This chapter presents a critical review of the current literature review regarding green purchasing. Starting from some general information regarding environmental issues that refer to purchasing function, this section is going to focus on proactive purchasing activities ways, including supplier selection and evaluation, the ways that vendors can collaborate with their upstream suppliers and conclude by presenting the ways that they can monitor and improve their performance. The target of this collaboration and monitoring is the improvement of business environmental efficiency.
Analytically, the first part provides an introduction of this particular theme of green logistics, presenting some definitions, aims and scopes. The second part provides some information regarding two existing green procurement frameworks, on which the dissertation is going to be based. Continuously, there are going to be presented the benefits, drivers, challenges and risks of implementing environmental practices in purchasing activities. In the next and most important sections there are going to be an analysis of the main environmental criteria that company should take into consideration in the selection and evaluation of its suppliers and the extent of their relationship targeting on environmental. In the final section, a conceptual framework, based on the already analyzed above green purchasing frameworks, is going to be presented, including all the above stages in implementing green purchasing practices.
Green Purchasing Introduction
Purchasing Definitions
During the past years, purchasing and supply management has changed in a significant level, contributing nowadays one of the most important parts of logistics and supply chain management (Van Weele, 2005). It is nowadays recognized as one of the key drivers to a healthy and successful business development, ensuring that there are the right supplies, in the right time, to the right place with the right quality and cost (Emmett et.al. 2010, Harald et.al. 2004, Rushton et.al. 2006, Van Weele, 2005). Purchasing and supply activities involve all the process of buying as shown of figure 2, including the flow of materials and information between buyers and suppliers, selection of suppliers, sourcing and supply processes (Van Weele 2005, Lamming et.al. 1996).
Figure 1: Purchasing process model and some related concepts. (Source: Van Weele 2005)
According to Emmett et.al. (2010), there are three main economic sectors from which products, materials, labour and services enter the supply chain. The first one is the primary sector that refers to the raw materials from the earth in their originated form. The second sector refers to the conversion of raw materials into products and finally the service sector that includes all the kind of services that involve the channels of distribution from suppliers to customers (Emmett et.al. 2010).
Green Purchasing Definition
As environmental problems and pressures around the world became more prevalent, it was rational consequence that these environmental concerns were going to influence purchasing activities, becoming an essential business requirement (Van Weele 2005, Lamming et.al. 1996). Consumer's awareness over the past years for environmental friendly products and services has driven companies to develop environmental programs for the development of "greener" products (Drumwright 1994, Min et.al. 1997). An effective environmental purchasing is a critical factor with a direct and positive continuously growing influence, contributing to the overall achievement of an organization's environmental goals and undertakings (BrainNet 2010, Carter et.al., 1998, Zsidisin et.al., 2001). Purchasing is a crucial boundary-spanning function within the supply chain, connecting a firm with the suppliers (Carter et.al. 1998, Zsidisin et.al. 2001). As it is placed in the beginning of supply chain, purchasing is in an advantageous position to implement environmental practices for products and processes changes (Carter et.al. 1998). As a consequence, purchasing managers are in a better position to develop and implement proactive environmental policies, becoming continuously focused on the target upon this issue (Carter et.al. 2000, Zsidisin et.al. 2001).
Green purchasing, which is the main research subject of this dissertation, is part of the green supply chain management theme of green logistics (McKinnon 2010, Zhu et.al. 2006, Zsidisin et.al. 2001). There have been different definitions for green / environmental purchasing, or also known as procurement, sourcing or buying. A simple and short definition has given from Hammer and Rosario, defining green purchasing as the practice that involves the application of environmental criteria into the process of selecting suppliers' products and services that are going to be purchased (Hamner et.al. 1998). Carter and Carter (1998) gave a definition of environmental purchasing, similar to what Narasimhan and Carter (1998) has defined as environmental supply chain management (Zsidisin et.al. 2001). According this definition, environmental purchasing refers to all the activities that are involved in purchasing function and include reduction, recycling, reuse and substitution of materials (Carter et.al. 1998). Zsidisin and Siferd (2001) move even further, based on Carter and Carter (1998) defining environmental purchasing as "the set of purchasing policies held, actions taken, and relationships formed in response to concerns associated with the natural environment. These concerns relate to the acquisition of raw materials, including supplier selection, evaluation and development; suppliers' orientations; in-bound distribution; packaging; recycling; reuse; resource reduction; and final disposal of the firm's products" (Zsidisin et.al. 2001, p.69). More recently, UK government's organization Envirowise, defined green procurement as a combination of considering environmental impact of purchasing activities; a way to reduce their environmental impact by improving green practices; a tool that influences supply chain and finally a crucial element for the achievement of a sustainable development (Envirowise, 2009).
Green Purchasing Aims and Scope
The aim of green purchasing is the involvement of suppliers in the process of improving their environmental performance at each stage of the supply chain, and not only focusing on the environmental performance of a product (Emmett et.al. 2010, Lamming et.al., 1996). The key areas to address this process includes customer specification, quality requirements, interface waste due to distance, company internal processing of materials, progression of the next processing firm in the value chain and the post consumption waste (Lamming et.al., 1996). The target is the promotion of better, cleaner and more efficient products, services and processes, which can reduce their environmental impacts, strengthening at the same time the market competitiveness of the company (Envirowise 2009). Achieving sustainability development requires proper collaboration between suppliers and buyers, creating this way a healthy relationship that will lead to the reduction of the overall expenditure in the entire supply chain (Emmett et.al. 2010).
However, it is common sense that suppliers are not in position to improve the environmental efficiency of all their products and processes. So first of all there must be identification, in collaboration with buyers, of those that would be able to participate in this aspect of purchasing function. It must be realized that only in this situation these approaches, which are targeting to product environmental improvement, could be useful (Lamming et.al. 1996).
Green Purchasing Approaches
According to Lamming et.al. (1996) there is a hierarchy of five main levels of environmental approach, as shown on figure 3, that provide opportunities to improve process efficiency and product value, classified from this with the most impact to this one with the least (Lamming et.al., 1996). These involve the reduction of total amount of resources, the extension of the product life, the reduction of useless influences like pollution and waste throughout product life and finally the reuse, recycling or incineration with energy recovery at the end of products life (Lamming et.al., 1996). All these environmental approaches must be taken into serious consideration during the collaboration between firm and its suppliers.
IMPACT
Most
Least
Figure 2: The Waste Hierarchy (Source: Lamming et.al. 1996)
Green Purchasing Principles
According to Rigby (1996), there are seven basic principles that are set out of the environmental purchasing policy.
Purchase products and services that companies can apply environmental-friendly practice for their use and disposal.
Make sure that your purchasing activities fulfils with the standard requirements by environmental legislation.
Purchase products that can be used for recycling and reuse.
Purchase items that can be operated in an environmental friendly manner, contributing this way to energy consumption, which is a key environmental issue.
Use environmental criteria in supplier selection.
Require from all suppliers to identify and eliminate any hazardous materials or processes.
Enable the disposal of products, targeting the minimization of any environmental impact (Rigby 1996).
Green Purchasing Frameworks
In this section there are going to be briefly presented two recently developed green procurement frameworks on which this dissertation is going to be based, starting from the elements of green purchasing and concluding to suppliers monitoring and performance evaluation.
Green Procurement Roadmap
The first of the two frameworks is a part of an overall green supply chain framework (figure 4), presented this year by Emmett and Sood. This detailed framework summarizes various processes of green supply chain constituting a guide for business continuous improvement (Emmett et.al. 2010).
Figure 3: Green Supply Chain Framework (source: Emmett et.al. 2010)
The field that we are going to focus is green procurement. Based on this general framework, Emmett and Sood presented a detailed roadmap for businesses based on green procurement and supply as shown on figure 5.
Figure 4: Green Procurement and Supply - Detailed Roadmap (Source: Emmett et.al. 2010)
According to Emmett and Sood (2010), this framework focuses on environmental collaboration and monitoring of an organization's upstream linkages with suppliers. It significantly contributes to supplier development through incentive alignment, targeting to a more effective and energy-efficient purchasing through reducing in an important level the environmental impacts of the product's life and the carbon emissions during all the purchasing process. The basic element according this figure is the selection of products and services that the firm and its suppliers are going to focus targeting to minimize their environmental impact. The main objectives focus on the development of new products and processes and the reduction of the handling cost of materials. Legislation, corporate social responsibility and profitability are some of the main drivers for a greener purchasing. Some of the main parameters that are examined for their environmental performance are the carbon footprint of the products, the green servicing, the shared saving contracts and the supplier code of conduct. Continuously, Emmett and Sood (2010) suggest some green practices for improving environmental efficiency, including early engagement of stakeholders, arrangement of training programs and introduction of web based documentation. Moving forward there is the analysis of management commitment and support. Finally, the last stage is the performance evaluation considering internal and external audits and the environmental evaluation of suppliers and materials (Emmett et.al. 2010).
Green Procurement Implementation
UK government through Envirowise, published on September of 2009 a guide to green procurement, suggesting a seven-step approach (figure 6) to adopting and integrating an environmental purchasing policy, reducing at the same time the risk for the entire organization due to changes in the pattern of procurement (Envirowise, 2009).
Figure 5: Key steps to implementing green procurement (Source: Envirowise, 2009)
The first step of this approach refers to the determination of current purchasing requirement, targeting on the identification of alternative more environmental efficient options. There are four major waste hierarchy principles that must be followed and successful implemented in purchasing activities, something that can be achieved only by understanding the organization's purchasing requirements. These are elimination, reduction, re-use and recycling. During this phase it is very important to consider all the important for the organization criteria and continuously set and develop the environmental criteria in suppliers selection (Envirowise, 2009). The second step includes the involvement of company directors, CEO and stakeholders by obtaining their support, targeting this way to involve all the organization functions into this process. This can be achieved by ensuring that all the environmental principles are clearly understood and by providing internally training to all the managers that have direct or indirect relationship with purchasing activities (Envirowise, 2009). The third step of this framework involved the identification of legislative requirements, which is a significant factor for the improvement of environmental performance and the minimization of risks of infringement. The way to achieve this is by identifying its importance and by ensuring that the supplier is following the proper legislation (Envirowise, 2009). The next step includes the choice of the most suitable personnel to manage this process, providing at the same training environmental programmes for all the employees (Envirowise, 2009). Continuously, the next phase involves the integration of green purchasing into organization's environmental policy and environmental management system. The next and very integral part of this framework is constituted by the assessment of the entire life-cycle cost of products and services. Finally the last step of this step-by-step phased approach provides a pre-qualification questionnaire in order to carefully examine and detect those suppliers that are able to meet the required environmental standards, satisfying the environmental criteria that have been set (Envirowise, 2009).
Green Purchasing Drivers
There are a number of opportunities for company development by implementing environmental policy into purchasing process that will lead to a variety of benefits from improving its environmental efficiency (Emmett et.al. 2010, Lamming et.al. 1996). These benefits in combination with pressures from the customers and government legislation could be used as the main drivers of a greener purchasing function. However, there are a lot of challenges and risks that must be taken into consideration by organization through the process of implementing environmental criteria in purchasing activities.
Benefits of Green Purchasing
Although it is difficult to quantify them, companies can gain several benefits from collaborating with suppliers through improved communications, integration, planning and research (Hamner et.al. 1998, Lamming et.al. 1996). Rao et.al. linked green supply chain with two major groups of benefits. The first one includes benefits that refer to competitive advantage like improved efficiency, quality and productivity improvement and cost savings. The second group includes benefits related to economic performance like new market opportunities, increase of product price, profit margin, sales and market share (Rao et.al. 2005).
Emmett et.al. (2010) separated them into quantifiable such as cost savings, performance improvement and risk reduction and qualitative such as improving the market image of a firm and its ability to follow policy commitments (Emmett et.al. 2010). As shown on figure 7 below, the benefits of green purchasing refer to a combination of product life-cycle perspective, pollution prevention and resource efficiency (Emmett et.al. 2010).
GREEN PROCUREMENT
Figure 6: Green Procurement Benefits Framework (Source: Emmett et.al. 2010)
Starting from the quantifiable benefits, the most important of them is the cost avoidance. As reducing of cost is the main target of almost all the function inside a company, it is very important for them to understand and identify the benefits that they can gain on this sector. Green Purchasing offers cost savings through minimization of consumptions, use of basic raw materials, lower waste and hazardous material management and lower pollution control and prevention cost (Emmett et.al. 2010, Hamner et.al. 1998). Savings on utility bills and operating costs can be achieved as well from conserving energy, water, fuel and other resources; creating new more sustainable markets for recycled materials; easier compliance with environmental regulations that local and regional governments are setting by utilizing more environmental friendly materials and by reducing carbon emissions; contributing to governments legislation and avoiding this way possible financial penalties; and finally from reducing health risks, liability and health and safety costs, improving at the same time the health and safety circumstances of working (Emmett et.al. 2010, Envirowise 2009).
On the other hand, there are a lot of qualitative benefits for companies from implementing green purchasing practices. The most important of them refer to keep up with company's competitors; help combat climate change by becoming more environmental efficient; support of governments and private organizations environmental strategy and vision; improvement of business corporate profile and help and help gain new organizational support by strengthening relations with suppliers and increasing positive media coverage; and finally to improvement of staff morale and increase of their loyalty by adopting and environmental stance of acing (Emmett et.al. 2010, Envirowise 2009).
Drivers of Green Purchasing
There are a number of drivers that encourage and lead to the implementation of green purchasing practices within organizations and across the value chain. The most significant of them, as shown on figure 8, are a result of internal pressures from employees, external pressures from community and other stakeholders, customer and competitors' pressures, financial policies, environmental regulation, investment, easier insurance and cost savings (ElTayeb et.al. 2010, Envirowise 2009, Lee 2008, Zhu et.al. 2005). Envirowise (2009) separates them to financial and legislative drivers and to added value drivers.
Figure 7: Green procurement - the drivers for change (Source: Envirowise 2009)
Starting from the first category, financial and legislative drivers for change to a greener purchasing function, include financial policies and environmental legislation. Financial policies refer to the ways that governments are trying to influence and change the ways that companies are operating, using as means changes in taxes, fiscal procedures and spending policies. These policies that have as target the reduction of environmental impact of products and services include landfill and fuel taxations, climate change and aggregates levies and enhanced capital allowance (Envirowise, 2009). Environmental legislation, which includes the laws and regulations that refer to the environmental impact of their activities, is considered as one of the most important external drivers that influence the behaviour of organizations driving them to turn toward to more environmental friendly purchasing practices (ElTayeb et.al. 2010, Envirowise 2009, Lee 2008, Lamming et.al. 1996).
The second category, as separated from Envirowise (2009) refers to the added value drivers. This includes customer pressures, demanding more and more environmental friendly products and services. The satisfaction of their demand for improvement in environmental efficiency is one of the most important reasons for reducing carbon emissions, driving to the improvement of customer's loyalty responding at competitors' pressures (CDP 2010, ElTayeb et.al. 2010, Envirowise 2009). Another very important external driver to adding value is the benchmarking of other organizations practices, which means the understanding and evaluation of their performance in order to identify the areas that can be improved (Envirowise 2009). Other added value drivers for change refer to the increased interest of investors for improvement at the environmental performance of company; to the opportunity for lower and more readily available insurances; to continuously increased community and other stakeholders pressures; and finally for the companies supplying central and local government, to be aware with government guidance on sustainable purchasing (CDP 2010, ElTayeb et.al.2010, Emmett et.al. 2010, Envirowise 2009).
Green Purchasing Risks and Challenges
However, except all the above benefits and opportunities for improvement of business environmental efficiency, there are a number of risks and challenges that companies should take into consideration on the way of achieving environmental excellence.
Environmental issues therefore can contain a number of risks that purchasing managers must take into consideration and establish environmental systems and practices that target on their reduction (Lamming et.al. 1996, Vachon et.al. 2006). One of them is the non-compliance with legislation which can have as a consequence some financial fines and the danger of losing their public and market reputation. Also, companies, and especially those that are producing must assure that no pollution is going to be transferred downstream to the customers when they are going to use the product, losing this way their bought-in liability. One of the major risks that may be posed is the security of supply, which can cause the obsolescence of certain key items and equipments, such as available packaging, that do not keep up with legislation. Productivity of resources is another key risk, which is caused because of the growth of global sourcing and the strengthen of market competition and requires careful way of management. Finally, the last of the major risks that companies face, is the loss of competitive positioning in the market as the demand for more environmental friendly products and services is continuously increasing (Lamming et.al. 1996).
Companies are facing several significant challenges in implementing and stimulating environmental concerns intro purchasing practices (CDP 2010, Emmett et.al. 2010). Lack of knowledge about low-carbon purchasing and understanding of clear definitions about environmentally preferable practices is one of the most common phenomenon through companies. The organizations that needs to get improved in this sector, must educate their marketing and sales professionals about the environmental attributes of their products and services. They must also assure that information is available to all the fields and groups of the purchasing department and are transferred at the same time to their suppliers in order to avoid the danger of having insufficient and incomparable environmental information. Potential barriers to implementing green purchasing practices, that are posed because of international trade and globalization is another significant challenge that companies and governments are facing. Another key challenge is the transition from the behaviour of following an only cost mindset to a changed behaviour that targets not only to cost savings, but to quality of products and services improvement, delivery cost and performance, reduced lead times, packaging, warehousing, inventory and administration functions as well. (CDP 2010, Emmett et.al. 2010).
Implementing Environmental Criteria in Suppliers Selection and Evaluation
Although environmental concerns are continuously increased across the supply chain practices they does not yet seem to be considered as a major criterion for suppliers selections, focusing mainly on traditional issues and requirements such as cost, quality, liability and accuracy (Jabbour et.al. 2009).
First approaches for implementing environmental requirements in suppliers selection
One of the first studies that tried to define environmental requirements is suppliers selection, has been introduced by Lamming and Hampson (1996), who proposed a number of environmental indicators in vendor assessment for supplier selection. The most crucial of them include the adaptation of a well communicated policy by suppliers regarding environmental issues; record of performance against compliance in environmental issues; well defined roles and responsibilities that include the all the levels of management; improvement in environmental programmes that are focusing on quantitative goals; and the demonstration of regular internal reports for conformity to legislative and policy environmental standards (Lamming et.al. 1996).
Azzone and Noci (1996) tried to introduce some environmental indicators, as well, in the process of selecting suppliers and products that are going to be included in environmentally developed programmes. They proposed a framework (figure 9) for the identification of environmental criteria, according to which indicators are separated to four major categories: indicators related to external environmental effectiveness like incremental revenues of new products sales and incremental contribution margin of recycled products sales; indicators related to environmental efficiency of the company like internal and external efficiency costs that are influences by solid and water wastes, air emissions and energy consumption; indicators related to the green image of the company; and finally indicators that are related to the company's environmental flexibility (Azzone et.al. 1996).
Evaluation Criteria
Environmental flexibility
Environmental efficiency
"Green" image
"External" environmental effectiveness
Quantitative item Quantitative item Qualitative item Qualitative item
Figure 8: The evaluation criteria for the development of a complete assessment (Source: Azzano et.al. 1996)
Min et.al. (1997) set a number of environmental key factors that affect the choice of suppliers. The most crucial of them refer to potential liability and cost for disposal of hazardous materials, state and federal environmental regulations, cost of environmental friendly goods and packages, buying firm's environmental mission, supplier's advances in providing and developing environmental friendly packages and goods, and finally environmental partnership with suppliers (Min et.al. 1997).
Walton et.al. (1998) proposed a simple decisions step approach (figure 10) for deciding to integrate or not suppliers in environmental management taking into account a number of environmental criteria, such as public disclosure of environmental project, supplier evaluation according environmental friendly practices, hazardous waste management, toxic waste pollution management, use of hazardous materials for products labeling, certification of environmental management systems, reverse logistics programme, environmental friendly practices in product packaging, ozone depleting substances management and hazardous air emission management (Walton et.al. 1998).
Integrate supplier in environmental managements?
YES
Is the supplier interested in environmental issues?
NO
YES
YES
Is the supplier currently environmentally compliant?
Can buying company influence supplier's action?
NO
NO
YES
Work for compliance, preferably more. Then integrate suppliers into environmental management process.
Integrate suppliers into environmental management process.
Is the supplier a critical supplier?
NO
YES
Drop the supplier.
Live with it.
Figure 9: Deciding to integrate suppliers in environmental management (Source: Walton et.al. 1998)
An analytical and systematic model
All the above approaches tried to identify the environmental criteria in supplier selection process, without however achieving to create a complete, detailed and categorized framework that companies could use systematically in the process of evaluating their suppliers (Jabbour et.al. 2009). Humphreys et.al. (2003) made a significant process in this process by introducing an analytical framework (figure 11) that companies could use in supplier selection considering environmental criteria.
Figure 10: Environmental framework for incorporating environmental criteria into their supplier selection process (Source: Humphreys et.al. 2003)
According this model the environmental criteria have been classified into two major categories, quantitative and qualitative environmental criteria. Quantitative environmental criteria are referring to two analytical groups: environmental cost generated to minimize supplier pollution effect like solid, chemical and water waste, air emission and energy; environmental cost generated for supplier environmental management improvement and support like buying environmental friendly material and technology, redesign of product, staff training and recycling (Humphreys et.al. 2003).
On the other hand, qualitative environmental criteria have been grouped into five categories:
environmental management competencies including senior management support, environmental partners, training and information exchange
"green" image of suppliers including customer's purchasing retention, green market share and stakeholders relationship
environmental friendly product design focusing on recycling, reuse, remanufacturing, disassembly and disposal
environmental management systems like environmental policies and planning, implement and operation and certifications
and finally environmental competencies including green technology availability, use of environmental friendly materials, pollution reduction and return handling capability (Humphreys et.al. 2003)
Supplier Evaluation
The most completed model has been proposed by Humphreys et.al. (2003), which is a seven-stage decision support system (figure 12) targeting on the evaluation of suppliers against traditional criteria, based on the above environmental criteria. The first stage refers to the two main strategies that a company can follow in order to deal with environmental issues, reactive that introduce some basic solution and proactive that considers environmental issues as a crucial factor for improving company's performance. The second stage compares the level of supplier's pollutant with regulations. Continuously there is the analysis of suppliers quantitative environmental categories, taking into consideration a number of criteria that refer to pollutant effects and improvement. The next stage involves the comparison of these categories, targeting on retrieving of the suppliers which minimize pollutant cost, maximizing at the same time their investment in improving their environmental performance. The next two stages include the identification, weighting and analysis of supplier's qualitative environmental categories, considering a number of environmental criteria like management decisions, green image, green design, environmental management systems and environmental competencies. The final stage is the selection and evaluation of satisfactory suppliers (Humphreys et.al. 2003).
Figure 11: Stages involved in the decision support system (Source: Humphreys et.al. 2003)
Prahinski et.al. (2004) proposed as well a conceptual framework for suppliers' development which is based on different aspects of their relationship with buyers as shown on figure 13. The most important aspect refers to the dimensions of communication and their influence on buyer-supplier relationship and performance. These include indirect influence like education and training, formal communication of supplier evaluation, communication feedback and collaborative communication. Other aspects that are positively influence buyer-supplier relationship are the buying firm's commitment, cooperation between them and operational linkages (Prahinski et.al. 2004).
Figure 12: Supplier evaluation model based on buyer-supplier relationship (Source Prahinski et.al. 2004)
Environmental Collaboration with Suppliers
Green Purchasing Strategies
It is very difficult to formulate a green purchasing strategy, as there are a lot of risks that company must take, by implementing a green purchasing policy. Min et.al. (1997) proposed a classification (figure 14) of green purchasing strategies according two key factors: source reduction and waste elimination.
Figure 13: Classification of green purchasing strategies (Source: Min et.al. 1997)
The strategies that are focusing on effective source reduction have as target the reduction of the waste that is generated at the begging of the supply chain through on-site and off-site recycling, reuse and source changes and control, by inputting material purification and substitution and by lowering the density of packaging design. Companies can achieve source reduction by several ways such as by reducing the number of hazardous and difficult-disposed items; by reducing the use of harmful raw materials, purchasing materials that can be easily recycled or reused; and by setting environmental requirements and standards to their suppliers regarding the product packaging (Min et.al. 1997). The second category of this classification refers to those purchasing strategies that are focus on waste elimination, including biodegrading packaging, sorting for nontoxic incineration and scrapping or dumping (Min et.al. 1997).
Hamner et.al. (1998) classified green purchasing strategies into three major categories according their impact on the environment behaviour of suppliers. The first one focuses on product standards, targeting on purchasing of more environmental-friendly products that can disclose their environmental impact. The second category involves strategies that are focusing on behaviour standards. Companies that follow this strategy evaluate their suppliers' environmental performance and require them to make information known about their environmental practices and to implement certified environmental management systems that meet environmental standards like ISO 14001. The last category of purchasing strategies refers to buyer-supplier collaboration, focusing on the promotion of changes in product design and materials use which would have as a consequence the reduction of their environmental impacts. Another target is the implementation of product stewardship programmes at all the stages of the life cycle of products (Hamner et.al. 1998).
Environmental Friendly Practices
Through the literature, there can be detected a variety of environmental friendly practices (EFP) that represent actions and programmes within the firm that improve environmental performance, remediate problems and minimize any environmental burden. Many of these EFP are adopted in purchasing activities in order to improve suppliers' environmental efficiency.
Walton et.al. (1998) first classified these practices in five major categories:
The first one focuses in product design and purchased materials, where the target is the improvement of collaboration between purchasing department and product design in order to achieve the design of greener products. Substituting or changing the specifications of materials and avoiding the use of hazardous materials are some of the key practices to achieve this.
EFP can be applied in product design processes as well, considering the materials' life-cycle. Some of the practices that can be applied in this category in order are the promotion of collaboration between designers and materials experts, and the use of tools like life cycle analysis, quality functions deployment and "design for the environment" strategies"
EFP in supplier process improvement, focusing on the proactively buyers' influence in suppliers' processes. Understanding major supplier processes and materials, understanding of the environmental regulations and high-level support are some of the critical ways for success.
EFP in supplier evaluation methods, focusing on strategic direction of the buying company environmental initiative. The practices that can be used to achieve this are the implementation of reactive criteria that focus on meeting government regulations, and proactive criteria that focus on process improvement.
The last category includes EFP that focus on inbound logistics process. Through initiatives, like reusable containers for material delivery, suppliers can help buyers buying firms to change their inbound logistics processes, focusing on waste reduction, which can drive to operational advantage (Walton et.al. 1998).
Levels of Environmental Collaboration
One way of creating a sustainable and green supply chain is through collaboration with suppliers, which can be a key factor to help in green purchasing development, without having to spend a lot of money in new products and solutions. The main objectives of green purchasing are the development of new products and the reduction of material handling cost targeting on continuous environmental improvement (Emmett et.al. 2010, Turner et.al. 2009). The most significant way to achieve these goals is the improvement of collaboration between buyers and suppliers. Through this collaboration, they can improve their relationship as well by sharing costs, risks and environmental challenges and by improving information exchanges, which is going to lead to opportunities for innovation and for improving new products and services (Emmett et.al. 2010, Klassen et.al. 2003, Lamming et.al., 1996).
To identify the perspectives of this collaboration there are going to be used some available matrixes relative to the relationships between suppliers and buyers. These matrixes are going to be developed in order to incorporate environmental concerns.
There have been presented a lot of matrixes, through the literature, that are trying to identify the level of collaboration between buyers and suppliers. The approach that is most frequently used by the companies has been presented by Kraljic (1983). As shown in the figure 15, Kraljic's matrix is sustained into the combination of two dimensions. The first one refers to purchasing and supplier impact on financial results. This profit impact can be defined with different terms, like cost of materials, volume purchased, total cost, percentage of total purchase cost and impact on quality product and business growth. (Kraljic P, 1983, Van Weele A, 2005) The second dimension refers to the supply risk which is direct connected with criteria like short and long term availability, number of potential suppliers, make-or-buy opportunities, competitive structure in supply markets, storage risks and substitution possibilities (Kraljic P, 1983, Van Weele A, 2005). These two dimensions create four quadrants which represent the product groups of suppliers; strategic, leverage, bottleneck and routine or noncritical.
Figure 14: Kraljic's purchasing product portfolio and supplier portfolio (Source: Van Weele 2005)
Lamming et.al. (1996) added a third dimension on the Kraljic matrix that refers to environmental risk (figure 16). This new dimension, which refers to the level of considering environmental issues and requirements in buyer-supplier relationship, may cause the change of some of the suppliers' position in the matrix, taking into consideration their environmental impact. For this reason, it would be preferable if the collaboration could be in a different level, with different aspects (Lamming et.al. 1996).
High
Strategic Critical
Goods assist competitiveness
Focus on high value strategic items
Aim: to improve bottom line
Strategic Security
Goods assist continuity
Focus on bottle-neck items
Aim: to secure supply
Supply Exposure
Tactical Profit
Goods assist margins
Focus on leverage items
Aim: to get the 'best deal'
Tactical Acquisition
Goods assist efficiency
Focus on routine items
Aim: to minimize resources used
Low
Value
High
Low
Environmental Risk: The new dimension
Figure 15: Development of Kraljic's model to incorporate environmental concern (Source: Lamming et.al. 1996)
Cox (2004), based on Kraljic's matrix developed a power matrix (figure 17), which is an analytical approach of the relationships between buyers and suppliers in terms of the power that each one has and the influence that he can exert on this relationship.
Figure 16: The power matrix: the attributes of buyer and supplier power (Source: Cox 2004)
Source of eco-innovation
As its definition has been changed over the last 30 years, it is difficult to define exactly the term of innovation (Cumming B, 1998). Taking into consideration these changes trough the time, the term of innovation could define as the successful use of a new idea, method or knowledge, targeting the creation and promotion of new products, processes or services, providing customers with increased functionality and performance (Kuczmarski T, 2003; Cumming B, 1998; Drejer A, 2002, Johannessen et.al., 2001). According to Johne (1999) there are three basic types of innovation which contribute to business development: product, process and market innovation.
The influence of environmental pressures communicated by the purchasing function drove innovation dynamics in the buyer-supplier relations to greener directions (Green et.al. 1998, Hall et.al. 2000). Nowadays innovation is considered as factor with major importance in a long-term, essential and continuous improvement in company's environmental performance (Angell et.al. 1999). Porter et.al. (1995) linked innovation with environmental regulation, concluding that promoting innovation could be a way of eliminating costs of addressing environmental regulations. Porter et.al. (1995) separated environmental innovation into two categories. The first one refers to new technologies and approaches that targeting on minimization of environmental impact. The second and most important type of innovation refer to the improvement of resource productivity including the creation of better and greener products, better use of inputs and improvement of product yields (Porter et.al. 1995).
Taking as base the Kraljic's matrix we conclude that only in two of the four categories of buyer-supplier relationship there are opportunities for investment on the development of new more environmental friendly products and services. The first one is the strategic level, where there is a balance in the relationship between buyers and suppliers because each one tries to dominate his requirements. In this case, if companies want to achieve innovation, through the supplier's involvement in product development, should support their decisions. The second category is the leverage level, where there is a large margin from the side of supplier for development of new greener products. The firm has the capability to select among a various number of suppliers with low switching cost. For this reason, if a supplier wants to differentiate and obtain competitive advantage between his competitors, he must try to develop innovative product and services (Kraljic 1983).
Supplier Development
Supplier development is considered as one of the major factors that affect green purchasing, having significant contribution in improving purchasing performance (Emmet et.al. 2010). There are a lot of benefits that a company can gain by suppliers' development, including improvement of their performance, costs reduction, management of quality issues, development of new routes to supply, improvement of buyer-supplier collaboration, promotion of innovation and creation of tight competition (Emmett et.al. 2009). The suppliers that are going to be selected for development will depend on a number of factors. One of the most important factors is the green purchasing strategy that the company will follow, based on the categorization of its relationship with suppliers. This can be achieved with the use of one of the matrixes that have been presented above. The other factors refer to the available margin of opportunity for environmental improvement, cost, complexity, duration of value attainment and finally supplier cooperation (Emmett et.al. 2010).
There is a wide variety of ways in which companies generally approach their suppliers targeting on their development. Lamming et.al. (1996) distinguished these ways into two extreme and opposite strategies as shown on figure 18, cascade and intervention.
Intervention: 'Do as I do'
Cascade: 'Do as I say'
Policies Protocols Preferences
Supplier
Sub-supplier
Customer
Figure 17: Cascade and Intervention Strategies in Supplier Development (Source: Lamming et.al. 1996)
The cascade strategy is based on the philosophy of 'Do as I say'. The main theory of this strategy is that that customer's ideas flow down to the suppliers and continuously will pass even lower to suppliers' suppliers and so on. Cascade strategy is based on the set of a number of strict environmental requirements from the buyers to their suppliers in order to achieve their development, based on the competitive position between parties who need each other (Lamming et.al. 1996). On the opposite side, there is the intervention strategy in supplier development, which is based on the intervention of buyer in supplier's business operations, in order to achieve better supplier development. This can be in achieved using two different approaches: a paternalistic approach in which buyer is sending an expert team to supplier in order to sort out his activities, and the second is the co-operative approach in which buyer and supplier are working together in order to develop improvement (Lamming et.al. 1996). As these are two extreme and opposite approaches, it is logical that there are cases in which it is used a mixed approach, designed according the need of each relationship (Lamming et.al. 1996).
Bai et.al. (2010) presented a list with a number of environmental friendly supplier development practices and activities, separated into three major categories (table 1). The first one refers to green knowledge and communication, including practices like train of suppliers and users on environmental issues in order to meet stakeholder's expectations, giving advices, setting environmental targets, conducting training and education programmes, information sharing, evaluation and feedback, and problem solving. The second category includes practices related to investment and resource transfer like investment in improvement of processes, reduction of environmental cost and technical problems solutions. The final category refers to management and organizational practices and activities like requiring specific environmental certifications, long-term contracts, top management commitment and support and environmental criteria for entering into supplier development (Bai et.al. 2010).
Green knowledge transfer and communication
Training supplier employees on environmental issues
Train suppliers in stakeholder expectations
Train users in environmental capabilities
Train suppliers on environmental and cost controls
Giving green manufacturing related advice and awareness
raising for suppliers
Giving green technological advice to suppliers
Giving eco-design product development related advice
to suppliers (e.g. processes, project management)
Conduct training and education programs for supplier personnel
Supplier environmental evaluation and feedback
Develop supplier environmental assessment programs
Providing feedback about supplier environmental performance
Strong formal supplier environmental evaluation
Setting environmental improvement targets for suppliers
Auditing suppliers
Joint and team problem solving on environmental issues
Information sharing on environmental topics
Ongoing communication with supplier community via supplier environmental
councils
Investment and resource transfer
Invest in improvement of transaction processes
Reduce supplier environmental costs
Solve supplier environmental technical problems
Finance supplier major capital environmental expenditures
Transferring supplier employees with environmental
expertise to buying firm
Transferring employees with environmental expertise to suppliers
Investment in supplier capacity building
Supplier rewards and incentives for environmental performance
Management and organizational practices
Requiring ISO 14000 certification for suppliers
Long-term contracts with environmental dimensions incorporated
Introduce a cross-functional supply chain team with
environmental presence
Building top management commitment/support within buyer
organization for green supply practices
Building top management commitment/support for supplier
organization for green supply practices
Organization management has formal long-term plans
improve supplier performance
Formal process for supplier development
Identification of high-performing critical suppliers for cost
reduction and other :improvement opportunities
Criteria established about when to enter into supplier development
Formal process to identify supplier cost reduction targets
The participation level of suppliers in the eco-design stage.
The participation level of suppliers in the process of procurement
and production.
Table 1: A comprehensive listing and categorization of environmental-oriented (green) supplier development practices and activities (Source: Bai et.al. 2010)
Summary and Conceptual Framework
In this section there is going to be presented an attempt of combining all the above literature review in order to identify a way that business can implement green purchasing practices and activities in order to integrate suppliers in this process, focusing on improvement of their environmental efficiency, which will have as a consequence the environmental business development.
Although there is a large variety of literature reviewed, there is not yet presented a specific and clear framework on how businesses can integrate their suppliers into this process, taking into consideration of all the dimensions of their relationship. Taking into consideration all the aspects that are reviewed above, a conceptual framework is developed and proposed, on which the further analysis is going to be based (figure 19). This framework constitutes a stage-approach of proactive purchasing activities. Starting from the identification of the drivers for a green purchasing policy, a cycle model of selection, evaluation, collaboration and monitoring of suppliers follows. The main aim of this framework is to propose a model that companies can follow in order to improve their suppliers' performance in environmental issues, targeting on buying firm development.
Figure 18: Conceptual Green Purchasing framework
