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The efficacy of environmental supplier development
practices on performance: A suppliers’ perspective
Master Thesis Supply Chain Management
University of Groningen, Faculty of Economics and Business
March 21, 2016 Jair Plantijn
Student number: s2217996 E-mail: jair.plantijn@gmail.com
Supervisor University of Groningen Dr. Cristina Sancha
Co-assessor University of Groningen Dr. Kirstin Scholten
Acknowledgements:
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Abstract
Purpose - This paper has two purposes. First, to investigate the impact of environmental supplier
development practices on the suppliers’ environmental and economic performance, from the suppliers’ perspective. Second, to investigate the moderating role that munificence plays on the effectiveness of these practices, thereby possibly influencing the relation between these practices and the suppliers’ environmental, and economic performance.
Design/methodology/approach – Hypotheses are tested using regression analysis out of a sample of
129 Chinese firms.
Findings – Findings indicate that while environmental supplier development practices improve both the
environmental and economic performance of suppliers, munificence moderates only the relation between environmental supplier development practices and economic performance.
Research limitations/implications – Findings are limited to the Chinese scope, thereby limiting the
generalizability of the results. Results and findings are therefore more applicable to firms located in developing countries. Managers gain insight as to how suppliers are affected by the implementation of supplier development practices from their own point of view.
Originality/value – By looking at the effectiveness of supplier development practices from the
perspective of the suppliers, this paper makes a contribution to current literature as the suppliers’ perspective has been neglected. It also contributes to current practice by illustrating the moderation role of munificence.
Keywords: Environmental, Supplier development, Suppliers’ performance, Sustainable supply chains,
Munificence
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Table of Contents
Abstract ... 2
1. INTRODUCTION ... 4
2. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT ... 6
2.1. Sustainability ... 6
2.2. Sustainable Supply Chain Management ... 7
2.3. Environmental Supplier Development Practices ... 7
2.3.1. The hidden role of munificence ... 10
2.4. Hypothesis Development... 10
2.4.1. Assessment and suppliers’ environmental and economic performance. ... 11
2.4.2. Collaboration and suppliers’ environmental and economic performance ... 11
2.4.3. The moderating effect of munificence. ... 12
3. METHODOLOGY ... 14
3.1. Questionnaire design and measures... 14
3.2. Sample and data collection ... 14
3.3. Data Analysis ... 15
4. RESULTS ... 16
4.1. Factor analysis and Cronbach Alpha ... 16
Table 1. Factor analysis and Cronbach alpha ... 16
4.2. Descriptive statistics and correlations ... 17
Table 2. Correlations and descriptives ... 17
4.3. Regression analysis ... 17
4.3.1. Direct effects ... 17
Table 4. Results hypotheses ... 18
5. DISCUSSION ... 19
5.1. Environmental SD Practices And Environmental Performance ... 19
5.2. Environmental SD Practices And Economic Performance ... 19
5.3. Munificence, Environmental SD and Environmental Performance ... 19
5.4. Munificence, Environmental SD and Economic Performance ... 20
6. CONCLUSION ... 21
6.1. Managerial implications ... 21
6.2. Limitations and further research ... 22
Reference list ... 23
APPENDICES ... 31
Appendix A: Constructs and their items ... 31
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1. INTRODUCTION
In recent years, there have been many events occurring globally that have fundamentally contributed to the incorporation and consideration of sustainability as an important factor on which the performance of supply chains is being judged (Pereseina et al., 2014). For instance, Nestle was scorned when a publication revealed that one of its suppliers was responsible for destroying Indonesian rainforests for its palm oil production1, and Mattel saw its stock price decline by 18% when one of its Chinese suppliers
delivered lead contaminated toys2. These examples reflect what authors such as Seuring and Muller
(2008) suggested: buying firms (in this case Nestle and Mattel) are being held responsible for the negative consequences of the unsustainable behaviour and thus, poor sustainability performance of their suppliers. In fact, the poor sustainability performance of suppliers reflects itself on the reputation and performance of the buying firm (Faruk et al., 2001; Keating et al., 2008). Because of this, buying firms are becoming increasingly aware of the need and benefits of managing the upstream side of their supply chains in a more sustainable manner (McDonough & Braungart, 2000; Seuring, 2012; Beske & Seuring, 2014). Walmart’s “Sustainability 360” project for instance engages the company’s suppliers in sustainability initiatives through collaborative partnerships, the creation of metrics and sharing of best practices3. As a result, Walmart’s suppliers are now running more sustainable factories; more efficient
production of products that rely on less carbon based energy and also, they have realized a reduction in packaging by at least five percent45. In other words, by integrating externally and extending
sustainability to its suppliers, Wal-Mart has been able to improve their environmental and economic sustainability performance. Such integrative efforts usually occur through supplier development (SD) practices such as assessment and collaboration (Hahn, 1993; Krause, Scannell & Calantone, 2000; Wagner, 2006), which are aimed at improving the sustainability performance of suppliers (Vachon and Klassen, 2006; Sancha et al., 2015). Thus, as supply chains can no longer exist in isolation but as a part of a vast interconnected network, it is important for buying firms to improve the sustainability performance of their suppliers through SD practices to gain mutually beneficial outcomes.
Some authors have made significant and valuable contributions to the research field that looks at the extension of sustainability to suppliers through SD practices (e.g. Carter & Rogers, 2008; Seuring & Mueller, 2008; Gimenez &Tachizawa, 2012). However, the focus of research in this field has not always been on the supplier. As a matter of fact, sustainable SD practices are expected to improve ‘‘supplier
performance, supplier capabilities, or both…’’ (Krause et al., 2000, p.34). Yet, research on
sustainable SD practices mainly concentrates on the impact of these practices on the buying firm’s performance, rather than on how suppliers are affected by the implementation of these practices. In other words, research focusing on the impact of sustainable SD practices on the suppliers’ performance is lacking (Lippman, 2001; Acosta et al., 2014; Sancha et al., 2016b). Furthermore, the empirical findings of the literature on this side are characterized by mixed findings. While some authors established a link between sustainable SD practices and the suppliers’ performance (e.g. Lippman, 1999, Simpson & Power, 2005, Blome et al., 2014), others did not (e.g. Yu, 2008; Ehrgott et al, 2013). Some authors argue that the existence of these mixed findings might be because these papers have been performed from different perspectives (Lippman, 2001; Acosta et al., 2014). More specifically, although these studies have looked at the impact of sustainable SD practices on the suppliers performance, the majority has still been performed from the perspective of the buying firm (i.e. how buying firms perceive the impact of these practices on the suppliers) (e.g. Lippman, 1999; Carter, 2005; Foerstl et al, 2010; Akamp and Muller, 2013; Ehrgott et al, 2013; Sancha et al., 2016a; Sancha et al., 2016b). In other words, only a limited amount of literature has analysed the impact of sustainable SD practices on the supplier’s performance from the suppliers’ perspective (e.g. Lippman, 2001; Theyel, 2001; Simpson & Power, 2005; Yu, 2008; Blome et al., 2014; Lee, 2015). In acknowledging the perspective of the supplier,
1 ‘‘Nestlé doesn't deserve a break’’, http://www.greenpeace.org/international/en/news/features/Nestle-needs-to-give-rainfores/ 2 Mattel Does Damage Control After New Recall, http://www.wsj.com/articles/SB118709567221897168
3 Wal-Mart CEO Lee Scott Unveils "Sustainability 360", http://corporate.walmart.com/_news_/news-archive/2007/02/01/
4Walmart global responsibility report, https://cdn.corporate.walmart.com/c0/24/2383f0674d27823dcf7083e6fbc6/2015-global-responsibility-
5 current theory and practice are put in the position to better understand the effectiveness and the implementation of these practices at the supplier level. In addition, this might also help in understanding the mixed findings obtained so far.
However, while we agree that the existence of mixed findings might be because of imbalances between perspectives, we argue that the underlying causes might be more complex. As such, these mixed findings could be the result of conceptual shortcomings in current research. For instance, some of these studies try to explain the effectiveness of these practices on suppliers’ performance through mediating variables such as organizational learning (e.g. Carter, 2005) and social capital mechanisms (e.g. Lee, 2015). All these studies however, fail to consider the possible role of a contextual variable and how it might affect the relationship between these practices and suppliers’ performance. In that sense, we believe that a contextual variable such as the level of munificence, which is defined as the degree to which and environment is able to produce and guarantee the availability of resources for firms operating in it (Aldrich, 1979; Castrogiovanni, 1991; Goll & Rasheed, 2004) might be playing an important role on the effectiveness of these practices and hence, on the results. In munificent environments (i.e. high availability of resources), organizations are less restricted to allocate resources outside their boundaries (Fuentes-Fuentes et al., 2004) whereas in low munificent periods preservation becomes crucial since there is scarcity of resources (Golla & Rasheed, 1997). As some authors pointed out, munificence influences the information seeking behaviour of firms and also the degree to which they follow or seek advice among others (Khandwalla, 1973; Yasai-Ardekani 1989). In fact, the degree of munificence can affect the nature of an exchange relationship and how it is enforced (Dwyer and Oh, 1987). In that sense, sustainable SD practices represent an exchange relationship between buying firms and suppliers where valuable resources are exchanged through assessment and collaboration. Thus, for suppliers this means that the level of munificence could dictate whether they effectively make use of the information and knowledge coming from these exchange relationships, and this then can affect the effectiveness of sustainable SD practices.
Consequently, while we know why buying firms implement sustainable SD practices, little is known about the effectiveness of these practices at the supplier level. Thus, for both conceptual and perspective reasons, a careful study of the relationships between sustainable SD practices (with an environmental focus) and the suppliers’ environmental and economic performance with the consideration of the level of munificence is both timely needed and most likely of great value. In that sense, this paper will seek to (1) understand and address the impact of environmental sustainable SD practices on the suppliers’ performance (2) from the suppliers’ perspective. Additionally, this paper will fill a current gap in literature by understanding and considering the characteristics of the environment (i.e. munificence) and look at how these affect the effectiveness of these practices. In doing so we will seek to answer the following research question:
To what extent does the implementation of sustainable SD practices affect the suppliers’ economic and environmental performance and in which way does the environmental context (munificence) affect the effectiveness of these practices?
6 The study is organized as follows. First, a literature review introduces sustainable SCM and subsequently addresses the empirical evidence on sustainable SD practices. Thereafter, for the hypotheses development the relational view is introduced to explain the relationship between these practices and suppliers performance, and the contingency theory for explaining the rationale behind the moderating effect of munificence. Thereafter, the methods which were used for conducting the current research are explained. In the following chapter, the results and discussion section will analyse and interpret the outcomes of the study. Finally, an overall conclusion will be drawn and recommendations for future investigation will be provided.
2. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
2.1. SustainabilitySustainability is often understood intuitively as it is regularly presented as an idea, thought or philosophy (Sikdar, 2003; Clift 2000; Briassoulis, 2001), but without any form of conceptualization and/or operationalization. For instance, consider the most classic and commonly used definition for sustainability which is provided by the World Commission on Environment and Development:
Sustainable development is defined as a “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987,
p. 43).
In the sustainable supply chain context, this definition is not of much value for organizations as it does not provide them with a clear pathway on how they should classify these needs and neither does it specify which resources and/or capabilities are needed to address those needs (Starik & Rands, 1995; Hart, 1995). In fact, this clearly highlights the abstract nature of sustainability and for this reason research in the field of Operations and SCM relies on the triple bottom line (TBL) approach. The TBL approach was developed by Elkington (1994) in an attempt to operationalize sustainability and considers that sustainability has three main dimensions: economic, environmental, and social. The main assumption behind the TBL approach is that in order to reach sustainability, organizations need to achieve a minimum performance in each one of these three dimensions (Elkington, 1994, 2004; Seuring &Muller, 2008). Thus, the TBL approach extends itself “beyond the traditional measures of profits, return on investment, and shareholder value to include environmental and social dimensions’’ (Slaper & Hall, 2011, p. 4).
7 Environmental sustainability is concerned with how operational initiatives of organizations contribute to the improvement of the environment on both regional and national level (Labuschagne et al., 2003). This impact on the environment starts with the internal operations of organizations (i.e. use of energy and other resources) and ends with how these operations affect the environment (Gimenez et al., 2012). Key issues here are waste and pollution levels and energy usage amongst others (Gimenez et al., 2012; Stenzel, 2010).
Economic sustainability encompasses the continuity and profitability of organizations which enables them to pay their employees, stakeholders and reward investors (Ralston et al., 2015). In doing so, organizations are able to survive on the long term and remain competitive through their ability to be profitable (Baumann & Genoulaz, 2014). From the above it is evident that factors such as ROI, market share, sales, operational efficiency, time to market etc, are crucial and thus, closely associated with economic sustainability (Stenzel, 2010; Gimenez & Tachizawa, 2012).
2.2. Sustainable Supply Chain Management
As Narasimhan (1997) pointed out, superior supply chain performance is reached when firms integrate internally within cross-functional boundaries, and externally with suppliers through SCM practices. Similarly, in the sustainable SCM context, the concept of sustainability needs to be extended beyond the individual firm to supply chain partners (Carter & Rogers, 2008). Based on this we adopted the following definition of sustainable SCM:
‘‘Sustainable Supply Chain Management (SCM) refers to a firm’s plans and activities that integrate environmental and social issues into SCM in order to improve the company’s environmental and social performance and that of its suppliers and customers without compromising its economic performance (de Ron, 1998; Seuring and Muller, 2008; Pagell and
Gobeli, 2009)’’(Gimenez et al., 2012, p. 150).
Translated to the purpose of this study, this definition suggests that in order to reach an efficient sustainable supply chain firms need to integrate externally with suppliers through cooperative and collaborative practices (Gupta et at., 2013). In that sense, we focus here on practices that are important for our conceptualization of sustainable SCM. Therefore, this study will look at how environmental SD practices implemented by the buying firm affect the environmental and economic performance of the supplier. In the following section, we review more in depth the environmental SD practices (i.e. assessment and collaboration) literature.
2.3. Environmental Supplier Development Practices
The need for improvements in supplier’s performance has already been reported by buying firms a long time ago (Morgan, 1993; Monczka & Trent, 1995). This is because deficiencies in the performance of suppliers affect that of the buying firms in such a way that it hinders their ability to develop and retain competitive advantages in their respective supply chains (Krause, 1999). To tackle this problem, buying firms implement SD practices, which enable them to integrate externally with their suppliers through assessment and collaboration with the mere purpose of improving and minimizing deficiencies in the suppliers’ performance (e.g. Krause et al., 2000; Krause & Scannell 2002; Humphreys et al., 2004;Wagner, 2006 etc.). For the purpose of this study SD is defined as:
“any activity undertaken by a buying firm to improve either supplier performance, supplier capabilities, or both, and to meet the buying firm’s short- and/or long-term supply needs’’
(Krause et al.,2000, p.34).
8 (Klassen and Vachon, 2003; Vachon and Klassen, 2006). Assessment and collaboration are widely used and adapted as main SD practices to extend sustainability to suppliers in the sustainable SCM literature (e.g. Sancha et al., 2015; Gualandris & Kalchschmidt, 2014; Large & Gimenez Thomsen, 2011; Klassen & Vachon, 2003; Theyel, 2001). As such, we will regard these as the main practices for extending environmental sustainability to suppliers.
Assessment entails in depth evaluations of the suppliers performance and management capabilities, provision of feedback to point out areas that need improvements, and advise to suppliers on how to implement improvements in their performance (Krause et al., 2000). In addition to this, assessment puts buying firms in the position to convey what they expect from suppliers and also to compare supplier performances with each other (Giunipero, 1990; Krause et al., 2000). This is achieved by means of individual monitoring, where specific suppliers are audited by the buying firms employees or a third party (Koplin et al., 2007). For the purpose of this paper we have defined assessment as those activities related to the monitoring of the suppliers’ performance in the form of evaluations, audits and the provision of feedback on environmental issues by the buying firm.
Collaboration with suppliers consists of activities that require the direct involvement of the buying firm to improve the supplier’s performance. These range from on-site consultation, education and training of the suppliers’ staff to temporary personnel transfer between the buying firm and the supplier (Monczka, Trent & Callahan, 1993; Krause et al., 2000). In that sense, not only resources, information and risks are shared between these two parties but also joint decisions are made to achieve mutual beneficial results (Bowersox et al. 2003). For the purpose of this study we have defined collaboration as those joint activities related to the training and education of the suppliers’ personnel on environmental issues during visits to their premises.
In the sustainable SCM field, the impact of SD practices (most with an environmental focus) (i.e. assessment and collaboration) on performance has been extensively studied (e.g. Lippman, 1999; Lippman, 2001 Theyel, 2001; Rao, 2002; Zhu & Sarkis, 2004; Carter, 2005; Rao & Holt, 2005; Zhu et al., 2005; Zhu et al., 2007a; Zhu et al., 2007b; Zhu & Sarkis, 2007; Vachon & Klassen, 2008; ; Large & Gimenez Thomsen, 2011; Gallear et al., 2012; Gimenez et al., 2012;; Green et al., 2012; Hollos et al., 2012; Akamp and Muller, 2013; Gimenez & Sierra, 2013; Zhu et al., 2013; Blome et al., 2014; Gualandris et al., 2014; Sancha et al., 2015a; Sancha et al., 2015b).
9 accumulation between supply chain members, which then enhances the suppliers environmental and operational performance. As a contrast to the abovementioned positive evidences, Ehrgott and his colleagues (2013) posited that environmental supplier development practices (i.e. assessment and collaboration) enhanced the strategic capabilities of suppliers and consequently their environmental performance. However, their results showed that none of these practices enhanced the supplier’s strategic capabilities and thus, no improvements in environmental performance were found.
Next to this, there is also empirical evidence that shows an impact of either assessment or collaboration on suppliers’ performance. Lippman (2001) found strong evidence for the impact of assessment activities on both the environmental and economic performance of suppliers. This finding somewhat extends the author’s previous findings (1999) as evidence was found for the impact on the suppliers’ economic performance, but only as a result of assessment activities. Similarly to Lippman (2001), Theyel (2001) found a positive and significant link for the impact of green requirements (i.e. assessment) on the suppliers’ environmental performance and Foerstl et al (2010) showed that improvements were made in the supplier’s environmental performance as a result of assessment practices (i.e. guidelines, monitoring, auditing). Theyel (2001) however, did not find evidence for the impact of collaboration on the suppliers’ environmental performance. In contrast to this, the findings of Simpson & Power (2005) and Akamp and Muller (2013) complement each other as they both found evidence for the positive role of collaboration. In their exploratory case study, Simpson and Power (2005) concluded that suppliers’ achieved the greatest improvements in environmental performance in cases where the buying firm was more directly involved through collaboration activities such as supplier training. Similarly, Akamp and Muller (2013) in their study on supplier management practices in developing countries found conclusive evidence for the positive effect of collaboration activities such as supplier training and the allocation of personnel to suppliers on the suppliers’ performance. However, they did not succeed in establishing a link between supplier monitoring (e.g. assessment) and suppliers’ environmental performance, opposing the earlier empirical findings of Lippman (2001), Theyel (2001) and Foerstl (2010).
10 Therefore, there is a need ‘‘to have a better understanding of the implementation of these practices by studying their impact on the suppliers’ performance’’ (Sancha et al., 2015b, p.390), from the perspective of the supplier (Lippman, 2001).
2.3.1. The hidden role of munificence
Although we believe that the different perspectives are a viable explanation for the mixed empirical findings, it is also possible that other factors might be influencing these results. The work and findings of Carter (2005) and Lee (2015) support this notion as they showed the role and the possibility that the relationship between SD practices and suppliers’ performance is be mediated by a third variable. In that sense, it might also be that the underlying reasons for mixed empirical results are rooted are the characteristics of the operating environment in which these practices are being implemented. The operating environment is one of the main contingencies faced by organizations (Tosi & Slocum, 1984) since characteristics of environments are significantly different across industries and across firms (Goll & Rasheed, 2004). Given this, it seems natural to suggest that the relationship between environmental SD practices and suppliers’ performance may vary significantly across environments. More specifically, we believe that there is a possibility that the relationship between environmental SD practices and suppliers’ performance is moderated by a contextual factor such as the level of munificence. In particular, munificence represents ‘‘the extent to which an environment can provide sufficient resources for the firms operating in it’’ (Fuentes-Fuentes et al., 2004, p.427). In low munificent environments, characterized by scarcity of resources (Fuentes-Fuentes et al., 2004), firms tend to use more information, seek and follow a greater amount of advice, and make more strategic changes (Khandwalla, 1973; Yasai-Ardekani 1989). Furthermore, conservation of the resources of the own firm through effective and efficient use becomes more important under such circumstances (Fuentes-Fuentes et al., 2004). Similarly, for munificent environments this means that there is abundance and availability of resources so such behaviour (i.e. use more information, seek more advice etc.) is less likely, or it could also be possible that resource utilization becomes more intensive since there is an abundance of resources. Hence, we believe that since the implementation of environmental SD practices requires the exchange and usage of resources in the form of information, advice and knowledge through collaboration and assessment activities, it is likely that the level of munificence will cause suppliers to either intensify the usage of these resources or discontinue it. In that way, this will affect the effectiveness of these practices and hence the relationship between environmental SD and performance.
In sum, we see that while there is some empirical evidence for the positive impact of environmental SD practices on the suppliers’ environmental performance, it is far from consistent. Furthermore, the impact of these practices on the economic performance of the supplier has yet to be further explored as it is still unclear of how exactly it is affected by environmental SD practices. Similarly, we see that there is a lack of understanding as to how munificence influences the effectiveness of these practices, and hence the relationship between these practices and the environmental and economic performance of suppliers. Based on the above we believe that our study is able to differentiate itself from the current stream of literature by (1) taking the suppliers’ perspective and study the direct effect of environmental SD practices on the suppliers’ economic and environmental performance simultaneously, and (2) by considering the moderating effect of munificence on the effectiveness of these practices.
2.4. Hypothesis Development
11 especially beneficial since performances of buyers and suppliers affect each other (Krause et al., 2000). Dyer and Singh (1998) explain this in terms of rents’ by defining it as:
‘‘a supernormal profit jointly generated in an exchange relationship that cannot be generated by
either firm in isolation and can only be created through the joint idiosyncratic contributions of the specific alliance partners’’ (p.662).
Translating this definition to our study means that (1) collaboration and assessment represent the exchange relationships between buying firms and suppliers and (2) the joint idiosyncratic contributions resulting from collaboration and assessment creates rents which then leads to improved environmental and economic performance. With this in mind we will proceed to formulate our hypotheses as follows.
2.4.1. Assessment and suppliers’ environmental and economic performance.
According to the relational view, effective governance is able to create relational rents when partners combine knowledge, assets or capabilities (Dyer and Signh, 1998). In that sense, effective assessment of the suppliers’ performance through evaluation, audits and provision of feedback on performance outcomes (Vachon and Klassen, 2006; Koplin et al., 2007; Gavronski et al., 2011; Large & Gimenez Thomsen, 2011) is able to create rents. In this process valuable knowledge and information is combined, which not only help buying firms to identify deficits and potential areas that suppliers need to improve (Hahn et al, 1990; Lasch & Janker, 2005) but also, buying firms are able to acquire useful knowledge and skills that helps them in improving their own performance (Sancha et al., 2015a). Hence, assessment is an inter-organizational development practice that is able to support both the creation of idiosyncratic interaction routines and the understanding of the weaknesses and strengths of both the supplier and the buying firm. In that sense, we believe that assessment is able to improve the suppliers’ environmental and economic performance as a result of rents that are created during idiosyncratic interaction routines such as formal environmental evaluations, audits and provision of feedback. The learning and knowhow that result out of these activities can be valuable, because as Carter and Rogers (2008) suggested these can serve to improve environmental performance. Furthermore, as suggested by Lippman (1999) it seems that assessment outcomes of suppliers’ environmental performance are key determinants of the decision to whether remain in business with suppliers. However, the author emphasized that no supplier is environmentally perfect and that buying firms are willing to help improve suppliers on a continuous basis when a problem is discovered, thereby enhancing performance over time. Hence, it seems that adopting a relational attitude rather than a coercive one during assessment activities seem to have performance outcomes. Further support for the impact of assessment on suppliers’ environmental performance has been found in literature by some authors (e.g. Theyel, 2001; Foerslt, 2010; Blome et al., 2014; Lee, 2015). Regarding economic performance, Lippman, 2001 found that suppliers’ experienced cost reductions and greater operational efficiencies as a result of these assessment practices. Furthermore, assessment was found to influence the suppliers’ behaviour as such that they identified shortages in their capabilities (Lee & Klassen, 2008), and reduced their opportunistic behaviour (Tachizawa & Wong, 2014). Hence, based on the above and the empirical evidence on the impact of assessment we believe that the assessment of suppliers through (1) formal evaluations that include established guidelines and procedures, (2) environmental audits of their internal management systems and (3) provision of feedback about evaluation results positively affects their economic and environmental performance. In that sense, our first hypothesis becomes:
H1: Assessment is positively associated to the suppliers’ a) environmental & b) economic sustainability performance.
2.4.2. Collaboration and suppliers’ environmental and economic performance
12 where they found that suppliers were willing to commit to environmental requirements only when the buying firm was willing to make relation specific investments. Furthermore, in order to create rents collaboration should be able to mutual benefits to the table that cannot be reached separately by the collaborating parties (Dyer and Singh, 1998). Hence,
‘‘relational rents are possible when alliance partners combine, exchange, or invest in idiosyncratic assets, knowledge, and resources/capabilities, ……… or permit the realization of rents through the synergistic combination of assets, knowledge, or capabilities ’’ (Dyer &Singh,
1998, p.662).
For the development of our hypotheses this translates to collaboration rents will be result of the valuable knowledge, resources and capabilities shared between the buying firm and its suppliers through training on environmental issues, visits to suppliers’ premises and joint efforts to address environmental issues. The impact of collaboration on the suppliers’ performance has been established by different authors in literature (Simpson & Power, 2005; Blome et al., 2014; Lee, 2015) For instance, Blome et al (2014) highlighted the relational capability of collaborative activities, suggesting that these enable firms to combine relation-specific resources in unique and developing ways, resulting in improved suppliers’ performance. In addition, they show that the great amount of knowledge and well defined processes on waste reduction and packaging materials, as well as well-designed disposable products resulting from such joint cooperation could greatly improve the suppliers’ environmental performance as well the economic performance. Lee (2015) complemented this by showing that direct involvement and collaboration on environmental issues deepens the mutual understanding between buyers and suppliers, resulting in improved environmental performance and operational performance. In that sense we believe that suppliers can achieve environmental and economic benefits such as cost reductions in energy and waste, improvements in recycling levels amongst others as a result of collaboration. Therefore, based on these arguments we believe that the suppliers’ environmental and economic performance will improve as a result of the buying firm’s efforts to (1) provide them with advice and training on environmental issues (2) visit their premises to share knowhow on for instance technical aspects (3) and engage in joint efforts to prevent and act on sustainability related issues. Hence:
H2: Collaboration is positively associated to the suppliers’ a) environmental & b) economic sustainability performance.
2.4.3. The moderating effect of munificence.
13 However, because of this scarcity firms tend to avoid risk taking behaviour and focus on the preservation of their resources. Lippman (1999) found in his study that even though supplier assessment through questionnaires is inexpensive to prepare for buying firms, for suppliers it is very resource intensive to complete in an accurate way. In other words, it is likely that such assessment practices are not effective under such circumstances. Next to this, we believe that because of this risk avoiding behaviour (preservation state), suppliers will be less likely to intensify any joint collaborative efforts that involve the extensive usage of resources. In that sense, low munificence will not be able to affect the effectiveness of environmental SD practices because suppliers will be reluctant to intensify any activity that involves the further depletion of their resources. On the other hand, Goll and Rasheed (2004) found that in high munificent periods, firms tend to be more open to possibilities to engage in socially responsible behaviour. In that sense, our belief is that in munificent circumstances, suppliers will be more likely to further engage in in environmentally friendly behaviour and activities and as such, will be more willing to intensify ongoing collaborative efforts such as environmental SD practices. Since there is an abundance of resources they will depart from a risk avoiding behaviour to a more proactive state. Hence, their focus will not be on the preservation of resources but on acquiring relational, informational and tangible resources. Based on this we then argue that in high munificent environments supplier audits and questionnaires, visits, training and joint efforts among others will be more effective, thereby improving the environmental and economic performance of suppliers. After all, as Ansari and Qureshi (2015) pointed out, it requires effort, motivation and the adequate knowledge about for the success and effectiveness of SD practices. Based on these theories and argumentation our hypothesis become:
H3: The level of environmental munificence will moderate the relationship between environmental SD practices and suppliers economic performance: the higher the level of environmental munificence, the greater the positive impact on the effectiveness of environmental SD practices, and hence on the suppliers’ environmental performance.
H4: The level of environmental munificence will moderate the relationship between environmental practices and suppliers environmental performance: the higher the level of environmental
munificence, the greater the positive impact on the effectiveness of environmental SD practices, and hence on the suppliers’ economic performance.
Based on the above we present our conceptual model:
Figure 1. Conceptual model
Environmental SD practices Suppliers’ performance
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3. METHODOLOGY
3.1. Questionnaire design and measures
To test the proposed model and hypotheses in this study, a survey was designed to gather information about sustainable strategies, sustainable practices and their impact on sustainability performance. Before sending out the survey, several academics and managers were asked to give their view on the validity, readability and comprehensibility of the items and statements. This resulted in minor modifications with regard to the formulation of some of the items/statements. Multiple items/ statements were used for the measurement of each of the three constructs of interest: sustainable SD practices (i.e. assessment and collaboration), suppliers sustainability performance (i.e. economic and environmental), and the environmental context (i.e. munificence), because in this way more information is captured ensuring that ‘‘all facets of the construct of interest” (Baumgartner & Homburg 1996, p. 143) are addressed. Furthermore, using a five point Likert scale, respondents were given the opportunity to give their level of agreement on the items related to sustainable SD practices, rate whether they thought that their sustainability performance was below or above average compared to their industry average and assess whether the level of munificence in their competitive environment was dramatically increasing or dramatically decreasing.
Environmental SD practices (independent variables)
Supplier assessment was measured with in total three statements which were derived from existing
literature and adapted to our study (Krause et al., 2000; Large & Gimenez, 2011). All of the different dimensions/elements of assessment were taken into account when it was operationalized. These dimensions/elements included formal environmental evaluations, audits and the provision of feedback on environmental issues. A Sample statement was ‘Our key customer assesses our environmental performance through formal evaluation, using established guidelines and procedures’.
Collaboration with suppliers was also measured with three statements that were adapted from existing
literature (e.g. Krause et al., 2000; Large & Gimenez, 2011). Elements/dimensions that were considered when operationalizing the construct of collaboration included training of suppliers’ personnel, visitations and joint development efforts. A sample statement was ‘Our key customer makes joint efforts with us to improve our environmental performance.
The suppliers’ performance (dependent variables)
The economic performance construct was measured with two items including cost on energy savings
and cost on waste disposal. These items have been widely used in previous literature to measure this (e.g. Rao and Holt, 2005; Cruz and Wakolbinger, 2008; Gallear et al., 2012 etc.).
The environmental performance construct was also measured with two items concerning the recycling
level and environmental reputation. These items have been used to measure this construct in literature by authors such as Theyel (2001), Klassen and Vachon (2003) and Large and Gimenez Thomsen (2011).
The environment context (moderating variable)
Munificence represents the extent to which the market capacity can cope with predicted sustained
growth and changes in demand (Beard & Dess, 1797; Dess & Beard, 1984). Munificence was measured with four items that takes external factors such as market growth, growth in customer demand and growth in industry sales and into account. These items were derived from literature and adapted to our study. For a more detailed overview of the constructs and their items please refer to Appendix A.
3.2. Sample and data collection
15 Leather and leather products, 35. Industrial and commercial machinery and computer equipment, 36. Electronic and other electrical equipment and component. Furthermore, the respondents’, with up to 500 employees and annual sales ranging from to 10 to 100 million dollars. Roughly 974 questionnaires were sent out and a total of 129 responses was received, which constitutes to a response rate of 13, 2%. To ensure that there were no significant differences in the responses due to position held, it was emphasized that each questionnaire must be answered by the company CEO or equivalent.
3.3. Data Analysis
Before doing the actual data analyses, we first did a ‘‘data cleaning’’ by rigorously checking the data for missing values and reverse item scales. In addition, we noticed that the scale of the items measuring sustainable SD practices and munificence were going in the opposite direction to those of suppliers’ performance. More specifically, the scale of the items measuring sustainable SD practices and munificence were going from high to low, while those of economic and environmental performance were going form low to high. Therefore, to create consistency among the scales of the items measuring our three constructs, we reverse-coded the scales of environmental SD practices and munificence to run from 1 to 5 (low-high). As a result, low values now reflect a low level of environmental SD practices and low munificence, whereas high values now reflect a high level of environmental SD practices and high munificence respectively.
In this study, we performed an explanatory factor analysis for construct validity (Bornstedt, 1977; Ratray & Jones, 2007) and on the Cronbach’s Alpha for the internal consistency and reliability. The main purpose of the factor analysis is to identify which items represent the underlying constructs (Tabachnik & Fidell, 2001; Field, 2009). In order to conduct a reliable factor analysis the sample size needs to be sufficient (Costello & Osborne, 2005; Field, 2009). Therefore, to determine whether our sample size was adequate and to validate the use of exploratory factor analysis we referred to the KMO measure of sampling adequacy test. As the values of the KMO approximate 1, the sample is deemed to be good enough to extract factors. Ideally, values greater than 0.7 should suffice (Field, 2009), but setting the minimum at 0, 6 is also acceptable. In addition to this, factor loadings can also be of use when judging the appropriateness of the sample size. According to Field (2009), if four or more loadings of a factor are above 0, 6 it can be seen as reliable no matter what the sample size is. Together with the KMO, we also looked at the value of the Bartlett’s test, which illustrates if the relationship between items is significant enough (P<0, 05). Regarding the number of components, we judged the retention of factors by considering eigenvalues greater 1 and the explained variance in eigenvalues (>50%). We also plotted a scree plot to be sure that the number of proposed components is correct (based on eigenvalue). To increase feasibility and to facilitate the interpretation of multiple components, varimax rotation with rotated solution was selected. To conclude, we grouped items after the loadings of the rotated component matrix were considered to be satisfactory (> 0.7).
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4. RESULTS
4.1. Factor analysis and Cronbach AlphaThe factor analysis for environmental SD practices (i.e. assessment and collaboration) resulted in a single component solution, instead of 2 as we were expecting. There was no need to delete items neither in the factor analysis nor in the Cronbach’s alpha. The obtained factor solution explains 32, 296 % of the variance and the eigenvalue was 5 while the KMO value of 0,775 showed that the sample size was adequate. The Bartlett’s test was significant (<0, 05). Furthermore, all values of the factor loadings were satisfactory (>0, 7) so there was no need for reduction. The reliability value of 0.904 for the Cronbach alpha was excellent. Both the suppliers’ environmental and economic performance, and munificence resulted in one component solution for each.
The solution for environmental performance had a 12, 63 % explained variance and the eigenvalue was 3. Factor loadings were above the required minimum of (0, 7), while the reliability value as a result of the Cronbach’s alpha was good (0,852). The economic performance construct solution had a 10,584 % explained variance with eigenvalue of 1. Factor loadings were also above the minimum of 0, 7 and the Cronbach alpha test for reliability was acceptable with a value of 0,752.
The obtained factor solution for munificence explained 21, 19 % of the variance with an eigenvalue of 3 and the values for the factor loadings were satisfactory (>0, 7). Reliability test for this construct was 0,891.
After we confirmed the validity and reliability of the items (representing our three constructs) which came out of the factor analysis, we took their average to compute the three new variables to perform the regression analysis. Furthermore, for the moderation analysis we standardized our independent variable (i.e. sustainable SD) and our moderating variable (i.e. munificence), and subsequently we calculated an interaction variable by taking the product of these two standardized variables. Please refer to table 1 for an overview of the factor analysis results and Cronbach alpha.
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4.2. Descriptive statistics and correlations
Before we performed the regression we analysed the three constructs by looking at the descriptive statistics and correlation matrix, which are depicted in table 2. We noticed significant (0, 05) correlations between economic performance and munificence (0,183). In addition, we also noticed significant correlations between environmental SD practices and both the economic (0,205) and environmental performance (0,182). These results are depicted in table 2. Based on this we tested four models in the regression analysis.
Table 2. Correlations and descriptives
4.3. Regression analysis
For the regression we tested 4 models. First we tested the direct effects (i.e. environmental SD-performance) for the first two models. Thus we did the regression for the economic (model 1) and environmental (model 2) model and thereafter we tested for the interaction effects, which were the two remaining models. Similarly, the interaction effect was tested for an economic (model 3) and environmental (model 4). To determine if it was meaningful to analyse a model we looked whether it was significant and at the value of the Square. If a model is not significant there is no point in interpreting it because it has no predicting value. Furthermore, the Rsquare projects the amount of variation that the independent variable explains in the dependent variable. Table 3 shows the results of the regression analysis.
4.3.1. Direct effects
The first model shows that environmental SD practices explains 4, 2% of the variability of the suppliers economic performance. The relationship between environmental SD practices and suppliers’ economic performance is statistically significant F (1,128) =5,554, P<0, 05. The coefficients show that sustainable SD practices improves the suppliers’ economic performance (B=0,164, p<0, 05). The second model shows environmental SD practices explains 3, 3 % of the variability of the suppliers’ environmental performance. Yet, this relationship was found to be statistically significant F (1,127) =4,365, (P<0, 05), suggesting that environmental SD practices improves the environmental performance of the supplier (B=, 142, p<0, 05). Thus, both hypotheses for the direct effects (i.e. H1a, H2a and H1b, H2b) are supported.
4.3.2. Interaction effect
For a moderation effect to be significant we need the interaction variable, which is as stated before, is the product of our independent variable (environmental SD practices) and the moderator (munificence) to be significant. From the results of the 3rd model we can see that the presence of environmental
18 that the positive impact of environmental SD practices on supplier's economic performance is positively moderated by munificence, supporting H3. From the results of the 4th model we conclude that
munificence does not appear to moderate the relationship between environmental SD practices and environmental performance, and this is statistically insignificant (B= -0, 23. P>0, 05). Consequently, we can then interpret the direct positive impact of environmental SD practices on supplier’s environmental performance without the consideration of the moderating effect of munificence as this is not relevant for this model. Table 4 shows the final results of the proposed hypotheses.
Table 3. Final outcomes hypothesis
Note: * p<0.05, ** p<0.01, ***<0.001 Table 3. Regression results
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5. DISCUSSION
5.1. Environmental SD Practices And Environmental Performance
We hypothesized a positive relationship between environmental SD practices and the suppliers’ environmental performance. As we expected, the results showed that environmental SD practices do improve the suppliers’ environmental performance. More specifically, the implementation of these practices have triggered improvements in the recycling level and environmental reputation of suppliers This is similar to the findings of Lippman (2001), where the author pointed out that suppliers’ received positive media attention, and positive ratings from social responsible groups as a result from environmental SD practices. Furthermore, Blome et al (2014) indicated that green supplier development practices that focus on the design of easily recyclable products among others improve environmental performance. A possible explanation for our result is that given the ever growing importance of green business, green living, green products etc, engaging in environmental SD practices to become greener might be perceived as a form of legitimacy among stakeholders that advocate green business. In that sense suppliers will receive more positive attention and exposure among stakeholders, thereby enhancing their environmental reputation. Moreover, the knowledge and expertise that comes with training, joint collaboration as well as the identification of deficits in the suppliers systems as a result of audits and evaluations can help suppliers in bettering their production processes. In particular this could result in an increase in the recycling level because for example suppliers might become able to improve their process and produce more recyclable products. From a practical point of view, these findings suggest that in order to improve environmental performance, environmental SD practices should focus on creating well defined processes and knowledge on the improvement of recycling level. After all, it seems that engaging in these practices alone is already a big step towards a better environmental reputation.
5.2. Environmental SD Practices And Economic Performance
Similarly to environmental performance, we hypothesized a positive relationship between sustainable SD practices and the suppliers’ economic performance, which was supported by our results. As found by Lippman (2001), some suppliers’ experienced cost reductions, greater operational efficiency and even in some cases an increase in sales as a result of environmental SD practices. Also, Blome et al (2014) pinpointed the fact that suppliers’ economic performance can improve as a result of joint efforts aimed at improving the environmental performance. Furthermore, in implementing these practices, a great amount of knowledge, information and resources are exchanged in the process which could improve the overall performance of the supplier. As such, these can result in a positive learning curve which ultimately results in the supplier being able to reduce their costs on energy savings and on waste disposal more effectively, resulting in better economic performance. In essence, our findings complement and extend those of Lippman (2001) in the following way. Operational efficiency is closely related to cost savings (Karkkainen, 2003) on energy and waste because the operations and production processes of suppliers become more efficient as environmental SD practices are being implemented. Additionally, cost savings on waste and energy not only improves the suppliers’ economic performance, but also, suppliers can allocate these monetary resources elsewhere in their business to improve processes/areas that are performing below average. From a practical point of view these findings suggest that in order to improve economic performance, environmental SD practices should focus on achieving operational efficiency by reducing costs of waste and energy.
5.3. Munificence, Environmental SD and Environmental Performance
20 abundance (i.e. high munificence) or scarcity (i.e. low munificence) of resources, suppliers and buying firms are still willing to make relation specific commitments to each other through environmental SD practices. Suppliers could be perceiving the scarcity and/or abundance of resources (i.e. environmental munificence) as non-constant and temporary, and therefore relying on the level on munificence for resources is not the best strategic move. We believe that in such cases, they might choose to rely on the potential performance and resource benefits that might come out of environmental SD practices. Furthermore, since the operating environment is very unpredictable and uncertain (Milliken, 1987), choosing for long term stability seems to be a better option. Hence, the unpredictable nature of munificence makes the availability of resources also unpredictable. In that sense, we think that suppliers will stop relying on the level of munificence for resources and focus more on those that they can obtain through assessment and collaboration activates. This in particular illustrates the relational capability and long term orientation of environmental SD practices (Blome et al 2014) since relation specific investments can better guarantee resources for suppliers.
5.4. Munificence, Environmental SD and Economic Performance
21
6. CONCLUSION
This survey study shows interesting new evidence leading to valuable contributions in the field of sustainable SCM. By studying the role of environmental SD practices on the suppliers’ performance, from the suppliers’ perspective, we expand present theory that looks at the extension of sustainability to suppliers through SD practices, which to date is mainly focussed on the perspective of the buying firm. Based on theory from mainly the buying firms’ perspective, it was obvious that there were possible associations between the dimensions of environmental SD practices and performance of suppliers’, but these were somewhat inconclusive as shown by the mixed results in empirical research on this topic. Based on this, an explanation for these results was sought by investigating the role of munificence on the effectiveness of these practices.
The findings of this study show that munificence play a significant role on the relationship between environmental SD and suppliers’ economic performance. More specifically we can answer our research question in the following way: the implementation of environmental SD practices is effective on both
the environmental and economic performance of suppliers. Moreover, the presence of munificence strengthens the relationship between these practices and economic performance during the implementation process. On the other hand it does not have the same moderating effect on the environmental SD-environmental performance relationship but neither does it weaken it. This means both types of performance can be improved without the presence of munificence, but the impact on the economic performance will be higher when munificence is present. Additionally, performance benefits attained from the implementation of environmental SD practices range from improved recycling levels, cost reductions on waste disposal and energy levels, and enhanced environmental reputation.
6.1. Managerial implications
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6.2. Limitations and further research
Even though we aimed for rigor and thoroughness throughout the course of this study, there are still some limitations that need to be highlighted. First, the data that was collected and used in this study is limited to the Chinese scope. As a result, this limits the generalizability of the results and the conclusions made in this study. As China is considered to be a developing country6, this could mean that that the
positive effect of environmental SD practices on the economic and environmental performance of suppliers might not be the same on suppliers that are located in developed countries. Similarly, the moderating role of munificence on the relationship between environmental SD practices and economic performance might be different in these countries. Furthermore, even though this research considered the moderating role of munificence as a contextual variable, it remains unknown how other characteristics of the environment (i.e. uncertainty, dynamism, complexity) affect the implementation of supplier development practices. Therefore, future research should not only attempt to replicate this study in more developed continents, but should also consider the role of environmental characteristics such as uncertainty, dynamism and complexity. Second, the implementation of SD practices implies long term collaborative relationships (i.e. assessment and collaboration) with suppliers to achieve improvements in performance. However, our study uses cross-sectional data, which according to Ambulkar et al (2015) poses limitations to the capability of drawing conclusions related to causality. Therefore, future research should consider the possibility of using other types of data. In that sense longitudinal data would be an option as this type of data is able to extract information out of the same sample at different points in time. Finally, our sample consisted of supplier firms who are mainly manufacturers. In that sense, our results do not apply to service firms or any type of industry other than manufacturing. Future research could for example replicate this study in the service industry to see whether there are similarities in the effectiveness of environmental SD practices, or to further explore the differences between these two types of industries.
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