RESEARCH ARTICLE
Adv. Sci. Lett. X, XXX–XXX, 2015
Copyright © 2015 American Scientific Publishers All rights reserved Printed in the United States of America
Advanced Science Letters Vol. X, XXX–XXX, 2015
Green Supply Chain Management Practices and Sustainability Performance Thoo Ai Chin1, Huam Hon Tat2, Zuraidah Sulaiman1, Siti Norfatin Liana Muhamad Zainon1 1
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Faculty of Management, Universiti Teknologi Malaysia, 81310 Skudai, Johor, Malaysia Quest International University Perak, Faculty of Business, Management and Social Sciences, 227, Plaza Teh Teng Seng (Level 2), Jalan Raja Permaisuri Bainun, 30250 Ipoh, Perak, Malaysia
Green supply chain management (GSCM) is evolved from supply chain management. The tenet of GSCM is to minimize or eliminate wastages including hazardous chemical, emissions, energy and solid waste along supply chain. This study aims to investigate the relationship between GSCM practices including supplier selection, supplier evaluation, environmental collaboration, internal environmental practices, green product and process design, and sustainability performance. The findings show that environmental collaboration, internal environmental practices, green product and process design have significant positive relationships with sustainability performance. The practice of green product and process design is the best predictor of sustainability performance. Surprisingly, supplier selection and supplier evaluation have no significant and positive relationship with sustainability performance. The result of this study is especially important for manufacturers in implementing GSCM practices within their respective organizations in order to achieve sustainability performance. Keywords: Green Supply Chain Management, Sustainability Performance, Manufacturing.
1. INTRODUCTION Green supply chain management (GSCM) is evolved from supply chain management (SCM). The concept of SCM was introduced and popularized in the 1950s when manufacturers minimized the production costs [1] through mass production. As competition intensified in the 1990s, the increased awareness of green practices has triggered firms to act in an ethically and socially responsible manner in their supply chains [2]. The GSCM concept is introduced by adding a “green” component into SCM to addressing the influences and relationships between SCM and natural environment [3]. The concept of GSCM is to minimize or eliminate wastages including hazardous chemical, emissions, energy and solid waste along supply chain. Additionally, GSCM is a green initiative to improve process and product performance based on requisite in environmental * Email Address:
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Adv. Sci. Lett. Vol. x, No. x, 2015
regulations [4]. Van Hoek [5] suggested that GSCM is an innovative and competitive tool for organizational sustainability to reduce environmental risk and achieve both financial and environmental benefits simultaneously. In addition, the emergence of GSCM is to assist companies in being environmentally friendly and promoting good business strategy to gain higher profitability [6].
Today, the environmental issues are increasingly integrated into international trade and market; consumers worldwide are becoming increasingly savvy and demanding for environmentally friendly products [7]. The global environmental capacity can become exceeded if irrational resource consumption and irresponsible environmental pollution continue and burden over the entire product life cycle from raw material acquisition, manufacturing, use to ultimate disposal [8]. 1936-6612/2011/4/400/008
doi:10.1166/asl.2011.1261
Adv. Sci. Lett. x, xxx–xxx, 2015 The environmental concerns such as toxic waste should be addressed together with SCM and considered as an important element in production processes for industrial growth [9]. In fact, businesses are operated in several interrelated pressures from different parties such as shareholder, society, governments, customer, market and business organization when respond to environmental matters such as conserving materials, reduced water and energy use. Environmental and social issues have become more and more important in managing any businesses during the rapid changes, particularly in global manufacturing scenarios [10]. Firms are pressurized to implement GSCM practices in their operations in order to achieve a balanced growth in terms of economic, environmental and social without scarifying the environment. Therefore, the purpose of this study is to examine the relationship of the green supply chain practices and sustainability performance in Malaysian manufacturing companies. Therefore, the five hypotheses are proposed as follows:
RESEARCH ARTICLE standards such as International Organisation for Standardization (ISO) 14001, Environmental Management Systems (EMS), technical and performance specifications that their suppliers must practice in order to be recognized as qualified suppliers [16]. 2.2 Supplier Evaluation
H1: Supplier selection is positively related to sustainability performance. H2: Supplier evaluation is positively related to sustainability performance. H3: Environmental collaboration is positively related to sustainability performance. H4: Internal environmental practice is positively related to sustainability performance. H5: Green product and process design is positively related to sustainability performance.
As raw materials and components represent a large part of the product’s cost, therefore supplier evaluation process can be complex and multi-criteria problems, which includes both qualitative and quantitative dimension of supplier performance [17]. Supplier evaluation based on financial criterion such as price; nonfinancial criteria including quality, delivery, quantity and service and communication. Also, significant costs associated with ordering, expediting, receiving, inspecting and using purchased parts and materials are important to include in supplier evaluation [18]. The qualified supplier is a strategic key role in eliminating environmental risk of SCM for firm in manufacturing industries [19]. In fact, ISO 14001 certification and voluntary EMS governmental programs strongly affect supplier evaluation practice [20]. The programs highly facilitate supplier evaluation process and increase environmental performance by forcing the suppliers to perform specific environmental practices. Therefore, many firms periodically measure supplier performance, create alternatives ways of supply, create supplier solution and build long-term relationship with suppliers [21].
2. LITERATURE REVIEW
2.3 Environmental Collaboration
2.1 Supplier Selection
Firms in manufacturing sectors have been started to implement GSCM in response to governmental regulations of environmental and customer requests for product and services that are environmentally sustainability [22]. The pressures have forced manufacturers to collaborate with suppliers to enhance environmental sustainability [23]. Collaboration effort between focal company and supplier is the main ingredient of GSCM to facilitate supply-side environmentally and socially responsible activities. Collaboration in terms of environmental is an approach that helps firms to develop and support the environmental prowess of their supply partners [24]. There is a trend now for firms to incorporate collaboration of environmental practices into their strategic plans and processes [25]. According to Paulraj [26], environmental collaboration includes cooperating with suppliers to achieve environmental objectives and improve waste reduction initiatives, providing suppliers with design specification that include environmental requirements for purchased items, encouraging suppliers to develop new source reduction strategies, working with suppliers for cleaner production and helping suppliers to provide materials, equipment, parts and services that support organizational goals. Besides, top management plays a
Supplier selection is “the process by which firms identify, evaluate, and contract with suppliers” [11]. According to Bali et al. [12], green approach focuses on both inner green initiatives and its suppliers green performance. Supplier selection is important purchasing task performed in organisation as long run sustained performance of buyer’s company is heavily relied on its proper selection of raw material sources [13]. As concluded by Lippmann et al. [14], there are several critical elements for successful GSCM implementation. The elements can be recognized as the production of written GSCM policies, suppliers meetings, training, collaborative research and development, top level leadership, cross-functional integration, effective communication within company and suppliers, effective processes for targeting, evaluating, selecting and working with supplier, and restructuring relationship with suppliers and customers. It is clear that the suppliers’ capabilities are directly linked to the firm’s ability. Roa [15] argued that GSCM must involve collaboration with suppliers based on green designs of product, providing awareness seminars, and helping supplier to build their own environmental program. Therefore, firms should specify criteria as well as identify
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RESEARCH ARTICLE critical role in affecting the scope of an organizational sustainability practices. 2.4 Internal Environmental Practices The integrating of the imperative GSCM practices into the overall strategy of the firms is necessary to ensure a successful implementation of GSCM practices [22]. Firms can start implementing GSCM practices into their operations such as green purchasing, collaboration with customers and suppliers, eco design and investment recovery [23]. The internal environmental practices require full commitment and support from top management and middle-level management. Top management needs to be fully committed with the GSCM practices to ensure environmental excellence. In addition, top management needs to identify the importance of environmental problems along a supply chain and supports the initial assessment by taking a full responsibility for the environmental monitoring efforts [27]. Supplier quality management and supplier audits are the best ways to motivate and ensure that suppliers are following the green processes and procedures. Also, the supplier audit will ensure that suppliers provide compliance statements [4] from their manufacturing process, quality process, engineering change process, invoicing process to shipment process. A compliance statement should state dates of compliance and outline supplier requirement such as methods for verification of compliance [27]. In addition, manufacturer or independent third party and suppliers jointly identify and audit the environmental monitoring activities through gathering and processing information from publicly disclosed environmental records, firms specified questionnaires and entire supplier base [28]. 2.5 Green Product and Process Design The environmentally conscious product and design incorporate a number of concepts including the use of environmental friendly raw material, design for minimized consumption of material and energy, use of cleaner energy technology processes to minimize solid and liquid waste, as well as the use of reverse logistic [29]. As pointed out by Gonzalez-Benito [30], industries focusing on “ecological responsible design of new product” are aware the sources of any pollutions or unsafe level of certain chemical. In fact, at the design level, firms can collaborate with suppliers to acquire green materials and conduct green processes into the entire product life cycle. Many firms have implemented GSCM practices such as investment recovery, eco-design and internal environmental management. With integrating the green problem into new product development, green design can be a systematic initiative for firms to minimize environmental footprint of their product and processes by reducing cost and raising product marketability 3
Adv. Sci. Lett. X, XXX–XXX, 2015 simultaneously [4]. Moreover, eco-design can be identified as design for environment or green design with a purpose to reduce environmental impact throughout the product development and the entire product life cycle from acquiring raw materials from suppliers to manufacturing, using and finally disposing those materials [31]. In this study, the practices of green product and process design include the (i) utilization of environmentally friendly materials, (ii) designing products for reduced consumption of material and energy (iii) designing products for reuse, recycle and recovery of material and component parts (iv) avoiding or reducing the use of hazardous products, (v) optimise process to reduce solid/liquid waste and emission, and (vi) using reverse logistic for product and/or manufacturing process [32]. These practices are proposed to have significant impacts on sustainability performance. 2.6 Sustainability Performance Companies that implement GSCM practices benefitted from cost savings (conserving materials, reduced energy and water use), better public image and decreased environmental liability [33]. Poor environmental achievement can pose significant environmental impacts and result in monetary losses for the companies such as lower stock prices. According to Flammer [34], companies’ eco-friendly behaviour is closely related to significant stock price increases, whereas firms with eco-harmful behaviour face decreases in stock price. Therefore, firms are sensitive to environmental footprint may be able to attract resources from socially concerned investors. Many researchers have emphasised the importance of GSCM practices in sustainability performance including economic, environmental and social performance. GSCM practices can minimise the ecological risks of business processes without scarifying cost, quality, reliability and energy. A new approach such as end-of-pipe control which follows the environmental regulations leads to reducing ecological impacts and increasing economic profit [3]. Also, the economic performance includes cost reduction in materials purchases, energy consumption [23] and waste discharge, increased return on investment and earnings per share [26]. GSCM has provided a new avenue for firms to achieve profit and market share objective while minimising the environmental risk and increasing the ecological efficiency [35]. In support, green practices focus on both “win-win relationships between economic and environmental performance” [36]. As concluded by Hasan [21], GSCM practices in firms can increase efficiency, minimise cost, reduce management impact, improve service, maximise sales, increase market share, revenue and growth as well as reputation. 3. DATA ANALYSIS The population of this study consists of all small and medium-sized manufacturing companies of Malaysia with a total of 148,678[37]. According to Weisberg and Bowen
Adv. Sci. Lett. x, xxx–xxx, 2015 [38], a research sample size of 400 is required in order to accept a sampling error level of 5%. Questionnaires using a 5-point Likert scale with end points of strongly disagree and strongly agree were distributed to potential respondents through email and hand-delivery. Based on the SCM literature review, the successful response rate of surveys tends to be relatively low, ranging from 6% to 22%. To enhance the response rate, a combination of the response-rate enhancement techniques (a second e-mailing, a follow-up call and hand delivery) was offered to respondents. The email and hand-delivered survey resulted in a usable sample size of 129. According to Hair et al. [39], the sample size was sufficient for hypotheses testing. The final sample included 53 CEOs/managing directors/owners (41.1%), 47 production/operation managers (36.4%), 13 supply chain/logistics managers (10.1%) and 16 others (12.4%). In general, a higher number of respondents worked for the industry of food product and beverages (38.0%), basic metal (8.5%) and machinery and equipment (7.8%) than the other industry groups. Approximately 25.6% of firms had been established between 5 to 10 years. In addition, 72.1% of the respondents worked for small firms employing fewer than 50 employees. Before conducting inferential statistical techniques, the indicators were tested for normality. The normality test is used to determine whether a data set resembles the normal distribution. In this study, the numerical method of the skewness and kurtosis test were used to assess univariate normality. The values of skewness and kurtosis of variables should fall within the recommended value of +1.0 to -1.0 in order to meet the assumptions of univariate normality. The results show that the values of skewness and kurtosis of the variables were found to be well within the recommended value of - 1.0 to + 1.0, indicating that they follow the requirements of univariate normality. Construct validity was established using exploratory factor analysis. The KMO measure of sampling adequacy was found to be well above the recommended value of .7, and Bartlett’s test of sphericity was also found to be significant (p < .01). Reliability was assessed using Cronbach’s α values. All the factors were found to be well above the acceptable value of .70. The results are sufficient to establish the reliability of all the constructs. Multicollinearity test was performed before regression analysis. Tolerance value and the variance inflation factor (VIF) are two popular measures for evaluating both pairwise and multiple variable collinearity tests. Tolerance is the proportion of variance that an independent variable does not have in common with other independent variable. The VIF of a variable is the reciprocal of its tolerance. Multicollinearity problem exists when a variable’s tolerance value is less than 0.10 and VIF is greater than 10. The results indicate that no VIP values are greater than 10 and no tolerance values less than 0.10. Therefore, there is no evidence of multicollinearity problem in this study. Multiple regression was used to test the research hypotheses and to explore the strength of the relationships between the dependent variable (sustainability
RESEARCH ARTICLE performance) and five independent variables (SCM practices). The findings show that environmental collaboration, internal environmental practices, and green product and process design are significant positive related to sustainability performance at p-value less than 0.05. However, supplier selection and supplier evaluation demonstrate no significant positive relationship with sustainability performance (p >0.05). Green product and process design has the highest beta value (0.322) that would impact the sustainability performance the most. Therefore, it would result in a change of 0.322 standard deviations in the sustainability performance. The results indicate that three hypotheses are supported and two hypotheses are not supported. 4. DISCUSSIONS AND CONCLUSIONS These findings may have implications for practitioners and managers, as well as academics involved in theory building. The results are important to manufacturing companies during this era of hard times and slow economic outlook. This study provides insight of some highly varied and progressive GSCM practices amongst manufacturing industries in Malaysia. Therefore, it provides managers in Malaysian manufacturing industries with a useful tool to evaluate current green supply chain practices and recommends simple but effective and efficient GSCM practices to perform vitally important green supply chain functions aimed at enhancing organisational performance. The results suggest to Malaysian manufacturing industries that the key dimensions of GSCM practices should include environmental collaboration, internal environmental practices, and green product and process design. Surprisingly, the relationships between supplier selection, supplier evaluation and sustainability performance were not found to be statistically significant. The different findings may be ascribed to the fact that Malaysian manufacturers select and evaluate suppliers often based on the quoted price, and not purely on their environmental competence such as technical and eco-design capability. From the perspective of theoretical contribution, this study extends previous GSCM frameworks in Western countries and advances the understanding between the relationship of GSCM implementation and sustainability performance in Malaysian manufacturing companies. Undeniably, this study could enrich the existing body of knowledge in GSCM, sustainability performance and manufacturing industry. Logic suggests that future researchers should include more geographical data coverage, because small sample size makes it very difficult to generalise the result to manufacturing sector. Therefore, it is of great importance to include more manufacturing companies in future research. The result would be much better if it can represent the full picture of Malaysia manufacturing industry. ACKNOWLEDGMENTS This work was supported by Ministry of Education, Universiti Teknologi Malaysia and vote no. (01K42). 4
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