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

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.

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.

The Automobile PlasticsPetroleum Glass Rare metal mining Aluminum SteelLeather Chemicals Paints

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.

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?

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.

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.

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.

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.

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.

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

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.

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.

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