Sustainability through the complementarity between lean manufacturing and external integration
Harm Veling S1835149
Msc Operations & Supply chains Master thesis
Abstract
Sustainability is an important element of both corporate and operations strategy in modern day
business. This study uses the perspective of known operations strategies to look at sustainability. It
provides evidence for complementarity between lean manufacturing and external integration when
enhancing sustainability. This implies that introducing either lean manufacturing or external
integration while the other activity is already being performed has a higher incremental effect on
sustainability than introducing the activity in isolation. With the help of a supermodular function
complementarity is verified. Evidence is drawn from a worldwide sample of 677 companies from the
fifth edition of the International Manufacturing Strategy Survey (IMSSV).
2
Introduction
Sustainable development is described by the World Commission on Environment and Development (WCED) (1987, p.43) as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. From a corporate point of view, sustainability entails fitting organizational systems in a broader social and environmental context (Shirvastava, 1995).
The influence of sustainability in modern day business is changing. Sustainability has evolved from an extra to a key performance indicator (Daily and Huang, 2001). A transition is taking place were sustainability becomes part of the core strategy. On the intersection of the environmental, social and economical dimension a sustainable business strategy is achieved (Dyllick and Hockerts, 2002 and Dunning and Fortanier, 2007).
The corporate interest is due to widespread attention for sustainable business solutions from a diverse group of stakeholders (Seuring and Müller, 2008). Typical examples are the government that creates regulation and legislation (Kleindorfer et al, 2005), customers that demand sustainable products and political pressure coming from environmental interest groups (Hall, 2000). Next to the forces there are also barriers opposing sustainability. Often a change in culture is needed (Kleindorfer and Saad, 2005) when striving for sustainability, certainly in production environments. Secondly, when investments are needed this often creates a negative reaction. Common believe is that the investments do not have clear returns or benefits (Porter and van der Linde, 1995), counteracting the incentive to strive for sustainability.
This study tries to fit operations strategies in a broader sustainable context. An operations strategy is
the pattern of decisions which shape the long-term capabilities of any type of operations and their
contribution to overall strategy, through the reconciliation of market requirements with operations
resources (Slack and Lewis, 2002). Gupta (1995) emphasizes the importance of the incorporation of
sustainability improvements in operations strategy. By using existing or known operations strategies
to improve sustainability, the latter mentioned barriers can be overcome. One of the operations
strategy concepts that is most linked to sustainability is the lean manufacturing paradigm (King and
Lenox, 2001 and Mollenkopf et al, 2010). The clear link exists between the elementary goal of lean
i.e. the elimination of waste (Naylor, 1999) and the elimination of environmental waste. The goal of
lean manufacturing can differ per company, depending on the specific lean strategy and tools that
are applied. However, supply chain wide adoption of the same lean strategy and/or tools generates
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an overall improvement (Levy, 1997). In general, the adoption of supply chain wide operations strategies is essential to create a competitive advantage (Rosenzweig et al., 2003).
To initiate supply chain wide adoption of lean manufacturing, external integration measures are used. Cagliano et al. (2006) shows a positive correlation between lean manufacturing and external integration. The sharing of information realizes new coupling mechanisms across firm boundaries like Vendor Managed Inventory (VMI) and Kanban. External integration measures do not only have a positive influence on lean manufacturing. Vachon and Klassen (2006a) show the importance of coordination with customers and suppliers to increase the level of sustainability. The authors positively link technological integration with primary suppliers and major customers with environmental monitoring and environmental collaboration.
Supply chain wide implementation of lean manufacturing implicates adopting lean manufacturing and external integration practices. The interest of this study lies in the combined effect of both operations strategies on sustainability. The purpose of this research is to investigate the complementary effect between lean manufacturing and external integration on sustainability.
Therefore, creating a higher incremental effect on sustainability than implementing the operations strategies in isolation.
To capture complementarity between lean manufacturing and external integration, manufacturing improvement programs are used. These programs are specific decisions or actions that are part of the operations strategy. The implementation of an improvement program results in the presence of respectively lean or external integration. The degree of presence is essential for measuring complementarity. This article scrutinizes the ways to increase sustainability by using existing operations strategies. Exploring the complementary effects of the parallel implementation of lean and external integration improvement programs on sustainability.
This paper is structured in six sections. The first section explains the theoretical basis for the
research, the second develops the hypotheses through argumentation based on the interfaces
between the theory, the third concerns the sample, variable measurement and empirical strategy,
the fourth shows the main results, the fifth contains a discussion of the results and the final section
states the conclusions and proposes further research.
4
Theoretical background
The following section will create a theoretical basis through the examination of prior research concerning complementarity, manufacturing improvement programs, sustainability, lean manufacturing and external integration. The discussed concepts and definitions will serve as a basis, for the argumentation of the hypotheses.
The concept of Complementarity
The concept of complementarity implies that the effect of one activity A is greater when implemented in combination with activity B. Complementarity or fit between activities thrives in the management literature, but often remain ill-defined (Cassiman and Veugelers, 2006). Milgrom and Roberts (1990, 1995) base their studies on complementarity on the theory of supermodularity. This theory states the prerequisites for complementarity. The following definition of the mathematical theory behind supermodularity is derived from the work of Cassiman and Veugelers (2006):
Definition. Suppose that there are two activities, A₁ and A₂. Each activity can be performed by the firm (Ai = 1) or not (Ai = 0) and i {1,2). The function ∏ (A₁,A₂) is supermodular, and A₁ and A₂ are complements only if
∏(1,1) - ∏ (0,1) ≥ ∏ (1,0) - ∏ (0,0) Or, ∏(1,1) - ∏ (1,0) ≥ ∏ (0,1) - ∏ (0,0)
i.e., adding an activity while the other activity is already being performed has a higher incremental effect on performance (∏) than adding the activity in isolation.
Due to ongoing unclarity of the interaction effects between innovation and R&D, most of the research concerning complementarity is focused on innovation activities (Miravete and Pernias, 2006; Cassiman and Veugelers, 2006; Schmiedeberg, 2008 and Battisti and Iona, 2009). Next to innovation, complementarity is also used in other areas of research.
Bocquet et al. 2007 provide empirical evidence suggesting that Information and Communication Technologies adoption is not only influenced by the traditional factors of technology diffusion but also by complementarity effects between strategies, organization and information technologies.
Parmigiana and Mitchell (2009) look to sourcing decisions for components e.g. the effects of
concurrent sourcing and complementary products and activities. Furthermore, the article states
complementarity may involve as few as two interrelated physical goods and/or business activities,
such as the production of automobile engine blocks and pistons, the design of semiconductor wafers
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and production equipment, and the management of savings and investment accounts within financial institutions. Narasimham et al. (2010) empirically examines the complementary effects between product-process technology integration and supply chain integration.
In general, complementarity is sought between products and/or activities. In this case complementarity is sought between operations strategies. These strategies are operationalised with manufacturing improvement programs. The level of implementation of an improvement program indicates to what degree the programs are adopted.
Manufacturing improvement programs
Manufacturing improvement programs include sets of structural and infrastructural decisions that derive from the experiences of a number of leading companies (Hayes and Pisano, 1994). The origin of these improvement programs lies in the work of Skinner(1969), concerning the importance of manufacturing strategy. The contribution of manufacturing strategy to the competitive advantage of a company became further established in the following decades (Hayes and Wheelwright, 1984; Fine and Hax, 1985; Hayes, 1985; Hayes et al., 1988; Adam and Swamidass, 1989). It has been recognized that manufacturing strategies are more easily put into practice by managers through a number of improvement programs (Kim and Arnold, 1996). In this study both the lean manufacturing paradigm and external integration are captured in manufacturing improvement programs. Both programs consist of four more specific subprograms that support the overall goal of respectively lean manufacturing or external integration.
Lean manufacturing
The lean manufacturing concept originated from the International Motor Vehicle Program (IMVP)
which took place between 1985 and 1990. The research revealed big performance differences
between American and Japanese automobile manufacturers. The Japanese manufacturers were
performing better due to a variety of improvement methodologies, based upon the Toyota
Production System (TPS). The term lean represents the principles and practices of the TPS and
related concepts and methodologies. The findings and ideas evolved in a organizational lean concept
as proposed by Womack et al. (1990). The concept provides the five lean principles: value, value
stream, flow, pull and perfection. These five principles aim to achieve the most important goal of
lean manufacturing, the elimination of waste (Naylor, 1999). To achieve this goal and put the
principles into practice lean tools were developed. These tools translated the concepts and principles
to the shop floor, e.g. Value stream mapping (VSM), Cellular manufacturing, Total Productive
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Maintenance (TPS) and Kanban. The tools are used in different configurations, suited for a specific situation.
External integration
Supply Chain Management (SCM) is widely acknowledged to manage the total flow of a channel from the earliest supplier of raw materials to the ultimate customer and beyond (Cooper et al., 1997;
Narasimhan and Kim, 2002; Droge et al., 2004). SCM can be attained by externally integrating all the key business processes from end-users to original suppliers (Cooper et al., 1997). External integration initiates a collaboration and sharing of resources and information across the boundaries of a single manufacturer. External integration refers to the coordination and collaboration with other supply chain members (Frohlich and Westbrook, 2001 and Gimenez and Ventura, 2005). The level of external integration is determined by the extend of the collaboration of the manufacturer and the connectedness with the companies up- and downstream in the supply chain.
Sustainability
Sustainability consists of three dimensions, an environmental, social and economic dimension.
(Dyllick and Hockerts, 2002 and Dunning and Fortanier, 2007). On the intersection of these three dimensions lies sustainability. By framing decisions, objectives and strategies with socially responsible, environmentally cautious and economic viable arguments, a sustainable business is accomplished.
Sustainability has been integrated in several business strategies. Procter and Gamble (P&G) for example integrated global environmental concerns in their business strategy since the 1980s.
Furthermore, the Swedish car manufacturer Volvo made sustainability a cornerstone of its product and developed a rigorous environmental training program for their employees (Maxwell et al., 1997).
Due to the large interest of stakeholders, it is not only ideological or philanthropically, but also
commercially sensible to adopt sustainability. These new interests and concerns are captured in the
goal of maintaining viable social franchises (the trust of employees, customers and communities), as
well as viable economic franchises (the ability to pay from the cash flows it generates for capital and
other inputs it uses to produces it outputs) (Kleindorfer et al, 2005) or in measures like the triple
bottom line (3BL) and the three P’s of people, planet and profit.
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Hypotheses development
The following section discusses the interfaces between the three dimensions of sustainability and both lean manufacturing and external integration. The linkages provide the argumentation for the proposed hypotheses.
The interface between lean manufacturing and sustainability
The effects of lean manufacturing are seen in different areas. At the rise of the lean manufacturing paradigm the effects on operation performance were convincing. The decrease of inventory costs and changeover times are clear examples of the positive effects of lean manufacturing (Flynn et al., 1995). The effects of the improvement of the operating performance are visible in the economic dimension (Fullerton and Wempe, 2009 and Hallgren and Ollhager, 2009). Examples are inventory cost reduction and higher utilization, due to less rework.
Lean operations further adds to a sustainable operation strategy through implementing elements of the environmental dimension (Hart, 1997) e.g. reduction of undesired by-products (Womack et al., 1990). Links between lean manufacturing and the environmental dimension are often based on the elimination of waste. When the goal is to reduce or eliminate all waste, environmental waste will also be reduced. This relationship is widely researched (King and Lennox, 2001; Kainuma and Tawara, 2005; Linton et al, 2007; Mollenkopf et al., 2010) and often dubbed “lean and green”. The emphasis on the elimination of rework creates an environmental advantage (Womack et al.1990). There is a clear interaction between lean and green measures. Lean practices can lead to environmental benefits, environmental practices often lead to improved lean practices (Kleindorfer et al., 2005).
The lean paradigm influences the social dimension through the education and empowerment of employees (Richardson et al., 2010). Moreover, a motivated employee is an important link in the acceptation and adoption of the lean principles and tools on the shop floor (Sripavastu and Gupta, 1997). In line with this reasoning, employees have the possibility to create personal growth by getting education and training. This may result in improved wellbeing and better skilled employees, which is in compliance with the social dimension of sustainability.
Based on the links between the three dimensions of sustainability and the lean manufacturing paradigm the first hypothesis will be tested:
H1: There is a positive relationship between the lean manufacturing paradigm and sustainability
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The interface between external integration and sustainability
Nowadays companies are not only responsible for their core business, but also for all activities in their supply chain (Zhu et al., 2005). Vachon and Klassen (2006a) show in their research the importance of working across the supply chain with customers and suppliers to improve sustainability and performance. Integration activities will decrease redundant flows of information and physical products (Vachon and Klassen, 2006b). When only demanded volumes flow through the supply chain, a reduced amount of inventory needs to be sourced, produced, transported and handled, which minimizes the environmental impact of the supply chain (Mollenkopf et al., 2010).This is realized with more effective and efficient management of the different flows in the supply chain. Due to the wide spread attention for sustainability by a whole range of stakeholders, supply chain wide adaption is critical to establish or strengthen a competitive advantage (Flint and Golicic, 2009).
Next to environmental dimension, external integration also influences the social dimension. Retailers with high brand recognition and lean supply chain practices (e.g. low inventory levels) are susceptible to protests concerning perceived Corporate Social Responsibilities (CSR) deficiencies (Elliot and Freedman, 2000). Examples from Nike, Gap, Starbucks and Wal Mart show the enormous impact of the public opinion, when suppliers violate social norms (Boyd et al., 2007). Positive effects on performance emerge when CSR is extended towards the supply side (Carter and Jennings, 2002 and Carter, 2005).
Hsuh and Chang (2008) show that profits are increased when CSR is implemented supply chain wide.
Further positive influences on the economic dimension are seen through the reduction of stock outs and costs by collaboration among supply chain members(Gimenez and Ventura, 2005). Information sharing makes the manufacturer aware of stock levels, planning, changes in planning and sales forecasts. Lack of information incites panic and chaotic behavior within supply chains, and leads to unnecessary costs (Childerhouse et al, 2003). The links between external integration and the three dimension of sustainability lead to the testing of the second hypothesis:
H2: There is a positive relationship between external integration and sustainability.
The argumentation for hypotheses H1 and H2, suggest positive relationships between lean
manufacturing and sustainability and external integration and sustainability. Furthermore, literature
shows a positive relationship between lean manufacturing and external integration. Therefore, both
operations strategies have a positive influence on sustainability and on each other. When lean
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manufacturing and external integration are combined through parallel implementation, an enhanced effect on sustainability is expected. This argumentation leads to the testing of the third hypothesis:
H3: The parallel implementation of the lean manufacturing improvement program and the external integration improvement program generates a complementary effect on sustainability.
Methodology Sample
The research is based on survey data from the fifth edition of the International Manufacturing Strategy Survey (IMSS V). The data is collected by a global network of researchers. IMSS is a co- operative research network of business schools, which aims at developing, maintaining and analyzing using a variety of perspectives and research questions, a global database for the study of manufacturing strategies, practices and performances (Laugen et al., 2005). More information regarding the network and research can be found in Lindberg et al. (1998).
The data is collected nationally by the participating researchers in the network in 2009/2010. The sample consists of 677 manufacturing companies from 19 different countries and 8 different industries based on the ISIC industry coding system as depicted in tables 1 and 2.
Table 1: geographical distribution of the sample
Country N Per cent
Belgium 36 5,3
Brazil 37 5,5
Canada 19 2,8
China 59 8,7
Denmark 18 2,7
Estonia 27 4,0
Germany 38 5,6
Hungary 71 10,5
Ireland 6 0,9
Italy 56 8,3
Japan 28 4,1
Mexico 17 2,5
Netherlands 51 7,5
Portugal 10 1,5
Spain 40 5,9
Switzerland 31 4,6
Taiwan 31 4,6
UK 30 4,4
USA 72 10,6
10 Table 2. Industry distribution of the sample
Measures
Manufacturing improvement programs were measured through a number of items of the IMSS questionnaire addressing the level of adoption of each single program, measured on a five-point Likert scale, ranging from 1 (no adoption) to 5 (high level of adoption). The questions used for the analysis were chosen according to the purpose of the paper, to measure the adoption of the lean manufacturing improvement program and the external integration improvement program. The Performance was measured through a number of items of the IMSS questionnaire addressing change in performance on a single performance indicator measured on a five-point Likert scale, ranging from 1 (deteriorated more than 10%), 2 (stayed about the same), 3 (improved 10-30%), 4 (improved 30- 50%) to 5 (improved more than 50%). The items were subsequently grouped through exploratory factor analysis with varimax rotation in order to identify the main underlying constructs. The three main underlying constructs are captured as lean manufacturing, external integration and sustainability.
The first factor that was measured is the lean manufacturing improvement program. Consisting of the items pull production, process focus, lean organization model and continuous improvement. This is line with the elements of the lean manufacturing concept (Womack and Jones, 1996) and earlier measurements of lean manufacturing (Lewis, 2000 and Cagliano et al., 2006)
The second factor, the external integration improvement program constitutes of items that are in line with the research of Stank et al. (2001) and Gimenez and Ventura (2005). This research has a similar focus: coordination and collaboration with other supply chain partners. The items that constitute this factor are Coordination with customers, coordination with suppliers, distributions strategy and supply chain risk management.
ISIC Industry N Per cent
28 Fabricated metal products, exept machiney equipment 210 33,7
29 Machinery and equipement 178 28,5
30 Semi conductors 11 1,8
31 Electrical machinery and appartus 76 12,2
32 Radio, television and comunication equipement 38 6,1
33 Medical, precision and optical instruments 37 5,9
34 Automotive 43 6,9
35 Other transport equipement 31 5,0
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The third factor is the performance measure. Sustainability consists of three dimensions.
Environmental performance, which measures to what extend the company contributes to maintaining or improving the natural environment (de Burgos Jiménez and Céspedes Lorente, 2001 and Vachon and Klassen 2006b) measures the environmental dimension. The social dimension is firstly measured through social reputation (Hsueh and Chang, 2008). Secondly, Kleindorfer et al.
(2005) emphasize the importance of an internal social focus in sustainability. Therefore, employee satisfaction and employee knowledge complete the social dimension. The third dimension, the economic dimension is measured with unit manufacturing costs, procurement costs and manufacturing overhead costs.
Table 3: factor loading scores
The validity of each of the constructs was tested. Convergent validity was demonstrated by each factor having loadings in excess of 0.5 (Bagozzi and Yi, 1988), and discriminant validity was also supported, since none of the variables had loadings higher than 0.4 on more than one factor (Fullerton and McWatters, 2001).
Internal consistency and reliability was tested using Cronbach’s α , the three constructs all have a satisfactory Alpha’s, as depicted in table 3. Control variables are used to account for structural and contextual factors. The results are controlled for sales, number or employees (Size), total number of suppliers (upstream supply chain complexity) and the number of customers (downstream supply chain complexity).
Items Factors
Lean manufacturing (α .784)
Process focus 0,171 0,083 0,746
Pull production 0,081 0,213 0,740
Lean organization model 0,078 0,119 0,794
Continuous improvement 0,152 0,285 0,678
External integration (α .804)
Coordination with suppliers 0,191 0,711 0,210
Rethinking distribution strategy 0,169 0,773 0,103
Coordination with customers 0,109 0,836 0,118
Supply chain risk management 0,096 0,730 0,261
Sustainability (α .861)
Employee satisfaction 0,756 0,080 0,175
Employee knowledge 0,696 0,110 0,278
Environmental performance 0,695 0,144 0,123
Social reputation 0,779 0,135 0,109
Unit manufacturing costs 0,685 0,110 -0,021
Procurement costs 0,689 0,126 0,061
Manufacturing overhead costs 0,721 0,080 0,058
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Empirical strategy to test for complementarity
To test for the existence of complementarity between the lean manufacturing improvement programs and the external integration improvement programs the productivity approach of Cassiman and Veugelers (2006) is followed. First, the theory states that there should be positive correlation between lean, external integration and sustainability. However, this is not sufficient evidence for complementarity if conditions of the supermodular function do not hold (Athey and Stern, 1998). Secondly, the lean and the external integration variable are split in two with the median as the cut-off point, where after four categories are created.
1. High Lean/High External Integration
2. Mainly Lean (high lean/low external integration)
3. Mainly External Integration (high external integration/low lean) 4. Low Lean/Low External Integration
Category 1 are the companies that have highly adopted both the lean and the external integration improvement programs. Category 2, mainly lean consists of companies that highly adopted Lean programs, but have a low adoption of the external integration improvement programs. The third category, mainly external integration consists of companies with a high adoption of external integration and a low adoption of the lean improvement programs. Finally, the companies in the fourth category have a low adoption of both lean and external integration improvement programs.
The categories are compared on frequency and on the mean of sustainability. Significant differences between the groups on the mean of sustainability are measured with a Tukey differences test.
The third step is a regression analysis. To represent the influence of the four categories in the regression analysis a so called dummy variable (Cassiman and veugelers, 2006) is used. This dummy variable is a combination of the lean manufacturing and external integration variables, the same input variables which determine the categories. This dummy variable is regressed against sustainability in all four exclusive categories. In this regression analysis control variables are present to observe and exclude external influences.
Finally, the mean performance of the four different categories will be put into the function as
proposed by Cassiman and Veugeler (2006).
13 Categories Frequency Mean of sustainability Tukey Differences
1. High lean & High
External integration 198 (32,8%) 3,5198 Mainly lean**, Mainly external integration**, Low lean & Low external integration**
2. Mainly lean 93 (15,4%) 2,8933 High lean & High external integration**, Low lean & low external integration**
3. Mainly external
integration 124 (20,6%) 2,8634 High lean & High external integration**, Low lean & Low external integration**
4. Low lean & Low
external integration 188 (31,2%) 2,6346 High lean & High external integration**, Mainly lean**, Mainly external integration**
F(10,041) = 18.033, p value = 0.000. Coefficients are significant at p < 0,05 **
Results and analysis
The following section consists of the depiction of the results of the empirical strategy for testing complementarity and an analysis of these results. First, a Pearson correlation test was performed to confirm the relationships between the three variables. Between the variables exist significant relationships as depicted in table 5. There are small influences noticeable of the control variables on external integration and lean manufacturing. External integration has two significant, however weak relationships with size and sales. Generally, larger companies have more complex supply chains, due to for example global sourcing (Trent and Monczka, 2002). These sizeable companies are more likely to implement integration measures to further improve the effectiveness and efficiency of business processes. Lean manufacturing has two significant, but also weak relationships with size and number of suppliers (upstream supply chain complexity). Larger companies often have more knowledge and interest in improving manufacturing strategies c.q. lean manufacturing. The relationship with upstream supply chain complexity is most likely due to the integration of physical flows with lean coupling mechanisms like Kanban. A larger supply base increases the chance on the presence of coupling mechanisms. The correlations between external integration, lean manufacturing and sustainability indicate positive relationships between the three variables.
To create the four categories the median of both lean and external integration is used as a threshold.
Based on the median of respectively Lean (3,25) and external Integration (2,75), four categories are created. Table 4 shows that the two categories with the highest adaption frequency are category 1 and 4. What implicates that companies tend to adopt either a high or low level of both strategies.
This is coherent with the general assertion that two complementary activities are positively correlated. Category 1 has the highest mean of sustainability and differs significant on the performance measure from the other three categories as indicated by the Tukey differences. This result provides evidence for the positive influence of a high degree of both lean manufacturing and external integration on sustainability.
Table 4: Categories
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1 2 3 4 5 6 7 Su sta in ab le P e rf o rma n ce 1 Ex te rn al In te gr at io n ,3 45 * * (, 00 0) 1 Le an M an u fa ctu ri n g ,3 36 * * (, 00 0) ,4 53 * * (, 00 0) 1 Sa le s -, 03 5 (, 42 7) ,1 42 * * (, 00 1) ,0 74 (, 08 3) 1 N u mb e r o f e mp lo ye e s ,0 08 (, 84 8) ,1 22 * * (, 00 3) 0, 09 8 * (, 01 5) 0, 53 0 ** (, 00 0) 1 N u mb e r o f su p pl ie rs -, 01 4 (, 76 1) ,0 36 (, 40 8) 0, 08 6 * (. 04 4) ,0 30 (, 51 0) ,0 58 (, 17 9) 1 N u mb e r o f cu sto m e rs -, 05 7 (, 21 9) ,0 58 (, 20 0) 0, 02 4 (, 59 7) ,5 96 * * (, 00 0) ,0 54 (, 22 7) ,0 23 (, 61 9) 1 ** c o rr e la ti o n is s ig ni fi ca n t at th e 0 .0 1 le ve l ( 2- ta ile d) * Co rr e la ti o n is s ig n ifi ca n t at th e 0 .0 5 le ve l ( 2- ta ile d)
Table 5: Pearsons Correlation test
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In the regression analysis, presented in table 6, the control variables and the dummy variable (Lean x External integration) are regressed against sustainability. Results of the regression analysis contribute to the verification of complementarity.
The High lean & High external integration category has got the highest R² (.238) and β ( ,494), both highly significant (p= 0.000). There is a noticeable influence in the category Mainly external integration. Although, this research revolves around the effect of the interaction between the two improvement programs, It is an indication of the strong influence of external integration. In this case external integration has got a greater influence on sustainability than lean manufacturing. The positive results of the regression analysis lead to the concluding test.
Table 6: Regression analysis
The final test for complementarity is the function as proposed by Cassiman and Veugelers (2006).
The means of performance of each of the four categories are put into the following function:
∏(1,1) - ∏ (0,1) ≥ ∏ (1,0) - ∏ (0,0) Or, ∏(1,1) - ∏ (1,0) ≥ ∏ (0,1) - ∏ (0,0)
In this case the function is:
µ category 1 – µ category 2 ≥ µ category 3 - µ category 4 3,1598 – 2,8933 ≥ 2,8634 – 2,6346 → 0.2665 ≥ 0,2288 Or,
µ category 1 – µ category 3 ≥ µ category 2 - µ category 4 3,1598 - 2,8634 ≥ 2,8933 - 2,6346 → 0,2964 ≥ 0,2587
In both cased the function holds. Therefore, this study gives evidence of complementary effects between lean and external integration in relation to sustainability.
High lean & High external
integration Mainly lean Mainly external integration
Low lean & Low external integration
Sales -,179 (,239) -,073 (,681) -,032 (,776) -,048 (,618)
Number of employees -,003(,982) ,156 (,379) -,040 (,722) -,085 (,413)
Total number of suppliers -,040 (,643) ,025 (,847) -,105 (,380) -,093 (,406)
Total number of customers -042 (,722) -,111 (,387) ,036 (,756) ,027 (,830)
Lean x External integration ,494 (,000) ** ,204 (,113) ,376 (,002) * ,201 (0,32)
R² ,275 ,067 ,145 ,056
Adjusted R² ,238 (,000) ** -,011 (,511) ,083 (,051) ,015 (,249)
F 7,371 ,863 2,336 1,348
** p < 0.01 * p < 0.05
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Discussion
The hypotheses will be discussed based on the results of the previous section. The positive correlations between lean manufacturing, external integration and sustainability indicate substantial linkages between the three variables, therefore confirming hypotheses H1 and H2.
The high mean of sustainability in the category 1 (High lean & High external integration) and the results of the regression analysis gave sufficient indication to test for complementarity. In both options the function for complementarity holds. This result confirms hypothesis H3, therefore verifies the complementary effect between lean manufacturing and external integration on sustainability. While this study focuses on the effect of the combination of lean and external integration, the influence of external integration in the regression analysis is striking. This is indicative for the stronger influence of external integration than that of lean manufacturing.
Although, it does not compromises the complementary effect, it is of interest. External integration seems to generate a greater effect on sustainability, than the implementation of lean manufacturing.
The findings of this study are in line with earlier studies concerning the effects of lean manufacturing (Matos and Hall, 2007 and Suering and Müller, 2008) and external integration (Vachon and Klassen, 2006b and Mollenkopf et al., 2010) on sustainability. However, the specific complementary effect as presented in this study is an addition to this area of research and to the research concerning complementarity. The parallel implementation of the two improvement programs, can create a competitive advantage. The combination of improving lean and external integration with environmental and social awareness might create interesting resources and capabilities.
This study further delivers input for the discussion surrounding operation performance objectives.
The social dimension and the environmental dimension are introduced as possible additions to the classic performance objectives e.g. flexibility and quality (Slack and Lewis, 2002). The positive relationships between manufacturing strategies and these dimensions indicate a substantial linkage.
Sustainable performance objectives in an operations strategy can improve the alignment with a
sustainable corporate strategy.
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Conclusion and further research
This study focused on the effects of lean and external integration on sustainability, especially the complementary effect. These effects were measured through the presence of manufacturing improvement programs. The results shows that a higher degree of both lean and external integration results in a higher degree of sustainability. Furthermore, the parallel implementation of the improvement programs result in a complementary effect on sustainability.
The managerial implications of this study are visible in the contribution to the sustainability enhancing strategies and measures. By using existing operations strategies, the results show that sustainability can be achieved, without specific investments or cultural changes. From a managerial perspective this may help to overcome barriers, motivate and convince shop floor employees and management.
Limitations of this study have to be sought in the composition of the variables. The two improvement programs do not comprise all the characteristics of lean manufacturing or external integration. Both improvement programs consist of four specific improvements, while there are more aspects of both lean manufacturing and external integration that could be of interest.
Moreover, the variable measuring sustainability relates to all three sustainability dimensions.
However, these dimensions consist of more aspects then the ones used in this study. The limitations are more indicative for further research, than undermining the conclusions. All variables are highly reliable and the tests are widely accepted in literature.
Further research should focus on other aspects of lean manufacturing and external integration in
relationship to sustainability. By studying more aspects, a more specific combination of improvement
programs can be established. Secondly, the research into operations performance objectives is of
interest. Additional dimensions could improve the range, impact and strategic alignment of the
operations performance objectives.
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