Greening beyond the firm: improving environmental performance through the supply relationship

1. Greening beyond the firm: improving environmental performance through the supply relationship Dayna Simpson PhD Candidate University of Melbourne Supervisors: Dr Damien Power and Professor Danny Samson

2. Background • Pollution is: • a cost and a risk. • inefficient process, poor maintenance of equipment and product defect. • Supply for manufacturing can represent 70% of the total cost of a product. • Supply relationships are potentially a key way for business to influence the environmental performance of its suppliers.

3. Greening Beyond the Firm • Customer-led programs to reduce or eliminate materials used in manufacturing processes or products. • Environmental compliance status and practices of supplier operations. • Joint development of new materials, processes or products. 

5. Glass Steel Leather Plastics Petroleum Aluminum Rare metal mining Chemicals Paints The Automobile

6. What is the critical issue here? • How does a firm address or manage the environmental performance of it’s suppliers? • There is no legal requirement for one firm to manage the environmental impacts of another firm. • It may prove costly and ineffective if not managed considerate of a number of important economic factors. • Important economic factors include transaction costs and disruptions to the flow of production.

7. Main Research Questions • How does the supply relationship affect a supplier’s response to environmental performance requirements? • How reliable are investments in efforts to improve supplier’s environmental performance? • What is the inter-organisational transaction environment like for green supply initiatives? • How opportunistic are suppliers toward customer-led green supply initiatives?

8. Environment and Manufacturing • Traditional wisdom – investing in environmental performance against sound business strategy. • More recent wisdom – there is a +ve relationship between environmental performance and firm productivity. • Specifically, there is a +ve relationship between environmental performance and improvements to the manufacturing system.

9. Supply Relationships • Critical in the timely delivery of goods and services, quality and a competitive price. • Governed by a range of contractual forms. • Influence the success of efforts to improve a supplier’s manufacturing performance. • Four methods used to improve supplier performance – direct, assessment, incentive and/or competitive.

10. Lean Suppliers Make Green Suppliers • Lean manufacturing – a low or zero waste manufacturing philosophy. • The supply relationship is critical to success in lean. • Lean manufacturing is comprised of: • just-in-time manufacture, quality management, worker involvement and preventive maintenance. • Lean manufacturing generates advanced practices in environmental management.

11. Transaction Cost Theory (TCT) • TCT used to frame choices for investment within inter-organisational relationships. • Green supply initiatives may attract significant transaction costs if not managed appropriately. • Customer-led environmental specifications for the supplier may lead to: • problems of adaptation • difficulty in verifying whether compliance with agreements has taken place.

12. Research Synthesis • Relationship between lean manufacturing and environmental performance: • aspects of the manufacturing system to focus effort on. • Comparing customer methods used to improve suppliers in lean manufacture: • ways to approach improvement of supplier environmental performance.

13. Research Method • Stage I – Toyota Motor Corporation (complete) • Semi-structured and structured interviews • Stage II (complete) • Supplier case studies (8): Toyota first tier parts suppliers • Stage III (incomplete) • Automotive industry survey • Research partners • Toyota Motor Corporation • Australian Government (Office of Manufacturing) • Victorian Environment Protection Authority

14. Some Early Results Toyota Motor Corporation • Toyota has the ability to influence the environmental performance of its supplier firms but not control. • Toyota Purchasing would address a supplier’s environmental performance IF: • It presented a risk to the production system. • Toyota Global indicated that it was a critical purchasing factor. • It was a well documented, resourced and standardised aspect of their Purchasing role.

15. Contribution of the Research • Expand understanding of the influence of supply relationship on environmental performance. • Integrate environmental performance into ongoing efforts to enhance productivity, performance and profit. • Provide a framework for business to introduce and improve the environmental performance of their supply chain.

16. THANKYOU QUESTIONS?