Environmental Supply Chain Management

Author(s):

Dr. Joseph R. Carter, C.P.M.
Dr. Joseph R. Carter, C.P.M., NAPM Professor, Arizona State University, Tempe, AZ 85287-4706, 602/965-0931, Joseph.Carter@asu.edu
Dr. Ram Narasimhan
Dr. Ram Narasimhan, University Distinguished Professor, Michigan State University, East Lansing, MI 48824, 517/353-6381, Narasimh@pilot.msu.edu

84th Annual International Conference Proceedings - 1999 

Abstract. Environmental supply chain management consists of the purchasing function's involvement in activities that include reduction, recycling, reuse and the substitution of materials. Despite the potentially important role that the purchasing function can play in a firm's environmental activities, little research has been performed to date that examines the factors that affect environmental supply chain management. The authors examined how intra- and inter-organizational factors both drive and constrain purchasing's involvement in environmental supply chain activities.

Introduction. This study was commissioned as a "theory development" study aimed at examining environmental issues of relevance to supply chain management. Environmental supply chain management (ESCM) is an emerging field. The principal objectives of this project were to identify leading-edge practices and methodologies in ESCM, develop a process framework by which environmental issues are incorporated into supply chain management strategies, and to propose pertinent issues for purchasing executives to consider in the future based on current and projected trends relating to ESCM.

Lessons Learned From Selected Case Studies. In-depth case studies were the preferred method of information collection during this project. The authors spent at least one day at each case-study site discussing environmental supply chain management issues with a variety of senior and middle managers from each firm. The authors learned something of value from each case study; what follows is a brief synopsis of the key lessons learned from a representative selection of the case-study firms. We encourage the reader to examine each of the 14 case studies individually and thoroughly. A wealth of useful information is available.

The case study participants were:

3M Corporation
Daimler Benz, AG
Dekra Umwelt GmbH
DENSO Manufacturing Michigan, Inc.
Eli Lilly
Grundfos
Hoechst AG
Honda of America Manufacturing
Novartis (formerly, Ciba-Geigy)
Novo Nordisk
Oscorna
Sidler GMBH and Co.
UZIN Georg Utz Gmbh & Co.
Whirlpool Corporation

The key lessons learned from the case studies are summarized as follows:

• An early emphasis on environmental issues is important (3M started as early as in 1960!).
  
  
• Top management commitment to environmental issues is critical. For example, a separate environmental department reporting to the top management the importance attached to environmental issues by the company.
  
  
• Employee issues are an important part of becoming environmentally conscious. In 3M, employees are empowered to act in response to environmental problems, rather than simply offering suggestions. The reward structure also emphasizes results.
  
  
• Synergy between the company's strong environmental image and reputation, and environmentally sensitive products is important.
  
  
• A holistic approach, such as supply chain integration, to environmental management links reduction in energy consumption to waste generation and release of pollutants. Using a customer-driven environmental management system along with standard operating procedures facilitates supply chain integration.
  
  
• Setting aggressive and progressive environmental goals is important.
  
  
• Using tools such as life-cycle management (LCM) and environmental audits (EA) improves environmental and operating performance. Suppliers are asked to keep track of their cost of waste (COW) so that this can be reduced. Supplier negotiations and selection revolve around COW and other environmental issues.
  
  
• It is desirable to make early financial investment in environmental protection. Novartis was one of the first European companies to formulate environmental policies (1972).
  
  
• Top management commitment to environmental issues (as indicated by a high position for the environmental and safety department in an organization chart) is important to program success and commitment.
  
  
• Decentralization of environmental specialists in the different business units is most efficient.
  
  
• Environmental dimension should be viewed as an inseparable part of business performance. It is useful to set quantitative targets for different environmental performance measures.
  
  
• An initial strategy of speed to market followed by incremental changes in process designs that are environmentally friendly is important.
  
  
• A supply chain emphasis is required for optimizing environment value added (EVA) performance.
  
  
• An ability to tap emerging market suppliers for less sophisticated products as well as managing associative risks is important.
  
  
• A lean corporate environment group is desirable for expediting decision-making.
  
  
• Safe and environmentally responsible processes are important criteria for supplier selection.
  
  
• Supplier audits on environmental issues require a cross-functional initiative involving employees from quality assurance, environmental affairs and purchasing. Similarly, teams should include financial analysts who decide whether suppliers will be the most productive from the perspective of maximizing EVA make-or-buy decisions.
  
  
• Adherence of suppliers to quality and environment standards is a necessary prerequisite for achieving a company's objective of speed to market.
  
  
• Because of the long lead-times for new products, companies need to resort to early sourcing and early supplier involvement in basic product developmental work.
  
  
• Sourcing decisions must take into consideration safety issues, capacity of suppliers, and ability to treat compounds and effluents.
  
  
• Because of an emphasis on a lean group, purchasing has more responsibility to conduct timely supplier evaluations using criteria such as risk and environmental capability. This in turn affects the training and technical expertise expected of purchasing staff.
  
  
• Because of the emphasis on environmental value-added performance, companies turn to suppliers for use of their waste treatment facilities. Companies also seek to develop suppliers who can collect, clean and reship process waste back to the company.
  
  
• The range of influence for sourcing strategies and supplier identification is global.
  
  
• An experiential approach to environmental management as demonstrated by a considerably long history of environmental awareness is needed.
  
  
• A unique environmental performance system as indicated by the development of a customized composite index called Eco-productivity is needed.
  
  
• A proactive approach to environmental management as can be seen from the setting of specific targets for future environmental performance for outcomes, inputs, and processes is needed.
  
  
• An "open" approach of communicating environmental information to the general public is needed.
  
  
• Companies must carefully justify all environmental changes through either cost reduction or customer satisfaction issues.
  
  
• The focus of continuous improvement used so effectively during TQM program implementation can be applied quite effectively to improving environmental efficiency and effectiveness.
  
  
• The cross-functional relevance of environmental supply chain management is ensured by its direct impact on the supplier selection and management processes.
  
  
• Change should be viewed as a competitive tool and environmental efficiency viewed as a positive catalyst for change.
  
  
• Products and processes should be subjected to continual critical analysis at every stage of the value-added process.
  
  
• The early integration of suppliers into all decisions affecting them is critical to environmental effectiveness.
  
  
• The close alignment of supplier capabilities with buying firm environmental goals is critical to program success. This alignment can be achieved through an alliance supporting organizational and informational framework and the benchmarking of performance with environmental, quality, and cost parameters.

The case study results indicate the need for inter-functional coordination and the adoption of a value-chain perspective, including a closer interface between purchasing and other functions. Purchasing must interface with engineering to ensure that materials that are specified can be recycled or reused, or meet resource reduction goals.

The case studies yielded 16 themes relating to environmental supply chain management. The most important themes pursued by firms in this case study included: life-cycle management, environmental performance management, assessing supplier's environmental capability, and environmental auditing.

Projected Trends Relating to Environmentalism. While current trends affecting environmental manufacturing relate to re-manufacturing, reuse, process waste, human resource programs (such as empowerment, waste remediation teams, and employee suggestion programs), and inbound logistics, the future holds new trends that will change the face of environmental manufacturing. These trends are described as propositions:

Proposition 1: The level of consumer awareness of environmental issues will increase rapidly.

The influence of this trend can already be felt; consider the example of products relating to health care. Because of stringent product labeling standards and media exposure, there is considerable awareness among consumers of environmental topics that were heretofore "too technical."

Proposition 2: Firms will place an increasing emphasis on environmentalism in the evaluation of effectiveness of business processes.

Currently, there are several companies that use sophisticated environmental performance measurement schemes. This trend is expected to increase because an orientation toward business processes is common among most firms. Therefore, one can to assume that environmental issues should be considered at each business process level.

Proposition 3: The transfer of knowledge among subsidiaries of large firms will increase rapidly.

Firms will place an increasing emphasis on environmentalism in the evaluation of effectiveness of business processes through knowledge diffusion and uniform environmental standards.

Proposition 4: Four major inter-organizational forces will drive environmental supply chain activities. Those forces are governments, suppliers, customers, and competitors.

While the literature review suggests a set of internal and external drivers of environmental supply chain activities, this case research has provided a multi-variate empirical examination in order to identify which of these factors are the key driver(s) of environmental supply chain management activities.

Proposition 5: Upstream members of a supply chain will increasingly affect environmental supply chain activities, and purchasing managers will need to take action to manage these effects.

It is logical that a firm's customers, suppliers, and competitors, and its supply chain are affecting environmental supply chain management activities.

Proposition 6: As the quality of environmentally friendly inputs increases, greater will be the level of environmental supply chain management.

Increased vertical coordination through the supply chain will affect environmental purchasing activity. The case study data suggest that as vertical coordination increases, so too will the rate of adoption of new technology. While not all environmental supply chain management activities fall under the formal rubric of technologies, it is reasonable to consider the manner in which new environmental programs are adopted and implemented in a similar fashion. For example, the introduction of new environmentally efficient resources into the conversion process will require purchasing managers to act as coordinators of both process engineers and the suppliers of these resources.

Proposition 7: The greater the supply uncertainty, the greater the level of vertical coordination between buyers and suppliers.

The case study data suggest several propositions based upon the concept of environmental uncertainty. This proposition indicates that vertical coordination will in turn be positively correlated with the degree of supply uncertainty.

Summary. This project found that environmental supply chain management strategies appear to be in their infancy stage. Even among the early adopters of environmental management, the majority seems to pursue environmental goals that avoid violations of environmental statutes and regulations. The use of proactive environmental programs as an aid to supplier selection and supplier quality assurance is distinctly lacking in importance. Purchasing also was found to have a major responsibility in implementation of a recycling strategy.

The environmental implications of purchasing activities on operational considerations and strategic considerations such as supply management and supply chain management was examined in this study. Three common purchasing practices that have the potential to undergo widespread change in the future due to environmental issues were identified. These were the identification of capable suppliers, domestic versus global sourcing, and the purchase of systems.

The accumulated evidence suggests that environmental supply chain issues will gain tremendous importance in the future. In Europe, trends toward environmental supply chain management are already visible. Although, an average U.S.-based firm may not be thinking along environmental issues while developing corporate strategy, pressures from global firms, including those based in the United States, are likely to influence other firms to follow the European trend.

Also, the results suggest a need to increase coordination with suppliers of environmentally friendly materials and technology, as well as with downstream channel members, including users and customers. The results also mandate the need for increased coordination and communication throughout the supply chain, as well as within the firm.

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