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Green Supply Chain Management:

A study of why firms should


choose to go this way.
Kiran Ali
Supply chain management involves the systematic, strategic coordination of the
traditional business functions and the tactics used across these business functions
within a particular company and across the businesses within the supply chain, for
the purpose of improving long-term performance of the individual companies and
the supply chain.
Our world has seen immense growth in technological and economic sector. This
progress has contributed to increased quality of life, generated immense wealth and
prosperity. All of it has come at a cost which the world has just begun to realize. Our
pursuits have caused unintended and sometimes irreversible ecological degradation
(Shrivastava, 1995). Some classical examples include depletion of some natural
resources, nuclear power plant disasters and oil spills by tankers (Vanpoucke, 2014).
There has been a growing public awareness about environmental concerns.
Stakeholders are demanding business culture to change. Many companies have
responded by analyzing their business practices and pursuing green supply chain
management (GSCM) initiatives in order to ensure both environmental sustainability
and long term profitability (Wu & Pagell, 2010).

Definition and scope of GSCM and practices


Even if a widely-recognized definition of green supply chain is still lacking (Klassen
& Whybark, 1999), the existing literature acknowledges that GSCM is increasingly
widespread among companies that are seeking to improve their environmental
performance. A number of definitions can be found in the GSCM area. Traditionally,
the definition and scope of GSCM in the literature has ranged from green purchasing

to integrated green supply chains, and reverse logistics (Zhu, Sarkis, & Lai,
Confirmation of a measurement model for green supply chain management
practices implementation., 2008) and it roots in both environmental management
and supply chain management literature (Shrivastava, 1995). A recent and more
holistic definition of GSCM is provided by (Wu & Pagell, 2010), who describe it as
the integration of environmental thinking into supply chain management, including
product design, supplier selection and material sourcing, manufacturing processes,
product packaging, delivery of the product to the consumers, and end-of-life
management of the product after its use.
As such, GSCM ranges from green product design to a closed loop product return
processing, and requires high-level and detailed planning and steering of complete
supply chains on an end-to-end basis.
Previous contributions have discussed both general environmental management
issues within the supply chain (Klassen & Whybark, 1999), and specific green facets
of supply chain management such as green design (Hsu, Chen, & Chiou, 2011)
production planning and control for remanufacturing, green manufacturing, product
recovery, reverse logistics, and logistics network design (Diabat, Khodaverdi, &
Olfat, 2013).
Within the broad concept of GSCM, GSCP refer to a variety of activities and
initiatives implemented by an organization in an attempt to reduce their impact on
the natural environment (Zhu, Sarkis, & Lai, Confirmation of a measurement model
for green supply chain management practices implementation., 2008). According to
Vachon and Klassen (2006), GSCP encompass both internal and external activities,
whether related to preventing pollution before it is generated, recycling waste and
spent products, extracting resources and raw materials, or capturing harmful
pollutants followed by proper disposal. In a slightly different way of clustering, (Zhu
& Sarkis, An inter-sectoral comparison of green supply chain management in China:
drivers and practices., 2006) have broken down the examined GSCP into: internal
environmental

management;

environmental

concerns;

green

investment

purchasing;
recovery;

customer
and,

cooperation

eco-design

with

dimensions.

Whatever definition of GSCP is considered, a potential impact of GSCP on company

performance is nowadays widely acknowledged, including environmental, economic


and operational performance (Vachon & Klassen, 2006).
Companies have been on the receiving end of stakeholder pressure when it comes
to sustainability. The way companies have reacted to these pressures and have
perceived GSCM differs (Vanpoucke, 2014). This difference has led to a situation in
which some companies have embraced environmental damage control and
prevention while others focus on meeting the minimum requirements (Klassen &
Whybark, 1999). As a consequence of these different approaches, the performance
results vary widely.
Currently there is little understanding with regards to the rationale and motivation
with which companies pursue environmentally friendly goals and strategies
(Campbell,

2007).

Numerous

academics

have

come

up

with

hypothetical

propositions and models for why companies act green, but these models largely
remain empirically untested. Since motivation is often described as a multifaceted
phenomenon, it implies that it will operate differently in different contexts, and
how it works may depend on the nature of the problems for which it is the purported
solution (Suchman, 1995).
In this study I am trying to understand the different factors which influence an
organization to pursue GSCM the decision making process of a firm facing
uncertainties in GSCM practices.

GSCM Motivation
It is imperative to consider a companies environmental motivation separate from
corporate strategies when evaluating GSCM initiatives. In many cases, corporate
greening strategies are often not aligned with practice (De Bakker & Nijhof, 2002).
(Bansal & Roth, 2000) distinguish three different types of motivations for ecological
responsiveness: a legitimization, a competitiveness and an ecological responsibility
motivation.

Legitimization

A company with a legitimization motivation looks towards improving corporate


environmental management only within established firm regulations, norms, values,
or beliefs. They are motivated by long term sustainability and survival of a firm.
They want to have a license to operate and simultaneously avoid fines, decrease
risk and achieve employee satisfaction. They do not focus on proactive efforts but
on reactions to external constraints made to avoid sanctions. These firms are mainly
concerned by what would occur if the firm does not meet the conditions. Hence,
they are mainly driven by concerns about sanctions, fines and penalties, bad
publicity, punitive damage, avoiding clean-ups, disconnected work force, and risks.
Moreover, their goal is to meet standards rather than exceed them (Bansal & Roth,
2000). As such, these firms adopt a more passive and imitative stance and will
minimize risks by imitating successful competitors on these issues. In summary,
these companies focus on compliance, taking risks and cost-benefit analyses with
regards to the outcomes of non-compliance (Bansal & Roth, 2000).

Competitiveness
According to the competitiveness motivation, having GSCM is both a need and an
opportunity. Firms that focus on greening their inbound function and production will
benefit from the fact that this leads towards overall supply chain environmental
improvements as well as economic performance and increased competitiveness
(Walker, Di Sisto, & McBain, 2008). Green initiatives improving competitiveness
might include energy and waste management, source reductions resulting in a
higher output for the same inputs, eco-labeling and the development of ecoproducts (Bansal & Roth, 2000). Moreover, consistent with the resource-based view,
firms try to develop ecologically related resources and capabilities to build longterm profit potential such as improved reputation, process efficiencies and product
reliability (Vanpoucke, 2014). Subsequently, these firms benefit from increased
profits, larger market shares (due to possible differentiation) and lower costs
(Bansal & Roth, 2000). In summary, environmental initiatives are driven here by the
ability to enhance a firms financial performance.

Concern for the environment

Some firms pursue ecological initiatives because they have an innate concern for
the environment. Ecological responsibility as a motivation focuses on improving
employee morale and individual satisfaction. These firms act based on values and
not on decision rules: they act out of a sense of obligation, responsibility, or
philanthropy rather than out of self-interest. These firms, in which top management
is responsible for the firms environmental management leadership, idealize, rather
than rationalize, the best course of action (Chan, He, Chan, & Wang, 2012).

Stakeholder pressure
Existing literature has been focusing extensively on different taxonomies to explain
which stakeholders pressures are taken into account by corporations when GSCM
decisions are made. The common belief is that at least the following pressures
should be taken into account: regulators, internal/external stakeholders as well as
primary/secondary stakeholders. In the past, some stakeholders have been studied
more often than others.

(Seuring & Muller, 2008) reviewed the pressures and

incentives for firms to set-up sustainable supply chains. Important pressures that
previous research took into consideration included regulators, customer demands,
response to stakeholders, competitive advantage, environmental/social groups, and
reputation loss. Similarly, (Hsu, Chen, & Chiou, 2011) have presented a
driver/pressure classification, which have been empirically shown to pressure
corporations into adopting environmental initiatives. This classification has the
following categorization: regulatory stakeholders, internal primary stakeholders,
external primary stakeholders and secondary stakeholders (Vanpoucke, 2014).

Regulatory stakeholders
They include governments, trade associations, informal networks, competitors and
stakeholders who are able to convince the government to adopt other or additional
environmental practices or technologies (Henriques & Sadorsky, 1999). On the one
hand,

legislative

performance

bodies

have

requirements,

environmental

material

regulations

mandates

and

which

extended

focus

on

producer

responsibility legislation (Paquette, 2006). This has proven to be costly for firms
when legislation does not leave space for flexibility and mobility. On the other hand,
there are also government encouraged voluntary approaches which have been very

effective in the past. This approach has been better accepted by the private sector
than prescriptive mandates and can be less costly than traditional command and
control systems, which generally impose a significant administrative burden on
regulators for monitoring and enforcement (Vanpoucke, 2014).

Internal primary stakeholders


These are stakeholders with the most say in the way firms operate. Typical
examples include employees, top management and shareholders, each influencing
the working of a company as well as the environmental goals and programs that are
developed. Recent studies highlight the role that employees and top management
and their values play on the extent to which firms adopt GSCM practices and how
this contributes to successful results. First, employees and top management are
able to influence operational and environmental improvement (Walker, Di Sisto, &
McBain, 2008). Specifically, champions are needed for firms to adopt and support
new ideas, products, and processes (Bansal & Roth, 2000). Even though employees
can influence the sustainable nature of supply chains, many companies are
currently skeptical about its economic and environmental performance (Darnall,
Jolley, & Handfield, 2008). This leads them to repress green initiatives. Second, in
the long run companies might benefit from the development of an environmentally
sound reputation as firms might otherwise face problems with attracting and
retaining highly qualified and talented employees (Wu & Pagell, 2010). Having
ethical practices in place also ensures higher job satisfaction and organizational
commitment, which in turn lowers employee turnover and absenteeism costs. As a
result, for a firm to function and be successful, the support of GSCM initiatives is
required (Vanpoucke, 2014).
A firms reputation with regards to sustainable supply chains also affects external
financial decisions. Shareholders lose money on their shares in a firm that is found
liable for environmental damage or is covered in a negative light in the news with
regards to its supply chain (Diabat, Khodaverdi, & Olfat, 2013). Moreover,
shareholders as well as many financial institutions perceive firms with a bad
environmental reputation as riskier to invest in, and therefore may demand a higher
risk premium (Green Jr, Zelbst, Bhadauria, & Meacham, 2012). Especially bad GSCM
practices impact a companys financial situation.

Besides internal primary stakeholders, the impact of external primary stakeholders


to adopt environmental programs should not be underestimated. External primary
stakeholders include customers, suppliers and financial institutions. Consumers
have the world economy in their hands: what they buy and dont buy affect entire
supply chains. If consumers demand greener products, then this will have a ripple
effect along the supply chain. An example of customer demand initiatives towards
developing greener supply chains is boycotting (Eesley & Lenox, 2006). Even
though the majority of customers currently do not search for environmentally sound
products or services, they do have high environmental expectations (Walker, Di
Sisto, & McBain, 2008) and they are consequently unwilling to sacrifice product
performance or price (Paquette, 2006). Even though in general most customers do
not search for environmentally friendly products, they do avoid brands which are
known to be environmentally unfriendly (De Bakker & Nijhof, 2002).
The pressure to adopt green practices is considered a two-way stream between
firms and their suppliers. This is why many large corporations such as Ford Motor
Company, Nestle, IBM and ABN AMRO are currently focusing on their suppliers
environmental management through support programs and seminars. On the other
hand, suppliers have been known to exert pressures on firms adopting GSCM
practices (Henriques & Sadorsky, 1999). Suppliers can aid firms in becoming more
environmentally sound by providing guidance and help (Walker, Di Sisto, & McBain,
2008). In general, collaborative green practices have been successful in the past
(Thun & Mller, 2010).
Financial institutions outlook towards a firms environmental practices is similar to
that of shareholders. Companies that are perceived to have poor environmental
records will be considered riskier to invest in, and thus financial institutions may
demand a higher risk premium (Henriques & Sadorsky, 1999). Accordingly, firms
with a (perceived) bad environmental record need to carefully manage their
environmental programs in order to not face higher risk premiums and thus
increased costs.
Firms are not contractually obliged to their secondary stakeholders, which consist of
NGOs and competitors (Eesley & Lenox, 2006). However, secondary stakeholders
can influence the GSCM practices and initiatives adopted by firms.

Industries continually evolve and change, and if firms do not respond to these
changes they may lose their market position and consequently their customers.
Firms that operate below the industrys environmental standards may lose their
competitive advantage and market share (Buysse & Verbeke, 2003). In the same
way, a firm may attain or retain their competitive advantage and thus their financial
position through first-mover environmental initiatives (Buysse & Verbeke, 2003).
Furthermore, firms can go a step further and can affect their industry dynamics as
well as the industries barriers to entry by setting industry norms and/or legal
mandates. Thus, external competitors may act as a driver for GSCM as they are able
to influence their industrys dynamics, innovation, performance and competitive
advantage (Walker, Di Sisto, & McBain, 2008).
Non-governmental organizations (NGOs) are an additional player in affecting the
competitive environment. Many NGOs affect consumer behavior with regards to the
adoption of more sustainable ways of living and discouraging unsustainable
behavior (e.g., International Institute for Sustainable Development, 2010). NGOs
utilize negative as well as positive information to convince consumers, firms and
governments to change their behavior. It has been found however, that negative
information has a greater impact on behavior than positive information. Firms
therefore need to be careful as NGOs appear to be able to punish unsustainable
firms. Many firms proactively collaborate with NGOs in order to find sustainable
solutions and ensure a positive company reputation.

Company Characteristics
Besides stakeholders being driving forces towards an environmental program
adoption, firm characteristics may also be considered as a possible influencer of a
firms GSCM motivation. Business characteristics that have an influence on a firms
GSCM proactivity include company size, environmental management systems, ISO
14000 certification, and how often environmental performance is measured. Firm
size may influence the implementation of environmental practices as larger firms
have more resources available to devote to environmental initiative and receive
greater pressure from stakeholders than smaller firms. Also, firms with ISO 14000
and environmental management systems in place tend to have a greater

environmental focus. The same could be true for how often environmental
performance is measured by companies (Vanpoucke, 2014).

Performance outcomes
During the past decades academics have discussed from a theoretical point of view
the relationship between corporate social performance (acting ethically and
ecologically) and economic performance. One perspective dictates that it pays off to
be green (Russo & Fouts, 1997). This perspective is supported by the resource
based view which supports the notion that organizations can focus on the
environment but have economic performance at the same time. Others question
whether it actually pays off to be green. These academics believe that business
organizations exist to maximize profit of the stockholders. (Preuss, 2005), however,
argues that many companies have not reached this point yet, except large firms.
Thus, there is no theoretical consensus as to what the relationship between
economic and environmental performance is. In addition to no theoretical
consensus, mixed empirical results are found relating to what type of outcomes
firms can expect. He evaluated existing literature and found that almost half of
about 100 studies showed a positive relationship between corporate social
responsibility (CSP) and financial performance, while only seven reported a negative
relationship. However, many researchers researching CSP and GSCM tend to
enquire

for

only the

benefits

obtained

by green

initiatives and

not the

disadvantages associated with GSCM practices. A possible reason that there exists
no consensus between environmental management and firm performance is
because motivation has not been incorporated. Motivation drives behavior and thus
also the outcomes. Thus, it would be expected that the type of motivation firms
have towards GSCM, will affect the type of relationship these firms will encounter
between economic performance and environmental performance (Klassen &
Whybark, 1999).

Barriers in adapting GSCP:


Looking at the barriers that may prevent companies from adopting GSCP,
researchers have identified five main categories, namely:

outsourcing (e.g., lack of government support to adopt environmental friendly


policies,

complexity

of

measuring/monitoring

suppliers

environmental

practices);
technology (e.g., lack of technical expertise, lack of human resource, lack of
effective environmental measures);
knowledge (e.g., lack of environmental knowledge, perception of out-ofresponsibility zone, disbelief about environmental benefits);
financial (e.g., financial constraints, non-availability of bank loans to
encourage green products/processes, high investments and less return-oninvestments);
Involvement and support (e.g., lack of customer awareness and pressure
about GSCM, lack of corporate social responsibility, lack of top management
involvement in adopting GSCM, poor supplier commitment).
In general, both internal and external factors can be identified. Focusing on internal
barriers, companies seem to be hampered by economic or financial factors. Such is
the case of the emerged difficulty in taking on investment risk, especially when no
incentives for sustainable supply chain management are available. Besides, there is
great difficulty in quantifying the costs coming from adoption. A second element
that seems to act as an obstacle lies in the long implementation periods. Third, a
general lack of awareness has been remarked the investment is sometimes not
perceived as being necessary, and this prevents companies from implementation.
Fourth, companies seem to perceive some operational challenges, mostly due to
personnel training or a lack of knowledge.
As far as external barriers are concerned, inhibition towards innovation and lack of
knowledge has been identified. Lack of integration among players in the supply
chain (i.e., suppliers and customers), and specifically the scarce attitude towards
collaboration, has also been identified by (Vachon & Klassen, 2006).

My Research Goals
Main focus of my research in the upcoming years is to identify major barriers in
implementation of GSCP in multi-tier supply chains faced by the industries in
Canada. I have extensively studied the motivation behind green supply chain

management in the past couple of months and all that I have understood from my
readings, I have presented in my paper. There is a big gap in academic research and
industrial practices of green supply chain currently, and my goal is to take at least
one small step to bride this gap. This field in its entirety has been around for more
than two decades but no big game-changing effect has been observed in the
industry, despite the claims of various big firms about reduction in their carbon
footprint. I want to look deeper into this issue, find a challenge inhibiting GSCP
adoption and gear my research towards it.

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