requires joint economic gain to occur, and companies still make use of safeguards to limit the possibility of opportunistic behaviour. These supply chain relationships can hence be described equally well in terms of dependence and uncertainty avoidance (Cousins, 2002).

Conclusions Supply chain management in manufacturing companies can be defined as comprising all the activities associated with the flow and transformation of goods from raw materials stages to the final user, the associated information flows up and down the supply chain and the management of supply chain relationships, with the aim of achieving a sustainable competitive advantage. In terms of institutional economics, supply chain relationships constitute an interesting hybrid between co-ordination through hierarchy and co-ordination through the market, and can be termed ‘co-ordination through co-operation’. Supply chain management plays an increasingly strategic role in manufacturing companies. Its economic contribution stems from the fact that the function controls the largest budget share in most manufacturing organisations, which provides scope for a tremendous leverage in cost reduction. Even more cost can be taken out of bought-in components by joint design initiatives between customer and supplier. The function is also the gatekeeper of the organisation: it determines which goods enter the company and which do not. This applies to technical as well as environmental parameters of goods and components. In other words, without the involvement of the supply function, environmental initiatives in the supply chain are plainly impossible.

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The growing importance of supply chain management translates into new developments in purchasing strategy and techniques. There is evidence of more co-operative, longer-term relationships, often referred to as partnerships, between some manufacturers and their suppliers, which allow a joint approach to the design of components and promise a win–win scenario for both customer and supplier. Longer-term relationships are supported by changes in supply management techniques, aiming at better management of inventories by, for example, just-in-time purchasing, or using new communication avenues, such as electronic procurement via the Internet. These techniques are set to make the function even more important. Transferring these developments to the environment, greener supply might also be addressed in such a joint approach, promising a ‘win–win–win’ situation for customer, supplier and the natural environment. Empirical studies of longer-term supply chain relationships, however, have shown that the benefits are by no means always evenly distributed. Thus it has been argued in this chapter that the degree of power different companies in the supply chain hold – or, seen from a different perspective: the amount of trust that exists in the supply chain – have important consequences for both the overall structure of the chain and the amount of value any company in the supply chain can appropriate. In a similar vein, power differentials between supplier and customer may also affect environmental protection initiatives, where the stronger party might either push for, or block, such an initiative. Having reviewed the role the supply chain management function plays in manufacturing organisations, the next chapter will investigate more thoroughly the link between supply chain management and the natural environment.

4 The Green Multiplier

‘Specifically with the supply chain, the important thing is to mentor the supply chain from the top. And they can obviously mentor us from the other end, through customers who are in different industries.’ Product steward, telecommunication equipment manufacturer Having established that the supply chain management function plays an increasingly important role in a financial sense, this chapter will ask whether its growing importance and increasingly strategic outlook can be matched by an equally striking contribution to environmental protection. Market-based environmental initiatives often focus on the consumer and advocate a form of green marketing (Peattie, 2001; Polonsky and Rosenberger, 2001), yet consumer spending is dwarfed by industrial buying. In the mid-1990s, UK consumers spent an estimated £400 billion annually, whereas purchasing by private-sector companies amounted to more than £750 billion1 (Green et al., 1996). A focus on corporate buying and supply chain management hence provides an important complement to an environmental protection perspective that centres around the green consumer. In terms of striving for sustainable development it is important to consider both the production and consumption patterns of an organisation (Welford et al., 1998). In other words, a comprehensive account of an organisation’s environmental impact requires attention to its supply network. The supply chain management function is thus of critical importance to the organisation’s overall response to environmental challenges. In a wider sense, environmental initiatives in the supply chain raise the question of whether the market can be used to bring 47

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about environmental improvements. This has clear implications for the debate as to whether market or state regulation is best suited to bringing about social change. Against this background, this chapter will first explore theoretical perspectives for greener supply. The second part will then present empirical evidence from areas that are related to environmental initiatives in manufacturing companies.

Conceptualising greener supply The supply chain of a manufacturing organisation has a deep and extraordinarily varied environmental impact. Such an impact arises not only from raw material and component purchases, supplier manufacturing processes or logistics arrangements, but can also include final product disposal and even the siting of supplier plants. Given the strategic importance and scale of organisational buying, a range of possibilities for environmental initiatives exists in the supply chain. These begin with the product, component or raw material to be purchased, where the buying company could stipulate minimum standards that the purchased product has to fulfil. For example, a paper-maker can insist the woodpulp it buys conforms to recognised standards of forest management rather than being made from clear-cutting an entire forest; or an electronics company can require its suppliers to avoid certain harmful heavy metals in the supplied products. Other product-based environmental initiatives can aim at by-products of supplied input, such as recycling packaging or reducing waste. Where an environmentally friendlier product is readily available, as is the case with recycled office paper or biodegradable cleaning materials, the environmental signal is transmitted via the market, and the relationship between buyer and supplier remains at arm’s length. There are important environmental consequences in the more beneficial effects of the greener product as well as the financial incentive for the greener manufacturer, although this kind of signal is weak and may overlap with, or be cancelled out by, non-environmental buying decisions (New et al., 2000). Where an alternative product is not readily available on the market, the buying company can undertake supplier development activities to encourage and enable a potentially satisfactory supplier to meet the buying company’s environmental requirements. The decision to buy the greener alternative or to develop the supplier to meet the required environmental threshold may furthermore demonstrate to employees that the organisation takes the environment seriously and spark additional personal initiatives. Greener supply can also operate in

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a more indirect fashion, when environmental requirements of a certain level are included in the design specifications submitted to the supplier. Meeting this environmental standard then becomes a precondition for being awarded a contract in the first place. The same principle can be applied to existing suppliers in the awarding of repeat business. In addition to, or instead of, a focus on the product, greener organisational buying could aim at changing the supplier’s manufacturing processes, as the buying company can select its suppliers on the basis of how well they are running their production processes (Bowen et al., 2001b). Such measures range from rather modest ones, such as requiring suppliers to have an environmental policy, introducing an environmental award scheme for one’s supply base, or insisting on supplier accreditation to ISO 14001, to much more advanced ones, such as a joint ‘cleaner technology’ programme with a supplier. Again there is an element of greening in the scenario, as customers use their influence to reduce the environmental impact of the suppliers’ operations. This pressure can diffuse environmental management techniques along the supply chain and may inspire employees of both organisations to act in a more environmentally friendly fashion. It is, however, important in such a scenario that the buying organisation does not impose prescriptions on its suppliers that are too detailed, otherwise it might kill rather than stimulate (environmental) innovation. Adaptations to both product and supplier manufacturing process presuppose changes to the way in which the supply process is managed. Such changes begin with the type of information that is collected on suppliers, as environmental information might otherwise not be compiled. The buying organisation can, for example, undertake an environmental audit of a supplier, or require the supplier to complete environmental questionnaires. This information should then inform decision-making processes in the buying organisation, where the environment becomes a criterion in the supplier selection and evaluation process. Information needs to flow in the other direction too. The more advanced party, often a large customer, can set up seminars for, or site visits to, other supply chain members to spread environmental knowledge. More comprehensive forms of environmental initiatives require more intensive communication between customer and supply base and can lead to a longer-term outlook in the relationship with key suppliers. In view of the argument that it is the short-termism of the competitive market economy that prevents attention to the natural environment, such a new style of business relationship ought to be of great interest to those studying the interaction between private-sector companies and the natural environment.

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Another avenue for the supply chain function to influence the natural environment exists within the manufacturing company, where a number of cross-functional teams have a supply chain management input. Supply chain managers are often involved in product design, as this allows the buying company to tap into capabilities – environmental and otherwise – in the supply chain. The environmental impact of the final product can, for example, be reduced by changing the materials specifications for purchased goods in favour of environmentally friendlier ones (Walton et al., 1998). The purchasing and supply function often has an input in the purchase of equipment, where the purchasing decision can take into account such environmental characteristics as energy consumption or emission levels. Supply chain managers can also become involved in internal environmental protection initiatives, such as the introduction of environmental management systems. An example here is the director of purchasing of a UK-based sports and utility car manufacturer who is a member of a company-wide committee on sustainable business development. Finally, supply chain managers are increasingly becoming responsible for some downstream activities of their companies, such as product recovery and recycling of excess materials. The rationale here is that the person who was responsible for buying the material or equipment also knows best how to dispose of them (Johnson and Leenders, 1997). Cost-effective disposal requires that the amount and type of waste a raw material or component creates during production is considered before its purchase; similarly, the degree of environmental risk is fixed with the purchase decision. Where supply chain managers are responsible for logistics management, synergies in incoming and outflowing transport may be explored and the load factor improved, which again leads to environmental improvements. A supply chain management involvement is particularly desirable in reverse distribution, the movement of materials and goods from the point of consumption towards the point of origin (Carter and Ellram, 1998; Rogers and Tibben-Lembke, 2001). Some reverse distribution activities are unconnected to environmental issues, such as the return of faulty products, but there is also a clear overlap, as recycling or remanufacturing of returned products follows an economic as well as an environmental rationale. The reverse supply chain can thus reduce the need for virgin materials, and it can divert heavy metals and other pollutants from landfill or incineration, as well as creating learning opportunities to improve the environmental qualities of new products (White et al., 2003).

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The environment is, in all likelihood, only one of several purchasing criteria. Environmental requirements may point in one direction and cost or quality requirements in another. In addressing such ambiguous signals, environmental issues may become a facilitator of interorganisational learning. In this vein, Beamon (1999a) argues that the traditional one-way conceptualisation of the supply chain, wherein raw materials are converted in successive stages into final products, must give way to an extended supply chain model of a semi-closed loop that includes, for example, the end-of-life impact of the product and packaging recovery. Given the far-reaching implications environmental initiatives can have on product, processes and logistics arrangements, they need to be collaborative ventures between the commercial partners. Echoing the arguments made in favour of a more collaborative approach to supply chain relationships in the context of quality improvements, environmental initiatives require a systems perspective across organisational boundaries. Hence we can adopt the definition by Zsidisin and Siferd (2001, p. 69): Environmental Supply Chain Management for an individual firm is the set of supply chain management policies held, actions taken, and relationships formed in response to concerns related to the natural environment and with regard to the design, acquisition, production, distribution, use, reuse, and disposal of the firm’s goods and services. Implementing greener supply initiatives can lead to an array of benefits for the company itself, for the purchasing and supply process, and for society at large (Hall, 2000; Bowen et al., 2001a; IEMA, CIPS and NHS Supply, 2002). Benefits for the buying company include cost reduction and improved efficiency, as the environmental initiatives take out waste and excess material, as well as an improved image among regulators and the general public. Being an example for the intertwining of noneconomic and financial criteria, greener supply can contribute to a more holistic approach to managerial decision-making. Environmental initiatives in the supply chain can also contribute to a better management of risk, whether actual or perceived, as they help the company to anticipate new stakeholder pressures (Green et al., 1996). The purchasing and supply process can be improved to the extent that greener supply facilitates information sharing and, more generally, more co-operative relationships in the supply chain. Such co-operation

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optimises decision-making along the entire supply chain and prevents individual members from striving for parochial objectives (Green et al., 1996). Greener supply can stimulate innovation in the chain and this can spill over into other, non-environmental areas. Thus successful environmental initiatives in industrial buying are an indicator of smoothly functioning supply base relationships. Benefits of greener supply to society begin with environmental improvements, the reduction of hazardous materials, the more efficient use of scarce resources, and the avoidance of waste. Greener supply also aids the diffusion of environmental knowhow and best practice. It provides a response to public concern, but being a market-based environmental initiative, it seems to do so without recourse to government coercion. In addition to playing an increasingly important economic role, the supply chain management function is the gatekeeper of the organisation, and therefore a holistic approach to environmental protection in manufacturing companies is not possible without its involvement. Environmental initiatives in the manufacturing supply chain should focus on the product and manufacturing processes used by the supplier. Supply chain managers can, furthermore, play an important role in the internal environmental initiatives of the company, and they may be involved in downstream environmental activities. Overall, greener supply calls for the application of a systems perspective with a focus on co-operation and interorganisational learning.

A green multiplier The discussion so far has concerned mainly the effects of organisational buying on one organisation, and on the relationship between the buying company and its immediate suppliers. Thus conceived, the influence of purchasing and supply chain management regarding environmental initiatives is comparable with that of other boundary-spanning corporate functions, such as marketing. Marketers could foster a trend for green products among consumers and initiate product changes within the company, thus contributing to environmental protection. However, supply chain management plays a special role within the organisation that is not matched by other functions. It not only affects the immediate suppliers but also those who are more distant, hence its influence reaches far beyond the organisational boundary. Where a company wants to offer the consumer a product of a certain quality, its suppliers also have to work to this standard. This refers not only to immediate suppliers (the first tier), but also to the immediate suppliers’

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suppliers, to their suppliers and so on. In this sense, the TQM literature speaks of the quality chain that links many different individuals in many different organisations. Carrying this notion into environmental protection, one can conceive of supply chain management as co-ordinating environmental initiatives among the many organisations that constitute its supply chain. In analogy to the quality chain, one can speak of an environmental chain, where the environmental quality is determined by all the links in the chain. In the manufacturing supply chain or network many links exist between different chains, as manufacturers of intermediate products often supply a number of final goods manufacturers. The environmental impact of one company’s supply management function can therefore spread well beyond its own chain and into the supply chains of competitors and manufacturers of other products. Supply chain management might require a first-tier supplier to reduce the amount of harmful substances that are used in the production of its product or sub-assembly. The supplier would then have to impose a corresponding requirement on the second tier suppliers, who in turn impose it on theirs. Once the investment in facilities of a higher environmental standard is made, the suppliers at the various stages can also offer their green credentials to other potential customers. Supply chain manager involvement in the company’s internal or downstream activities equally could create an environmental ripple effect. Requirements for product take-back or the recycling of components would be passed along the downstream chain and lead to product and process improvements that downstream chain members can then use to gain additional business opportunities. In this way the supply chain management function can initiate an environmental multiplier effect, which could achieve environmental change more quickly and more thoroughly than all the other activities of an individual company could. Echoing – and even exceeding – its phenomenal rise from clerical outlook to strategic importance, in environmental terms too supply chain management could become the most effective agent of change within a whole organisation. As a general tool, the green multiplier is applicable in all companies, but the extent to which it is going to be applied and its effectiveness depend on firm and industry factors, not least the degree of power a firm has over its suppliers or customers. Often, it is the customer that has the greater power, as, for example, in the case of original equipment manufacturers in the electronics industry. In other cases, the supplier may enjoy a greater degree of power than its customers. For example,

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medium-sized paper-makers usually depend on their much larger suppliers of chemicals. It is useful in this respect to apply Hall’s (2001) distinction between a company’s legally mandated area of responsibility, its ‘sphere of influence’ over suppliers and a ‘sphere of concern’ over supplier activities. The legally mandated area may include liability for some effects linked to purchased goods or services, but usually a company’s legal responsibility does not include supplier or customer activities, as these are undertaken by separate legal entities. The ‘sphere of influence’ is the sphere where the focal firm can influence or control the activities of suppliers or customers, and this includes influence over the environmental performance of suppliers or customers. An electronics corporation, for example, can require its supplier to phase out certain heavy metals. In the ‘sphere of concern’, the focal company may have misgivings about certain supplier or customer activities but is unable to influence them. The difference between the two spheres is not always clear-cut, neither is the division a static one. In the car industry, for example, electronics and components suppliers have themselves pursued a growth strategy to lessen their dependency on the large car assemblers. There is some empirical evidence for the notion of a green multiplier. Research by the Chartered Institute of Purchasing and Supply (CIPS) in the UK involving 149 private- and public-sector organisations (Holt and Kockelbergh, 2003; Holt, 2004) found that twenty-one organisations stated that their environmental requirements had led to their first-tier suppliers setting their own environmental targets for suppliers in the second tier and below. Such requirements beyond the immediate firsttier suppliers included the elimination of potential contamination at a second-tier supplier, the addressing of packaging issues and the sharing of environmental information in the supply chain. For example, one organisation had instructed its corporate printers to meet strict environmental criteria, which in turn imposed corresponding criteria on their suppliers of paper and ink. An automotive company in our sample, which now requires its suppliers to be certified to the environmental management standard ISO 14001, set up an initiative to have secondand third-tier suppliers certified too. ‘Our standards for the first tier, normally, are the standards that they then adopt for their supply base,’ the director of purchasing explains. The idea of a green multiplier is also evident in public-sector procurement. When Belfast City Council introduced a green procurement strategy in the late 1990s, the strategy was based on the concept of sustainability and sought to interweave environmental issues with concerns about local economic development (Murray, 2000). It suggested

New business opportunities

Further suppliers

2nd tier suppliers

1st tier suppliers

Further suppliers

2nd tier suppliers

1st tier suppliers

Customer or final consumer

Supply chain management

Customer or final consumer

Manufacturer

Upstream activities of supply chain management

Internal activities

Downstream activities

Sphere of concern

Sphere of legal responsibility for the company

Sphere of concern

Sphere of influence

Sphere of influence

General purchasing and supply requirements Environmental requirements New environmental business opportunities Figure 4.1

The green multiplier

Source: Adapted from Preuss (2002a), p. 127.

55

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that, if the local authority were to be an environmentally demanding customer but also offered some support, for example in the developing of environmental policies, this would benefit local companies in getting contracts outside their area. The environment did not become the principal decision criterion, but it was included in the pre-qualification stage. Encouraging suppliers to the Council to improve their environmental performance, and securing their commitment to environmental management, was seen as enabling suppliers to reap the competitive benefits associated with environmental management even if the company was not successful in gaining contracts from the Council itself. Discussing the potential contribution that purchasing and supply chain managers can make to environmental protection led to the hypothesis of a green multiplier, where manufacturers impose environmental criteria on their suppliers that create a ripple effect along the supply chain and, given the links between supply chains of different customers, also far beyond the original chain. Suppliers at the various stages of the chains are then put in a position where they can turn this environmental expertise into new business opportunities. The supply chain management function can thus become the most effective change agent of the organisation, since, being the gatekeeper of the organisation, it determines which products enter the organisation and which do not. Its influence can stretch much further than that of other boundaryspanning corporate functions. The effectiveness of the green multiplier, however, depends on how far the organisation’s influence over suppliers or customers reaches up and down the value chain.

Related normative approaches to supply The prospect of a green multiplier effect – and beyond it environmental initiatives in general – is shaped by a number of firm- and industryspecific variables, such as the size of the buying company, the market structure in the industry, or the type of product. Size is likely to matter, because larger companies have more resources that they can devote to environmental questions, but they are also more exposed to public criticism than are smaller ones. The degree of competition in an industry, or the technological limits for substituting harmful materials, will similarly aid or hamper environmental initiatives in supply. Such complexities in greener supply make it opportune to widen the focus and study the experiences of companies in related fields that are either outside environmental initiatives or outside manufacturing.

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Total quality management and just-in-time management A transfer of environmental concerns from the buying to the supplying company represents a normative conceptualisation of the supplier– buyer relationship. In this sense it is similar to so-called Japanese management techniques, such as total quality management (TQM) and justin-time (JIT) management. TQM requires that the company establishes a structure and culture that enables quality to pervade every relationship, both within the company and along its value chain. Within and beyond the company, relationships are seen as a quality chain, which can be broken at any point. TQM philosophy is built on a belief in continuous improvement for the common good of both internal and external customers (Juran, 1974; Deming, 1986). Although these concepts do not include specific moral values, as, for example, a concern for the natural environment, there are similarities, as asset-specific supplier investments could concern technological adaptations as well as an acceptance of customers’ environmental concerns. Studies of the success of TQM and JIT management do thus allow predictions regarding the success of normative changes to supplier–buyer relationships in general. On the one hand, this concerns the success of the normative component: if TQM and JIT are successful in improving quality and reducing waste, then environmental initiatives may also be successful. On the other hand, the economic impact of such a policy has to be considered: if TQM and JIT improve the financial results of supplier and/or buyer, then greener purchasing is equally likely to have a positive impact on the profitability of supplier and/or buyer. A number of authors (for example, Porter and van der Linde, 1995) see a direct parallel between environmental and quality improvements. It is less costly to catch a faulty product at the end of the production line than to repair it after it has left the company, and, again, it is cheaper to change the process design to avoid the problem altogether. In environmental protection, it is most expensive to clean up after a spillage, less expensive to invest in pollution control equipment, and cheapest to avoid pollution in the first place. Hence it is recommended that environmental problems, like quality issues, are integrated into general management goals and responsibilities (Lamming and Hampson, 1996). Managing environmental challenges has similar implications for organisational structure and culture as has managing quality. Analogous to the quality chain, one can conceive of an environmental chain, which too can be broken at any link. The concept of life-cycle analysis,

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which measures the environmental impact of a product across its lifetime from raw material extraction to recycling or disposal, encourages the application of this image in environmental management. Employee commitment is as crucial to environmental management as it is to quality. As with quality, a company’s environmental impact can be improved continuously. A further parallel emerges in management standards, as the international environmental management standard series ISO 14000 was modelled directly on the quality standard ISO 9000. A growing body of empirical studies shows that TQM is increasingly being adopted in organisations. TQM programmes seem to be effective in terms of improving quality: in particular, employee commitment and customer focus were found to have a positive impact on quality (Dow et al., 1999; Samson and Terziovski, 1999). However, as far as the link between TQM and improved financial performance is concerned, the results are mixed. Some studies reported clear evidence that the long-term performance of companies implementing TQM improves both in terms of accounting variables and better rating by industry experts (Easton and Jarrell, 1998; Douglas and Judge, 2001). Other authors see, at best, a weak link between quality improvement and financial performance (Mohrman et al., 1995; Adam et al., 1997). York and Miree (2004) observed that winners of quality awards, such as the national Baldridge Awards in the USA, typically had a superior financial performance for many years prior to winning the awards. Rather than being the cause of improved financial performance, then, TQM may just be another indicator of a successful company. In any case, it seems that the implementation of TQM practices does not hurt corporate performance. Success in improving quality depends less on the ‘hard’ factors of TQM, such as process improvement, benchmarking or flexible manufacturing, and more on ‘soft’ factors such as employee empowerment and executive commitment (Powell, 1995; Samson and Terziovski, 1999). Employee knowledge, compensation and recognition were found to be significantly and inversely correlated with the total cost of quality (Adam et al., 1997). Managerial leadership is also important in implementing TQM practices, in particular in terms of shaping an organisation’s culture, funding employee training, and forging strategic relationships with key suppliers. The success of quality management initiatives is furthermore contingent on the manufacturing strategy of the individual plant. In other words, TQM practices are not applicable universally to all organisations and all organisational activities (Sousa and Voss, 2001). Accreditation to the quality management standard

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ISO 9000 is no panacea either. Firms certified to ISO 9000 are only marginally better at implementing TQM than traditional firms, and receive only slightly better returns from it (Dreyfus et al., 2004). The impact of TQM and JIT on supplier relationships also displays contradictory trends. Studying the US car industry, Helper and Sako (1995) found that there had been an increase in the average contract length, while supplier trust in their customers had not increased; and JIT delivery was often not matched by supplier JIT production, with customers often obtaining price reductions at the expense of supplier margins. The study distinguished between ‘exit’ relationships, where a customer who is dissatisfied with a supplier just switches to another, and ‘voice’ relationships, where the customer works with the supplier to remedy the problem. Only 29 per cent of suppliers fell into the ‘voice’ category. While there was evidence that stockpiling inventory is still common for both voice and exit suppliers, voice suppliers were more successful in reducing inventory. However, voice suppliers were not significantly more able to defend their margins from customer pressure, or to achieve cost reductions, than exit suppliers. Studying the impact of TQM and JIT on buying and supplying companies demonstrates that a normative approach to shaping the supply chain is possible. The number of companies claiming to have TQM initiatives is still rising, and the same applies to environmental initiatives in the supply chain. The results of TQM and JIT implementation, however, present a mixed picture, as the impression remains that only few exemplary companies really succeed in its implementation, and that in many cases TQM philosophy is compromised by short-term considerations and a management reluctant to cede power. These results add a cautionary note to the chances of the greener supply project. Since there is no clear picture regarding the success of TQM and JIT, one would have to conclude that environmentally conscious buying might not bring clear results either; it too could be compromised by short-term considerations and power battles within companies. Beyond the buying company, successful quality initiatives – and by extension environmental initiatives – in the supply chain seem to depend on the ‘normative infiltration’ of the chain – the degree to which the supply chain accepts the requirements of the customer. Thus a successful greening of the supply chain seems likely for only a handful of exceptional companies. Regarding the link between the introduction of TQM or JIT and financial results, for most companies there is a positive, or at least neutral, effect. Correspondingly, one can expect environmental initiatives in the supply chain not to have a negative impact on supplier and customer either.

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Environmental purchasing in retailing A number of retailers have introduced environmental or socially conscious purchasing policies, including British DIY superstore B&Q,2 and cosmetics and hair care retailer The Body Shop. With 2,000 outlets in 50 countries, The Body Shop International Plc generated group sales of £699 million in financial year 2003/4. Its mission statement commits The Body Shop ‘to strive towards balancing the financial needs and human needs of employees, customers, franchisees, suppliers and shareholders’ (The Body Shop, 1997, p. 121). The Body Shop is generally seen as a company with a consistent commitment to the environment. It was voted second most trusted brand in the UK by the Consumers Association in 1999, while in 1998 the Financial Times ranked it the twenty-seventh most respected company in the world. The Body Shop grouped its environmental and social initiatives around the concept of product stewardship, entailing three dimensions. First, products are examined under a life-cycle assessment scheme, which offers a framework for comparing the quality of its materials and processes in terms of environmental protection and corporate social responsibility. Second, since 1992, an environmental performance rating scheme has been in operation. This judges a supplier’s performance with respect to legal compliance, environmental management systems, animal protection performance and any proactive initiatives the supplier takes. Third, the company has introduced guidelines and training for its buyers, to enable them to handle moral questions in purchasing. Consultation with its suppliers led The Body Shop to set up a forum to allow suppliers to share best practice and ideas, especially on issues relating to social responsibility. Most of its suppliers perceive The Body Shop as strongly and consistently encouraging attention to environmental issues in the supply chain (Wycherley, 1999). Most suppliers also describe their relationship with The Body Shop in a positive light, which facilitates environmental initiatives in the supply chain. None the less, a tension between environment and purchase price is evident for the supply base. Once The Body Shop’s environmental specifications are met, there is also no pressure to achieve further improvements. Environmental initiatives undertaken for The Body Shop also offer only limited potential for gaining business elsewhere. Among new potential customers, only large companies show any interest in the environment, but even these would not pay a price premium. While the environment figures in many tenders or purchasing policy documents, for The Body Shop suppliers this was

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often no more than lip-service. A number of suppliers, especially in the chemicals sector, also commented that the volume of The Body Shop business was too small to attempt to influence their own suppliers. Clear limits to environmental initiatives in The Body Shop’s supply chain thus emerge from financial constraints, but the biggest barrier was found to be a general opinion in business circles that the environment carries political overtones; that it is a kind of eco-evangelism and should be resisted. Thus, The Body Shop is perceived to be an environmental leader, with only few competitors demonstrating a similar level of attention to the environment. However, for the supply chain, there is little incentive outside The Body Shop purchases to address environmental issues. Another interesting example for addressing environmental and social concerns in retailing is a purchasing consortium that supplies a number of student association retail outlets in UK universities (New et al., 2000). The consortium is overseen by an ethics and environment committee, which seeks to apply the moral values of the students’ association to its organisational buying. Its approach to environmental issues is still developing, and at the time of the study sat somewhat uneasily with the traditional approach centring around price and delivery. One of the first products the committee selected for the consideration of its environmental impact was beer, where the consortium is a small player in comparison with other retailers of alcoholic beverages. The brewers struggled to give a coherent answer to questions from a relatively small customer about environmental aspects of product and processes. Several brewers suggested that there are no environmental issues to the supply of beer at all. Since no brewer claims any environmental credentials, all could assume that, even if their own response was rather weak, those of its competitors would not be any better, and hence the commercial implications of underperforming with regard to the environment would be minimal. This case study highlights the multiple interpretations of ‘green’, and raises the question of whether the consortium will be able to do anything about its environmental concerns. These examples from retailing show that the market can be utilised to bring about environmental and other social improvements. As retailers, B&Q, The Body Shop and the student association have an economic incentive to follow their customers’ demands where these include environmental and social criteria. Such an incentive is less clear in manufacturing, where many companies, such as capital goods manufacturers, are at a greater distance from the final consumer. The case of the student association consortium illustrates that greener supply

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requires the availability of a substitute product or supplier, in particular if the customer is in a comparably weak position in relation to the supply base. It also needs to be borne in mind that the retailers discussed in this section are exceptions to the rule. For example, the suppliers to The Body Shop commented that most competitors do not follow the environmental leadership of The Body Shop. Having studied a number of private-sector organisations, the discussion will now move on to the public sector and health care.

Green purchasing in the public sector and in health care Public procurement can make a significant contribution to environmental protection initiatives, which is evident from the sheer size of its expenditure. The European Commission estimated that public authorities across Europe spent some €1,000 billion on goods, works and services in 2001 (Erdmenger, 2003). In the USA, federal government alone spends more than US$200 billion annually on goods and services, and an additional US$240 billion a year indirectly through grant disbursements. This probably makes it the single largest consumer of goods and services in the world (EPA, 2000). Hence, in 2002, the World Summit on Sustainable Development in Johannesburg committed public authorities to ‘promote public procurement policies that encourage development and diffusion of environmentally sound goods and services’ (World Summit on Sustainable Development, Plan of Implementation, Article 18). In the USA, legislation now requires federal agencies to incorporate environmental management systems into their day-to-day decision-making and long-term planning as well as incorporate waste prevention and recycling into the agency’s daily operations.3 Obstacles to greater attention to environmental issues in European public procurement are a lack of environmental knowledge, which was reported in particular by local authorities that are lagging in green procurement. More advanced authorities, on the other hand, stress a lack of financial resources as the main barrier to further initiatives (Ochoa and Erdmenger, 2003). While the laggards might concentrate on initiatives that promise immediate savings, such as electrical devices with lower energy consumption, the more advanced authorities seemingly face environmental issues that require additional investment. Addressing environmental issues in public procurement has also been hampered by a concern about any potential violation of public procurement rules. Since there is a potential for corruption, public purchasing often uses rigid rules to demonstrate fairness, and stipulating additional

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criteria – such as environmental ones – can be seen as violating such rules of fairness. Purchasing in the health service is marked by a high complexity of relationships, where medical staff – doctors, pharmacists and nurses – all have their own specialist knowledge, which interacts with the specific knowledge of the purchasing staff (New et al., 2000; Nollet and Beaulieu, 2003). Health services often use purchasing consortia – for example, NHS Supplies in England. This leads to a double block, in that users in the NHS find it difficult to translate effectively any environmental criteria that might exist in the NHS, even if they are weak, into requirements for the purchasing consortium. The existence of the consortium also hampers direct contact between manufacturer and user, leaving the former to read between the lines of official policy statements as to what the users in fact require. There is an assumption on the part of the NHS Trusts that the purchasing consortium takes care of the environment as part of the supply package, yet there is little evidence that the Trusts verify this aspect of supply. Given the current emphasis on value for money in the NHS, there is no incentive for Trusts to purchase apparently greener alternatives, if their benefits are not clearly proven. Greater attention to the environment in health care purchasing is also hampered by the fact that health care products are often offered in packages involving a number of products and services. The choice of one product – whether selected for environmental or other reasons – thus leads to the selection of a whole bundle of products and services. This makes the comparison of competing products complex, and reduces the likelihood of greener purchases. For example, replacing the PVC used in intravenous bags is complicated by the fact that the bag, as a container, is offered together with the substance to be used in it, and is usually attached to medical apparatus; it is also often supplied with pharmacy packages and logistics services (New et al., 2000). Addressing environmental issues is further impaired by the nature of decision-making in health care. The sector is very risk averse, as poor purchasing decisions can have dramatic consequences for the quality of the provided service. There is also the threat of litigation, especially in the USA, which further contributes to risk-averse purchasing decision-making. The empirical studies discussed in this section have highlighted important issues that are likely to occur in the introduction of environmental initiatives in the supply chain. The survey of TQM and JIT results emphasised that the effectiveness of the green multiplier depends on the normative infiltration of the supply chain – the degree

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to which suppliers accept the environmental challenge rather than merely paying lip-service to it. The studies also highlight the importance of market structures. Questioning its much larger supplier about environmental issues involved in brewing, the student association purchasing consortium met with a lack of interest. Switching suppliers is difficult in its situation as competitors are unlikely to be any more environmentally aware than the original suppliers. This situation is echoed in health care, where the use of purchasing consortia creates a distance between the provider and the user of medical equipment, and this distance hampers the addition of environmental criteria to purchasing specifications, particularly against the backdrop of cost pressures in health care. Health care and public-sector procurement furthermore illustrate a gap between official pronouncements on the environment and the reality, most notably in the low status of environment concerns in supplier evaluation criteria. Perhaps most importantly in the context of a market economy, the TQM and JIT studies underline that adopting the normative requirement is not likely to worsen the financial situation of the supplier. Indeed, survey research into greener supply by consumer goods manufacturers has shown that environmental initiatives in purchasing lead to higher net income and lower costs of the goods sold (Carter et al., 2000). Even where environmental initiatives in the supply chain lead to an increase in costs for the supplier, and where these cannot be passed on to the customer immediately, the company need not necessarily suffer a reduction in profitability. The process of meeting customer demands requires increased communication between supplier and customer, which may lead to a longer-term orientation in the supplier–customer relationship, as expressed by some suppliers to The Body Shop. The supplier’s additional cost sunk into the environment hence becomes an investment into a longer-term relationship with its customer.

Conclusions This chapter suggested that supply chain management has the potential to initiate a green multiplier effect that reaches both up and down the company’s supply chains and far beyond them into the supply chains of other manufacturers. Such influence can be used to bring about environmental improvements in products and services as well as in supplier manufacturing processes. In addition, the purchasing and supply function can become involved in both within-company and

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downstream environmental initiatives, such as design-for-environment or product take-back and recycling. Depending on the company’s influence over suppliers or customers, the supply chain management function could become the most effective change agent of the whole organisation. There are indeed some examples of companies that have used their purchasing and supply functions successfully to bring about environmental change in the supply base. Given the complexities of greener supply, empirical evidence from neighbouring research areas was consulted. The experiences of retailers such as The Body Shop confirm that environmental improvements can be generated via the market, even if the majority of competitors do not follow suit. Studies into the application of TQM and JIT – which are normative conceptualisations of the supply chain akin to greener supply – pointed out that the financial consequences of adopting the normative element are not likely to be negative for supplier and customer, even if the results in terms of achieving total quality and just-in-time delivery are a mixed bag. Transferring these findings to environmental initiatives in the manufacturing supply chain, the financial outcome should not be negative either, even if the environment-related results might also be mixed. The case studies also stressed the importance of top management support, as it was in particular The Body Shop founder, Anita Roddick, who pushed the environment to the forefront in her company. Furthermore, the performance evaluation criteria for purchasing and supply staff need to become more inclusive, as The Body Shop introduced incentives for its buyers to address the environment. The green multiplier effect – and beyond it, environmental initiatives in general – is also shaped by the size of the buying company as well as industry and market structure. Size matters, because larger companies have more resources they can devote to environmental issues, and they are also more open to public criticism than are smaller ones. The use of purchasing consortia in health care and the corresponding distance between provider and user indicates that a green multiplier is more likely to exist the closer the buying organisation is to the final consumer. Market structure is an important variable too, as the student association purchasing consortium discovered when it struggled to get a meaningful answer to its environmental questions from the much larger beer suppliers. Since all potential suppliers are in a position to assume that other brewers would give similarly evasive answers, there is no incentive

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to spend time and energy on environmental concerns. The other side of the coin was illustrated by The Body Shop, where long-standing relationships with suppliers led to trust and a willingness on a supplier’s part to undertake environmentally motivated changes. Environmental initiatives in the supply chain are thus a web of individual, organisational and societal factors. Time now to return to the manufacturing supply chain.

5 Supply Chain Managers: What They Say and What They Do

‘I must admit I have to give that [that is, the environment] a low priority. Normally, what we are buying in, if it is raw material, as long as it meets the proper standard or level of quality, and we check that by way of seeing that we get the proper certification, if it meets that, normally, it would be on delivery time and price.’ Purchasing manager, mechanical engineering company Supply chain management is a corporate function of growing economic importance and it should be able to play an increasingly important role in environmental protection too. To what extent, then, are purchasing and supply chain managers in manufacturing companies involved in environmental initiatives, what level of environmental awareness do they display, what actions do they undertake, and what arguments do managers present for addressing or not addressing the natural environment? Empirical studies have indeed uncovered a number of success stories where companies have utilised the potential of their supply chains in improving their environmental performance. These are often larger corporations – like electronics corporations Xerox and IBM, consumer chemicals manufacturer Procter & Gamble, DIY retailer B&Q, or glass manufacturer Pilkington Glass (Lamming et al., 1996; Russel, 1998). For example, Xerox Ltd introduced measures to reduce and reuse packaging, to take back empty toner bottles and cartridges, and to optimise return transport flows (McIntyre et al., 1998). Other studies compared companies across different product and size categories. In a study of manufacturing companies in Yorkshire and Humberside (Hill, 1997), differences emerged according to industry sector and size; for example, chemical companies showed a greater awareness and experienced a greater degree of environmental pressure than did textiles or engineering firms. Engineering 67

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companies largely felt that, to date, environmental pressure from customers had been unimportant. A medium-sized engineering firm suggested that environmental pressure was ‘90% smokescreen and only 10% reality’ (Hill, 1997, p. 1271). Previous empirical research into greener purchasing has thus established that there are differences between companies in terms of site and product (Green et al., 1996; Hill, 1997; Bowen et al., 2001a). To shed more light on the complex realities of greener supply, a detailed comparative study of manufacturers based in the United Kingdom was undertaken, the results of which will form the greater part of this chapter. The companies were selected according to the product they manufacture (excluding the food and beverage industries), but also according to their size and ownership. In total, purchasing and supply chain managers of thirtyfour manufacturing companies agreed to be interviewed, with products ranging from electronics and maritime vessels, through mechanical engineering items, cables, plastics, tyres and textiles, to chemicals and quality paper (for methodological details on the study see Appendix A on p. 149). While the relatively small number of cases does not allow a statistical interpretation of the results, it is suggested that the spread of companies in terms of product, size and ownership does produce results that are broadly representative of manufacturing in the UK and in developed countries generally. Our study addresses the realities and implications of greener supply at three different levels. The first and most general level refers to the whole organisation, where environmental policy documents and environmental management systems are examined. Second, at the level of interaction in the supply chain, the focus is on the inclusion of the environment in the supplier selection and evaluation criteria, and the mode in which environmental initiatives are undertaken. Third, at the level of the individual supply chain manager, awareness of environmental issues in their supply chains as well as their motives for undertaking environmental initiatives are studied.

The buying organisation The interaction between a manufacturing company and the natural environment can, at the most general level, be studied in an organisation’s environmental policies and its establishment of environmental management systems. These refer to the organisation as a whole, yet given the important role that incoming materials and components play in environmental protection, it needs to be examined as to whether policies

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and management systems include references to the supply chain. The following sections will thus examine how widespread environmental policies have become among manufacturing firms, and then attention will be turned to environmental management systems.

Environmental policy documents An environmental policy has been defined as ‘a document prepared by [a] company which clearly sets out its overall aims and intentions with respect to the environment’ (European Environment Agency, 1998, p. 29). The environmental policy is an organisation’s basis for all interactions, decision-making, audits and reporting regarding the environment. It plays two important roles: it guides the organisation and sets parameters within which action is to be taken; and communicates organisational commitment to shareholders, employees, financial institutions and the local community (European Environment Agency, 1998). At the time of writing, upwards of 90 per cent of all UK companies have a corporate environmental policy (Business in the Environment, 2004). In our sample of manufacturing companies, only three did not have an environmental policy, and these were all small or medium-sized companies. This result illustrates once again that small and medium-sized companies are less likely than larger ones to undertake environment-related initiatives. Generally speaking, however, a rather positive picture emerges regarding the adoption of environmental policies. Environmental policies usually begin with a general statement on the company’s relationship with the natural environment, which is often expressed in proactive terms. A printer manufacturing plant declares, ‘we are committed to keeping the earth green and positively protecting the environment’.1 The company regards the protection of the earth to be one of its most important management issues and is continually developing its corporate approach to preserve the environment for later generations. Such a generally proactive approach with an emphasis on continuous improvement is, however, often cushioned, for example by the use of subjunctives and exclusion clauses. A manufacturer of packaging machines will ‘reduce, wherever practical, emissions to the environment through a program of waste minimisation and energy reduction per unit’. Alternatively, the proactive outlook is cushioned by the time frame adopted. A sheet metal firm speaks of the ‘eventual goal of Zero Landfill waste’, and a petrochemical corporation writes: ‘Our goals are simply stated – no accidents, no harm to people and no damage to the environment’, a goal no one would expect a chemical company to be able to reach in the near future.

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A more detailed analysis of policy content (see Table 5.1) reveals that legislation emerges as the most often cited issue and is referred to by virtually all companies. Issues that promise immediate cost savings, such as reducing material consumption, waste or energy use, are also very frequently included, whereas trickier ones, such as liability and compensation for environmental damage, are usually not addressed at all.

Table 5.1 Content of environmental policy statements by UK manufacturing companies2 Subject area Legislative compliance Continuous improvement Environmental awareness and training of workforce Efficient use of resources/Waste minimisation Reduce pollution Assessment of environmental performance Minimise impacts on the environment Technological improvement to processes Shared responsibility with supply chain Public disclosure Energy efficiency Environmental management system Targets and objectives set Beyond minimum compliance Aim to use recycled materials Liaison with local community Integrate environment into business and/or investment decisions Sustainable development Regular review Environmental best practice Reduce consumption of non-renewable resources Research and development into environmental technology Packaging Worldwide standard Transport Life-cycle analysis Compensation for environmental damage Liability on environmental issues

Occurrence in sample (n = 28) 27 20 19 19 16 14 14 14 13 12 11 11 11 11 10 9 6 6 4 4 3 3 2 2 1 1 – –

Source: Environmental policy documents of sample companies; collected January 2002 to October 2004.

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Over 70 per cent of policies refer to a continuous improvement process, while assessing the company’s environmental impact surfaces only in half the policy documents. Raising the environmental awareness of the workforce figures prominently, which may be motivated by liability considerations. Just under half (13 out of 28) of all environmental policies referred explicitly to the supply chain. For example, a paper-making group states that it will ‘purchase wood pulp wherever practicable from suppliers who harvest wood from sustainable forests with safeguards for wildlife and diversity of species and who themselves have an acceptable policy towards the environment’. It needs to be noted, however, that an environmental policy sets out the policy for the whole company and therefore does not necessarily contain prescriptions that apply directly to the supply chain management function. A petrochemical corporation details its environmental, health and safety requirements with regard to procurement in a separate document, which states that ‘Environmental and HSE Policies are a key component of the Procurement process and should be considered at every stage of this process.’ As part of the procurement process, the document lays down detailed procedures for certain items. On the other hand, evidence from a tyre manufacturer shows that the environment is not addressed automatically in supply relationships just because the company has an environmental policy: We have an environmental statement for this particular site here, [but] there is nothing specifically mentioned about how they have to operate their sites, being green or what policies they have within their organisation. We don’t go to a company and say: unless you provide us with ISO 14001 proof or something like that, there is nothing we can do. No, we don’t do that. The discussion of environmental policies adopted by UK manufacturers has shown that, at the time of writing, such policy documents are widely adopted, in particular among large manufacturing companies. They often promise a proactive stance towards the environment, although this is sometimes cushioned by ‘wherever possible’ clauses. The most often cited subject area is compliance with legislation. Areas that promise cost savings are also emphasised regularly, as is employee training. Continuous improvement surfaces in 70 per cent of all documents – perhaps a result of the vocabulary, if not the mechanism, of environmental management systems. Just under half of all policies refer explicitly to an environmental responsibility that is shared with their supply chains. Many

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environmental policies echo the call, made in connection with the strategic approach to supply, for a move from the traditional adversarial ‘win–lose’ frame to a more collaborative approach. These references to co-operation, continuous improvement and best practice offer surface evidence in the formal rhetoric of these companies that there ought to be a green multiplier effect.

Environmental management systems Another factor that demonstrates an organisation’s relationship with the natural environment is environmental management system certification, either to the ISO 14000 series developed by the International Organization for Standardization, or the European Union scheme EMAS. Introducing an environmental management system requires a number of steps (Steger, 2000). First, the organisation needs to establish an inventory of all the impacts its various activities have on the natural environment. It must also draw up an environmental policy in which it commits itself to continuous environmental improvement, to preventing pollution and to complying with environmental legislation. It must then devise objectives and targets for improvement, and draw up a plan to show how these targets are being met. On the basis of the plan, the organisation must put in place various elements for the successful implementation and operation of the plan. It must then check whether the aims and objectives have been met, and if necessary take corrective action. Finally, the whole management process needs periodic auditing and reviewing to ensure that it meets the requirements of the standard. ISO 14001 and EMAS also require certification by a third party. At least 66,070 sites in 113 countries were certified to ISO 14001 by December 2003, while the figure for EMAS registrations stood at 3,600 by early 2004 (ISO, 2004). Some evidence has been presented that having a formal environmental management system has a positive relationship to corporate performance, as expressed in reduced environmental impacts as well as in lower costs, improved product quality, reduced waste or an enhanced company reputation (Melnyk et al., 2003). However, other studies of the benefits of environmental management systems have been more cautious. Being a process rather than a performance standard, ISO 14001 does not establish an absolute requirement for environmental performance beyond compliance with applicable legislation and a commitment to continuous improvement. Hence certified companies and sites are likely to differ in their definitions of key variables of environmental performance or environmental impact, which makes comparison of certified firms, even within a single industry,

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rather difficult (Nagel, 2003). Many environmental management systems focus on end-of-pipe technology rather than on cleaner technology. The environmental management system is also often seen as a system designed by and for experts. Participation by employees is emphasised, but in practice this happens more as an exception than as a rule (Freimann and Walther, 2001). The majority of companies in our sample are accredited to an environmental management standard: nineteen out of thirty-one companies.3 In line with national preferences in the UK, ISO 14001 is much more popular than EMAS. One industry – chemicals – stands out, as two out of the three companies in the sample are not certified. Instead, they implemented their own systems and expressed confidence that these would meet the requirements of the standard. This could be the influence of the Responsible Care initiative in the chemical industry, which offers similar benefits to ISO 14001 or EMAS without requiring external accreditation (King and Lennox, 2000). Another difference emerges in terms of size, as, with the exception of the two chemical plants, all larger companies are accredited to an environmental management standard, whereas certification among small and medium-sized companies is still a rarity. An environmental management standard concerns first and foremost the organisation or site to be certified, its environmental targets, management practices, and measurement and evaluation procedures, as well as their review. The supply chain is not central to the certification as such, and even parts of the literature on environmental management standards make only scant reference to the supply chain. None the less, certification to an environmental management standard has repercussions for the supply chain, as the properties of bought-in materials and components may be affected by the certification, and the buying company may ask its suppliers to become certified too. For an antenna manufacturer, one of the reasons for undergoing accreditation was indeed customer pressure: ‘They were sending us out questionnaires, how far down the road are you? . . . So, we decided, now is the time to do it, because that is going to be part of doing business.’ Pressure for supplier certification to an environmental standard is most notable in the automotive industry. Large car manufacturers, like Ford and General Motors, announced some time ago that they expect all suppliers to be compliant with ISO 14001. In our sample, a manufacturer of luxury, sports and utility vehicles informed its supply base in 2001 that by the end of 2004 sourcing from non-certified companies or sites would cease. The new requirement will not affect many sites or

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companies, as most large suppliers are already certified, and the remaining non-accredited suppliers are smaller or non-strategic suppliers. Generally speaking, the company has not encountered much resistance to ISO 14001 among suppliers. At a Japanese-owned car manufacturing company, certification among the supply base is encouraged, and a number of large suppliers, such as Bosch, have their own environmental initiatives. Certification is, however, not mandatory. Thus, apart from one car manufacturer, none of the supply chain managers insists that their major suppliers have to be accredited to ISO 14001 or EMAS. For the purchasing manager of a group of paper mills, ‘to insist that they have it and that you only deal with people who are qualified to ISO 14001 is not realistic at the moment. It will come, because it is becoming very widely accepted, but not yet.’ Certification to environmental management standards is increasingly becoming the norm for manufacturing companies, especially for larger ones, but such initiatives are as yet not matched by an involvement of the supply chain. The certification itself does not concern a company’s suppliers directly, although it does have some repercussions both in terms of incoming product characteristics and potential customer pressure for supplier certification. The sample included only one manufacturer in the automotive industry who imposes such a requirement on their supply chains. For all other companies, such a move would limit the number of suitable vendors beyond a degree that is commercially viable. However, there are signs of change, and parallel to the way in which the quality standard ISO 9001 has gradually become expected of suppliers, the environmental management standard may also become a matter of course at some point in the future. At present, however, ISO 14001 or EMAS certification on their own are still an inadequate indicator of environmental initiatives in the supply chain.

Supply chain interaction The analysis of the two most common expressions of an organisation’s interaction with the natural environment – environmental policies and certification to environmental management standards – produced results that are not entirely consistent. While the proactive language of the policies often promises an involvement of the supply chain management function in environmental protection, certification to environmental management standards is ultimately an inadequate indicator of green credentials in the supply chain. The discussion now moves to the level of interaction among supply chain companies.

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It first considers the criteria used for the selection and evaluation of suppliers, and then examines in what mode environmental initiatives are carried out.

Supplier selection and evaluation criteria In the discussion regarding a strategic role of supply chain management, it was argued that the function can indeed make such a contribution because it possesses non-substitutable resources and knowledge regarding supply chain competencies and their potential use to complement those of the buying organisation. Tapping into supply chain capabilities hinges crucially on the way in which suppliers are selected and evaluated. The criteria used for this purpose should give supply chain managers a solid understanding of which suppliers perform well and which do not. They should also allow the identification of suppliers that would benefit from supplier development initiatives. Both aspects are transferable to environmental challenges in the supply chain. On the one hand, supplier selection and evaluation criteria should enable supply chain managers to identify suppliers of outstanding environmental performance, and on the other, the criteria should point to suppliers that have the greatest potential for reducing their environmental impact by improving their processes. If supply chain managers are serious about the environment then, arguably, the environmental credentials of suppliers should emerge as one criterion that determines the selection and evaluation of suppliers (summary information concerning the supplier selection and evaluation criteria that supply chain managers in the sample companies use is presented in Table C.1 in Appendix C – see p. 155). The manufacturing companies in the sample display some degree of variance in their supplier selection and evaluation criteria. A number of managers cite only three standard criteria – usually quality, price and delivery performance – while a multinational specialist textiles manufacturer uses a richer set of criteria, comprising supplier quality, service, profitability, past history, investment plans and attitude towards training. There is also a variance in the sophistication of the approach, as focusing on the three standard criteria contrasts with more elaborate point scores and trend analyses. In some cases, the structure of the industry limits supplier selection and evaluation. At the two tyre manufacturers, most purchasing is undertaken centrally at the company’s headquarters, and local purchasing is limited to engineering spare parts and the services needed to run the site. For an electronics contract manufacturer, the use of approved vendor lists makes customer

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approval the most important criterion alongside cost. It is noteworthy that the traditional triumvirate of price, quality and delivery – having been reported some forty years ago by Dickson (1966) – has shown a remarkable persistence, to the detriment of a more comprehensive approach that includes dimensions of strategic importance, such as supplier management practices, design and development capabilities or cost reduction potential. Considering the role of the environment in the selection and evaluation process, it emerges from the sample that the environment plays only a marginal role. It is considered explicitly as part of the supplier selection and evaluation process by only ten out of thirty-four companies: by all four of the paper-makers, both car manufacturers, an electronic test equipment manufacturer, a manufacturer of fax equipment, a petrochemical corporation and a manufacturer of linoleum and vinyl floor coverings. Thus the four industries of paper-making, car manufacture, electronics and chemicals emerge as the only ones where the environment is included formally in the supplier assessment. Even these exemplary industries show important differences regarding the inclusion of the environment in the formal supplier assessment process. In the chemical and electronics industries, companies often refer to the environmental impact of the supply chain in their environmental policies, but not all carry these commitments through into their supplier evaluation criteria. It is only in the automotive and paper-making industries that the environment is included consistently in the supplier evaluation and selection process. Where the environment is included in supplier assessment criteria, supply chain managers tend to rely on measures that are relatively easy to quantify, such as ISO 14001 certification, the use of hazardous materials or violations of environmental regulation. An assessment of the internal processes of their suppliers is used less frequently in supplier evaluation (Handfield et al., 2002). These results are confirmed by a survey of greener supply activities in UK-based companies, which found four different types of supplier management activity (Holt, 2004). The majority of companies claimed to consider environmental performance informally in their purchasing decisions or supplier assessment. Slightly more than half of the companies communicate their environmental requirements to their supply base, but only 38 per cent of companies assess the environmental performance of suppliers in a formal process. Even rarer are outreach activities, as, for example, only 15 per cent of companies had arranged seminars or workshops on environmental issues for their supply base.

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A comprehensive evaluation of the role the environment plays in supplier assessment should consider not just the final phase of the assessment process – that is, the application of the criteria. Instead, the preceding stages, the formulation of the criteria and the pre-qualification of potential suppliers, also deserve attention (de Boer et al., 2001). An indicator for the role of the environment in supplier pre-qualification – that is, in the sorting of all suppliers to find the acceptable ones, is provided by an electronic testing equipment manufacturer. The company includes environment-related performance in its supplier assessment criteria, yet the purchasing manager could not cite any cases where the environmental performance of a supplier had been the main reason for ending the relationship. It can, however, be a decisive factor in pre-qualifying potential suppliers: ‘Now, if there were issues with the environment and probably the disposal of waste material or the processes used, if they weren’t what we would consider best practice, we would tend not to use them.’ The inclusion of the environment in supplier evaluation criteria was therefore more a formalisation of an assessment process that had been going on informally, rather than a completely new procedure. The importance of the environment in supplier assessment may increase in the near to mid-future, as has been suggested in conjunction with the growing popularity of environmental management systems. For the present, however, the conclusion must be drawn that the environment does not play a significant part in supplier selection and evaluation criteria. This shortfall has two dimensions: on the one hand, the need to make the environment part of their supplier assessment has not been recognised by the majority of companies, while on the other hand supplier assessment tools are not sophisticated enough to take into account the different requirements the environment brings. Where the environment is addressed, such an inclusion is concentrated in selected industries, such as electronics, chemicals, and most consistently in paper-making and the automotive industry. The non-inclusion of the environment in supplier assessment does not only stand in contradiction to the promise of proactive commitment made in the environmental policies of many manufacturing organisations. It also hampers supply chain management professionals in selecting environmentally more advanced suppliers, thereby suppressing an important incentive for greener manufacturing in the supply chain. Even in the exemplary industries, where some companies are addressing the environment when evaluating suppliers, the environment functions only as an initial threshold in supplier selection. Once the

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relationship has been established, the supplier’s environmental performance seems to be taken for granted. From a supplier’s point of view this means that an outstanding environmental performance is more likely to be noticed where the customer is dealing with a first buy rather than repeat buy situation. Equally, suppliers of items that are considered to be strategic by their customers have a better chance of having their superior environmental performance noticed than have suppliers of routine items. Time now to consider in what mode environmental initiatives in the supply chain take place, where they happen at all.

Modes of environmental activities The discussion regarding a strategic contribution of supply chain management highlighted different types of buyer–supplier relationships (Burt et al., 2003). Many purchases are undertaken in a transactional, arm’s-length mode, where neither party is particularly concerned with the long-term success of the other. Such relationships are less resourceand time-intensive, but the bought components only aim to meet (rather than exceed) the required quality level. In a more collaborative relationship, there is an acknowledgement that all parties are successful only if the supply chain’s end product is competitive. Such relationships require more managerial time and effort, but the stable, longer-term relationship facilitates process improvement and the adoption of technical innovation along the supply chain. A collaborative relationship is characterised by the co-ordination of activities between the buying and selling companies, by an adaptation of resources, including both tangible and intangible assets, and by close interaction between and exchange of information among individuals from the companies involved (Gadde and Snehota, 2000). The distinction between transactional and collaborative relationships also applies to environmental initiatives in the supply chain. Where they are undertaken, such initiatives cover a spectrum from a marginal involvement through an arm’s-length approach to a comprehensive approach based on co-operation and continuous improvement. Some companies in the sample claimed not to have any significant environmental initiatives. Typical of such marginal-to-non-existent involvement is a purchasing manager of a specialist cable manufacturer: ‘It tends not to be a big problem for us, in that the processes we have don’t impinge on the environment unlike some chemical industries, where there are a lot of emissions, etc. . . . Our processes don’t have a huge environmental impact.’ Such a non-existent or marginal approach was found in only a small number of cases concentrated in the small and medium-sized

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sector. This underlines once again that small and medium-sized companies tend to lag behind larger ones in environmental affairs. Under the arm’s-length mode, the supplier is merely expected to meet the current standard, which is often a case of passing regulatory requirements to the supply base. There is usually little communication, as the customer stipulates the environmental criteria and leaves it to the supply chain to work out how these can be met. For a Japaneseowned car manufacturer, the biggest environment-related concerns at the time of writing result from an EU Directive on End-of-life vehicles. It aims to reduce the amount of waste arising from such vehicles and to increase recovery and recycling of vehicle components: ‘It is a must for us, so therefore we have to tell the supplier: You cannot do these processes, you cannot use these materials.’ The arm’s-length approach is clearly visible. A medium-sized hydraulic equipment manufacturer purchases a certain amount of paper: ‘We have to have an assurance from our paper supplier that it is coming from sustainable sources. We use a lot of wood; we have to have an assurance from our supplier of wood that the wood is coming from sustainable sources of forestry. Otherwise we won’t deal with them.’ Again, the performance standards for suppliers are derived from third parties without much consultation. The arm’s-length approach contrasts with a more collaborative approach to greener supply, which sees ongoing co-operation between the customer and the supply chain as to how the current standard can be exceeded. As discussed above, such a collaborative mode is shaped by a co-ordination of activities along the supply chain, an adaptation of resources, and extensive interaction between firms and individuals. An example of the collaborative approach is the returnable container for a hazardous chemical that a manufacturer of pigments and dyes developed in conjunction with the supplier it buys the chemical from. The new container not only reduces operator exposure to the chemical as it discharges directly into the processing equipment, but it also eliminates the need to landfill a large amount of contaminated fibreboard kegs (for more details, see the discussion of the chemical industry in Chapter 6). Generally, a more co-operative approach in the supply chain is both rarer than the arm’s-length approach and found predominantly in the chemical industry or in the use of chemical products in other industries. It is neither possible nor desirable for a company to handle all, or even the majority, of its suppliers in a co-operative mode. Relationships with suppliers can become ‘over-designed’ (Gadde and Snehota, 2000), when they bind more resources than are strictly necessary. Apart from

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being unnecessarily costly, they can also turn into liabilities when the supplier is no longer the optimum partner for a purchased item. In ‘under-designed’ relationships, on the other hand, a greater degree of co-operation would enable the buying company to increase its competitiveness. Transferring this distinction to environmental initiatives, one should not expect a company to have a consistent environmental approach across the product range it buys. In shipbuilding, for example, the specifications are largely laid down in the rules that govern the registration of the ship under a certain flag: ‘If nothing is specified or within the rules, we tend not to get involved in anything other than what we have to do’, the purchasing manager of a shipyard commented. This generally transactional mode, however, does not preclude instances of a more collaborative approach, such as negotiations with its major paint supplier to deliver paint in returnable containers instead of small one-way drums that had to be disposed of in their hundreds. A company can also show inconsistencies in both upstream and downstream operations. For example, a small mechanical engineering company contributed to environmental protection by improving the design of cleaning equipment for the coke ovens it sells to the steel industry. An efficient cleaning process for the oven doors ensures that the doors fit closely and that fewer pollutants escape into the atmosphere. This is an example of a proactive approach to the environment in the dealings with its customers. However, as far as environmental initiatives in its own supply chain are concerned, a marginal approach dominates. In the buying of steel, the purchasing manager checks the quality certification and otherwise selects suppliers on cost and delivery alone. The predominance of an arm’s-length approach in environmental activities leads to important limitations, as the supply chain will achieve little more than compliance with current regulations if the environmental threshold is set low. Such customer pressure on supply chains is, furthermore, fragmented, as the environment concerns a wide range of issues, and performance levels are dictated by a broad range of companies and other stakeholders. The predominance of a transactional mode also has implications in terms of policing environmental requirements: ‘The environmental stuff, unless you are actually going out actively policing it all the time, you are taking it on trust that these guys are not going to do that sort of thing’, the purchasing manager of a speciality textiles manufacturer comments. A more collaborative approach, by contrast, would not only lead to higher quality and greater efficiency along the supply chain, it would also promote

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trust and hence reduce customer dependence on monitoring their suppliers’ environmental performance. The range of potential approaches to the environment encompasses one further option, that of outsourcing environmentally unfriendly processes to the supply chain. It is a general trend, especially among large manufacturers, to concentrate on their core competencies and outsource other activities increasingly to the supply chain. Apart from more efficient value creation, this also allows the buying organisation to transfer environmentally damaging production steps to the supply chain. The process of outsourcing environmental issues can be illustrated by the manufacture of printed circuit boards in the electronics industry. The boards pose numerous environmental problems, since their production consumes heavy metals, toxic chemicals and large quantities of water. By contrast, only few environmental hazards remain for the final product assemblers. A similar issue exists in paper-making, where the supply of wood pulp and chemicals is bound up with an array of environmental questions. Given a great deal of public concern over such destructive forestry practices as clear-cutting – where whole forests are cut down and turned into pulp – the paper-maker carries part of the responsibility for environmentally friendlier wood pulp production and must make sure that its wood pulp suppliers follow acceptable standards of forest management. Wood pulp and printed circuit boards are thus interesting cases, where the manufacturer can outsource environmental problems, but cannot entirely disentangle itself from the responsibility for them. The responsibility for environmental matters merely shifts from being the duty of an internal specialist, such as an environmental manager, to being the supply chain manager’s job. However, since the share of materials and components that are purchased from further afield is increasing, and since countries outside the developed world are likely to have lower environmental standards, this is not merely a case of transferring responsibilities from one corporate function to another. First, supply chain managers are usually trained less well in environmental issues than environmental managers. Second, there is the increasing cost pressure on supply chain management, which is after all the main reason for outsourcing. In other words, supply chain managers neither have the expertise nor the incentive to address the environmental challenges of materials and components in the same comprehensive fashion as was the case when the purchased item was produced in-house. There is thus a danger that increasing outsourcing in fact lowers the environmental performance of a supply chain.

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We have established that an arm’s-length approach to the environment is the predominant way of addressing environmental challenges in the manufacturing supply chain. Only a minority of companies claim that they do not have any environmental issues in their supply chains, and these are usually small and medium-sized companies. However, a collaborative approach to the environment is also much rarer than the arm’s-length approach. This conclusion echoes the appeal in the literature on both supply chain and total quality management that suppliers and buyers should steer their relationship away from the traditional arm’s-length thinking, with its ‘win–lose’ frame, to a collaborative approach in order not to forgo the benefits of JIT, TQM and continuous improvement. As has been claimed for quality, innovation and strategic supply chain management, the environment too would be better served by a collaborative relationship. Under the arm’s-length mode, companies are, to some degree, taking the environment into account, but they forgo opportunities offered by a more comprehensive approach. Having said that, not all environmental issues require co-operation in the supply base, and no organisation could handle all its suppliers in a collaborative mode. Hence the challenge of selecting the right management approach for the right issue arises from an environmental perspective as much as it has from a quality management one. Consequently, any company’s environmental performance is likely to be patchy and inconsistent. Co-operation in one area can contrast with an arm’s-length approach in others, just as a co-operative approach to the downstream chain does not mean that upstream supply chain activities are not handled in a marginal or arm’s-length fashion. Having discussed the organisational level in terms of environmental policies and environmental management standard certifications as well as the supply chain interaction in terms of supplier assessment criteria and modes of environmental initiatives, the individual supply chain manager will now be the next level of analysis.

The buying person The possibility of a green multiplier effect was supported initially by the proactive stance taken in the majority of environmental policy documents, yet the review of supplier assessment criteria revealed that these do not systematically include the environment. This leads us to question whether purchasing and supply chain managers in fact recognise the potential economic and environmental benefits of greener

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supply. Thus the next section will analyse the possibility and implications of greener supply from the perspective of the person undertaking the buying. We first examine which environmental issues supply chain managers perceive as important for their supply chains; and second, the motives behind individual managers’ choice in considering environmental initiatives.

Perceived environmental issues in the supply chain The environmental challenges in the supply base – as cited by the supply chain managers in the sample (for summary results see Table C.2 in Appendix C on p. 160) – differ between industries. Where the main issue in the supply chain of a computing hardware corporation are the hazardous chemicals in printed circuit boards, problems for a papermaker centre around biodiversity and the clear-cutting of forests, while a petrochemical company sees major issues in the procured production chemicals, solvent-based paints and aerosols. Despite these differences, on closer examination, similarities become visible. Packaging, for example, is cited by manufacturers of products as diverse as specialist textiles, video cassette recorders, tyres, motor vehicles, paper or packaging machinery. Thus four general issues emerge as being cited by supply chain managers with regularity – namely, packaging, waste, hazardous production materials, and paints and solvents. This result is confirmed by a similar study of greener supply activities across UK companies (Bowen et al., 2001a). There too waste reduction and packaging were found to be the most often implemented initiatives in the supply chain. These two were the only ones reported by more than half of the sample companies, while joint recycling initiatives with suppliers fell just short of the 50 per cent mark. A range of other initiatives – from using environmental criteria in the selection of strategic suppliers, through the use of environmental criteria in supplier assessment, to environmental awards for outstanding suppliers – were reported by a minority of companies only. Packaging is the environmental issue supply chain managers referred to most frequently. ‘Packaging is not a very sexy item,’ the purchasing manager of a cable manufacturer commented, ‘[but it is one] that costs money, it takes up space and we have to dispose of it.’ Packaging is dealt with in three different ways: by reusing, reducing or recycling it. Prominent examples of the reuse of packaging come from large manufacturers in the electronics industry. A multinational electronics contract manufacturer uses returnable packaging between the plant and the end customer for some items. Instead of consuming 500,000 cardboard

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boxes a year, the company now uses 500 plastic containers. A mediumsized manufacturer of electric motors uses returnable packaging with a marine products customer. The customer retains the packaging and when a new delivery is made, used packaging is collected and brought back to the supplier. A number of companies in the sample have undertaken initiatives to reduce the amount of incoming packaging. A specialist cable manufacturer considers packaging at the tendering stage. A supplier might offer the best deal in terms of product quality and price but use more packaging than its competitors: ‘We might go back to the supplier and say: your packaging is not right, we want it in this format, and then make up our mind.’ A third method of dealing with packaging is external recycling for different uses from the original one. A small hydraulic motor company had contracted an external recycling company to take all its paper, but the resale value of the recycled paper declined and the external recycler was forced to terminate its service. Packaging is the environmental issue cited most often by purchasing and supply chain managers. Of the three methods of handling it in a green fashion – reuse, reduce or recycle – reuse is the most environmentally friendly one. There are, however, important industry factors that limit the reuse of packaging. It requires the geographical proximity of supplier and customer, a regular logistics schedule, and a significant volume of goods to be exchanged between companies. Furthermore, there must not be any contamination of packaging material in the production process. These factors are met, for example, by electronics companies. Hence this industry offers prominent examples for the reuse of packaging, whereas other industries, notably tyre manufacture, have shown a much lower profile. Similarly, reducing packaging is not suitable for all industries and has limitations in itself that make continuous improvement difficult to achieve. In the sample, recycling has depended on the services of external providers, which have not always been available. Waste is the second most often cited issue in the supply chain. As with packaging, some waste can be avoided or recycled, although by definition not all can. Waste, again, differs between industries in terms of the overall amount and the difficulty of its handling. One industry that is particularly affected by the generation of waste is tyre manufacture, where the production process itself produces some scrap tyres. Companies also undertake certain activities to reduce waste from other sources: plastic waste is collected and sold; and aluminium cans and other scrap metal are sent to recycling plants, for example. Waste is

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thus a major problem confronting supply chain management, and efforts are made to reduce the amount of waste or to avoid it in the first place. The ability to do so depends, again, on the industry, as a papermaker can recycle some waste raw materials from the production process by adding it to the pulp fibre once again, whereas a tyre manufacturer usually cannot reuse raw materials. Incentives to reduce the amount of waste arise from legislation, such as the introduction of the landfill tax in the UK, and the potential for cost savings, which can arise either from lower waste disposal costs or from value recovery where waste is reused. Production materials, another regularly cited issue, present a challenge for supply chain managers in a twofold sense. First, any danger to employees, the natural environment and potential users of the product have to be evaluated before the purchase is agreed. Second, after the production process, supply chain managers have to find ways to reduce the impact of the remaining production materials by disposing of them in an environmentally safe way, while perhaps recovering some value. In a similar fashion, environmental issues apply to bought-in components. Current examples are the European Directives on waste electrical and electronic equipment and on the restriction of hazardous substances in electric and electronic equipment, both of January 2003, which prohibit the use of certain heavy metals in electric and electronic products, and require that manufacturers set up systems to recover a certain quantity of their products from the final consumer. The supply chain function is affected by both requirements: it must make sure that the bought-in components no longer contain any of the banned materials, and it will probably be involved in setting up systems by which customers can return unwanted electronic devices to the manufacturer. Supply chain issues around paints and solvents, a fourth group of environmental challenges, concern both the purchase of a product on which solvents were used and the purchase of solvents and paint for a company’s own production processes. The first case is illustrated by a multinational manufacturer of mobile phones: Our consumer base like nice silver phones, they don’t like black phones any more, so we have to make them a little bit smarter than just standard black . . . which cause the suppliers more issues than they cause us, because they have more environmental issues with the paint and the toxins involved. Notably, the environmental problems are outsourced here to the supplier and no longer concern the manufacturer directly. Another aspect

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regarding the procurement of paints is the debate between solvent-based and water-based paints. There is a general shift in industry towards water-based paint, but the commercial director of a small paper and plastic label manufacturer commented that water-based paint is not suitable for all the required applications, and for some uses solvent-based paints achieve a better quality. In such cases, the company insists that its paint suppliers install solvent recovery systems, which minimise the environmental impact of solvents. The review of the environmental issues cited most regularly by purchasing and supply chain managers highlights two points. On the one hand, managers generally demonstrate some awareness of environmental issues in their supply chains, but on the other, the issues cited most often – packaging and waste – concern directly neither the production processes of the supply chain nor the environmental characteristics of the finished product. They furthermore concern areas of low financial importance. This is not to argue that the environmental impact of a material or component correlates with financial factors, but since cost savings are a major driver of corporate environmental initiatives, supply chain managers might find it more difficult to persuade colleagues in other functions to address such issues where they are of low financial impact. In terms of the environmental performance of the supply chain, production materials, paints and solvents are more interesting than the more often quoted issues of packaging and waste, as not only is the environmental impact in question larger, but supply chain management is also involved in changes that have a direct impact on the product and the production processes of the involved companies. Overall, the focus of environmental initiatives in the supply chain is on supplied products, rather than supplier manufacturing processes. A further interesting point emerges when the environmental perceptions of supply chain managers are compared with those of environmental and production managers. James et al. (1997) examined the perceptions of environmental and production managers regarding environmental issues in medium-to-large UK companies in the chemicals, high technology manufacturing and light manufacturing sectors (see Table 5.2). Linking these findings to the supply chain management function, a discrepancy emerges between the managerial groups. While all three groups see the use of raw materials as a concern, packaging ranks highly for production and supply chain but not for environmental managers. Waste had emerged as the second most important concern of supply chain managers, but does not rank highly for either environmental or production managers. Conversely, transport, which was given a high

Supply Chain Managers 87 Table 5.2 Importance of environmental issues to UK environmental and production managers Environmental issue CO2 emissions Transport Land use/planning Noise nuisance Use of raw materials Contaminated land Use of products Disposal/recycling of products Packaging Risk assessment Use of energy Waste water Waste disposal Waste minimisation/recycling of materials Emissions to air

Environmental managers

Production managers

3.23 3.15 3.15 2.92 2.62 2.54 2.50 2.46 2.15 1.92 1.85 1.85 1.77

3.67 3.56 3.00 2.44 2.89 2.44 3.44 2.33 3.11 1.78 1.89 1.67 1.56

1.69 1.46

2.00 1.11

Note: Responses on 5-point scale: 5 = very important; 1 = not important. Source: James et al. (1997, pp. 36, 37). © Anglo-German Foundation for the Study of Industrial Society, London. Reproduced with kind permission.

ranking by both environmental and production managers, does not appear among the important concerns of most supply chain managers. The small number of respondents in the survey limits interpretation, yet the comparison seems to offer evidence that the environmental issues that supply chain managers perceive as important do not completely overlap with those suggested by environmental and production managers. In addition to the partial gap between the perceptions of supply chain and other managerial groups, the environmental issues cited by most supply chain managers also contrast with the proactive commitment often found in environmental policies. Two of the issues referred to most regularly – packaging and waste – do not concern the production processes of the supply chain nor the ecological credentials of the final product. Some doubt emerges as to whether the promise of a proactive approach to the environment, often made in environmental policies, is really met by the supply chain. Given such contradictions in the findings, it is time to consider what motives the individual purchasing and supply chain managers give for undertaking, or not undertaking, environmental initiatives.

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Motives for environmental initiatives in the supply chain The promise of a proactive approach to environmental issues espoused in many environmental policy documents, as the previous sections established, is often not followed through in the organisation’s supply chain management. Supply chain managers perceive packaging and waste as the most important environmental challenges, but these are peripheral to the environmental performance of the supply chain as a whole. A partial gap was discovered between the perceptions of the supply chain and those of environmental and production managers, which casts further doubt on the project of greener supply. Against this background, this section will now examine what motives supply chain managers give for addressing environmental challenges. A recent study of environmental buying at 149 private- and publicsector organisations in the UK (Holt and Kockelbergh, 2003) found legislation, both by the UK government and the European Commission, to be the most important driver of greener supply initiatives. This was followed by a desire to maintain an environmentally responsible image, and health and safety concerns for employees and consumers. Customer requirements were seen as being moderately important, whereas NGO pressure influenced environmental initiatives to only a small extent. A survey of US manufacturers in the mining, chemicals, food processing, defence contracting and high technology sectors (Carter and Dresner, 2001) also concluded that the most common drivers for environmental initiatives are a desire to reduce cost, customer pressure and legal requirements. Notably, suppliers were not identified as drivers, yet they were found to help by providing valuable ideas for the implementation of environmental projects. The pre-eminence of regulation is confirmed in other studies (Hill, 1997; Howes et al., 1997), in particular for industries that require authorisation under the Integrated Pollution Prevention and Control system in the UK, such as metals, chemicals, paper and energy generation, where companies devote considerable resources to preparing for authorisation and discussions with regulators. This is in line with the earlier finding that virtually all environmental policies in the sample of UK manufacturers refer to legal compliance. Legislation is applied with differing degrees of explicitness. In the most extreme case, some substances or processes have been banned – for example, the Montreal Protocol phased out certain solvents. For other items or processes, legislation is used to stipulate minimum product characteristics – for example, safety clothing has to comply with European regulations on safety and to bear the CE mark.

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Third, legislation can require a certain amount of documentation to be provided by the supplier, so that the customer knows how to handle the materials. Suppliers of oils and greases, for example, are required to issue a certificate of conformity under the Control of Substances Hazardous to Health (COSHH) legislation. Cost reduction is also a major driver for environmental initiatives in the supply chain (see the discussion of an environmental cost leadership strategy in Chapter 2 on page 18). Cost can be reduced where an environmental initiative leads to higher product quality. For example, a mobile phone manufacturer replaced its cardboard packaging for the incoming plastic phone casings with reusable containers. The cardboard had contaminated the display lenses and caused a significant amount of reworking at the end of the production line. Changing to reusable containers both eliminated the quality problem and reduced the company’s environmental impact. Further cost benefits can arise where companies hold less stock and thus consume fewer natural resources, as illustrated by an electronics corporation which has contracts with external companies to recycle its excess electronic components. Savings can relate to the cost of disposal, where a company, by reducing the amount of waste it has to dispose of, again utilises natural resources more efficiently. These examples illustrate once again the parallels between environmental initiatives and total quality management. From both points of view, any reduction in waste is desirable, as waste not only constitutes a burden for the natural environment but is also a sub-optimally used resource. Cost savings, albeit intangible ones, also arise from the nature of risk that greener supply deals with. Avoiding even a single supply interruption and hence lost production time because of environmental risk provides substantial economic benefits to the company (Trowbridge, 2001). Pressure from final consumers and industrial customers is another important lever for environmental improvement. This pressure applies in particular to industries that are close to the retailing market. For a manufacturer of tissue paper, pressure from supermarket chains is an important reason for imposing minimum environmental standards on its supply base: ‘It is a major consideration, because if they were using unfriendly production methods . . . and we used their products and then our customers found out about it, we would get into serious trouble with our customers.’ However, outside a narrow range of household commodities, most consumers still concentrate on performance and price criteria when they choose a product. An important by-product of consumer pressure, however, are the efforts (especially of large

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manufacturers) to develop an environmentally responsible image as part of their corporate branding. For example, the director of purchasing at a sports and utility vehicle company stated: ‘To a certain extent it gives you financial benefits from the point of view of cost avoidance . . . but I also think being socially responsible in the kind of business we’re in is something that is a prerequisite.’ A further reason for environmental initiatives in the supply chain came out of the certification to environmental management systems ISO 14001 and EMAS. The supply chain manager of an antenna manufacturer commented that the certification of his company to ISO 14001 ‘puts additional pressures on us to pass that down to our suppliers, because now we need to be sure that what we are bringing in is environmentally correct and we are not ending up with everybody else’s environmental problems’. Such pressure is currently not widespread, yet it will become an important factor in the near future. Less frequently cited reasons for adopting an environmentally friendly strategy include pressure from local communities, or being sited in an area that is designated as being of special scientific interest, as is the case for one paper-maker. The most important motives that lead to environmental initiatives in the supply chain are legislative pressures and cost savings. Other reasons include an environmentally responsible company image, quality considerations, and requirements resulting from customer certification to an environmental management standard. It is often not easy to disentangle the motives for environmental protection measures. For example, cost is often linked to legislation, as waste charges are fixed in this fashion. Hence environmental initiatives can often only be explained by a whole parcel of motives. Differences emerge between individual companies and industries in the degree to which these motives apply. For example, extractive and basic metal processing industries react first and foremost to regulation, whereas for industries closer to final consumers greener products and green branding become more important. There are also differences relating to company size, where the smaller companies, being less well resourced, are often less active.

Conclusions Environmental policy documents, our sample demonstrated, are now adopted widely by manufacturing companies. They often promise a proactive approach to environmental issues as well as a process of continuous improvement. Half of all environmental policies also

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include attention to the supply chain. Taken together, the two mean that there should be a green multiplier effect in the supply chain of manufacturing companies. Certification to environmental management standards is also becoming common, especially among larger companies. Although primarily concerning the certified company, the certification has repercussions for its supply chains. Bought-in materials and components have to adhere to the standard, and there may be pressure put on suppliers to get themselves certified too. With the exception of one automotive company, the current consensus of supply chain managers is that insisting on ISO 14001 or EMAS would restrict the number of possible suppliers too much. Such a requirement, however, is likely to become more widespread in the near future, in a similar fashion as the quality standard ISO 9001 is now the norm for suppliers. The criteria used for selection and evaluation of suppliers showed significant gaps and omissions. The environment plays at best a marginal role here, as only ten companies in the sample of thirty-four include the environment in their formal supplier assessment criteria. The ten manufacturers are concentrated in paper-making, electronics, car manufacture and the chemical industry. Even in these exemplary industries the environment seems to function only as a pre-qualification threshold. Once the relationship is established, supplier commitment to the environment often becomes taken for granted again, and supplier evaluation returns to the traditional economic criteria. Environmental credentials earned by suppliers are thus not reflected systematically in the assessment criteria of buying companies. In other words, the majority of manufacturing companies forgo an important opportunity to involve their supply chains in the tackling of environmental issues. The modes of environmental initiatives range from non-existent, through an arm’s-length approach to a collaborative involvement of supply chain partners, while in some cases environmental challenges are outsourced completely to the supply chain. Where environmental initiatives do occur, companies usually apply an arm’s-length approach by setting minimum standards below which their suppliers must not fall. Such requirements are dictated more or less to the supply chain, with variations on who pays the bill for them. The environment can be addressed in such a mode, but the benefits of a more comprehensive approach are lost. The use of the arm’s-length mode is probably exacerbated by the focus of ISO 14001 and EMAS on an individual company or site. Environmental initiatives may furthermore be patchy and inconsistent, as a proactive approach in the downstream chain

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need not be matched by an equally proactive approach to the upstream chain. Supply chain managers themselves show an awareness of environmental initiatives in their supply chains. The issues they put forward as being the most important centre around packaging and waste, and to a lesser degree around production materials, paint and solvents. A partial gap seems to have emerged between the issues that supply chain managers perceive as important and those cited by production and environmental managers. It is furthermore argued that the issues cited most regularly by supply chain managers – packaging and waste – are unlikely to be the issues that have the greatest environmental and financial impact, and that companies are thus harvesting the low-hanging fruit only. Motives for environmental protection issues given by individual supply chain managers comprise first and foremost legislation, a finding that has repercussions for suggestions to grant industry greater freedom of self-regulation. Other motives cited are cost considerations, quality issues, ISO 14001 requirements, and an environmentally friendly organisational image. A number of discrepancies have emerged in the discussion. The discrepancy between the proactive tone of most environmental policies and the non-inclusion of environmental factors in the selection and evaluation of suppliers is most evident. Equally, environmental policies often contain a commitment to continuous improvement, which is not matched by the mode in which environmental initiatives are undertaken, as an arm’s-length approach was found to dominate here. A further discrepancy emerges between the environmental awareness of supply chain managers and the use of the supply chain to tackle environmental issues. While individual managers are aware of environmental issues that are important to their supply chains, the non-inclusion of the environment in the formal supplier assessment criteria raises doubt as to whether the individual awareness is in fact followed through into environmental protection initiatives. Overall, environmental initiatives in the supply chain fall below the potential the purchasing and supply function could develop, as demonstrated in its increasing strategic and financial importance. This concerns particularly the infrequent inclusion of the environment in supplier selection and evaluation criteria, but also the predominance of an arm’s-length mode in tackling the environment. Where measures are taken, issues such as packaging and waste dominate, which are central to neither the production process nor the use of the product. There are, of course, companies and industries that have an above-average

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environmental profile in the supply chain – such as electronics, chemicals and paper-making – and these will be discussed in more detail in the following chapter. The next chapter will also return to the question of whether there is any evidence for the hypothesised green multiplier.

6 Some Good Guys: Electronics, Chemicals and Paper

‘If a road tanker crashes on the M6 and it is a chemical, it is all over the papers...Chemicals are emotive, and I think the chemical industry is aware of that.’ Purchasing manager, pigments and dyes manufacturer The purchasing and supply function in manufacturing companies, generally speaking, does not match its growing importance to company profitability with an equally strategic contribution to environmental protection. The majority of companies were found to exclude the environment when assessing their suppliers. Where environmental initiatives are undertaken in the supply base, an arm’s-length approach dominates and the emphasis is more on greening products than on supplier manufacturing processes. The individual managers show some awareness of environmental challenges, but their activities concentrate on packaging and waste. While undoubtedly of some environmental importance, from a life-cycle perspective packaging and waste are quite peripheral. However, some industries – electronics, chemicals, automotive and paper-making – stand out, as they present clusters of more comprehensive environmental initiatives in the supply chain (see also Green et al., 1996; Hill, 1997; Russel, 1998; Theyel, 2001). Hence the following sections will discuss examples of environmental initiatives in the supply chains of electronics, chemical and paper companies1 to examine why these industries place greater emphasis than others on environmental protection, what enabling factors and sources of constraint there are, and last but not least, whether these industries contain any examples of a green multiplier effect. 94

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Electronics Electronics is an industry with a significant number of examples for environmental initiatives in the supply chain covering a wide range of activities (Trowbridge, 2001). Electronics is characterised by a great diversity of products, ranging from simple pocket calculators to complex industrial automation systems and new-generation computers. The industry is dominated by large corporations, often with their headquarters in the USA and Japan, which have set up offshore assembly operations in newly industrialised countries. Suppliers also vary in size, from large corporations to small local suppliers. A relatively recent development is the emergence of contract manufacturers, which make a product to the specifications of a branded customer; the product is then marketed under the brand name, not the name of its manufacturer. Generally, the industry is of a dynamic nature, though companies such as IBM or Microsoft have been able to achieve dominance over their markets. Electronics has experienced a high degree of government involvement, because of the impact the resource information can have on national competitiveness, social welfare and national defence. The environmental impact of electronics manufacturers is as varied as the industry’s products. Of particular importance are hazardous substances, such as heavy metals. These are only used in small quantities per product, but the large total number of products none the less makes them a considerable source of environmental damage. Another concern centres around the use of solvents in the cleaning of printed circuit boards. The industry also produces general environmental problems – for example, packaging and waste. Electronics is one of the industries where manufacturers generally tend to include the environment in their supplier assessment criteria. An electronic and electric goods manufacturer introduced a ‘Green Procurement Standards Guide’ in 2000. The stand-alone document explains the company’s aim to ‘contribute to the realization of a sustainable society’ on the basis of the concept of Design for Environment. Thus: In addition to the company’s usual procurement standards regarding items such as quality, price and time required for delivery, companies of [the group] now also take into consideration the environment related activities of its suppliers and vendors as a criteria [sic] for procurement decisions. Under the ‘Green Procurement Guidelines’, suppliers are asked either to become accredited to ISO 14001 or to draw up an environmental policy,

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conduct internal environmental impact audits, engage actively in the management of energy, waste and chemical substances, carry out a product assessment and provide environmental training for their employees. However, not all electronics companies include the environment in the supplier assessment, as, for example, a mobile phone manufacturer uses only the traditional set of cost, quality, capability, capacity and flexibility as key areas of supplier selection. The inclusion of the environment in supplier assessment may also only concern the early stages of the selection process. Once the relationship has become established, the environment often no longer functions as a decisive criterion. To shed more light on such aspects of greener supply, specific examples for environmental initiatives in the electronics supply chain will now be analysed. The first case study concerns a manufacturer of test equipment for the telecommunications industry, which under new European legislation is required to remove a heavy metal from its products. An EU Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment, which was adopted by the European Parliament and the European Council in January 2003, requires the substitution of various heavy metals – such as lead, mercury, cadmium, and hexavalent chromium – and brominated flame retardants in new electrical and electronic equipment put on the market from July 2006. Hexavalent chromium, for example, is carcinogenic, and if put into landfill as part of an electronic product could contaminate drinking water. Headquartered in the USA, the company under study is a leading provider of test equipment and communications components to the telecommunications, health care and semiconductor industries across the world. The company subscribes to a goal of corporate citizenship. Its environment-related strategy is driven by legal requirements and a concern to avoid being locked out of certain markets because of using a technology that is no longer accepted there. The manufacturing undertaken by the test and measurement company itself poses few environmental questions, since it consists mainly of the final assembly, calibration and testing of the equipment. Some of the more harmful processes, such as the chemical processes in the manufacture of the printed circuit boards, are now undertaken by the supply chain. Supplier selection by the test equipment manufacturer considers the best overall value across supplier technology, quality, responsiveness, delivery performance, total cost, and the environment. Suppliers have to demonstrate competence across all six factors.

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Test and measurement products differ from consumer electronics products in their low volume and long life-span, and both features have important implications for environmental initiatives. Consumer products are redesigned much more frequently, which allows improvements – both technological and environmental – to be introduced much more quickly than is possible for testing equipment. In contrast to some consumer markets, a green marketing strategy is not an option either, as environmental protection is not high on the agenda of test equipment buyers. Test and measurement equipment – if it is to calibrate other products – needs to be much better insulated than the average consumer electronics product. Chromate wash has long been the standard treatment for the equipment casing, since it is effective and, until recently, has been relatively inexpensive. Following the publication of the draft EU Directives in 1998, the test equipment manufacturer encouraged one of its sheet metal suppliers, which had been a supplier for some fifteen years, to develop a new coating process. After some research, the supplier suggested an alternative based on rare earth metal zirconium, which has many of the properties of chromium but is more inert and hence less carcinogenic. The new technology represents a significant investment for the mediumsized supplier, for which it received no financial assistance from the test equipment manufacturer. The environmental improvements were largely the work of the supplier’s facilities manager, who has developed considerable expertise in environmental issues and is motivated by his own conviction that environmental initiatives are worth taking. He joined the company initially as a chemist with a brief to examine alternatives for some of the electroplating processes. Thereafter, he installed a water recycling system and a system to segregate and recycle wood, paper and general waste. The environmental initiatives also receive the support of the supplier’s managing director, underlining the need for a positive organisational climate for environmental initiatives to succeed. At roughly the same time the customer was restructuring its supply base, where a number of companies that previously supplied directly to the customer were required to instead supply to systems suppliers that further assemble the components before delivering to the test equipment company. Although there seems to be an organisational fit between the test equipment manufacturer and the sheet metal business, inasmuch as both organisations are trying to be seen as environmentally responsible companies, the innovation is unlikely to halt or reverse a ‘relegation’ of the sheet metal supplier to the second division of the supply base. The customer is clearly the dominant side in the relationship,

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and the supplier falls squarely into its ‘sphere of influence’ (Hall, 2001). Thus the references to the environment that the test measurement company makes in its purchasing policy documents are not necessarily reflected in tangible improvements to the supply base. The main motivation for the introduction of the new technology was compliance with anticipated regulation, despite a proactive tenor in the publications of the customer regarding its aim to be a good corporate citizen. For the supplier, the initiative provided an occasion to think about improving outdated technology, which it might have done in any case at some later date. The new technology offers significant cost advantages for the supplier as well as an enhanced marketing position as an environmentally friendly company, which might lead to more business. There may also be positive effects as far as employee morale is concerned. The initiative thus bears some of the hallmarks of a green multiplier effect, in so far as a possibility for the supplier to gain additional business from new customers is concerned. It is, however, also shaped by an arm’s-length approach on the part of the customer. Another example for environmental initiatives in the supply chain of electronics companies comes from the multinational manufacturer of mobile phones, discussed earlier, which replaced cardboard packaging for incoming phone housings with returnable containers. The multinational corporation, headquartered in the USA, is divided into several major business areas, of which the personal communications segment accounted for 38 per cent of net sales in 2003. Like the test equipment manufacturer, the mobile phone corporation is striving for a reputation as a good corporate citizen. The company aims to ‘to respect the environment [and] to foster the sustainable use of the earth’s resources’. All its manufacturing sites are registered to ISO 14001, backed up by an environmental audit programme. It also won a number of environmental management awards across the world – in France, the UK, China and Israel – as well as in the USA. The UK plant was established in 1992 and accumulated a supply base of about 4,000 vendors, of which some 120 were considered to be critical to the future success of the corporation. A major environmental initiative at the plant concerned the elimination of cardboard from the site. Suppliers switched from cardboard to a recyclable plastic box, which the customer provided free of charge to the supply base. The introduction of the cardboard-free policy came about when the company investigated why a significant number of phones had to be reworked to clean off dust between the lens and the display. ‘It came down to the fact that there was a problem with packaging’, the supply chain manager explained,

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‘so, the principal reason was cost, which was being incurred as a result of the quality impact of introducing cardboard into the manufacturing environment. And the second cost benefit, of course, was that cardboard packaging, once it was received, was being thrown out.’ Instead of paying 1.5 pence per part for cardboard packaging, the returnable containers, at an estimated life of ten trips, cost only 0.2 pence per part. One supplier affected by the introduction of the returnable packaging was a medium-sized plastic injection-moulding business, employing 200 to 300 staff. It had supplied the corporation since the early 1990s with some twenty to thirty lines, which it supplied worldwide to all the manufacturing plants of the assembler. The customer considered the supplier to be of strategic importance and produced a plan to develop the supplier in line with its own changing requirements. There was, however, a clear power differential in favour of the customer, both in terms of size – a large multinational corporation versus a medium-sized company – and in terms of innovation capability, where the customer designs the product and retains ownership in the specialised tooling that the supplier received. As with all changes affecting the product, the returnable packaging was conceived and introduced by the customer. The case is an example of a top-down imposition of an environmental initiative, like other changes to a product or process that the customer may require of its supplier. There were no signs of a joint approach between customer and supplier, and the case is thus a further example of the arm’s-length mode, which has generally been found to dominate in the sample. Overall, a contrast emerged between the image of being a good corporate citizen the mobile phone manufacturer is cultivating and the role the environment plays at the level of supply chain decision-making. An arm’s-length approach dominated environmental initiatives in the supply chain, and the environment was not included in its supplier assessment criteria. Where environmental measures were undertaken, a cost perspective clearly prevailed and environmental protection emerged only as a by-product. At the mobile phone corporation, environmental issues concerning the supply base were addressed, but only so far as they had a direct impact on its financial performance. Within the electronics industry, an important difference emerged between original equipment manufacturers (OEMs) and contract electronic manufacturers (CEMs). The latter manufacture a product to customer specifications, often also packaging it, adding point-of-sale literature and delivering the product to the customer’s warehouse or even directly to the retailer. While some original equipment manufacturers are

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prominent pursuers of green initiatives in the supply chain, contract manufacturers are notably less active. Contract manufacturers reported that environmental efforts are restricted by the fact that purchasing at their plants is determined by approved vendor lists issued by their customers. Autonomy in the selection of suppliers exists only for non-production items, which typically account for only 5 per cent of purchasing expenditure. One supply chain manager stated that his plant does not generate enough profit to afford a premium price for environmentally friendly suppliers. In his view, this would be a prerogative for original equipment manufacturers, which could use the environment as part of a brand differentiation strategy. The difference between OEMs and CEMs has important repercussions for greener supply. Both may manufacture a product of identical value to the consumer, but the former is more likely to undertake environmental initiatives involving the supply chain. As the consumer would not know whether the product was manufactured by an OEM or a CEM, opportunities for green consumer pressure would be lost. On the other hand, OEMs could induce their CEMs to undertake environmental improvements, which they might not have undertaken by choice. One supply chain manager of a contract manufacturer was indeed expecting such pressure in the future, but at the time of interview such expectations had not been fulfilled. The electronics industry provides a number of examples where companies tackle environmental initiatives in their supply chains. The cases of the test equipment manufacturer and the mobile phone company illustrate that environmental initiatives can spread along the supply chain in two ways – either top-down or bottom-up. The introduction of returnable packaging at the mobile phone corporation was undertaken from above, with little interaction on the environmental issue and all the design work being undertaken by the customer, who also retained the intellectual ownership of the changes. The case thus bears all the hallmarks of an arm’s-length approach to greener supply. In the test equipment case, it was the supplier who took the initiative, but it did so at the behest of the customer and bore all the cost. Hence this case cannot be considered as co-operative either. The test equipment example also highlighted the need for a supportive organisational climate, and for individuals to be convinced of the need for environmental improvement. Notably, the main drive did not come from the customer’s purchasing department but from the supplier’s facilities manager. Motives for environmental initiatives in electronics are anticipated changes to legislation and cost considerations. Also

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noticeable is the intertwining of the environment with quality, based on the assumption that a sound environmental performance will emerge as a by-product of a good performance in terms of quality. On the other hand, a good environmental track record failed to save the mobile telephone manufacturing plant from closure when the mobile phone market began to shrink after the growth phase of the late 1990s. Significant differences emerge within the electronics industry. The test equipment manufacturer finds it more difficult to introduce environmental changes to its products, as these are more complex and, as a result of lower demand, redesigned less often than are consumer electronics items. More significantly, an important gap emerged between original equipment manufacturers and contract manufacturers. The latter are hampered in their selection of suppliers by the application of approved vendor lists and hence are less likely than branded manufacturers to undertake environmental initiatives in the supply chain unless forced by the OEM. The closeness to the final consumer thus emerges as one more criterion that influences the likelihood of greener supply. The results from electronics companies in the sample will now be compared with those from the chemical industry.

Chemical industry The chemical industry is dominated by large multinational corporations, although small producers for local markets also exist. It covers a wide spectrum of processes and products, ranging from oil derivatives through fertilisers and pesticides to organic chemicals. In general, technical know-how is an important asset, and a huge investment is required, hence the optimisation of manufacturing processes is an important concern. The chemical industry has always been seen as a business of high environmental risk, as it produces substances that are flammable, toxic or are processed under special conditions. The potential for pollution of water, air and soil is great, and chemical plants can be a source of unpleasant odours and noise. A series of major accidents, from the dioxin leak at Seveso in 1976 through the explosion of the Union Carbide plant at Bhopal in 1984 to the cyanide spill at Baia Mare, northern Romania, in 2000, has compounded the critical view of the public and the media regarding the industry. One of the ways the industry improves its image is through the Responsible Care Programme.2 Introduced in 1991 as an initiative of the Canadian Chemical Producers’ Association, it has since been adopted worldwide. It is based on a recognition of the need for a licence to operate

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and stresses a stakeholder approach. Since their products can have such an extraordinary impact on human health and the natural environment, chemical companies tend to have environmental policies which stress both a proactive approach to the environment and a continuous improvement process. The general environmental polices are complemented by purchasing policies which explicitly include safety considerations. The environmental policy of a pigments and dyes manufacturer refers specifically to the supply chain: We will purchase materials from manufacturers who meet applicable laws and regulations or have explicit plans approved by local authorities to comply with EHS [environment, health and safety] requirements. We monitor and evaluate the EHS performance of suppliers, manufacturers and distributors. A survey of the environmental performance of US chemical corporations (Theyel, 2001) found that over 55 per cent of companies have to meet the environmental requirements of their customers, while only 20 per cent require their own suppliers to meet environmental standards or other prerequisites. Such a patchy performance is also evident in the supplier selection and evaluation criteria applied by our sample, ranging from no reference to the environment at all through an implicit inclusion under safety, to explicit inclusion in its own right. The chemical industry hence conforms to the pattern established in Chapter 5: companies often address the environmental impact of the supply chain in their environmental policies, but few see these commitments through into their supplier assessment criteria. Having said that, supply chain managers of the chemical companies in the sample were readily able to point to environmental initiatives in their supply chains. A number of such initiatives concern the replacement of one-way containers for hazardous chemicals with reusable ones. Since the containers are contaminated with the chemicals, they have themselves become hazardous, and the reusable alternative significantly reduces the need for their disposal. Often the introduction of the new containers is accompanied by automation of the handling process, which improves operator safety. One such initiative has been undertaken by a pigments and dyes manufacturer, part of a multinational speciality chemicals manufacturer based in Switzerland. One of its UK plants manufactures pigments for inks, paints and plastics as well as some special pigments for domestic paints and low-grade plastics. The site has an environmental policy and the company publishes annual reports on environment, health

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and safety, detailing its impact on the natural environment in terms of emissions to air, waste disposal, energy and water usage as well as industrial accidents. The plant convenes a site safety committee once a month, which is attended by employees of all strata and serves as a forum for discussing environmental and safety issues. One recent environmental initiative in the supply chain concerned a product called dichlorobenzidine dihydrochloride, which is purchased from a Japanese supplier. Traditionally the material was delivered from Japan in fibreboard kegs, which were landfilled as hazardous waste. Together with its Japanese supplier, the company has developed a returnable container, which discharges directly into sealed equipment. This innovation, which took two to three years to develop, improved operator working conditions and cut out the need to landfill 30,000 fibreboard kegs a year. Similarly, calcium chloride was traditionally supplied in 25 kg bags, leading to some 80,000 paper bags being landfilled each year. Today calcium chloride is supplied in liquid form in road tankers. Savings in landfill costs have again been achieved, and the number of operators has also been cut. Comparable initiatives are reported by a petrochemical company. Joint design work with suppliers led to the replacement of manually handled drums for polyethylene with a returnable container of over two tons in weight that is moved by fork lift truck. ‘An exercise to lessen the risk of personal injury to polyethylene operators’, a correspondent writes in the company’s internal magazine, ‘is also set to deliver cuts in environmental emissions and [build] stronger supplier relationships.’ ‘The objective was to improve the environment, not only for operator exposure but also for landfill reasons’, the purchasing manager of the dyes and pigments manufacturer explained: ‘Pigments made from diochlorobenzidine dihydrochloride were always subject to scrutiny by the various environmental people, and by moving to this system we were removing totally any risk of exposure to the operator . . . This is an example of us being ahead of legislation.’ Unbundling the motives behind the environmental initiative, there is some desire to be seen as a good citizen, but this can be traced back to health and safety considerations. These in turn are motivated by regulation and a desire to implement expected legislation at the organisation’s own pace. Hence regulation emerges as the overarching motive, while it is also expected that environmental measures should not create additional costs. As they have repercussions for both supplier and customer technology, all the initiatives were undertaken in co-operation with the supplier rather than just being stipulated by one of the commercial parties. Because of

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their technical complexity, environmental supply chain initiatives in the chemical industry are undertaken in a collaborative mode. At the time of introducing the returnable container, the purchasing manager of the pigments and dyes plant feared that the initiative could lock the company into a relationship with the Japanese supplier. It turned out later that the concern was unfounded: within a few months the container pioneered by the manufacturer had become industry standard and no longer restricts the choice of suppliers. The active collaboration between customer and supplier on the environmental issue has worked its way through the industry and become the accepted solution of all major suppliers. Hence this is an example of a genuine green multiplier effect in operation. At the same time, the examples provided by the chemical companies in the sample, although numerous, concern only a narrow range of activities: predominantly the replacement of one-way packaging that would traditionally have gone to landfill. The range of environmental initiatives is much narrower than those offered, for example, by the electronics industry. The narrow focus on the replacement of one-way packaging for raw materials leads to the question of whether there is any evidence of greener supply initiatives outside the buying of raw materials. Some, albeit negative, evidence comes from a speciality chemicals manufacturer. The company was spun off from a multinational corporation during a recent restructuring. It has an environmental policy and monitors its own environmental and safety performance. The company has two separate purchasing functions for its UK plants. At the company’s headquarters, a purchasing manager deals with the company-wide purchasing of raw materials, energy, IT and business services as well as waste disposal. The second area is engineering purchasing, which also covers the whole of the UK but is run from a manufacturing site in Scotland. This team purchases everything that does not fall into raw materials purchasing, from nuts and bolts and personal protective equipment to processing lines worth millions of pounds. In contrast to raw materials purchasing, where purchasing and supply chain managers were able to refer to a number of joint initiatives with suppliers, paying attention to the environment for engineering purchasing at the speciality chemicals manufacturer is limited to checking compliance with legislation, chiefly with the Provision and Use of Working Equipment Regulation. Consideration of the environment is more extensive in the case of contractors who undertake work on site, but again is limited to scrutinising the supplier’s operating standards. Engineering purchasing has not produced any examples of co-operation

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with suppliers on environmental protection issues, and this differs markedly from the situation in raw materials purchasing. In engineering purchasing, the main driver of environmental initiatives is legislation regarding safety, health and environment, which again contrasts with the more complex web of motives found in raw materials purchasing. Industrial buying in the chemical industry shows solid evidence of joint environmental initiatives with suppliers. In our sample, this evidence concerns a narrow range of activities, chiefly replacing the former one-way containers for hazardous chemicals with returnable ones (see also findings from the US chemical industry in Theyel, 2001). It does, however, include one case of a genuine multiplier effect, where the result of active collaboration between customer and supplier has become the accepted industry standard. Motives for environmental initiatives in the chemical industry appear to include a genuine concern for the environment, which is a reflection of the high degree of public attention regarding environmental, health and safety issues in the chemical industry. Additionally, other motives – in particular legislation, cost advantages and a desire to pre-empt regulatory requirements – can usually be found in the mix of motives. A clear difference emerges between environmental initiatives in raw materials buying and other areas, such as engineering purchasing. Far from being negligible in purchasing expenditure, the latter area has not produced any examples of joint initiatives with suppliers, and an arm’s-length approach to health, safety and environmental standards prevails. This seems to indicate that it is the special nature of its products and raw materials that attracts the critical attention in the chemical industry, while engineering equipment falls outside the focus of stakeholder concern. It is also noteworthy that all companies in the sample are large multinational corporations, which, as discussed earlier, usually find it easier to fund environmental initiatives than do smaller companies. The examples from the electronics and chemical industries will now be compared with those of paper-making.

Paper-making Paper-making is the industry that offered the most consistent approach to environmental issues in the supply chain. It is the only industry where all the companies in the sample include the environment in their supplier assessment criteria. The UK paper industry is shaped by several noteworthy features. Many British paper-makers, especially manufacturers of quality paper, are non-integrated businesses. They do not own

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plantations and wood pulp mills, but buy wood pulp on the world market. Worldwide, however, large integrated corporations dominate. Of the roughly 350 million tons of pulp produced per year, less than 10 per cent is used by non-integrated paper-makers. Additionally, the price of woodpulp is very cyclical, having fluctuated in recent years between US$450 and almost US$1,000 per ton of benchmark grade pulp. Non-integrated producers have no control over prices, hence the profitability of many non-integrated paper-makers is not impressive. Manufacturers of tissue paper furthermore face the enormous market power of UK supermarkets. ‘Environmental concerns – they are a doubleedged sword’, the purchasing manager of a tissue-paper-maker commented: ‘It added costs into the business, and every time we add cost into the business, it is a cost that we have to bear, because the supermarket chains will not accept any additional cost.’ Environmental issues in paper-making begin with the pulp making process, where virgin fibre is broken down into cellulose fibre. The process uses chemicals, such as sulphate for breaking down the wood, and chlorine dioxide for bleaching it. It leaves a chemical residue in the effluent water, and where chlorine is used, creates a high level of biological oxygen demand. Pulping also uses large quantities of water and energy, the latter conventionally producing emissions into air. A second process with environmental implications is the actual making of paper. Even where pulp is produced without chemicals, either by breaking down the fibre mechanically (which is not suitable for high quality paper) or by using recycled paper, the effluent is still contaminated with the fibres themselves and substances used in the paper-making process, such as clay, starch and chalk. The paper-making process again uses great amounts of energy and water (Munkittrick et al., 1997; Spinardi et al., 1999). Of the two stages, the pulping stage has the greater potential for creating pollution. Non-integrated paper-makers largely outsource this problem by buying pulp that has already been treated. As far as the whole supply chain is concerned, however, this places corresponding responsibility on the supply chain management to ensure that suppliers are fulfilling their environmental protection duties. This is complicated by the fact that wood pulp is sourced from abroad – from North and Latin America, Asia, the Iberian peninsula and Scandinavia. Paper-makers, furthermore, buy hundreds of chemicals, the major ones being starch, sizing materials, dyes and fillers – such as calcium carbonate and kaolin. Depending on the type of paper, various colours, dyes and pigments are used. Speciality papers require additional chemicals, such as fluorescent fibres and a host of chemicals, for anti-fraud features.

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Another important issue for purchasing departments in paper companies is waste. Some of the production material waste that occurs during the process can just be put back into the system, but paper companies also generate conventional waste, such as chemical drums, scrap metal or packaging, where the companies in the sample cite some recycling activities. Given such a significant impact on the natural environment, what are the instruments paper-makers use to control the environmental performance of their supply chains? The first avenue is publishing environmental reports, which are updated regularly. Second, all the paper-makers in the sample have environmental policies, which explicitly include the supply chain. These requirements are checked by various forms of documentation, and by site visits to suppliers. The environment also figures prominently in the supplier selection and evaluation at all four paper-makers in the sample. Third, there is forest certification – labelling verified by independent non-profit organisations such as the Forest Stewardship Council – to document that a product comes from forests that meet standards for sustainable forest management (UNECE/FAO, 2003). One medium-sized manufacturer of high-quality paper concentrates its efforts on environmental reports, which have been published regularly since 1993. The environmental reports detail the amount of recycled and virgin pulp used in a ton of paper, the use of chemicals, water consumption, energy use, SOx, CO2, NOx emissions and waste, together with figures on environmental expenditure in relation to sales turnover. The company was one of the pioneers in UK paper-making of certification to EMAS as well as ISO 14001. Its Eco-Management and Audit Scheme contains targets on key environmental criteria – for example, energy use should not exceed 15GJ per ton of paper, and monthly internal reports are produced for these targets. A second environmental instrument, and one that addresses directly the supply chain, is making explicit environmental demands of suppliers in the environmental policy. All the paper-makers include the environment in their supplier assessment criteria, and paper-making is the only industry in the sample where the environment is consistently included. At a printing and speciality paper-maker, the evaluation of a potential new supplier starts with the consideration of technical criteria. Then the environmental manager is consulted, to make sure that the environmental policies of the supplying company are in keeping with customer requirements. Finally, commercial criteria – price, availability and logistics – are considered. The environmental policy of the

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paper-maker states explicitly that the company will ‘influence, by its purchasing power, suppliers to adopt responsible environmental policies’. The supplier requirements formulated in environmental policies and supplier evaluation criteria are checked in two main ways – by various forms of documentation the supplier has to submit, and by personal visits, which involve travelling as far as Latin America. Wood pulp suppliers are asked to submit customer questionnaires to establish their environmental credentials. These inquire about the supplier’s forest management, its manufacturing processes, energy consumption levels, discharges and waste management. Additionally there are questions on environmental issues, health and safety and employee training in these areas. The same type of monitoring – documentation and site visits – is used to check the environmental standards of chemicals suppliers. Questionnaires aim to verify the environmental impact of the supplier’s products and manufacturing processes. They may also ask if chemical suppliers have an environmental policy, whether they carry out audits of their own activities, and what their record is on compliance with legislation. Questionnaires are also used with suppliers of packaging, which are asked similar questions to chemical and wood pulp suppliers. The environmental questionnaires are buttressed by visits to the suppliers. In the case of wood pulp suppliers, supply chain managers check the quality of supplier forest management systems, their air and water emissions and their adherence to biodiversity principles. A supply chain manager of a group of paper mills explains how he aims to nurture a process of continuous improvement in the suppliers’ environmental performance: In year two, we would go back again: let’s look at those same criteria again and how they have changed: have you improved your CO2 emissions; have you reduced your effluent discharges to the rivers, to the sea or whatever; what capital investment have you put in to improve in terms of environmental performance? The smallest of the paper companies does not visit its wood pulp suppliers, because such visits would be too expensive for the company (however, chemical suppliers, which are located in Europe, are visited). Being itself only a medium-sized company, the paper-maker also has little leverage to force suppliers to comply with its request for questionnaire data. This raises the question of how useful the questionnaires are, and

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what confidence supply chain managers can realistically have in their suppliers’ environmental performance. However, there is a degree of overlap between suppliers, where suppliers to the medium-sized quality paper-maker also supply to larger paper-makers, which do have the means to undertake site visits. Together with the pressure the pulp suppliers experience within the integrated paper-making corporations, this should mean that UK paper-makers are in a good position to judge their suppliers’ performance even without comprehensive supplier visits. A third approach to environmental management in paper-making centres around the accreditation of individual forests to international standards for sustainable forest management. A leading provider of such certification is the Forest Stewardship Council (FSC),3 an independent, not-for-profit organisation based in Bonn, Germany, which promotes sustainable management of forests worldwide. Its FSC standard can be awarded where forests have been inspected and certified against the organisation’s 10 Principles of Forest Stewardship. These principles include guaranteeing legal and customary rights of indigenous peoples to own, use and manage their lands (Principle 3); managing forestry operations in such a way that the long-term social and economic well-being of forest workers and local communities is maintained and enhanced (Principle 4); or managing the forest so that its biological diversity and associated values are preserved (Principle 6). The head of procurement at a quality paper-maker comments on the advantages of FSC accreditation: ‘It allows a better understanding of what we do in our industry, but it does give us a bit of a commercial advantage as well, because we were one of the few companies that were prepared to work with it.’ It should be noted that only one range of papers made at one of the mills meet the Forest Stewardship Council criteria. It is neither the whole range of the company, nor all production sites that are certified. By mid-2003 the total area of certified forests stood at 150 million hectares, but this covers only four per cent of the world’s forests, and more than 90 per cent of the total certified area lies in the northern hemisphere. Hence the objective has not been achieved of protecting, in particular, forests in developing countries. Another problem is the certification of plantations, as in Brazil roughly half, in South Africa even almost all certified forests are plantations. Since plantations are likely to have a lower biodiversity than natural forests, certification is no guarantee for higher biodiversity either (UNECE/FAO, 2003; Rametsteiner

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and Simula, 2003). Some paper-makers in our sample also reported technical limitations of FSC certification: Unfortunately the only people who have taken up that scheme are softwood fibre [producers] . . . Softwood is a long fibre and for the grades that we make, there are very few grades that require any degree of softwood content . . . Until it is more widespread and there is more of a basket of pulp products made available, it is going to be difficult for us to supply to our customers FSC products. Despite its current limitations, forestry product certification is an interesting project, as it allows members of the value chain to trace where products or raw material have come from. Supply chain managers can use this information to steer their purchasing towards more sustainable sources, while consumers receive an assurance that the products they buy have met standards of sustainable forest management. Certifying forestry products thus bears features of a green multiplier. Somewhat diverging from the original hypothesis, the certification has been brought about by three parties: customers and suppliers as well as influential pressure groups. For the commercial parties to it, the motivation lies, as hypothesised, in the expectation that it will generate additional business. This is evident in the rapid spread of certification in Eastern Europe, the main driver for which is not domestic consumption but export opportunities (UNECE/FAO, 2003). The paper manufacturers in the sample have all demonstrated a high level of awareness of environmental issues, and a great deal of activity has been undertaken by the companies. The main motive for these initiatives has been the bad public image of paper-making, which might have led to more stringent regulation if the industry had not been seen to take action. Environmental requirements for the supply base largely operate in arm’s-length mode, where the customer sets certain minimum criteria that suppliers have to meet, such as applying biodiversity criteria to their forest management. Some paper-makers try to foster ongoing improvement among their suppliers. For example, one company reported a series of joint meetings with customers and suppliers, where part of the remit was to consider environmental improvements. Generally speaking, however, co-operative initiatives with suppliers to solve environmental issues are not widespread in the paper industry. This is possibly a reflection of its industry structure, where the non-integrated UK paper-makers are an exception vis-à-vis the large integrated companies that dominate at an international level.

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Similarly, chemical suppliers tend to be multinational corporations and are again much larger than their customers, the paper-makers. None the less, paper-making is the only industry in the study that applies environmental instruments systematically across all companies in the sample. The supplier selection and evaluation criteria used by all paper-makers include the environment. A combination of internal efforts, chiefly supplier questionnaires and site visits, and external initiatives, including national and supranational legislation, industry association codes and accreditation to environmental management standards, should mean that supply chain managers are in a good position to judge the environmental performance of their woodpulp and chemical suppliers. Given the stringent use of criteria – even though they are applied in arm’s-length mode – together with an emphasis on longer-term relationships with ongoing environmental improvements, one could speak of another example of a multiplier. The most interesting initiative in this respect concerns the certification of forests to international standards of sustainable forest management. This allows paper-makers to trace where their pulp has come from and select suppliers on the basis of their adherence to sustainable management principles. This environmental initiative has come about through a collaboration of customers, suppliers and powerful third parties – in this case environmental NGOs.

Conclusions Three industries with an outstanding environmental performance have been discussed in this chapter – electronics, chemicals and paper-making. Case studies from these industries illustrated that environmental knowhow spreads in two ways along the supply chain. Often it is the customer who cascades requirements down the supply chain, as was shown by the replacement of cardboard with returnable packaging by the mobile phone manufacturer. Sometimes, however, a supplier can influence its customers from below, as was the case with the sheet metal company that developed a new coating for electronic test equipment. The latter case also stresses the importance of organisational characteristics, in particular the need for enthusiastic employees to drive forward environmental issues, although the committed individuals in the sample cases have come from outside the supply chain management. The electronics industry, which is dominated by large corporations, provides a number of examples for the formal inclusion of environmental considerations into purchasing policy, supplier selection and evaluation criteria. However, not all companies include the environment in their

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supplier assessment criteria, and there is doubt as to whether a formal reference to the environment in purchasing policy documents makes a genuine difference beyond the initial screening of suppliers. Electronics does offer a number of examples for environmental initiatives in the supply chain, such as the replacement of a mined mineral with an artificial alternative. Motives for these include the anticipation of legislation and quality considerations, together with cost savings and positive marketing. Overall, the track record of the electronics industry is rather mixed, as degrees of co-operative supply chain involvement contrast with the dominant use of an arm’s-length approach. Such inconsistencies result from the structure of the industry: in environmental terms, capital goods manufacturers are disadvantaged in comparison to consumer goods manufacturers, as consumer goods are usually less complex and undergo redesign much more often, which facilitates green design changes. The difference between original equipment manufacturers and contract manufacturers is even more striking, because for the latter the use of approved vendor lists limits environmental initiatives severely. Given a growing trend towards contract manufacture, the electronics industry may one day lose its position among the industries of outstanding environmental performance. A high level of environmental awareness among purchasing and supply chain managers is evident in the chemical industry. This industry also presents robust evidence of environmental initiatives involving the supply chain in a co-operative fashion, often aiming at the replacement of contaminated containers that traditionally have gone to landfill. The examples provided by the chemical industry concern a somewhat narrow range of environmental supply chain activities, yet it is also an industry where a genuine green multiplier effect has been found: collaboration between customer and supplier led to the development of a reusable container for a hazardous chemical, and this method has since spread to other suppliers to become the industry standard. The main motivation for such initiatives stems from the specific nature of chemical products and the resulting critical eye of the general public, the media and regulators. Environmental policy documents tend to impose requirements on suppliers in terms of safety, but by contrast the natural environment is not included consistently among the supplier selection and evaluation criteria for the chemical companies in the sample. A difference emerged between the purchasing of raw materials, where environmental initiatives are highly prevalent, and the purchasing of other items, such as engineering parts, which are also financially significant but have not produced environmental initiatives in the supply

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chain. Being dominated by multinational corporations, the chemical companies in the sample illustrate once more that large companies are better resourced than smaller ones with regard to addressing environmental problems. Paper-making, where the major motivation for environmental initiatives is the negative public image of the industry, has shown the strongest evidence of environmental awareness among its purchasing and supply chain managers. The companies in the sample have systematically included the environment in their supplier selection and evaluation criteria. Their environmental policies repeatedly contain statements that the company will use its purchasing power to bring about environmental improvements in the supply chain. These statements are backed up with requests for substantial documentation from suppliers and by site visits, which can require travelling as far as Latin America. Such instruments are another example of the arm’s-length approach to environmental protection in paper-making, which is seemingly a reflection of the weaker position of the non-integrated UK paper-makers in relation to the integrated global corporations that supply the raw materials. A particularly noteworthy initiative in the paper industry concerns certification to standards of sustainable forest management, which allows paper-makers to trace the ingredients of paper-making back along the supply chain. Although the sample contains only one paper-maker who is accredited for some product lines, the initiative is interesting as it bears features of a green multiplier effect. The original concept of a green multiplier has to be enlarged by a further element – by public pressure; in this case influential pressure groups – which have encouraged both customers and suppliers to tackle the environmental issues involved in paper-making. The examples provided in this chapter show that there are exemplary companies that involve their supply chains in co-operative initiatives to address environmental concerns. However, the sample also demonstrates that these companies are more the exception than the rule, that there are only individual industries that address the environment systematically, and furthermore that there are significant differences even within outstanding industries. The challenge remains to explain why environmental initiatives in the supply chain are still relatively scarce – despite evidence from some outstanding industries – and why supply chain management, despite having become an important corporate function in financial terms, is not more involved in environmental initiatives. The next chapter will shed some light on these questions.

7 Barriers to Change in Manufacturing Supply

‘Purchasing is a performance-driven function; we have to add value in what we buy.’ Head of procurement, paper-making group This book started out by arguing that industry is contributing to environmental degradation, and therefore has a duty to address environmental problems. Such an argument is buttressed by the often proactive stance of environmental policies and the promising advance of environmental management standards in large manufacturing companies. However, the progress that supply chain management has made in terms of environmental protection is, generally speaking, not encouraging. A gap emerges between the corporate rhetoric regarding the importance of environmental protection and its often marginal role in supplier selection and evaluation. Many supply chain managers show some awareness of the environment, yet of the issues perceived as problematic for their supply chains the two issues listed most often – packaging and waste – have only a marginal effect on the environmental performance of the supply chain as a whole. Where environmental initiatives are undertaken, motives for such measures are dominated by legal compliance, cost savings and quality improvements. Most managers are satisfied with a supplier performance that merely meets the threshold of current environmental requirements. A more comprehensive approach towards an ongoing commitment is rare. Some industries were found to offer an above-average environmental performance. Paper-making, for example, offered the most consistent approach to the environment as all the visited companies include the environment in their supplier assessment criteria and apply a mixture of internal and external instruments to check supplier environmental 114

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performance. The chemical industry is noteworthy in that it provided an example of a green multiplier effect. Overall, however, supply chain management input into environmental protection is fairly marginal, which contrasts with its growing importance in economic terms. Such marginal involvement in environmental initiatives can be for several reasons. There may be a lack of interest in environmental issues among supply chain managers; they may actively resist greater involvement; or the function could be prevented from making a more fundamental contribution. To gain a clearer picture of the barriers to greener supply, three levels of analysis will be examined: the process of managing supply; the person managing the process; and the organisation within which the person is working.

Technical limits to greener supply The gap between the economic and ecological impacts of the supply chain management function has a technical dimension, as limitations to greener supply can arise from the required features of a product. Such limitations emerge, for example, in military electronics products. Electronic items for use in a fighter plane’s radar have to be able to withstand much greater temperature differences and more vibration than the average household electronic item. Hence the supply chain manager of a military electronics company commented: ‘We are not completely ignorant of the environment in what we do, but there may be areas of supply, because of the importance of the integrity of the item, where that would be a very low priority to us.’ Industry specific limitations further arise as the environmental performance of a product and its production processes can only be as good as the whole supply chain of the manufacturer permits. It is technically easy – if still involving additional cost – for pulp suppliers to the paper industry to refrain from certain methods of destructive forestry, such as clear-cutting, where the entire forest is felled and turned into wood pulp. By contrast, replacing heavy metals in electronics requires a far greater technical knowledge and investment on the part of suppliers. An example of a supply chain being in a position to improve the environmental standing of the customer are the suppliers of capacitors to a mobile phone manufacturer. These suppliers alerted the customer that palladium prices were increasing and suggested a man-made alternative. The initiative was undertaken primarily for reasons of cost and security of supply, but there are environmental side-effects, as the alternative product does not have to be mined. In any case, the environmental

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performance of the supply chain is only as good as the technical capabilities of the supply chain allow. The growing complexity of modern manufacturing methods leads to a parallel increase in the technological knowledge demanded of supply chain managers. For an automotive manufacturer, the biggest environment-related concerns at the time of writing arise from EU directives, such as the End-of-life Vehicle Directive, which comes into operation in 2006 and requires producers to take vehicles back at the end of their lives free of charge and reuse components making up 85 per cent of the average vehicle weight. The deadlines imposed by the EU are tight and require the use of a great many resources in both R&D and supply chain management. From a supply point of view, vehicle manufacturers need to collect environmental data from suppliers – for example, on material composition and production processes, and to make sure they understand the data. ‘This is a very technical area, which purchasing probably hasn’t had to do before’, the purchasing manager of an automotive manufacturer stated. Such novel requirements make supplier assessment an ever more complex procedure that has to combine different evaluation criteria, scope and time horizons. The traditional factors in sourcing decisions – price, quality and delivery conditions – are usually easier to deal with than environmental issues. The latter not only have a multitude of internal and external implications, but they are also more complex and have a longer time scale for their full impact to become noticeable. Yet existing supplier selection models are often inadequate in terms of the type of information that can be processed as well as the completeness and objectivity of the assessment procedure (Noci, 1997). Supplier environmental evaluation needs to take into account both quantitative and qualitative information, whereas most assessment models only process quantitative information across a limited number of variables. Supplier assessment systems that cannot cope with such complementary and overlapping perspectives are not only sub-optimal from an environmental point of view, they may also lead to frustration among supply chain managers and send contradictory signals to suppliers, who in turn feel that they are not being evaluated properly. Where more advanced supply chain management capabilities have been noted, these facilitate the implementation of product-based greener supply more than they lead to process-based initiatives (see also Bowen et al., 2001b). The supply chain management skills and resources identified with greener supply, such as supplier partnerships, can hence bring about environmental product improvements, but they are insufficient

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to induce a supplier to adopt an environmental policy or to seek certification to an environmental management standard. Thus advanced supply chain manager capabilities may not be sufficient to induce process-based greener supply, as this needs to be accompanied by a desire on the part of the supplier to be environmentally proactive. The gap between the economic and environmental contributions of supply chain management is rooted partly in the technical limits of what the supply chain can offer. The increasing complexities of modern manufacturing supply also require new forms of knowledge among supply chain managers to induce environmental initiatives in the supply chain. Their skills, resources and competencies may, furthermore, not be adequate to foster equally all forms of greener supply, as product-based initiatives were found to be more common than environmental improvements to supplier processes. Such conclusions require us to shift the focus to the individual person, to examine what barriers to greener supply might exist here.

Environmental awareness among supply chain managers A focus on technological constraints alone leaves open whether supply chain managers are in fact aware of environmental issues in their supply chains, whether they believe they should tackle these, or whether they might be actively resisting such demands. A study of supply chain managers in UK companies by Bowen et al. (2001a) found over 60 per cent of respondents strongly agreeing that their company should share the responsibility for the environmental impacts of their suppliers. In our sample, statements like that made by the purchasing manager of a tyre plant were made in several cases: ‘I live in the environment as well as working for [the tyre company], so it is in my interest.’ Across the whole sample, however, the attitude is quite inconsistent, as demonstrated by the purchasing manager of a specialist cable manufacturer: ‘We all like to be seen to be green, and it is good to be that way, but . . . from my point of view, green purchases are done less for altruistic reasons but more for cost reasons. And that is really the way to look at it, it is the main driver.’ This comment is in line with studies which suggest that the views of managers regarding the natural environment have fallen behind those expressed by the general UK population. A survey of top and middle managers in the UK automotive industry (Fineman, 1997) found that respondents’ environmental concerns range from non-existent to a mild interest. The majority of managers felt neither that it was up to them personally to do something nor that

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the environment had any special meaning to them because of their position in the car industry. This applies even to managers with a special responsibility for environmental affairs. Some managers conceded that their product causes environmental problems, but the dissonance was resolved by using technical expertise, and sometimes a selective interpretation of technical arguments, to back up personal scepticism regarding environmental claims. Such technical justification among supply chain managers was expressed by a manager in linoleum manufacture with regard to PVC and plasticisers: ‘I would never use the words environmentally unfriendly, because they are not. These are very much controlled chemical industries that have to be environmentally safe . . . Who’s to say we’ve got to be using PVC for ever more, but at the moment you will find that the alternative to PVC is much nastier than PVC.’ A related issue concerns supply chain managers’ perceptions regarding any potential economic benefits of environmental initiatives in their supply chains. Despite an average perception among supply chain managers that the environment might offer somewhat more opportunities than threats, such attitudes also display a high variance (Bowen et al., 2001a). In other words, many supply chain managers remain sceptical of the economic benefits of greener supply, with many also believing that only profitable companies can afford greener supply activities. Such a belief was evident in the suggestion by a purchasing manager of an electronics contract manufacturer that greener supply is a prerogative for OEMs as they have greater profit margins than contract manufacturers. If supply chain managers perceive environmental initiatives more as a threat than an opportunity, they are less likely to undertake them. This is particularly the case once the low-hanging fruit – reducing waste and packaging, or introducing returnable containers for hazardous chemicals, for example – are harvested. Such a conclusion is backed up by research into the emergence of successful greener supply initiatives. Drumwright (1994) found that two groups of employees play a special role in socially responsible buying. ‘Policy entrepreneurs’ have a key role in putting environmental concerns on the agenda. Often they are well-respected middle managers with expert power from extensive personal research into greener purchasing and sourcing alternatives. They are creative, adept in organisational politics and often work outside their formal job responsibilities, facilitated by decentralised organisations or participative management styles. Their commitment arises from moral reasoning and not primarily from economic benefits; they are willing to take risks and see intrinsic

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rewards in pursuing greener purchasing avenues. The other important group of people are ‘converts’, who initially resisted the policy but later became convinced of its merits. Changes in their attitude and behaviour often stretch beyond the organisational garden fence, not least into their personal moral reasoning. An example of such a ‘policy entrepreneur’ is the facilities manager of the medium-sized sheet metal company that removed hexavalent chromate from the casing of the electronic test equipment. Interestingly, neither in Drumwright’s nor in our sample were supply chain managers represented in either of the two groups. As with many studies into (managerial) values, studying supply chain manager attitudes to the natural environment has led to contradictory results. On the one hand, a majority of managers expressed the belief that they should share the responsibility for environmental issues with their supply base, but on the other, a degree of scepticism regarding environmental issues was observable in some cases. Coupled with a belief that addressing the environment might bring additional costs rather than benefits, supply chain managers would then hesitate to undertake greener supply activities. Such an interpretation is supported by the fact that it is the larger companies and those in industries under public scrutiny regarding their environmental performance that seem to be able to find the resources for environmental initiatives.

The status of supply chain management Technical limitations and a certain scepticism regarding environmental issues still do not tell the full story. Rather, it is argued here that a number of factors prevent the purchasing and supply function from harnessing the future potential of the supply chain. An important part of the explanation of the generally marginal level of involvement in environmental issues for purchasing can be found in its relatively low status and the reactive service nature of the function. Supply chain management faces an ‘enduring problem of establishing credibility’ (Legge, 1995, p. 28) in that the function is less noticeable the more successful it is.1 The position and status of supply chain managers in organisations varies. Discounting some small and medium-sized companies that do not have any full-time purchasing staff, the majority of companies today employ specially trained purchasing or supply chain managers. They usually report to the financial director, without themselves being a member of the board of management. In other words, the supply chain manager is working to targets, but is not involved in setting them. The

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only two exceptions in the sample were a shipyard and a car manufacturer, where the supply chain managers report to the managing director and are themselves members of the senior management team and the board of management, respectively. As a rule, however, Ammer’s (1974, p. 36) assessment still applies after thirty years: ‘The purchasing manager, like any other upper-middle manager, is limited to what top management makes him.’ The relatively low status of supply chain managers is complemented by the reactive nature of the role. Supply chain management needs to be understood as a service function: one that reacts to the requirements of its internal users as well as to external constraints. The reactive nature of the function can be illustrated by the amount of time supply chain managers spend on short-term operational tasks in comparison with strategic, longer-term issues. As part of their interview, supply chain managers were asked to estimate how much of their working time they spent dealing with issues that require immediate attention – fire-fighting tasks – and how much time they had for thinking about longer-term issues of a more strategic nature (see Table C.3 in Appendix C, p. 164). A high proportion of time spent on short-term issues can be taken as a proxy indicator of the reactive nature of supply chain management; in this case reacting to external sources. The answers varied widely, depending on the size of the organisation and the position of the interviewee within a purchasing and supply chain management department. The proportion of time spent on shortterm issues tends to decrease in larger organisations, at least for the head of the department. In a number of large companies – for example, an electronics test equipment manufacturer, an outdoor clothing textiles company and a speciality chemicals manufacturer – short-term operational issues occupy only some 10 per cent of the supply chain manager time. At the other end of the range, the purchasing managers of a paper-maker and an electric motor manufacturer spend up to 75 per cent and 80 per cent of their time, respectively, dealing with short-term problems. On a closer examination, it emerges that over half of the respondents are occupied primarily with routine or reactive tasks and, given the reactive service nature of the function, even those who claim to be doing strategic work are often translating operational work into strategy. Once allowance is made for the potential self-inflation of their roles, it seems clear that purchasing and supply chain managers are occupied predominantly with routine operational issues. Where managers spend a significant proportion of their time reacting to challenges that require immediate attention, less time is available for dealing with issues that would need a

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more comprehensive approach, and this category of challenges also includes environmental protection. The case for the reactive nature of supply chain management can be strengthened further, as even for supply chain managers in large corporations the share of reactive work can easily increase under exceptional circumstances. The purchasing department of an automotive company as a whole spend some 75 per cent of its total working time on tactical tasks and 25 per cent on tasks of a more strategic nature. These figures fluctuate over the life-cycle of a car model or a specific component. For example, at the beginning of the model’s life-cycle the share of strategic work is higher because the initial sourcing process has to be carried out. Thereafter, the share of routine work increases again. Other exceptional circumstances are times of high demand. In the build-up to the year 2000, a mobile phone manufacturer experienced a very steep increase in volume, with monthly demand outstripping the forecast for the whole year. The purchasing group was spending about 80 per cent of its time on operational issues, where normally this figure would have stood at 40 per cent. Even where supply chain managers suggest that they have a strategic outlook, this does not mean that environmental protection appears automatically within the horizon of strategic consideration. A speciality textiles manufacturer faces the challenge to improve delivery performance to its customers. Many customers order textiles in a multitude of colours, and if the ingredients for one colour are delivered late by a supplier, then the whole order to that customer is affected. A reasonably good supplier delivery record, measured in individual lines of items, is diluted to a less satisfactory performance when measured in terms of customer order parcels. Efforts to improve the delivery record speak of a strategic orientation, yet even in strategic mode supply chain management remains a reactive function. Since the number of variables that can be controlled strategically is limited, supply chain management needs to concentrate on the most important ones, while other variables have to be treated as being met by suppliers more or less automatically, and these again include the natural environment. The reactive service nature of supply chain management can facilitate an assumption that it is the task of other departments to look after the environment. For example, a petrochemical corporation was at the time of the interview planning to purchase new pollution abatement equipment. A cross-functional team was formed to draw up the contract with the supplier, involving the supply chain management department, the health, safety and environment department, and the quality team. Sub-contractor

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negotiations for the waste disposal contract equally have an input by both HSE and supply chain management, where the latter looks after the commercial side and HSE after the technical side of the contract. Thus the purchasing manager was able to suggest: ‘It is mainly the HSE department that deals with environmental procedures. It doesn’t fall into procurement that much.’ In other words, a proactive approach to the environment at the corporate level does not necessarily translate into a proactive approach at the functional level. The reactive nature of supply chain management is amplified by the performance criteria by which staff are measured. The impact of performance criteria on buyer behaviour is stressed by the purchasing manager of a specialist cable manufacturer: Some buyers can be very, very hard on their suppliers. They see that as their job: my job is to supply at the lowest unit cost. And that is how they are evaluated. If their performance is based on that, then it is too narrow a view, I would say, because a man or a woman will perform to that and if they started to take other considerations in, they would deny the very criteria that measure them. The purchasing manager of a pigments and dyes manufacturer applies the following criteria to measure his performance: stock levels, product price and quality, complaints from internal customers, contributions to the company outside supply issues, and job satisfaction of his staff. These do not match the company’s criteria precisely, but one can assume that his personal criteria will have been shaped to a large degree by those of the company. These personal performance measures refer primarily to economic criteria: stock levels have an impact on the financial situation of the company as they bind capital, but an interruption to production caused by lack of stock would be disproportionally more costly. Price and quality too have an impact on the financial situation, while the satisfaction of internal user departments can also be seen in economic terms, in the degree to which supply chain management supports or hampers them in the fulfilment of their targets. Overall, the performance evaluation criteria used for supply chain managers stress quantifiable economic factors to the detriment of non-economic ones. The rewards structure for purchasing and supply chain management staff in manufacturing companies is thus a disincentive for proactively addressing environmental issues in the supply chain. Supply chain management is a function of an inherently reactive nature. In some, predominantly smaller, companies purchasing managers

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spend up to 80 per cent of their time dealing with short-term operational issues. Even in larger companies, where this share is usually significantly lower, it can increase again under special circumstances, such as at times of high demand. Together with limits regarding the number of variables that can be controlled, the reactive nature of the function produces a working arrangement where supply chain managers do not address environmental issues – unless specifically required to do so. Attention to environmental issues in the supply chain is further hampered by performance measurement criteria that privilege economic over non-economic criteria, such as a concern for the natural environment.

Constraints on a supply chain manager The conclusion that supply chain management is inherently a reactive function raises the question regarding under what precise constraints a manager is working. On the basis of our research findings, five such constraints – two internal and three external – can be identified. For a supply chain manager, the board is, unsurprisingly, a first major source of constraints. The board typically lays down plans for supply chain management in terms of the completion of specific projects or savings on projected purchasing spend. At a mobile phone manufacturer, supply chain management has to meet stringent cost reduction targets stipulated by the corporation. The individual commodity buying groups within the department translate these into cost reduction strategies for their range of items, the success of which is monitored by the supply chain manager. Similarly, a pigment and dye manufacturer sets cost reduction targets for supply chain management, both at the macro level – to decrease total expenditure by a certain amount per year – and at the level of specific products, where the costing from the sales and marketing department might indicate that reducing a product’s price below a certain threshold would lead to a significantly higher sales volume. A further aspect of the constraints arising from the board concerns the factors discussed earlier: the reactive nature of the supply chain management function, the relatively low status of the post’s incumbents and the performance measurement criteria that stress economic criteria. One could object that the nature of supply chain management is largely determined by the technical parameters of the function and hence does not constitute a constraint imposed by the board. However, the rewards structure of an organisation can clearly be influenced by the board, and changing performance measurement criteria would then induce changes in the function itself. To counter the traditionally lower status of supply

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chain management in comparison with other corporate functions, the board could allow the function to participate in the corporate strategic planning process and perhaps offer a seat on the board of management. Thus, at least in an indirect sense, the function’s reactive nature, relatively low status and performance measurement criteria are constraints arising from the board. A second internal source of constraints is internal user departments, such as research and development. The experience of a specialist cable manufacturer shows how internal decision-making limits the supply chain manager, even if s/he were to be willing to buy greener alternatives: Maybe the engineer has got a choice of three materials, and maybe equally he could have chosen one material over the other, that would be of no concern to him, but environmentally one is much more friendly than the other . . . That decision is normally made further upstream before it comes to us and we would not normally pick that up. The influence engineering has over the choice of materials can, of course, be utilised to design more environmentally friendly products and production processes, but such initiatives fall outside the scope of the discussion here. In any case, the technical specifications that engineers develop have an impact not only on product costs but also on the leeway that supply chain managers have in implementing greener supply initiatives. Operations managers determine production schedules and hence lead times for incoming materials and components. Where these are insufficient for fully utilising the capabilities of the supply base – for example, where an environmentally outstanding supplier is not able to deliver at short notice – operations will have restricted the contribution their colleagues in purchasing and supply can make to environmental initiatives. Similar arguments exist for other corporate functions, such as logistics arrangements, which determine the amount of vehicle movement, and hence exhaust fumes and congestion a company causes. Internal customers are therefore an important constraint on greener supply, as their ideas and preferences regarding the design, manufacture and handling of the product can limit the scope that supply chain managers might otherwise have in the selection of suppliers. This again supports a call for interaction with other internal departments, which was already made when the strategic role of supply chain management was discussed (see Chapter 3). An important external constraint is government regulation, which is a particularly complex web of factors. Tools used in regulation can range from direct stipulations, through frameworks that give a general

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direction but leave the precise details to industry, to the application of economic incentives. The level of regulation can range from legislation imposed by local government through national legislation to international protocols and guidelines. Its scope can cover not only health and safety issues but also regulate the range of materials that may be used, the production processes a firm may apply, or establish criteria to govern the transportation of certain products. In a broad sense, legislation is a reflection of voter preferences, but one must not assume that citizens, in their dual role as voters and consumers, are necessarily consistent. As opinion polls of developed countries regularly show (DEFRA, 2002) individuals are increasingly concerned about the degradation of the natural environment. However, this enthusiasm quickly evaporates when personal comfort, the price of commodities (such as petrol) or employment is endangered. Furthermore, perceived voter preferences can become altered in the political process. In any case, regulation places clear limits on the scope for supplier selection. A second external constraint arises from customer requirements, such as stipulations of a specific price or minimum quality, which further limit the scope for supplier selection. These customer requirements are reflections of the (perceived) demands of the customer’s customers or the final consumers, working their way up the supply chain. A company’s market research may have indicated that its customers would be more likely to buy its product if the price were to be lowered below a certain threshold, or if the quality was improved, and these requirements then turn into a datum for the company’s supply chain. Such a constraint applies to all manufacturers, ranging from consumer electronics to capital investment goods. A clear example of customer requirements is provided by a shipyard: ‘It is either in the specification of the contract or in whichever rules you are building to, which flag, whether it is Norwegian flag, UK or wherever else. There tend to be rules attached to that, which you have to consider with your design.’ A special case of customer requirements is that of contract manufacturers – companies that sell their products under the name of an original equipment manufacturer rather than their own. As illustrated in the discussion of the electronics industry, contract manufacturers are particularly limited by customer requirements as they can only use suppliers that are approved by their customers. Such a stipulation could be a result of quality considerations, where the original equipment manufacturer selects vendors according to their quality record, and in the interests of a consistent quality does not permit its contract manufacturers to select their own suppliers. The original equipment manufacturer may also have

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agreed to buy a certain volume from a vendor and if the manufacturer subsequently decides to outsource the production of the respective component, the prospective new supplier would be required to take over the agreed volume to honour the contract. Another reason may be price sensitivity, where the customer might strike a deal with the supplier of a crucial component to have it delivered to the contract manufacturer without releasing its price. Whatever the reason for the arrangement, where a supplier is stipulated in such fashion, the manufacturer cannot switch without the prior agreement of the customer, and, of course, this also applies if the supplier is to be changed for environmental reasons. In a less direct fashion, supply chain managers are also hampered by their competitors. Such constraints can manifest themselves in pressure to reduce price or acquire higher-quality components, which then force supply chain managers to pass these on to their supply base. Given the reactive nature of the function, such additional pressures are likely to divert supply chain manager attention even further from environmental issues. In some cases, however, moves made by competitors can in fact raise the environmental profile of an industry. This was illustrated by the returnable containers for a hazardous chemical that have now become the industry standard. Here the actions of one company led its competitors to adopt the environmental innovation too. The various influences on the supply chain manager can thus be modelled as five constraints on supply chain management decision-making (see Figure 7.1): 1 2 3 4 5

Internal: general framework criteria stipulated by the board; Internal: detailed criteria specified by other organisational units; External: a variety of legal and quasi-legal regulations; External: customer-defined criteria; and External: competitor-induced criteria.

There is evidence that supply chain managers are to some degree aware of environmental issues in their supply chains, yet addressing these is hampered by both technical factors and an array of internal and external constraints. These constraints emanate from internal sources, such as the economic targets stipulated by the board and the requirements of internal user departments, and are reinforced by the relatively low middle-manager status and the reactive nature of supply chain management. Furthermore, the function is subject to external constraints, like regulation, competitive pressures and customer requirements regarding quality, price and delivery conditions. The constraints are exacerbated by performance criteria that concentrate on economic targets and leave

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Voter Legislation

End consumer

Price, quality, etc.

(3)

Cost, quality, delivery

Board of Management Finance Director

Internal customers: Engineering, Operations, Logistics, etc.

(4) Stipulation of supplier by customer

(1)

(2)

Customer

SUPPLY CHAIN MANAGER Supplier’s supplier (5)

Competitor

Figure 7.1

Constraints on a supply chain manager

Source: Adapted from Preuss (2001) fig. 2, p. 356. © Kluwer Academic Publishers. Reproduced with kind permission of Springer Science and Business Media.

little room for addressing ‘softer’ variables, such as the natural environment. Such a situation also encourages the assumption among some supply chain managers that the environment should be the concern of other departments, such as health and safety, rather than of supply chain management staff themselves.

Conclusions The aim of this chapter was to explain the gap between the growing financial importance of supply chain management and its often marginal involvement in environmental protection initiatives in the manufacturing

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supply chain. Part of the answer is technical limits arising either from what the supplier base can offer or from what the customer requires. The skills, resources and capabilities supply chain managers possess may also match insufficiently well the complex requirements of environmental issues. Supply chain managers show a general awareness of environmental issues in their supply chains, but an instrumental approach to the environment is also widespread. Where supply chain managers believe that the environment is more likely to lead to cost increases rather than to cost benefits they are then not prepared to take the risk involved in environmental initiatives. There is evidence that greener supply has indeed been harvesting the low-hanging fruit so far, which casts a cloud over future progress. The most important part of the answer, however, lies in the reactive service nature of the function, which leads managers to focus on challenges that require immediate attention rather than those – such as the natural environment – that need a more comprehensive approach. A related disincentive is the function’s relatively low status in the organisation, as supply chain managers are usually not members of the board of management. They are required to meet its targets but are not involved in setting them; again, their ability to contribute to longer-term challenges remains limited. This situation is sub-optimal both in terms of the strategic contribution supply chain management can make to the bottom line and in terms of the part it can play in environmental protection initiatives. We developed a model of five constraints on supply chain managers: internally, they are constrained by general framework criteria set by the board, and detailed technical criteria specified by other organisational units. Externally, their actions are limited by a variety of legal and quasi-legal regulations, and by customer-defined criteria as well as pressures emanating from competitors in their industry. Together these create a situation where supply chain managers have little or no room left for greener purchasing, even if they personally wanted to address environment issues. Additionally, performance measurement criteria used for purchasing and supply emphasise financial over non-economic criteria, further reducing what little incentive for environmental initiatives there might be. It is thus suggested that the reactive nature of supply chain management – amplified by performance measurement criteria – does not leave enough room for a proactive approach to issues outside a narrow range of operational variables. Given these severe constraints, what avenues, if any, are there open for enabling supply chain managers to make a greater contribution to environmental protection?

8 Towards a Greener Future

‘The environment is probably coming from where safety came from ninety years ago: when you employed people and you killed them, you got another one. Big industry worked like that. And I think that the environment is coming along the same route, all those years behind it, but finally it will have its way.’ Purchasing manager, tyre manufacturer Purchasing and supply chain management is shaped by an array of factors that inhibit greener supply. These begin with the technological capabilities of the supply base, which may leave the supply chain manager with a choice between several environmentally sub-optimal options. Environmental issues are also more complex than traditional sourcing decisions, and supply chain managers may lack the skills, resources and competencies to tackle these successfully. Individual managers expressed a commitment to a shared environmental responsibility with their supply chains, yet an instrumental approach to the environment is also common. The most serious hurdles to supply chain manager involvement in environmental activities, however, are their relatively low status within the organisation and the reactive nature of the function. The reactive mind set is reinforced by performance evaluation criteria that privilege economic criteria and hence crowd out softer variables such as attention to the natural environment. However, this assessment leads to a further contradiction: why do some companies undertake environmental initiatives, and why is there evidence – albeit scanty – of a green multiplier? This final chapter will examine under what conditions greener supply initiatives might become more prevalent in manufacturing companies than is the norm today. The discussion will consider both internal and 129

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external aspects affecting companies, which are then distilled into a general model of factors influencing greener supply.

Internal avenues for greener supply Exploring obstacles to and potential avenues for a greater supply chain management contribution to environmental protection requires attention at several levels, ranging from the values of the individual manager and the way these are shaped by business schools and professional bodies, through changes to the organisational hierarchy and structure, to new modes for supply chain management, based on improved dissemination of environmental information, utilising better support tools for environmental decision-making and applying novel ways of organising supply. One avenue for greener supply is to strengthen managers’ personal responsibility for the natural environment. While the environment has become a topic of greater concern in recent decades, managerial thinking has seemingly not kept pace. Environmental initiatives in the supply chain require two types of employee: ‘policy entrepreneurs’, who enthusiastically champion ideas, often working outside their formal job responsibilities; and ‘converts’, who after initial resistance become convinced of the initiatives’ merits (Drumwright, 1994). Supply chain managers did not appear to be represented in either group; rather, in some cases, they were referred to as ‘resisters’. Against a backdrop of general managerial lack of interest, one could thus conclude that supply chain managers are even less likely than most of their colleagues to take up the environmental challenge. The uninterested attitude to the environment is, at least in part, created during the training process of prospective managers, as business schools typically pursue a rather mechanistic approach with an emphasis on quick answers and a narrow focus on ‘technical’ management issues rather than the wider social context. In the late 1990s, a study of teaching and research at US business schools (Finlay et al., 1998) concluded that few graduate business schools have mandatory courses in their curriculum on the management of environmental issues. Most schools offer at least one elective on the environment, but only 16 per cent include the environment within the core curriculum, and the inclusion of environmental concerns into the study of specialist subjects, such as marketing or finance, is even rarer: ‘Thus, most MBA students are not trained, either as generalists or specialists, to consider the natural environment as a key factor in business decision-making’ (Bunch and Finlay, 1999, p. 71).

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The obstacles cited by lecturing staff and administrators to the introduction of courses on the environment are numerous. Demand is low, as corporate recruiters hardly ever refer to environmental knowledge in job advertisements or interviews. Since MBA students are particularly concerned with improving their employability, they therefore do not select such courses. Teaching staff lack familiarity with the subject, as those with an environmental interest are often younger and receive little support and understanding from more established colleagues. Adding new subjects to the curriculum usually requires dropping others, and environmental matters are rarely considered as warranting such changes. The ideological culture of business schools also hampers their adoption, since the environment is usually seen as a social concern, and not as a market driver that managers need to understand. Established managers can turn to their professional associations for help and for environmental information – for example, the Institute of Supply Management (ISM) in the USA and the Chartered Institute of Purchasing and Supply (CIPS) in the UK. CIPS publishes reference material, which can be downloaded from its website, on how the environment is affecting supply chain managers and their organisations as well as details of the current legal situation. The material makes a business case for sustainable development, discussing the integration of environmental criteria into the specification, supplier qualification and tendering stages as well as stressing the need for ongoing improvement (IEMA, CIPS, NHS Supply, 2002). Based on the above, CIPS also provides one-day training sessions. Its Graduate Diploma does not include a specific module on the environment at the time of writing, but such a course is scheduled for accreditation in 2006. Generally speaking, take-up of environmentrelated courses is not high, partly because similar courses are offered by competing organisations, such as Business in the Community, and partly because the Institute takes the view that the environment is best addressed when embedded in the study of other subjects, such as strategic sourcing.1 One way in which greener supply can be supported is by encouraging greater awareness and a more active approach to environmental challenges among managers. This would not only aid greener supply but also bring managerial values back in line with those of the wider society. Such a change in values needs support from business schools and professional bodies, yet both are currently far from using their full potential in addressing the natural environment. Within organisations, greener supply can be facilitated by establishing a more comprehensive range of criteria for managerial performance evaluation, by adopting a

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proactive environmental stance, and by widening the traditionally limited role that supply chain management has in corporate strategy-making. Progress in greener supply requires that the environment is one of the criteria by which supply chain managers are measured. In addition to stimulating any latent interest they might have in the natural environment, the inclusion of environmental issues in the rewards structure would signal to supply chain managers – as well as to their colleagues in other functions, and to their superiors – that the environment is indeed an integral part of their professional role. There is evidence that a proactive environmental stance adopted by an organisation can foster environmental management initiatives in the supply base (Bowen et al., 2001b). Adopting an environmental policy seems to allow for at least some level of commitment to be cascaded down to functional areas, such as purchasing and supply. A track record of environmental commitment can also ensure that the environment is integrated into, rather than bolted on to, the supply chain management process – for example, by introducing environmental measures into purchasing and supply policy. Conversely, a strategic approach to supply is not sufficient to foster environmental commitment in the supply chain. In our sample, a manufacturer of optical examination equipment demonstrated a well-honed strategic approach to supply, as its entire manufacturing is undertaken by the supply chain. Yet environmental issues remained firmly beyond its horizon. Environmental initiatives thus need a different driving force rather than merely a strategic approach to supply. Given the traditionally lower status of supply chain management in comparison to other corporate functions, another – and perhaps the most efficient – opportunity for strengthening the role of purchasing and supply in environmental protection is to allow the supply chain function to participate in the corporate strategic planning process, and to offer supply chain management a seat on the board of management. Supply chain management can ensure that the organisation adopts a comprehensive environmental strategy, which includes the supply chain perspective rather than addressing internal issues alone (see Figure 8.1). Such a comprehensive approach is important, as external stakeholder pressure might not distinguish between the legally separate entities in the supply chain. If a product is found to be polluting the environment, its branded manufacturer would face the wrath of consumer activists, independently of whether the company itself or one of its suppliers created the problem. The integration of greener supply into corporate strategic planning should thus lead to improved statutory compliance

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Environmental analysis: Value-chain assessment Competitor assessment Ecological aspects Regulatory assessment

Resource analysis

Strategy formulation

Feedback and assessment Strategy implementation

Current supply chain management involvement in strategic planning Potential supply chain management involvement in strategic planning Inclusion of the environment into corporate strategy Figure 8.1

The role of supply chain management in strategic planning

Source: Preuss (2002b) fig. 1, p. 312. © Blackwell Publishing. Reproduced with kind permission of Blackwell Publishing and Palgrave Macmillan. Adapted originally from McCloskey and Smith (1995), p. 192.

and to more secure financial and insurance planning, as environmental risks are better understood. It could also bring about an improved organisational image, more customers and a better-motivated workforce. Further avenues for greener supply can be found by rethinking the ways in which manufacturing supply chains operate. This encompasses three related aspects: the first concerns the collection, analysis and dissemination of environmental information along the chain; the second refers to the decision-making process and support tools for environmental issues; and the third concerns changes that can be made to the way in which supply chains operate. An improved information flow can address some of the shortfalls identified in the empirical studies above. Having established its own values in an environmental policy, the company must communicate these both to its own employees and to the supply chain. The commitment to the environment must be integrated into the company’s purchasing and supply strategy. A glaring omission here is the role of the environment in the supplier assessment process. To check the environmental standing of the supply chain, pre-qualification criteria

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and environment-related specifications can be used in tendering, together with a consistent inclusion of the environment into supplier selection and evaluation criteria. The environment can also be addressed by post-tender contractual obligations. A more active collaboration with other supply chain members can be achieved by measures such as training and mentoring for suppliers, and environmental supplier rewards. Given the greater complexity in environmental issues over traditional sourcing decisions, managers need new tools to structure strategic environmental decisions in a dynamic competitive and regulatory context. Humphreys et al. (2003) propose an electronic decision support tool for integrating environmental criteria into the supplier selection process. In the first stage, the supplier’s environmental performance is checked against legal requirements. The second stage analyses quantitative aspects of the supplier’s environmental performance, such as emissions, with a view to ranking suppliers that have an acceptable performance. The third stage then assesses qualitative categories of supplier performance, including senior management support for environmental programmes, design for environment initiatives, the existence of environmental management systems or environmental competencies. The model also allows a distinction between proactive and reactive environmental strategies. Where a company pursues an environmentally reactive strategy, it would suffice to consider only the quantitative criteria, while a proactive company should pay attention to both quantitative and qualitative criteria. In addition to promoting organisational learning and improving decision-making tools, greener supply can also be improved by changes to the current operation of supply chains. The environmental performance of a supply chain can be improved by diverting end-of-life products from landfill or incineration into reuse. For example, steel sections used in construction have traditionally been destroyed during the demolition of the building. Instead of flame-cutting these into manageable pieces and selling them to scrap merchants, the sections could be disassembled and refabricated for reuse. This method would need only a third of the energy required for the manufacture a new steel section. Widespread reuse of steel sections is, however, hampered by an array of constraints in the construction supply chain. Buildings are not designed with deconstruction in mind. Demolition is usually the starting point for a new building project, and the main priority for the developer is to clear the site as quickly as possible. Demolition also uses a high level of automation, whereas disassembly requires more manual work, and hence is more labour- and cost-intensive (Geyer and Jackson, 2004). Changes to supply chain relationships are needed to overcome these constraints;

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for example, by considering the end-of-life phase during the initial construction. This is what Interface, a leading US manufacturer of commercial carpets, aims to achieve. The company is committed to sustainability, and, in its operations, its goals are to eliminate waste, reduce emissions and replace non-renewable sources of energy with sustainable ones. In terms of the supply chain, it aims to ‘Create closed loop processes. Taking our products back at the end of their useful lives and giving them a new life again and again through a closed loop fashion.’2 On one product range, it leases office flooring to the customer instead of selling it (Frankel, 1998). This forces the carpet supplier to adopt a life-cycle perspective, as the repercussions of take-back and disposal need to be considered when entering into the contract. Hence a much greater supply chain management contribution to environmental initiatives is needed much earlier in the process. Supply chain management is also given further ecological weight in activities such as disposal and value recovery from excess products and reverse logistics. Such suggestions for more sustainable purchasing and supply management are built on the model of an industrial ecosystem (Frosch and Gallopoulos, 1989; Tibbs, 1992; Korhonen, 2004). In analogy to a natural ecosystem, an industrial ecosystem consists of a network of organisations which use each others’ waste and by-products, sharing and minimising the use of natural resources, and thus aiming jointly to reduce environmental degradation. Since all these activities concern upstream and downstream links between organisational supply chains, the industrial ecosystem can, at the macro level of the regional economy, be perceived as a model for greener supply. Clearly, such an arrangement has an impact on many of the tasks with which the supply chain management function is usually charged, and hence is an encouraging model for greener supply. Industrial ecosystems and take-back of consumer durables illustrate both that environmental protection requires novel methods of supply chain management, and that the supply chain management function, because of its boundary-spanning role, is set to play a larger part in protecting the environment.

External pressure for greener supply We have suggested a number of tools to enable purchasing and supply chain managers to realise the potential role they could play in environmental protection. Ranging from managers’ personal values through developing their skills and competencies to organisational changes and

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new ways of managing supply, all these measures are taken within the company. While they are important steps towards greener supply, though, such measures are not sufficient in themselves. We noticed that environmental initiatives are concentrated in a few industries: electronics, chemicals, automotive manufacture and paper-making. Virtually all the examples in these exceptional industries face the same special condition – namely that environmental initiatives happen in the presence of strong public pressure and under the threat of legislation. For the paper industry, the main motivation for environmental initiatives in the supply chain is the image of the industry, as a supply chain manager commented: Paper-making is a dirty business. I think we have done more than most to improve the situation. The big issue used to be chlorine. Now we produce [paper that is] elemental chlorine free. The next issue on the horizon really is forestry. Our pulp comes from plantation forests all the time. Now, what do you do with biodiversity? A plantation forest is one thing, but it is not very nice having just rows and rows of straight trees . . . the local animals . . . can be driven out, because they are not getting the diversity that they had before. So policies have to be set nationally, internationally and by local companies in terms of creating that biodiversity, creating well-structured, managed forests, sustainably managed forests. That is a very important part, environmental selection, because we are under the spotlight all the time as an industry and can’t afford not to get that part of it right. Similar public pressures exist for the other industries. The chemical industry has a several-decade-long history of attracting critical stakeholder attention, while electronics has come under the spotlight for the use of heavy metals and the recyclability of its products. The car industry faces criticism over exhaust fumes, road deaths and extensive road building programmes. The argument is thus made here that public pressure is a necessary condition to bring about environmental initiatives in the supply chain. This external pressure works as a catalyst to change the industry’s perception as to what the foundations of successful business are. In all likelihood the pressure will affect the personal values of purchasing and supply chain managers, but more importantly it leads to an enlargement of the variables that supply chain management is required to address. In other words, an extension of the organisational priorities creates both a driving force and some leeway for purchasing and supply to apply its

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latent potential to influence the environmental performance of the supply chain (see Figure 8.2). Conversely, in the absence of such pressure, the contribution that supply chain management could make to greener supply will remain under-used. A green multiplier can operate where there is great and persistent pressure from the public, and where this is accepted within the organisation, leading to an enlargement of the purchasing criteria that are applied to the supply chain. As a general tool, the green multiplier is applicable to all companies, but the extent of its use and its effectiveness depend on the urgency which a company and its supply chain management function ascribe to environmental issues. Leaving aside instances of managers acting solely from personal conviction – and because of the reactive nature of the function such instances are rare among supply chain managers – this is generally dictated by the degree of stakeholder pressure a company is under. However, not all firms are subject to the same degree of environmental pressure. Large, high-profile firms are often under considerably more pressure to improve their environmental performance than are smaller companies and manufacturers of intermediate products. In addition to size, there are also sectoral differences. In paper-making, environmental criticism includes the growing of trees for wood pulp production and

SOCIAL PRESSURE and legislation

Further suppliers

Further suppliers

2nd tier suppliers

2nd tier suppliers

1st tier suppliers

1st tier suppliers

Customers Supply chain manager Customers Manufacturer

New business opportunities

General purchasing requirements Environmental requirements New business opportunities

Figure 8.2

The green multiplier expanded

Source: Adapted from Preuss (2002a), p. 279.

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the paper-making process itself, while in the chemical and automotive industries the production processes and the use of their products, and in the case of chemicals even their transportation, are all under public scrutiny. In electronics, on the other hand, public attention has been less consistent and the focus is on individual issues, such as heavy metals or solvents. Heavy metals are not used in great quantities, nor are they obvious to the consumer. Electronics accounts for about two per cent of the worldwide use of lead, of which only a small part goes into printed circuit boards. However, printed circuit boards have a large surface area, and when dumped into a refuse tip, acid rain can wash out the heavy metals into the ground water. Once absorbed by a human or animal, the heavy metals remain in the body. Understanding this causal chain requires greater environmental knowledge than understanding why clear-cutting a forest is bad news for the environment and is more difficult to turn into memorable images. Hence the public profile of the electronics industry is affected less by the use of lead in printed circuit boards than that of paper-making is by its forestry practices. Such differences in public pressure across industries can be explained by the fact that environmental pressure groups usually have limited resources and technical capabilities while at the same time having to maintain legitimacy in the eyes of their supporters. Hence they may target not necessarily the most important environmental issues, but rather popular and easy-to-understand issues, while technically complex industries and smaller companies receive less attention (Hall, 2000). Such differences in environmental pressure have important implications for environmental initiatives in the supply chain. Smaller suppliers often are not under the same amount of direct environmental pressure and hence have fewer incentives for addressing these. As their large customers become targets of NGO attention, however, environmental pressures become intertwined with general supply chain pressures emanating from these larger, more visible companies. Whether such pressure becomes effective depends on how far a company’s influence over its supply chain reaches. NGOs are usually not concerned with legal responsibility but with bringing an issue to public attention. Hence they often argue that a company should also be responsible for environmental issues created by its suppliers or customers. Where the company can address these, they are located in the ‘sphere of influence’; where it cannot, they fall into the ‘sphere of concern’ (Hall, 2000). As they reflect a variance in stakeholder pressure related to visibility and technical complexity, the spheres of influence and concern

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have different contours for different firms in different industries. If the focal firm is large it is more likely to be subjected to NGO pressure; if the environmental issue is easy to understand, then environmental pressure is again more likely. Greener supply works only in the presence of strong and persistent public pressure on an industry regarding its environmental performance. Companies in such an industry and the individuals within these companies must come to accept this pressure as legitimate. In this case, and only in this case, will the catalogue of variables supply chain managers are required to address be enlarged by the environment as an additional variable. Such stakeholder pressure depends on how well the company is known and whether the public understands and can measure its environmental impacts.3 Public pressure thus acts as a catalyst: the latent potential for purchasing and supply chain management to contribute to environmental initiatives does generally exist, but without the catalyst it cannot be utilised.

A triad of variables influencing greener supply Having demonstrated the possibility, in principle, of a green multiplier effect, we shall now develop a general model of the factors that can bring about greener supply. These fall into three major groups of variables: namely, legislative, economic and cultural factors. Legislation has a direct impact on environmental protection, and few companies go (far) beyond their legal requirements. Legislation does not only emerge as the main motivation for environmental initiatives; it also creates a framework for the other major factors. Furthermore, public pressure and a threat of legislation were isolated as a catalyst for the green multiplier without which the environmental reaction cannot begin. In terms of the supply chain, legislation can ban completely certain hazardous processes or materials (such as asbestos); it can stipulate minimum standards (for example, for the transportation of nuclear waste); or it can require that suppliers make additional information available, on the basis of which customers can decide what precautions to take (such as safety sheets for certain chemicals). In all these cases legislation has a direct impact on the environmental performance of the supply chain, and purchasing and supply chain managers have no choice but to ensure that their suppliers adhere to these requirements. There is another important aspect of legislation that has an impact on the likelihood of greener supply: the differential in legal requirements between countries. As sourcing increasingly takes on an international

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dimension, these differences are becoming an important source of competitive advantage for manufacturers. A medium-sized manufacturer of hydraulic motors has starting buying ferrous castings from Polish rather than UK suppliers. The main motivation was a desire to reduce costs, but the purchasing manager is aware ‘that these countries don’t have the same strict regimes as we do with regards to health and safety. So that is a niggle that we are having to learn to live with.’ A tyre manufacturer buys carbon black from Russia, again for reasons of lower costs, and again the purchasing manager acknowledges: ‘I’m quite sure from the environmental point of view, the Russian plant wouldn’t come anywhere near the standards you’d find in this country.’ Thus legislation emerges as the strongest factor determining environmental protection initiatives in the manufacturing supply chain. However, legislation has a dual impact on greener supply. On the one hand, it is a coercive force which imposes minimum standards that many manufacturers would otherwise not adopt. On the other hand, the differences in national regulatory requirements, which are exploited increasingly because of increasingly global competition, make legislation a ‘disabling’ factor which can actually lower the environmental standard of the whole supply chain. An array of economic factors constitute a second major factor that has brought about environmental improvements in the supply chain. A clear example of such economic pressures are cases where cost considerations have led to environmental improvements. A manufacturer of mobile phones substituted the heavy metal palladium in its capacitors with an artificial alternative, which removed the need to mine the raw material. In another case, the replacement of cardboard packaging with reusable containers was necessitated by quality considerations, as cardboard particles contaminated the product and caused expensive reworking. These are straightforward scenarios, where there is a clear economic imperative to take the environmental initiative. The financial situation of an organisation is a further important economic factor. Although some cost may be recouped, environmental projects can be expensive, and under difficult trading conditions investment in these is considered a non-essential extra. This is confirmed by the purchasing officer of a medium-sized cashmere yarn manufacturer: ‘We have lost two companies out of the group... so the environment, at the moment, might be the furthest thing away from the mind.’ His comment illustrates once more the opportunity cost inherent in environmental protection; that a cleaner environment for some people might mean higher prices for some commodities or a loss of employment to other people.

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Economic factors that influence greener supply also emerge in the characteristics of the respective markets, such as the distance between the firm that considers greener purchasing and the final consumer. Companies such as B&Q and The Body Shop can undertake environmental initiatives because their exemplary environmental standing with consumers provides them with an economic rationale for doing so. Such a rationale is far less obvious for manufacturers, however. Within the electronics industry, differences emerged between consumer goods companies such as mobile phone manufacturers, and capital goods manufacturers such as producers of test equipment for the telecommunications industry. In the latter case, customers are less appreciative of environmental initiatives, and because of longer product cycles opportunities for changes to the product – including changes to its environmental credentials – are reduced. An equally clear difference in the opportunities for greener supply concerns original equipment manufacturers – companies that market their products under their own brand name – and contract manufacturers, which may make essentially the same product but sell it under the brand name of the customer. The latter not only have less scope for charging a green premium but also work to tight customer specifications and approved vendor lists, which leaves little room for deviation, even if it is beneficial environmentally. Greener supply is also influenced by the price bracket of the product, as environmental initiatives are less likely for commodities such as tyres. The purchasing manager of a tyre plant commented that ‘in our business, the problem is that selling tyres now is not really like buying Rolls Royces, or Bentleys, or BMWs. It is something I need for my car, and unfortunately costs a lot of money. It is a commodity now.’ The severe price competition not only erodes any opportunity for charging a green premium, but also increases pressure on the purchasing and supply function to reduce costs by sourcing from countries with lower factor costs – which tend to have lower environmental regulation requirements too. These pressures not only divert supply chain managers’ attention from environmental issues, they also make environmental initiatives in the supply chain less likely. On the other hand, less price-sensitive products, such as outdoor sports clothing, seem to permit a greater flexibility in terms of accommodating environmental projects in the supply chain. Other important differences can be found in the size of the customer, as large companies usually have more resources and have their image to protect, and these constraints translate into a corresponding pressure on the supply chain. Many examples of greener supply indeed happen

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in the supply chains of larger customers in the automotive, electronics and chemical industries, such as introducing reusable packaging. This does not mean, however, that small companies are not addressing environmental questions. At a small manufacturer of paper and plastic labels, a desire for a quality product goes hand-in-hand with a concern for the environment. In terms of environmental initiatives, the firm is, for example, adamant that its suppliers of solvent-based paints install solvent recovery facilities. Some economic factors thus support directly greener supply initiatives. Often costs can be reduced and quality can be improved, and in these cases it is economic wisdom which dictates that these initiatives should be undertaken. Other economic factors display a spectrum of possible correlations. For example, environmental initiatives are more likely the closer the manufacturer is to the final consumer, or where the product is in a higher price bracket. Cultural factors, the third group of factors, were found to influence greener supply mainly by their absence from the organisation. This concerns first and foremost individual values. Overall, supply chain managers displayed some awareness of environmental challenges in their supply chains, and there are individual statements about not wanting to harm the natural environment in the manufacturing process. Yet an instrumental attitude to the environment, a belief that environmental initiatives should be cost-driven, was frequently found too. Overall, there are few signs of a consistent internalisation of green values among purchasing and supply chain managers. While for society as a whole, at least in industrialised countries, environmental issues have increasingly come to the fore, the attitudes of managers in manufacturing organisations have not kept pace with this development. Even where supply chain managers might show an interest in the environment, the reactive nature of the function and the constraints placed on managers prevent them in most cases from having a more active involvement. Where environmental initiatives were undertaken in the sample firms, their champions did not tend to come from purchasing and supply but from other corporate functions. Within the buying organisation, the organisational climate can encourage or stifle green projects. This point was emphasised by the sheet metal company, which developed a new metal coating on behalf of its electronics customer to avoid a pending ban on certain heavy metals. A proactive organisational climate regarding the environment is illustrated by the fact that the company’s facilities manager has been able to initiate a whole series of environmental initiatives, including changes to metal plating processes, water recycling loops, or systems for

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segregating and recycling waste, for which he receives support from the managing director. External to the organisation, however, cultural factors do play a most important role, in that public pressure has been found to be the catalyst for a green multiplier. This pressure is, however, not necessarily consistent, in particular where the cost of environmental protection may lead to increased prices or loss of employment. This latent impact correlates with the degree of danger that arises from an industry, particularly the public perception of that danger. Hence the chemical industry, being perceived as particularly dangerous to the environment, has long attracted the critical eye of the general public. Public pressure is also determined by the degree to which a company’s environmental impact is well understood by the general public and can be turned into eye-catching images or headlines. Beyond these three main factors, there is an array of lesser factors, such as technical specifications set by the customer, which can limit the opportunities for replacing materials with environmentally friendlier alternatives. This is illustrated by the specifications for the radar in a fighter jet aircraft. Since the jet and its radar have to be able to withstand extreme temperature differences and vibration, alternative materials that are otherwise common in electronic products and that might have a more benign impact on the environment cannot be used. Limited technical capabilities can, in extreme cases, lead to calls to abandon a certain technology or industry altogether. Asbestos and nuclear energy are just two examples. Hence three groups of factors – social pressure, economic factors and cultural values – emerge as the major variables influencing greener supply (see Figure 8.3). There are, of course, links and overlaps between the factors – for example, legislation can create economic incentives while it is itself based on public pressure. Studying environmental protection in the manufacturing supply chain offers empirical confirmation to models which see corporate attention to non-economic variables, such as the protection of the natural environment, as being brought about by a triad of legislation/public pressure, economic benefits and cultural factors (Carroll, 1979, 1993; Jones, 1983). Concerning the relative strength of the three factors, our study concludes that cultural factors are most noticeable by their absence from the company; economic factors play an important role; and public pressure and pending regulation represent the strongest motive. In other words, the environment cannot be left to self-regulation. This conclusion requires some elaboration, as a long-established strand of environmental policy-making follows the argument of Adam Smith (1776/2002) that the unfettered operations of the market produce

144

CULTURAL FACTORS Individual values Organisational culture Public pressure

SOCIAL PRESSURE and LEGISLATION National regulation International differences in legislation

ECONOMIC FACTORS Cost advantages Financial situation Market characteristics distance to final consumer price bracket Customer size Company’s sphere of influence

GREENER SUPPLY

Figure 8.3

A triad of factors influencing greener supply

Source: Preuss (2002a), p. 288.

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the best results not only for consumers but also for society as a whole. Although not part of Smith’s original concerns, his argument can be extended to the natural environment. Where the market functions without interference, it will allocate scarce resources in accordance with express consumer demands and hence avoid any unnecessary use of resources. The validity of Smith’s argument is illustrated by the development of electronic products, as devices have become considerably smaller and better over time, leading to reduced material consumption in the production process and less energy consumption in product use. Hence current thinking on environmental regulation, such as the Sixth Environment Action Programme of the European Union, often calls for working with the market by utilising business and consumer interests. In the UK, the 1990 DoE White Paper, This Common Inheritance, had provided such a turning point towards the greater use of economic instruments, which both Conservative and Labour governments have since followed. The operation of the market, however, only considers factors that can be expressed in monetary terms. Traditionally, firms were not charged for polluting air or water, and were able to treat these as a free resource. In such a situation the market mechanism cannot allocate resources efficiently. Since producers do not pay their total costs, they have an incentive to supply more products than would otherwise be the case. Similarly, consumers have an incentive to consume more than they otherwise would, as they do not pay the total cost of their consumption either. Society is faced with the ‘tragedy of the commons’ (Hardin, 1968): it is in everybody’s interest as self-interested individuals to consume as much as possible of the free resource while hoping that someone else will pay the costs. In the presence of such negative externalities, market incentives in themselves encourage pollution, and society ultimately has less total social welfare than could otherwise be obtained. Hence the state must interfere by changing either the price or the quantity of the polluting good, so that a new equilibrium can be reached. The invisible hand of the market needs to be constrained deliberately by the visible hand of the regulator. The need for regulation in addressing environmental issues receives normative support from the long-established but now marginalised tradition of welfare economics of the Wisconsin School led by John R. Commons (1862–1945) in the first half of the twentieth century. While mainly concerned with the regulation of the labour market, their insights turn out to be equally relevant to the regulation of environmental protection. The Wisconsin School disagree with classical economists in

146 The Green Multiplier

their views as to what constitutes the final purpose of economic activity. Where classical and neo-classical economists argue with Adam Smith that wealth creation and ultimately consumption is the purpose of all production, Commons (1924/1995) suggests that, while consumer satisfaction and material wealth are not unimportant, the ultimate objective of economic activity is the facilitation of each person’s quest for selfdevelopment and self-realisation, an argument that echoes Aristotle’s (1980) Nicomachean Ethics. It is not our task here to settle this dispute, but it should be stressed that regulation does not have to be by detailed rules; it could also apply frameworks – for example for maximum permissible pollution levels – and then leave it to industry to find solutions within the set limit. At the same time, there is a clear need for transparency and democratic control irrespective of whether environmental regulation happens at local, national or supranational level. Regulation has to proceed with the consensus of the affected stakeholders, including industry. Regulation thus understood meets the approval of such business leaders as Sir Mark Moody-Stuart (2002, p. 4), former chairman of Royal Dutch/Shell, who acknowledges: ‘Governments have a key role to play in creating conditions in which markets can work to deliver sustainable solutions, and this includes creating appropriate regulatory frameworks.’

Conclusions Our journey started with the assertion that purchasing and supply chain managers have a strategic role to play in manufacturing companies. Their knowledge and skill allow supply chain managers to tap into the capabilities of the supply base and combine these with internal ones. Being gatekeepers of the organisation, they are in a position to make an increasingly important contribution to the economic success of their organisations. Transferring this strategic role to environmental protection, we have hypothesised that purchasing and supply chain managers could initiate a green multiplier effect along their supply chains. Given the multitude of links in the supply base or network, the improved products or manufacturing processes could then spread into the supply chains of other manufacturers. Thinking along such lines is encouraged by the rhetoric employed in corporate environmental policy documents, as these documents often promise a proactive approach to the environment that includes the supply chain. There indeed are some exemplary companies that involve their supply chains in environmental protection initiatives, such as

Towards a Greener Future 147

replacing hazardous materials with more benign ones, replacing one-way packaging with reusable containers, or encouraging suppliers to adopt improved environmental management standards. On closer examination, however, the majority of these activities are undertaken by large corporations, which are concentrated in industries that are in the public eye regarding their environmental performance in any case. In our broad sample of manufacturers there are important gaps and omissions. While supply chain managers generally demonstrate some awareness of environmental issues in their supply chains, the issues they refer to most often – packaging and waste – have only an indirect impact on supplier production processes or the environmental characteristics of the finished product. Furthermore, the environment is not included consistently in the supplier assessment criteria, which removes an important incentive for suppliers to improve their environmental performance. Where environmental issues are addressed, the predominant mode of doing so is at arm’s length, with the benefits of a more comprehensive approach being lost. Overall, then, the potential supply chain management offers for environmental protection is at best used sub-optimally. A discrepancy emerges between the corporate rhetoric in environmental policy statements and the organisational reality at the level of the supply chain management function, where the increasing economic contribution of the function is accompanied by only a marginal role in environmental protection. This gap can be explained partly by the limitations arising from the technological capabilities offered by the supply chain, and the complexities involved in environmental decision-making. Another part of the explanation lies in the perception among supply chain managers that addressing environmental problems may increase costs rather than bring benefits to their companies. More important, however, are structural reasons that prevent the supply chain manager from tapping into environmentally friendlier alternatives in the first place. Such reasons include their relatively low status as middle managers and the reactive service nature of the supply function, which are reinforced by performance measurement criteria that privilege economic criteria. The structural constraints under which supply chain managers are working thus crowd out attention to ‘softer’ issues of management, such as the natural environment. In spite of this current situation, environmental supply chain management remains a valid tool for manufacturing companies. To reap its benefits more fully, however, we need supply chain manager education regarding the benefits of greener supply. This is most important as

148 The Green Multiplier

managerial values regarding the environment are lagging behind those of society in general. Business school education and support from professional bodies could play a part in changing managers’ values, yet currently their influence may hamper, rather than encourage, the involvement of supply chain management in environmental initiatives. Greener supply furthermore requires changes to organisational structure and hierarchy. Performance measurement for supply chain management needs to move away from using ‘hard’ financial data exclusively to include ‘softer’ criteria, such as concern for the environment. Supply chain managers should be allowed to play a greater part in the corporate strategic planning process and be given a seat on the board of management. Otherwise, the important contribution that supply chain management could make to environmental protection will only be used sub-optimally. New modes of supply chain management, such as product take-back, could foster managerial attention to the environment much earlier in the buying process, and hence more comprehensively than is currently the case. The concept of industrial ecology could also serve as a model for greening supply. Discounting cases where environmental initiatives in the supply base are undertaken for economic reasons, the purchasing and supply function can use its full potential for greener supply only in the presence of strong external pressure, such as pending legal restrictions or strong and persistent public concern over environmental damage created by an industry. This external pressure acts as a catalyst for purchasing and supply chain management to become involved in environmental protection initiatives. In the absence of such pressure, the contribution supply chain management could make to environmental protection is likely to be lost. Public pressure and legislation hence emerge as the most important factors to bring about environmental initiatives; in other words, the regulation of the environment cannot be left to the market. This conclusion is buttressed by a normative perspective offered by economists, such as the Wisconsin School around John Commons, who see the central objective of economic activity not in wealth creation or consumption but in human self-development and self-fulfilment. This perspective allocates the environment a more comprehensive worth than an instrumental evaluation by the market would. After all, access to a healthy natural environment is a necessary ingredient of human self-fulfilment.

Appendix A: Research Methodology

The selection of an appropriate research methodology for this study is, first and foremost, determined by the fact that it touches relatively novel ground. Authors writing on purchasing and supply chain management, while pointing to important recent changes, frequently bemoan the fact that the function has been a neglected area of management. Additionally, environmental initiatives, while becoming more widely studied too, are also a relatively new topic for business. The combination of both makes environmental initiatives in the supply chain an area that lies outside the academic spotlight. The relative novelty of the research question means that the issues and factors involved are not yet known to their full extent. Our study is hence explorational, and the case study emerges as the most suitable research method. Yin (1984) suggests four criteria for judging the quality of case study research. First, construct validity aims to establish that correct operational measures have been used for the concepts to be studied. This is a particularly important problem for case study research, as this research method has often been criticised for defining operational measures insufficiently and hence using subjective data. To achieve a higher construct validity, Yin recommends the use of multiple sources of evidence, to establish chains of evidence and to let key informants review the draft study. While the main sources of information for this study are interviews with purchasing and supply chain managers, supplementary sources of evidence have been used where possible. The clearest examples are cases where the respective business partner – the supplier or customer of the interviewed organisation – was interviewed too, which allowed an examination of the business relationship from the perspective of both parties. Data gathered in interviews were also checked against available information from other internal and external sources. Internal validity, a second criterion postulated by Yin (1984), establishes the causal relationships by which certain conditions are shown to lead to certain others. Because of the complexity of the material in exploratory studies, internal validity can be threatened by spurious links or by inferences the researcher makes where a direct link is not clearly observable. External validity, a third criterion, refers to establishing the domain to which the study’s findings can be generalised. Here the case study faces the criticism that it does not offer a proper basis for generalising findings. However, such a claim is often based on an inappropriate comparison to surveys, which are statistically generalisable, whereas in case study research the findings of one study can be generalised into a broader theory, and this theory is then applicable to a further number of similar cases. The strongest measure taken to improve internal and external validity has been the decision in the comprehensive study to include a total of fifty organisations, representing a broad range of manufacturers, including up to three organisations manufacturing a similar kind of product. Furthermore, the development of theoretical statements has been guided by the literature, which helps to avoid spurious links.

149

150 Appendix A Finally, Yin’s fourth criterion of reliability aims to limit sources of bias and error, and requires that the procedures of the study, particularly the data collection, can be repeated by other researchers and lead to comparable results. Increased reliability can be achieved by stringent data collection methods, such as using a case study protocol and developing a case study database. After each visit the author wrote up a protocol for the case, which was also sent to the interviewee for comments, and some interviewees responded with suggested changes or additional material. In the final third of the interviews, respondents were asked to comment on conclusions that had been drawn from earlier interviews. Overall, the author is confident that other researchers would have been able to generate broadly comparable data if they had interviewed the same respondents. The main research technique this study applied is the interview, which has a certain number of advantages: it allows the interviewer to correct any misunderstanding the respondent may have about the issue, and the researcher can probe vague or inappropriate responses. Personal interviews can also have a positive effect on the motivation of respondents, as the interviewer can establish a good rapport with respondents and motivate them to give fuller answers. This should result in a better quality of data in comparison to written surveys (Brewerton and Millward, 2001). The most important disadvantage of an interview is the interviewer effect, a possible bias emanating from the interviewer which may cause respondents to answer in a way that may not reflect their true opinions or feelings on the issue. Interviewer bias may result from the interviewer’s own expectations, the respondent’s reaction to demographic or other characteristics of the interviewer, or from the fact that respondents may see the interview as threat to personal interests and beliefs. However, alternative research methods, such as a statistical survey, would also have been faced with similar limitations. Identification of product classes was undertaken according to the Standard Industrial Classification of Economic Activity 1992 (Central Statistical Office, 1992). Following these selection criteria, actual companies were selected from Kompass (2000) UK Kompass Register, Dunn & Bradstreet’s (1999) Scottish Business Register, and from the Digital Directory of Scottish Manufacturing Capability, published by Scottish Enterprise (1997). Fieldwork began with a pilot study, which, in addition to generating data, had the objective of familiarising the author with the organisation of purchasing and supply chain management in manufacturing companies. The pilot study was followed by a comprehensive study the sampling for which aimed to achieve a wide spread in terms of size, ownership, age and product across manufacturing in the United Kingdom, excluding food and beverages. A third stage was designed to detect changes over time, concentrating on companies in the sectors that had been found to be outstanding in the comprehensive study. In total, fifty companies were approached, of which thirty-four agreed to an interview. Six pilot interviews were carried out during the summer of 1998. The comprehensive study included twenty-four interviews, which were held between the summer of 1999 and spring 2000, while the follow-on study consisted of four interviews undertaken between spring and autumn 2004. Prospective respondents were approached by a personalised letter, followed by a telephone call. The interviews lasted somewhere between forty-five minutes and two hours, depending on time pressure on the respondent. The whole conversation was

Research Methodology 151 recorded and then transcribed. The case reports were then sent back to the respondents for possible comments. Interviews were generally held with a single respondent, apart from two cases of organisations with a particularly complex purchasing and supply function, where two members of the purchasing team with responsibilities for different aspects were interviewed together. In the case of larger companies with a hierarchy in the supply chain management department, the author had no influence over which member was selected to give the interview. To ensure that the position of the interviewees was comparable, and thus to increase data reliability, multiple visits were undertaken in four cases (a manufacturer of electronic test equipment, a mobile phone manufacturer, a manufacturer of specialist textiles, and a medium-sized sheet metal manufacturer). Interview data were supplemented by further sources of evidence (Yin, 1984; Brewerton and Millward, 2001). It is a specific advantage of case study research to be able to integrate data from different sources. Multiple sources allow a more detailed picture, and findings and conclusions of a case study are more likely to be convincing and accurate if they are arrived at from different sources of information. This study used documentation, which may have been generated by the organisation itself – such as purchasing policy documents, vendor evaluation forms, access to the electronic ordering system, environmental reports or promotional material, or externally – for example, by government departments, regulators or the media. The main use of documentation in case study research is to corroborate and augment evidence that has been gained during the interviews; documentation can also provide specific and exact information that other sources of evidence could not provide in such detail. The data analysis used a method suggested by Eisenhardt (1989) and Miles and Huberman (1994) for building theory from case study data which is close to the social constructionism paradigm. The method also draws on the positivist paradigm, since it aims at developing testable hypotheses and a theory that can be generalised across a number of settings. First, a detailed case study write-up was produced after each field visit to allow data analysis within each case. The interviews were transcribed verbatim where the issues discussed were central to the study, and were summarised where more general information was discussed. Case notes were written up to a standard format to aid comparability of data. At this stage, the aim for the researcher was to become familiar with each case, so that patterns began to emerge. In Eisenhardt’s second stage, cross-case patterns are examined where the data should be looked at in many divergent ways. These include the selection of categories or dimensions for detecting intragroup and intergroup differences. From an in-depth reading of the case notes, categories were extrapolated that seem to influence whether the purchasing and supply department in a manufacturing company is involved in environmental initiatives or not. A separate database was created to rearrange the data in a cross-case, variable-by-variable format. This applies first and foremost to quantitative information, such as the share of purchasing expenditure as a percentage of total company expenditure, and yes/no type questions – for example, whether a company uses electronic data interchange with its suppliers. However, a similar database was also constructed for ‘softer’ issues, including the criteria used for supplier selection and the most prominent environmental issues supply chain managers observe in their supply chains.

152 Appendix A The third stage concerns the shaping of hypotheses. The emerging relationships between data were verified by testing them against the data, with the result that some of the categories had to be dropped as they appeared to be spurious correlations only. For example, the age of a company was not found to be linked significantly to the likelihood of environmental initiatives in its supply chain, and was thus discarded. The emerging concepts were then re-examined for their fit with the existing literature. Sixteen companies declined to participate in the study or were discarded for a variety of reasons. Six companies (an automotive company, a chemical corporation, the electronics division of a conglomerate, a manufacturer of automated telling machines, a medical equipment manufacturer and a small manufacturer of thermoplastic injection mouldings) declined to grant interviews, citing shortage of time or, in one case, already being engaged in a similar research project. In five cases (a chemicals manufacturer, a pharmaceuticals company, a paper-making corporation, a manufacturer of cameras and lenses, and a diversified printing, software and distribution company) the company was found to have a decentralised organisation of supply chain management and despite repeated communication attempts it proved difficult to identify the best person for the interview. Similarly, the author was unable to arrange an interview at a plant of a multinational plastics manufacturer, where purchasing is undertaken by a manager who visits the plant at intervals but ordinarily works at another location. Since the successful interviews included a number of manufacturers of similar products, and similar company sizes, plans for these interviews were abandoned. At a Japanese-owned manufacturer of watch components, 80 per cent of components are purchased centrally by the headquarter and sourced from the Far East. A printed-circuit-board manufacturer had just been taken over by an American company and was going through a rigorous process of downsizing. A manufacturer of carpets was experiencing difficult trading conditions; in a dramatic restructuring effort to cut costs, the entire purchasing department had been dismissed and at the time of a proposed interview all purchasing was being undertaken by the financial director. At a medium-sized company manufacturing vacuum-formed plastic trays for use in the food industry, most purchasing was undertaken by a sister company in a different part of the UK. These four cases were discarded. There does not appear to be a single, overarching reason why these companies declined or had to be discarded. Most reasons are specific to one company or result from extraordinary financial difficulties. Hence the danger of a bias from non-response is slight. The thirty-four companies that granted interviews represent a wide spread in terms of the products they manufacture, ranging from electronics to maritime vessels, mechanical engineering, cables, plastics, textiles and tyres to chemicals and quality paper. Company sizes range from a small company with fewer than fifty employees, through a number of medium-sized companies with up to 500 employees, to branch plants of large multinational corporations. The different ownership patterns include family-owned businesses, limited companies (with both an international or a regional presence), and public limited companies (PLCs), where again some have a global and some only a national presence. For limited companies and PLCs there is a spread in terms of company headquarters, including the UK, the USA, Japan and continental

Research Methodology 153 Europe. Company ages range from a firm that has only been offering its product for one year to a company that began production in 1751, with many companies having started their operations in the 1960s. It is thus suggested that the companies in the sample are broadly representative of British manufacturing.

Appendix B: Schedule of Interview Questions I would like to stress that the information gained during this interview will be treated confidentially and will only be used by myself for the purposes of academic research.

1

Organisation of the purchasing and supply department

Could you please explain the structure of your purchasing organisation to me? What types of materials or components do you purchase? What does a typical purchasing procedure look like? Do you have a formal purchasing strategy? What share of your working time is spent on short-term and what share on longer-term issues? How is your work as purchasing or supply chain manager evaluated?

2

Supply chain interaction

What decision-making criteria do you apply to your main suppliers? How do you measure the performance of your suppliers? Do you see some of your suppliers as partners? If so, what does partnership mean for you?

3

Environmental concerns in purchasing and supply

Do you see any environmental issues in the major supply chains for your product? Does your company have an environmental policy? Is your company accredited to ISO 14001 or EMAS? Do you require such accreditation of your major suppliers? Would you see the environment more as opportunity or more as creating costs for you? Are there any recent examples of initiatives to address environmental challenges in your supply chains? If so, what were the reasons for undertaking these initiatives? Have you ever deselected a supplier over an unsatisfactory environmental performance? Have you had any cases where you offered additional investment, benefits or other help to suppliers to encourage them to take up environmental initiatives? Are you involved in company-internal or downstream environmental initiatives? Thank you very much for your co-operation and time.

154

Appendix C: Summary Results of the Sample Companies

Table C.1

Supplier selection and evaluation criteria in the sample of UK manufacturers

155

Company

Position of interviewee

Product

Ownership and headquarters

Employees at site

1

Purchasing manager

Sheet-metal work and assembly

Family-owned

200–300

2

Supply base manager

Computing hard- and soft-ware

Multinational PLC; HQ in USA

400–500

3

Senior buyer

Video cassette recorders

Multinational PLC; HQ in Japan

600–700

4

Purchasing manager

Mechanical engineering for offshore oil industry

Limited company; one site

c. 100

Criteria for supplier selection or evaluation Price, quality, delivery, communication, technology, financial situation, location Quality (30 points of 100), technology (25), delivery (30), support (15); multiplied by price index; trend analysis Price most important for selection; for review: delays affecting production, rejected deliveries (30 points of 100 each), flexibility, documentation, communication, punctuality (10 each) Quality, price, delivery

Company

156

Table C.1

(Continued) Position of interviewee

Product

5

Assistant manager

Manufacture of semiconductors

6

Commercial manager

7

Materials manager

Self-adhesive labels and tags in wide range of materials Antennae and cables

8

Purchasing and production control manager Purchasing manager

Specialist cables

10

Supply chain development manager

Military electronics

11

Materials manager

12

Purchasing manager

Electronic test and measurement equipment Electric motors

9

Tyres

Ownership and headquarters

Employees at site

Criteria for supplier selection or evaluation

Multinational PLC; HQ in Japan Limited company; one site

1,000–2,000

Quality, cost, delivery

50–100

Location, support, innovation, quality, delivery, price, market awareness

Limited company; HQ in USA UK-based limited company Multinational PLC; HQ in EU Multinational PLC; HQ in UK Limited company; HQ in USA Medium-sized limited company

200–300

Price, quality, delivery

400–500

Quality, price, service, range of items; also responsiveness and potential for development (Centralised buying for 90% of raw materials; alternative suppliers only when lower price) Cost, status of supplier (key, preferred, non-approved), quality, delivery Best overall value: technology, quality, responsiveness, delivery, total cost, environment Price, quality, financial situation

c. 800

300–400

c. 1,300

200

13

Purchasing manager

Hydraulic equipment

Medium-sized; family-owned

c. 300

14

Purchasing manager

Tyres

Multinational PLC; HQ in EU

1,000

15

Purchasing manager

Mobile phones

over 2,000

16

Procurement manager

Printers and faxes

17

Purchasing manager

18

Purchasing manager

Variety of printed circuit board assemblies Fine printing and speciality paper

Multinational PLC; HQ in USA Multinational limited company; HQ in Japan Multinational PLC; HQ in USA

19

Manager of engineering purchasing Head of purchasing

20

Variety of speciality chemicals Pigments and dyes

c. 1,000

Cost, delivery, quality or previous performance, ISO registration (Centralised purchasing of raw materials; local purchasing for engineering parts, site services, etc.) Price, quality, capability, capacity, flexibility Technology, quality, financial stability, environment, after these cost

900–1,000

Approval by customer and cost

Limited company; HQ in UK

over 800

Multinational limited company Multinational PLC; HQ in Switzerland

900

Technical criteria, price, availability, logistics, check that supplier’s environmental policy is in keeping with own Best overall deal across: safety, specifications, quality, delivery, price, reliability, service Cost reduction targets, stock turnover speed targets, price

800

157

158

Table C.1

(Continued)

Company

Position of interviewee

21

Mill manager

Quality paper

22

Purchasing manager

23

Head of procurement

Linoleum and vinyl floor coverings Quality paper

24

Purchasing manager

Commercial ships

26

Purchasing officer

Cashmere yarn

27

Consumables purchasing manager and member of vendor management group Procurement specialist

Specialist plastic fibres

28

Product

Petrochemicals

Ownership and headquarters

Employees at site

Medium-sized limited company (part of larger group) Limited company (part of Dutch group) Multi-site PLC; HQ in UK

550–600

Multinational limited company Medium-sized (but part of larger PLC) Multinational limited company; HQ in USA Multinational PLC; HQ in UK

450

c. 800

c. 1,500 250–300

c. 460

c. 1,120

Criteria for supplier selection or evaluation Quality, environment, safety, ‘Price comes into it as well, but price is not the only consideration.’ Quality, price, environment

Environment, quality, performance, delivery, investment policy, financial situation ‘You can’t separate price, quality and delivery’; track record Specification, price, payment terms, delivery performance, quality Supplier quality assurance, service, profitability, past history, investment plans, attitude towards training Safety, environment, operational reliability, price, quality

29

Senior information engineer

Optical examination equipment

Small

c. 45

31

Purchasing manager

UK owned

c. 175

32

Purchasing manager

Packaging machines Motor vehicles

Japanese-owned multinational

3,800

33

Director of purchasing

Sports and utility cars

Ultimately US-owned

(11,000 for entire company)

34

Supply chain and purchasing managers

Tissue paper

North American-owned

500

Skills, quality, cost, attitudinal issues, ability to cope with change, financial stability, capacity ‘Buy top quality products at the lowest price.’ Cost competitiveness, technology, quality of management systems, financial robustness, environment Global price competitiveness, delivery performance, quality, technical ability, certification to environmental management standard (from 2005) Delivery, quality, price, technical capability, financial stability, investment plans, environment; training and development for staff

Note: The supply chain managers of Companies 25 and 30 granted telephone interviews only, and time constraints did not allow this question to be included. Source: Interviews with supply chain managers: summer 1998 (Companies 1 to 6); summer 1999 to spring 2000 (Companies 7 to 30); summer and autumn 2004 (Companies 31 to 34).

159

Company

Perceived environmental issues in the supply chains of UK manufacturers Position of interviewee

Product

Ownership and headquarters

2

Supply base manager

Computing hard- and software

3

Senior buyer

Video cassette recorders

6

Commercial manager (no full-time purchasing staff) Materials manager

Labels, paper and plastic

Multinational PLC; HQ in USA Multinational PLC; HQ in Japan Limited company; one site

Antennae and cables

7

8

Employees at site

Environmental issues in the supply chain

400–500

Harmful chemicals in printed circuit boards

600–700

Packaging, waste

50–100

Solvent-based adhesives

Limited company; HQ in USA

200–300

Scrap metals, chemicals and paints, timber, packaging, plastics from cables, oil, waste disposal Packaging, waste

Purchasing and production control manager Purchasing manager

Specialist cables

UK-based limited company

400–500

Tyres

c. 800

10

Supply chain development manager

Military electronics

Multinational PLC; HQ in EU Multinational PLC; HQ in UK

11

Materials manager

Electronic test and measurement equipment

Limited company; HQ in USA

c. 1,300

9

160

Table C.2

300–400

Packaging, chemicals, waste (esp. scrap tyres); water-based alternatives to solvents Replaced some heavy metals and radioactive materials; replaced solvents with water-based paint; semiconductors; packaging Harmful materials in printed circuit boards; move away from solvent-based paint; product take-back at end of life; packaging

12

Purchasing manager

Electric motors

200

13

Purchasing manager

14

Purchasing manager

Hydraulic equipment Tyres

15

Purchasing manager

Mobile phones

16

Procurement manager

Printers and faxes

c. 1,000

Variety of printed circuit board assemblies

Multinational limited company; HQ in Japan Multinational PLC; HQ in USA

17

Purchasing manager

18

Purchasing manager

Fine printing and speciality paper

Limited company; HQ in UK

over 800

19

Manager of engineering purchasing

Multinational limited company

900

20

Head of purchasing

Variety of speciality chemicals Pigments and dyes

Multinational PLC; HQ in Switzerland

800

c. 300 1,000

over 2,000

900–1,000

Packaging, replace solvent-based varnish Paper, wood, paints and solvents, packaging; energy COSHH controlled chemicals; safety in use; waste, esp. scrap tyres Packaging, waste management, paint; printed circuit boards now use organic finish; replace palladium Pallets, packaging, product take-back Waste recycling, recycling electronic components, consumables, packaging, substances dangerous to employee health Pulp: clear cutting, biodiversity, effluents; water; chemicals: employee health; recycling; packaging Safety and health issues, CE mark

Hazardous materials, returnable containers for chemicals, reduce landfill

161

Medium-sized limited company Medium-sized; family-owned Multinational PLC; HQ in EU Multinational PLC; HQ in USA

Company

162

Table C.2

(Continued) Position of interviewee

Product

21

Mill manager

Quality paper

22

Purchasing manager

23

Head of procurement

Linoleum and vinyl floor coverings Quality paper

24

Purchasing manager

Commercial ships

26

Purchasing officer

Cashmere yarn

27

Consumables purchasing manager and member of vendor management group Procurement specialist

Specialist plastic fibres

28

Petrochemicals

Ownership and headquarters Medium-sized limited company (part of larger group) Limited company (part of Dutch group) Multi-site PLC; HQ in UK Multinational limited company Medium-sized (but part of larger PLC) Multinational limited company; HQ in USA Multinational PLC; HQ in UK

Employees at site

550–600

Environmental issues in the supply chain

c. 1,500

Pulp: clear cutting, biodiversity, effluents; water; chemicals: employee health; recycling; packaging PVCs and plasticisers; solvent-based paint; waste; packaging Pulp: clear cutting, biodiversity, effluents; water; chemicals; recycling; energy use Paint and its containers

250–300

Chemicals, oils, packaging

c. 460

Wood in packaging; recycle chemicals left after production

c. 1,120

Production chemicals, solvent-based paints, aerosols, returnable packaging, use of eco-labelled goods, fuel efficiency, landfill, sustainable forestry

450

c. 800

29

Senior information engineer

31

Purchasing manager

32

Purchasing manager

33

Director of purchasing

34

Supply chain and purchasing managers

Optical examination equipment Packaging machines Motor vehicles

Small

c. 45

Electromagnetic compliance, waste, obsolete stock

UK owned

c. 175

Packaging, waste, paints, solvents

Japanese-owned multinational

3,800

Sports and utility cars

Ultimately US-owned

Tissue paper

North American-owned

(11,000 for entire company) 500

End-of-life vehicle directive, recyclability of car components, packaging, paint, power and water consumption Heavy metals, recyclability of components Chemicals, wood pulp, effluents, water use, transport

Notes: The question schedule for the pilot study (Companies 1 to 6) did not include this question. The supply chain managers of Companies 25 and 30 granted telephone interviews only, and time constraints did not allow this question to be asked. Hence companies 1, 4, 5, 25 and 30 are omitted. Source: Interviews with supply chain managers: summer 1998 (Companies 1 to 6); summer 1999 to spring 2000 (Companies 7 to 30); summer and autumn 2004 (Companies 31 to 34).

163

Company

The distribution of strategic and reactive time for supply chain managers Position of interviewee

1

Purchasing manager

6

Commercial manager (no full-time purchasing staff) Materials manager

7

Product

Ownership and headquarters

164

Table C.3

Employees at site

Sheet metal work and assembly Labels, paper and plastic

Family-owned

200–300

90% strategic, 10% fire-fighting

Limited company; one site

50–100

‘Too little time looking ahead.’

Antennae and cables

Limited company; HQ in USA

200–300

At time of interview large proportion fire-fighting, because of introduction of new computer system Two modes of buying: bulk products controlled by forecasting; made-to-order products dealt with reactively 60% of time longer-term issues; 25% environmental; remainder short-term purchasing ‘A lot of analytical work’; at the time of interview, higher share of tactical work because of pending take-over

8

Purchasing and production control manager

Specialist cables

UK-based limited company

400–500

9

Purchasing manager

Tyres

Multinational PLC; HQ in EU

c. 800

Supply chain development manager

Military electronics

Multinational PLC; HQ in UK

c. 300–400

10

Strategic versus reactive time

Materials manager

Electronic test and measurement equipment

Limited company; HQ in USA

c. 1,300

12

Purchasing manager

Electric motors

Medium-sized limited company

200

13

Purchasing manager Purchasing manager

15

Purchasing manager

Mobile phones

Medium-sized; family-owned Multinational PLC; HQ in EU Multinational PLC; HQ in USA

c. 300

14

Hydraulic equipment Tyres

16

Procurement manager

Printers and faxes

17

Purchasing manager

Variety of printed circuit board assemblies

18

Purchasing manager

Fine printing and speciality paper

Multinational limited company; HQ in Japan Multinational PLC; HQ in USA

Limited company; HQ in UK

1,000 over 2,000

c. 1,000

900–1,000

over 800

33% promoting procurement to internal departments; 33% strategic manufacturing management outside purchasing; 10% fire-fighting 80% fire-fighting, 20% longer-term planning 10%–15% fire-fighting; rest longer-term Largely clerical Normally 40% tactical; at time of interview, 80% because of high order levels Share of fire-fighting decreasing for whole department Balance depends on market; functional split into early stages, actual sourcing, executing orders 25% strategic, 75% reactive; ‘and the balance is wrong, I know that’

165

11

166

Table C.3

(Continued) Employees at site

Position of interviewee

19

Manager of engineering purchasing

Variety of speciality chemicals

Multinational limited company

900

20

Head of purchasing

Pigments and dyes

Multinational PLC; HQ in Switzerland

800

22

Purchasing manager

Limited company (part of Dutch group)

450

23 24

Head of procurement Purchasing manager Purchasing officer

Multi-site PLC; HQ in UK Multinational limited company Medium-sized (but part of larger PLC with HQ in UK)

c. 800 c. 1,500

26

Linoleum and vinyl floor coverings Quality paper Commercial ships Cashmere yarn

27

Consumables purchasing manager and member of vendor management group Procurement specialist

Specialist plastic fibres

Multinational limited company; HQ in USA

c. 460

Petrochemicals

Multinational PLC; HQ in UK

c. 1,120

28

Product

Ownership and headquarters

Company

250–300

Strategic versus reactive time 10%–15% trouble-shooting, remainder strategic and management duties outside purchasing Time split between strategic planning and operational activities Aims to develop a strategic approach Largely strategic Mainly longer-term issues, also member of board Mainly administrative, also responsible for stores 90% strategic, 10% fire-fighting (consumables purchasing manager) 50% strategic, 50% tactical, with large variations for individual employees

29

Senior information engineer

Optical examination equipment

Small

c. 45

31

Purchasing manager

Packaging machines

UK-owned

c. 175

32

Purchasing manager

Motor vehicles

Japanese-owned multinational

3,800

33

Director of purchasing

Sports and utility cars

Ultimately US-owned

(11,000 for entire company)

34

Supply chain and purchasing managers

Tissue paper

North American-owned

500

‘It is a lot of firefighting’; roughly 60% firefighting, because product changes quite rapidly Short-term activities take up 18% of time (manager is also responsible for health, safety and environment) A sourcing division deals with more strategic side of purchasing, and a quality and delivery division deals with the operational side; also fluctuations over the life-cycle of a model 75% on tactical issues and 25% strategic work; applies to the whole purchasing department Moving to more long-term work, now 25% fire-fighting

167

Notes: This question was not raised in all pilot study interviews, hence Companies 2 to 5 are omitted. In Company 21, the interviewee was the mill manager: he is responsible for purchasing wood pulp and the major chemicals, but his overall situation is not comparable to a full-time supply chain manager. Companies 25 and 30 are also omitted: because of time pressure respondents were only able to grant a telephone interview, and this question could not be included. Source: Interviews with supply chain managers: summer 1998 (Companies 1 to 6); summer 1999 to spring 2000 (Companies 7 to 30); summer and autumn 2004 (Companies 31 to 34).

Notes 1

Setting the Scene

1 http://www.labour.org.uk/environment04/; accessed 26 October 2004. 2 http://www.conservatives.com/pdf/manifesto_environment.pdf; accessed 26 October 2004. 3 State of the Union Address 2003, http://www.gop.com/GOPAgenda/AgendaPage. aspx?id = 1; accessed 26 October 2004.

2

Managing the Natural Environment

1 See the references to sustainable agricultural practice in Ezekiel 34: 18.

3

A Strategic Role for Purchasing and Supply

1 http://www.covisint.com. 2 Since the 1960s more sophisticated definitions of power have, of course, been put forward. Lukes (1974, p. 24) perceives power as the ‘many ways in which potential issues are kept out of politics, whether through the operation of social forces and institutional practices or through individual’s decisions’. For Foucault (1977), power resides in the ‘disciplinary regimes’ that generate languages of description and explanation, as, for example, the language of education allows the classification of people as intelligent or otherwise. By accepting these descriptions and the underlying explanations, people voluntarily extend the control of these disciplinary regimes and contribute to their own subjugation. For the purposes of this study, however, a conservative definition along the lines of Dahl (1957) will suffice.

4

The Green Multiplier

1 This estimate by the Chartered Institute of Purchasing and Supply includes only companies that have a designated purchasing officer. Spending by the large number of small companies without a formal purchasing function needs to be added to give a more complete picture. 2 B&Q, a company owned by Kingfisher PLC, generated a turnover of £3.9 billion in the financial year 2003/4, employing some 36,000 staff in over 320 stores. B&Q launched a Supplier Environmental Audit in 1991, which was later merged into the QUEST (QUality, Ethics, Safety and Treatment of products) programme, under which suppliers are awarded grades from A to E against five quality and five environmental criteria. The information is then complied into ‘ranking tables’ for individual product lines, such as decorative, hardware or building items (B&Q, 1998). 3 These are Executive Order 13148, Greening the Government through Leadership in Environmental Management, passed in 2000; and Executive Order 13101, Greening the Government through Waste Prevention, Recycling and Federal Acquisition, of 1998.

168

Notes 169

5

Supply Chain Managers

1 The quotes are taken from the sample company environmental policy documents. 2 The sample contained thirty-four companies. Two of these had ceased trading before the environmental policies were collected, three companies do not have a policy, and in one case the policy could not be obtained despite repeated attempts at communication. The table presents the results of the remaining 28 companies. 3 The information regarding environmental management systems was collected after the first round of interviews. One company had ceased production and two had undergone mergers before this information could be collected, hence the total number of companies for which data exist is thirty-one. One company was in the process of certification to ISO 14001 at the time of the interview.

6

Some Good Guys: Electronics, Chemicals and Paper

1 For environmental initiatives in the automotive industry, see the case study on DaimlerChrysler’s Smart automobile by Warren et al. (2001). 2 See the Responsible Care programme of the European Chemical Industry Council (CEFIC), which produces annual Responsible Care Reports, detailing fatalities, lost time incidents, various emissions (phosphates, nitrogen and sulphur oxides, volatile organic compounds, and so on) as well as distribution incidents and energy usage figures for the member countries across Europe. See: http://www.cefic.be/Templates/shwStory.asp?NID=3&HID=8. The UK equivalent is run by the Chemical Industries Association. See: http://www.cia.org.uk/ newsite/responsible_care/care.htm. Both accessed 17 October 2004. 3 http://www.fsc.org/fsc; accessed 26 October 2004.

7

Barriers to Change in Manufacturing Supply

1 Legge (1995) studies human resource management, but her argument applies equally well to supply chain managers.

8

Towards a Greener Future

1 Interview with the Professional Development Manager of the Chartered Institute of Purchasing and Supply, 11 October 2004. 2 http://www.interfaceflooring.com/library/PDF/journeybegins.pdf; accessed 26 October 2004. 3 Jiang and Bansal (2003) suggested the terms ‘company visibility’ and ‘environmental impact opacity’.

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Index

Aristotle 145 automotive industry 11, 41, 54, 59, 73–4, 76, 79, 121 awareness of environmental issues among supply chain managers 83–7, 91, 102, 110, 112, 117–18, 160–3 among other managers 86–7 in the automotive industry 117–18 in the general population 125 B&Q 60, 141 Beck, U. 13 board of management 123–4, 132 Body Shop 60–1, 65, 141 Bowen, F. 49, 51, 68, 117, 118, 132 Brundtland Report 13, 14, 15 Burt, D. 33, 78 business schools 130–1, 148 car industry see automotive industry Carter, C. 50, 64 Chartered Institute of Purchasing and Supply 51, 54, 131 chemical industry 41, 69, 73, 76, 79, 101–5, 112 environmental issues in 101 Commons, J. 145–6, 148 construction industry 134 consumer pressure see environmental initiatives continuous improvement 69, 108, 110 contract manufacture 95, 99–100, 125–6 corporate citizenship 96, 98, 103 Cousins, P. 45

Drumwright, M. 118–19, 130 e-commerce 41–2 electronics industry 23, 43, 69, 76, 77, 81, 83–4, 85, 95–101, 111, 145 environmental issues in 81, 83–4, 85, 95–7, 115, 138 EMAS 72–4, 90, 91, 107 environmental initiatives and company size 26, 56, 65, 67, 73, 137, 141–2 and industry structure 56, 65, 75, 99–100, 110 and organisational culture 97, 142 benefits of 18–19, 24–6, 70, 88–9, 98, 103, 132, 140 consumer pressure for 25, 47, 89, 100, 125, 132, 141 cost of 99, 103, 106, 117–18, 140 instrumental approach to 117, 142 market-based 16, 145 proactive approach to 69 PR value of 88, 90, 136 public pressure for 2, 125, 136–9, 143, 148 see also greener supply environmental policy 69–72, 102, 107, 132, 146 environmental problems biodiversity 8, 136 depletion of resources 7 fuel consumption 7, 124 greenhouse gases 7 industrial accidents 2, 10, 101 outsourcing of 81, 106 packaging 83–4, 86, 91, 98, 102–4 paints and solvents 83, 85–6 183

184 Index

environmental problems – continued pollution 1, 7–10, 26 production materials 83, 85 technical complexity of 138 visibility of 138 waste 9–10, 17, 83–4, 86, 91 environmental report 107 EU Directive on electronic waste 85 on end-of-life vehicles 79, 116 on hazardous substances in electronics 85, 96 EU Environment Action Programmes 7, 14, 145

Interface Inc. 135 international sourcing 39–40, 139–40 ISO 14001 25, 49, 54, 58, 72–4, 76, 90, 91, 107

Fineman, S. 117 forest certification 109–10

original equipment manufacturer (OEM) 99–100, 118, 125–6

Green, K. 51, 68 green multiplier 52–6, 64, 104, 137 greener supply 48–52 arm’s-length mode of 78–80, 82, 91, 99, 110, 147 benefits of 51–2, 118 collaborative mode of 51, 72, 78–80, 91, 103–4 downstream initiatives 50 factors influencing 139–44 knowledge required for 49, 116 process-based 49, 53 product-based 48, 49, 53, 86 technical limits to 115, 147 see also environmental initiatives

paper industry 38–9, 40, 74, 76, 81, 89, 105–11, 113, 136 environmental issues in 81, 106–7, 136 partnership 30, 40–1, 46 Porter, M. 6, 18, 33, 57 power 42–4, 53, 99 public pressure see environmental initiatives public procurement 54, 56, 62–3 purchasing see supply chain management policy 95

Hall, J. 51, 54, 98, 138 Handfield, R. 29, 44 Hardin, G. 145 health sector purchasing 63 Hill, K. 68 Holt, D. 54, 76, 88 industrial ecology 135 information technology 41, 43 Institute of Supply Management 131

just-in-time (JIT) 41, 57–9, 65, 82 Lamming, R. 21, 39, 57, 67 Leenders, M. 37, 41, 50 legislation 24, 70, 79, 88–9, 96, 98, 103, 124–5, 139–40 national differences in 139–40 New, S.

48, 61, 63

Responsible Care Programme 73, 101 retailing 60–2 reverse distribution 50 Russel, T. 67 scientific risk assessment 12 shipbuilding 80, 125 small and medium companies 68, 78, 80, 140, 142 Smith, A. 16, 143–4 social construction of environmental issues 10–13 supplier assessment 51, 75–8, 91, 102, 107, 111, 116, 133–4, 147, 148, 155–9

Index 185

supplier development 37, 75 supply chain management and engineering 35, 124 and logistics 36, 124 and operations 35, 124 arm’s-length mode of 30, 78, 99, 110, 147 collaborative mode of 30, 40–1, 46, 78, 103–4 constraints on 123–8 cost pressure on 81, 123 decision-making tools for 134 economic importance of 33–4, 36, 146 evolution of 31–2 gatekeeper role of 3, 34, 52, 146 performance criteria for 122, 132

position and status of 119–20, 129, 147 reactive nature of 120–1, 129, 147, 164–7 strategic role of 3, 28, 36–9, 45, 48 supply chain rationalisation 39, 97 sustainability 13–16, 47 and business 16–21 textiles industry 80, 121 Total Quality Management (TQM) 53, 57–9, 65, 74, 82 trust 44–5 tyre industry 40, 71, 84, 85, 141 United Nations

7, 8, 14, 15

Welford, R. 16, 17, 20, 24 Wisconsin School 145–6, 148