Greening the automotive supply
chain: a relationship perspective
Dayna Simpson, Damien Power and Daniel Samson
Department of Management, University of Melbourne, Australia
Purpose – This study seeks to explore the moderating impact of relationship conditions existing
between a customer and its suppliers on the uptake and effectiveness of the customer’s environmental
performance requirements (otherwise known as “green-supply”).
Design/methodology/approach – The study assesses the extent to which a supplier’s
environmental performance is inﬂuenced by its customer’s environmental performance requirements
when speciﬁc relationship conditions (investment, contracting and monitoring routines) are taken into
account. Data were collected through a survey of ﬁrst and second tier component manufacturers in the
Australian automotive industry and analysed using linear regression and MMR.
Findings – Suppliers were found to be more responsive to their customers’ environmental
performance requirements where increasing levels of relationship-speciﬁc investment occurred. As the
level of investment in the customer-supplier relationship increased, suppliers become less likely to
believe that they would be penalized for non-compliance with the customer’s environmental
Research limitations/implications – Survey data were collected in 2004 and are limited to the
Australian automotive industry. The sample size available for the regression analysis also precluded
the use of more comprehensive analytic techniques.
Practical implications – The research offers new insight into the issue of how ﬁrms might improve
the environmental performance of suppliers and the sustainability of their supply chain.
Originality/value – Virtually no research exists on the actual effectiveness of green supply
requirements when placed in context with the realities of inter-organizational dynamics. The ﬁndings
suggest that traditional operations theory on inter-organizational performance improvement is just as
relevant to the use of environmental performance requirements.
Keywords Environmental management, Supplier relations, Automotive industry, Green marketing
Paper type Research paper
Organizations have become increasingly aware of the propensity for environmental
pollution incidents within their supply network to cost them in penalties, cleanup and
consumer backlash. As a result, minimum standards of environmental performance
have become increasingly prevalent in the purchasing contracts or guidelines of
multinational corporations for their local and global suppliers (Bowen et al., 2001a; Zhu
and Sarkis, 2004). This relatively new expectation for upstream suppliers goes beyond
the more traditional requirements of their customers to reduce costs and improve
quality and service (Lambert and Cooper, 2000). Prominent examples of such activity
include Starbuck’s Responsible Sourcing Guidelines (Starbucks, 2005), Ford Motor
The current issue and full text archive of this journal is available at
The authors would like to acknowledge the support and involvement of the Toyota Motor
Corporation Australia, the case study suppliers, the Victorian Department of Innovation,
Industry and Regional Development, the Federation of Automotive Parts Suppliers and the
Tooling Industry Forum of Australia.
International Journal of Operations &
Vol. 27 No. 1, 2007
qEmerald Group Publishing Limited
Company’s requirement for all suppliers to certify to the ISO14001 management
standard and the inclusion of “supplier activities” in statements of environmental
responsibility for Toyota, BMW and Mitsubishi (Young and Kielkiewicz-Young, 2001).
This is matched by recent academic research which supports the potential
of customer-supplier relationships to inﬂuence the environmental performance of
manufacturing supply chains (Klassen and Vachon, 2003; Zhu and Sarkis, 2004;
Rao and Holt, 2005). At a time when global manufacturing industries face signiﬁcant
constraints on the availability of natural resources and multiple threats to survival, the
imposition of environmental performance requirements represents a new and complex
pressure for the organization to manage.
The practice of extending production goals from customers to their suppliers as a
means to improve overall performance in a supply chain has been a growing ﬁeld of
research for the past 15 years (Lamming, 1993; Krause et al., 2000; Liker and Choi,
2004). Organizations have used a range of supplier-relationship management styles to
improve production processes or introduce new technologies into the supply chain,
such as purchasing power (i.e. Walmart) and/or collaboration (i.e. Toyota) (Dyer and
Chu, 2003). Both modes of interaction have been successful in the past for achieving
more rapid and often inimitable process or product-based improvements. A small but
growing body of research has more recently explored the inﬂuence of a customer’s
relationship with its suppliers in regard to the extension of sustainability-based goals.
This process, known broadly as “green-supply,” is a potentially effective mechanism
for supply chain managers to improve the organization’s record on corporate social
responsibility, minimize reputational risks, reduce wastes and increase ﬂexibility in
response to new environmental regulations (Green et al., 1998; Bowen et al., 2001a;
Melnyk et al., 2003). Most examples have included requirements to meet minimum
standards of environmental practice, certiﬁcation to an international management
standard (i.e. ISO14001) or a general philosophy of supply chain stewardship.
The customer – as a major ﬁnancial stakeholder – has signiﬁcant potential to force
improvements to its suppliers’ environmental management practices, introduce
environmentally sound technologies, and collaborate with suppliers to share knowledge
and jointly develop more sustainable products and processes. From the customer’s
perspective this may require a more hierarchical approach to the issue of supplier
greening – that is, expecting that some suppliers will be more or less responsive than
others. From a supplier’s perspective this may present both advantages and difﬁculties
in their attempts to meet a new and possibly under-developed set of environmental
performance requirements. From a government perspective this may require a more
collaborative approach to working with organizations as the challenge to meet the goals
of global sustainability increases.
Much research into external pressures on the organization’s derivation of
environmental responsibilities is considered from the perspective of public or
institutional stakeholders or the consumer. Only a small but growing body of research
explores therole of the major customer in a supplychain or procurement context. Even less
research considers the implications of the nature of the customer-supplier relationship on
the uptake and effectiveness of these environmentally-relevant supply requirements. That
is – whether the presence of speciﬁc relationship conditions or management styles
between the customer and the supplier (i.e. purchasing power, governance mechanisms or
collaboration) might moderate the inﬂuence of these types of requirements.
This research seeks to extend the small but growing body of knowledge surrounding
the introduction of environmental performance requirements into supply contracts or
statements of supply chain stewardship. The major contribution of this research will be
not just to explore the existence and application of such requirements but to explore the
inﬂuence of speciﬁc exchange conditions on their uptake and effectiveness. In
particular, the transaction cost framework after Williamson (1985) is employed to
describe these exchange conditions. The a-priori expectation of this research is that
supply relationship conditions that exhibit traits of high investment and governance
will provide for a more effective deployment of a customer’s environment-related
performance requirements. Such conditions are proposed to moderate the effectiveness
of any program of green supply between the customer and the supplier by increasing its
efﬁcacy as the level of investment and governance increases.
Global warming, reductions in air quality, pollution of waterways and widespread loss
of biodiversity are but a few examples of the types of environmental impact that can be
attributed to the coordinated activity of organizations in a supply chain. Much of this
arises from manufacturing organizations that continue to produce large amounts of
unnecessary waste or emissions rather than investing in better technologies or
practices to prevent its generation at the source (Klassen, 2000; King and Lenox, 2002).
The use of more environmentally sustainable products or production processes are
often prevented from developing within an organization because of the external
pressure applied by customers to achieve the requirements of reduced cost, increasing
quality and faster delivery. Production of unnecessary waste or choices toward
lower-cost but environmentally unsustainable production alternatives are frequently
the responses to such supply chain pressures (Green et al., 1998).
In the practical realm, the inclusion of environmental performance standards in
supply requirements is marching ahead with only limited theory on the managerial
implications of this type of inter-organisational action. An opportunity exists for the
development of new theories of inter-organisational exchange using theories of
the organisation and supply chain management that would substantially inform this
new type of practical activity.
Customer-supplier interactions and environmental performance
Programs developed by business to “green” supplier activities or include
environmental performance requirements in supply guidelines are increasingly
evident in practice. Such initiatives are broadly referred to as either green-supply or
green-supply-chain in both the academic and practitioner literature. These have largely
included activities with suppliers such as:
.programs to reduce or eliminate materials used in manufacturing processes or
.programs focused on the environmental compliance status and practices of
.joint development of new materials, processes or other solutions to
environmental issues (Sarkis, 2003; Green et al., 2000).
A recent body of academic research generates support for the theory that the
customer-supplier or supplier-supplier relationship may generate a range of positive
environmental outcomes (Klassen and Vachon, 2003; Zhu and Sarkis, 2004; Rao and
Holt, 2005). Communicating goals of sustainability or environmental performance
through the supply relationship has resulted in for example, collaborative waste
reduction, environmentally sound innovation, cost-effective and environmentally
beneﬁcial solutions to production problems, and more rapid development and uptake
of environmental technologies. There is growing empirical support for the role of
the supply relationship in environmental performance management that extends
into the inter-ﬁrm setting.
In the antecedent work of Lamming and Hampson (1996), customer ﬁrms engaged
in collaborative dialogue with suppliers were better able to understand the
environmental impacts of their supply chains. Florida (1996) looked to
customer-supplier relationships that were already characterized by improvement or
... environmental improvements ﬂow from ongoing joint efforts to improve productivity,
eliminate defects and reduce costs, rather than from direct offers to transfer pollution
prevention technology or organizational strategies designed expressly to eliminate toxins or
prevent pollution (Florida, 1996, p. 81).
Hall (2000, 2001) extended Florida’s (1996) work by ﬁnding that a collaborative
customer-supplier relationship often led to environmental performance improvements
in both the customer and the supplier ﬁrm. Geffen and Rothenberg (2000) found the
involvement of suppliers to be critical in the development and implementation of
environmentally sound technologies in automotive paint production. More recently,
Klassen and Vachon (2003) investigated the role of supply-chain-level evaluation and
collaboration activities on plant level environmental investment. They found that
greater customer involvement and scrutiny of suppliers tended to: “... capture the
attention of plant managers and encouraged greater environmental investment”
(Klassen and Vachon, 2003, p. 347).
The commonality across this body of research provides support for the hypothesis
that customers may be able to directly and indirectly improve a supplier’s
Stakeholder management and environmental performance
Recognition and development of an organizational requirement to manage its impact
on the environment has developed largely in response to increasing levels of
government regulation and proﬁle-raising of environmental issues by non-ﬁnancial
stakeholders (politics, community and media) (Aragon-Correa, 1998; Hoffman, 1999;
An alternative perspective to that of the organization choosing to adopt a proactive or
socially responsible strategy and acting in advance of its stakeholders is to take the
perspective of Friedman (1970) and Egri and Pinﬁeld (1996) thatthe organization’s choice
of environmental strategy has more to do with the needs of the organization’s ﬁnancial
stakeholders. This somewhat un-romantic view of an organization’s social and
environmental responsibilities, takes the less popular position that organizations exist
purely for the sake of economic self-interest rather than to fulﬁll a set of social or altruistic
ideals (Smith, 1776; Friedman, 1970). As Egri and Pinﬁeld (1996, p. 472) describe:
From the perspective of organizational theory, environmental degradation becomes relevant
only when the performance of a focal organization and the welfare of organizational
participants are affected by such concerns.
For the organization to internalize a social or environmental responsibility it is
proposed that an initial condition of direct impact to, or inﬂuence on, the ecology of its
ﬁeld or system must ﬁrst occur.
Antecedent theory proposes that the organization’s response to the environmental
requirements of its external stakeholders will be inﬂuenced by its existing level of
environmental commitment (Hunt and Auster, 1990; Henriques and Sadorsky, 1999;
Aragon-Correa and Sharma, 2003). At the same time and within the context of this
research, the magnitude of this environmental commitment can be signiﬁcantly
affected by the existence and persistence of an externally derived set of environmental
performance requirements. The form and magnitude of this inﬂuence however should
depend on which stakeholder claims relevance for its environment-related requirement,
and the power and level of involvement of that stakeholder with respect to the
receiving organization (Mitchell et al., 1997; Buysse and Verbeke, 2003).
Inter-ﬁrm relationships are critical to the successful coordination of supply chains and
improvements in the performance of suppliers’ production capabilities (Lamming,
1996; Handﬁeld et al., 2000; Scannell et al., 2000). The supply relationship is an
important channel for communicating customer requirements to suppliers and
achieving longer term goals of production (Lamming, 1996; Handﬁeld et al., 2000;
Scannell et al., 2000). Managed supply chain relationships can often attain the types of
performance improvement and superior competitive advantage that are not readily
generated by open market transactions (Lamming, 1993; Burt and Doyle, 1993; Dyer
and Nobeoka, 2000).
In considering attempts to “green” suppliers as an issue of performance
management in the supply chain – where a customer has a minimum performance
requirement or desires an improvement in performance from its suppliers – such
environmental performance goals may be inﬂuenced by the same factors which
inﬂuence other supply chain level performance elements (i.e. quality, cost and lead time
reductions). The importance of relationship management styles or the “conditions” of
the customer-supplier relationship have been increasingly described as important
factors in the process of supplier or supply chain performance improvement (Cousins
and Stanwix, 2001; Handﬁeld and Bechtel, 2002; Dyer and Chu, 2003).
All supply relationships tend to share the same basic principle of conduct –
suppliers are required to meet performance or supply targets speciﬁed by a customer.
Where the purchasing side of the supply partnership (customer) intends to extract a
performance gain in a process, product or service being managed by its suppliers,
established and emergent theory suggests a variety of mechanisms or conditions to
achieve this end (Cousins and Stanwix, 2001; Handﬁeld and Bechtel, 2002; Dyer and
Chu, 2003). These mechanisms or “conditions” that occur between a customer and its
suppliers provide a number of critical features – structure for the interaction and
remedies for failure or non-compliance; a mechanism for power or inﬂuence over the
supplier; and a climate that promotes either adversarial behavior or collaboration (Ring
and Van de Ven, 1992). The literature remains unclear as to which mechanism or
condition will produce the best results for a customer that desires to improve an
element of a supplier’s operations performance. For example, the competitive force of
the open market has been shown by some authors to be a successful mechanism to
improve performance amongst a pool of suppliers (Scannell et al., 2000). Other authors
promote the importance of a highly socialized and involved form of relationship for
generating more complicated types of performance gains (Dyer and Nobeoka, 2000;
Dyer and Chu, 2003).
An important consideration for the customer and supplier amongst these various
relationship choices is the transaction-cost framework ﬁrst described by Williamson
(1975). Transaction-cost theory is useful for describing the coordination costs and
transaction risks of inter-organizational activities. Transaction cost theory in its
original explanatory frame, is primarily concerned with its central claim which is the
handling of transactions in a manner which minimizes the associated costs (Grover and
Malhotra, 2003; Williamson, 1975; 1985). An associated body of literature has used the
transaction cost theoretical frame to explore its implications for inter-organizational
performance improvement. The major tenet of this body of work has been the
proposition that as transaction costs increase and behavioral uncertainty decreases,
the mutual beneﬁts of inter-organizational performance improvement will also increase
(Rindﬂeisch and Heide, 1997; Grover and Malhotra, 2003; David and Han, 2004).
Development of hypotheses
“Environmental commitment” is deﬁned in this research as the willingness of an
organization to determine, articulate and manage it responsibilities toward the natural
environment. An underlying assumption of this study has been that an organization’s
overall level of environmental commitment will provide positive beneﬁts to the
organization’s environmental performance. The relationship between environmental
commitment and use by the organization of a set of environmentally conscious practices
has previously been explored by others. These prior works have found increasing levels
of environmental commitment and greater occurrence within the organization of for
example, pollution prevention and incorporation of the environment in product design
and innovative practices (Buysse and Verbeke, 2003); being more inclusive of
environment-related stakeholders (Aragon-Correa, 1998); incorporating practices that
support pollution reduction (Sharma and Vredenburg, 1998; Klassen, 2001); more likely
to use environmentally conscious manufacturing practices (Bowen et al., 2001a, b); and
have an increasing intention to preserve ecological integrity (Judge and Elenkov, 2005).
Assuming, from the work of previous authors, that higher levels of environmental
commitment will lead to a greater likelihood of improving environmental performance –
for example through pollution reduction or environmentally conscious business practices
– this study will assess the impact of an externally derived set of environmental
performance requirements on the organization’s level of environmental commitment.
During preliminary discussions with six automotive component suppliers as part of
this study, organizations were asked where their primary motivation to meet formal or
contractual environmental performance requirements came from, such as certiﬁcation
to ISO14001. One response in particular illustrated the majority perspective of those
I’d say that we had to have it, because of the customer saying you have to have it if you want
to supply to us. That was pretty much the directive from Ford, Holden and Mitsubishi.
It’s mandatory. Our social responsibility is always there but with these sorts of things unless
you have to have them ...because it does cost us a lot of money (Operations Manager, 2004).
Primary stakeholders – such as the organization’s major customer – are able to
inﬂuence the strategic choices of the organization (Miles and Snow, 1978; Pfeffer and
Salancik, 1978; Mitchell et al., 1997). In this study, the interest has been with the most
signiﬁcant stakeholder for the organization’s survival – its major customer – because
of the inherent power of this stakeholder in the context of the organization’s supply
relationships. Already established in prior research is that higher levels of
environmental commitment is likely to generate higher levels of environmental
performance in the organization. The study’s ﬁrst proposition is that the customer’s
environmental performance requirements will bear a relationship to the supplier’s level
of environmental commitment:
H1. The supplier’s level of environmental commitment is related to the
environmental performance requirements of its major customer.
To integrate the ﬁndings of this study with the work of previous authors, the
organization’s level of environmental commitment is assessed in relation to
the environmental performance requirements of its major customers. This initial
relationship is then assessed in the presence of a series of customer “conditions” that act
to inform the organization’s response to these environmental performance requirements.
Inﬂuence of the customer-supplier relationship
Where the inﬂuence of one ﬁrm over another is required with an aim to improve or
ensure a process, product or service, established and emergent theory offers varying
explanations for the most important factors for customers to consider when attempting
to extract performance gains from suppliers. Much of this literature relates to the
structure of the inter-ﬁrm relationship and the desired outcome of any improvement
initiative. As described in the literature review, all supply relationships tend to share
the same basic principle of conduct – suppliers attempt to achieve, to the best of their
ability and willingness – the speciﬁc performance targets required by the customer.
Customers often choose to use a range of measures to “encourage” their suppliers to
meet such performance requirements. The choice and success of these measures of
“encouragement” are often referred to as relationship “conditions” that determine its
power or inﬂuence over the supplier and its choices.
It is a major proposition of this study that suppliers will not only be inﬂuenced by
the environmental performance requirements presented to them by their customers,
but also importantly the magnitude of this inﬂuence will depend on the existing
conditions of the supply relationship. These conditions in the relationship will
moderate the impact that the customer’s environmental performance requirements has
on the environmental commitment of its suppliers. This moderating effect is described
through the study’s next three hypotheses.
Relationship-speciﬁc investment. Relationship conditions that promote
relationship-speciﬁc investment between the customer and the supplier – particularly
in regard to the supplier having dedicated time, future goals, equipment or capacity to
the relationship – potentially allow the supplier to be more “aware” of the customer’s
environmental reputation and value system. Higher levels of asset speciﬁcity between
the customer and supplier have been found by other authors to lead to positive
performance gains for both ﬁrms involved in the exchange (Dyer, 1997; Handﬁeld and
Bechtel, 2002). A remark made by an operations manager during preliminary interviews
conducted as part of this study highlights the potential importance of
relationship-speciﬁc investment to goals of environmental performance:
We’re fairly close to [our major customer ] so if they take a strong interest in a particular issue
it obviously affects us because we’re that closely linked to them we’ll have a look at what
we’re doing. A lot of people don’t really know who the hell we are but they know who [our
major customer ] is and if [our major customer ] had a big environmental impact somewhere
around the world, it could have a big impact on their sales. If we had a major environmental
incident, it would certainly affect our customer’s opinion of us ...” (Operations Manager,
Investment as a moderating variable has not yet however been investigated in regard
to environmental performance improvement. Asset speciﬁcity is the most widely used
measure for measuring the role of transaction cost theory in inter-organizational
relationships (David and Han, 2004) and it has been used again in this study. In this
study, the role of relationship-speciﬁc investment in the uptake of the customer’s
environmental performance requirements is described by the next hypothesis:
H2a. The presence of relationship-speciﬁc investments will improve supplier
response to the customer’s environmental performance requirements.
Governance or contracts. Contracts support asset-speciﬁc investments in that they
provide a form of governance between the customer and the supplier that not only
protects assets sunk into the relationship, but also identiﬁes paths for dispute resolution
and outcomes for non-compliance (Williamson, 1975). Contracts are effectively a
safeguard against opportunistic behaviour and set clear boundaries for default on
contractual speciﬁcations between the customer and the supplier. At the same time that
contracts provide a mechanism of governance they also increase the ex-ante costs for
the relationship and in more recent literature they are described as increasing the
adversarial climate in the relationship and reducing trust (Ghoshal and Moran, 1996;
Liker and Choi, 2004). In this study, the role of contracts in the uptake of the customer’s
environmental performance requirements is described by the next hypothesis:
H2b. Contracts signed between the customer and the supplier will improve supplier
response to the customer’s environmental performance requirements.
Monitoring or assessment routines. Assessment or monitoring performs two important
roles in the supply relationship – that of a monitoring mechanism to safeguard
asset-speciﬁc investments and also a mechanism to reduce information asymmetry
(Williamson, 1985; Stump and Heide, 1996). In more recent research that described the
role of customer evaluation in the context of environmental performance improvement,
Klassen and Vachon (2003, p. 347) found evaluation activities to have a positive impact
on the level of investment in environmental management by suppliers:
More speciﬁcally, customers who implement supplier audits, establish formal evaluation
processes, and offer feedback to suppliers are likely to see positive changes in how suppliers
regard environmental issues. The greater direct scrutiny by customers likely captured the
attention of suppliers’ plant managers and encouraged greater environmental investment.
As described by one operations manager during discussions with component suppliers
as part of this study, assessment routines allowed their organization to better
comprehend their own environmental performance and what their customers required
[Our major customer ] made us have a good look at what we’re doing in terms of how does it
impact the environment and what are some of the environmental beneﬁts of what we do.
Their awards process was about showcasing all of the things that you’re doing – and some of
it was going on but none of us realized so it wasn’t shared and communicated. They actually
had the framework to ask us “well what are you actually doing for sustainability and green
innovations” and it made us realize we’re actually doing a lot. With the other car companies
it’s just a matter of compliance and ticking the right boxes (Operations Manager, 2004).
The importance of relationship conditions that include the customer using an
Assessment routine – such as a customer-derived list of speciﬁc performance criteria
for suppliers to follow – is still a highly under-explored factor. The possible
importance of assessment to the understanding or evaluation of a customer’s
environmental performance requirements is extended in this study through the ﬁnal
H2c. Use by the customer of supplier assessment will improve supplier response to
the customer’s environmental performance requirements.
In extending the body of research devoted to green-supply, this research explores
speciﬁcally the role of the transaction relationship between a customer and its
suppliers and its inﬂuence on the communication, uptake and delivery of supply
chain level environmental performance requirements. It seeks to explore both the realm
in which environmental performance requirements are to be effectively met – the
organization – and the mechanism through which they are exchanged – the
At a strategic level, a supplier’s environmental commitment will be inﬂuenced by
the environmental performance requirements of the stakeholder of interest – the major
customer. An increasing environmental commitment in the supplier organization is
proposed to also have a positive relationship to increasing environmental performance.
Assuming from the work of previous authors that higher levels of environmental
commitment will lead to a greater likelihood of improving environmental performance –
for example through pollution reduction or environmentally beneﬁcial operational
practices – this study will assess the impact of an externally derived set of
environmental requirements on the organization’s level of environmental commitment.
This model is shown in Figure 1.
The model suggests that under conditions of an existing supply relationship there
will be a primary relationship between a customer’s environmental performance
requirements for its suppliers and the supplier’s own commitment to its environmental
responsibilities. This relationship will then be moderated by conditions of the
customer-supplier relationship. The model is tested using the Australian automotive
industry as its case.
The Australian automotive industry
The global automotive industry provides a unique case for exploring the inﬂuence of
supply relationships on environmentally-relevant performance indicators because of
the range of approaches to relationship management evident in practice. It is also one
of the few global industries that contains numerous examples of customers requiring
suppliers to meet minimum standards of environmental performance.
Four major motor vehicle assemblers operate manufacturing and assembly hubs in
Australia – Ford, Toyota, Holden and Mitsubishi. The Australian automotive industry
produces large passenger motor vehicles, light commercial and sports utility vehicles
(ABS, 2005). The industry has over 200 individual component manufacturers and
around 500 smaller ﬁrms providing tooling services and other ﬁrms that provide
specialist automobile services. The Australian industry supplies mainly to the
international markets of South Korea, USA, Canada, Japan and China.
Australian-based industry makes up 65 percent of the inputs to domestic
automotive production. The remaining 35 percent of inputs are mainly imported
parts and components sourced from Japan and the USA. The sector produces around
5 percent of the global motor vehicle market. In 2002-2003 imports of vehicles were
$14bn and imports of components and parts were nearly $6bn (ABS, 2005). Australia
has become a truly globalised production market through de-regulation of the industry,
a stable economy and its position and political/economic relationships with the
growing automotive markets of the Asia-Paciﬁc.
Sample and data collection
Following Snow and Thomas (1994) and Wacker (1998), this study used a mixed
method approach to the development of new theory, to better develop the study’s
hypotheses and ground a set of constructs for empirical testing. An initial study was
undertaken involving preliminary discussions with operations managers and
purchasing managers at six ﬁrst tier automotive component supplier ﬁrms in the
Australian manufacturing base. These discussions involved semi-structured
interviews and shop-ﬂoor tours (after Yin, 2003). This was followed by an industry
H1 Greening the
survey mailed out to an up-to-date mailing list of ﬁrst and second tier suppliers in the
Australian automotive industry.
Survey items and appropriate measurement scales were developed after DeVellis
(2003). Scales and items used in the questionnaire, analysis techniques and ﬁnal results
are described in the following sections. The ﬁnal method of survey delivery and
collection was selected as suggested by Dillman (1999). The research sample was
sourced from two known industry databases with up-to-date memberships. Database 1
contained all ﬁrst and second tier component suppliers in the Australian automotive
industry (200 contacts) obtained through the Federation of Automotive Products
Manufacture. Database 2 contained all tooling ﬁrm suppliers in the Australian
automotive industry (200 contacts) obtained through the Tooling Industry Forum of
Australia. The instrument was distributed by both mail and e-mail.
Of the 400 surveys distributed, 56 usable surveys were returned for a response rate
of 15 percent. Other research into green supply involving surveys have used a sample
size of similar proportion to this research. Rao (2002) in particular produced signiﬁcant
ﬁndings of green supply with a sample of only 52 ﬁrms and Bowen et al. (2001a) used a
sample of only 24 ﬁrms (with two sets of respondents within each ﬁrm). To assess the
possibility of differences between early respondents, late respondents and
non-respondents, a comparison of the demographics of the survey respondents was
made to the demographics of the larger population (after Armstrong and Overton,
1977). In Table I a comparison is made of the key demographic features of the survey
population and those of the respondents.
Of the 55 respondents in the survey sample 82 percent of organizations were either
manufacturing or component suppliers. 80 percent of organizations had less than 320
employees in their Australian operations and the average number of employees was
232. According to 2004 ﬁgures, three automotive brands (Toyota, Ford and Holden)
held over a 50 percent share of the Australian automotive market (AIG, 2005).
The export ﬁgure of 36 percent shown in Table I is expected to reﬂect the dominance of
these three brands in the volume of exported product shown as a gross amount for the
Australian industry. The average ﬁgure of 12 percent of exported product for
those remaining in the industry is expected to be a fair representation of the average
automotive supplier rather than any of the larger employers such as the assembly
ﬁrms. On the basis of a comparison between the expected demographics of the survey
population and the demographics of those that responded, it was concluded that the
responding population was representative of the larger and target population.
Non-response was attributed to “lack-of-interest” bias only (Armstrong and Overton,
Demographic variable Population
Average number of employees Between 60 and 500 232
Dominant type of organization Component manufacturer Component manufacturer
Average volume of exported
36 percent (including main
12 percent (not including main
Multi-item scales for the survey were developed from both the case study ﬁndings and
the work of previous authors. A draft survey was pre-tested with Toyota Motor
Corporation Australia purchasing staff, six ﬁrst tier automotive component suppliers
and academics. The ﬁnal instrument used a 5-point Likert scale (1 ¼not at all; 3 ¼to
some extent; 5 ¼to a very large extent). Final measures used for the analysis are
summarized in the following. Each measure was extracted using factor analytic
techniques after Hair et al. (1998) and Tabachnick and Fidell (2001).
Environmental commitment. A measure for environmental commitment was drawn
from the ﬁndings of previous authors (Banerjee, 2002; Aragon-Correa, 1998; Buysse and
Verbeke, 2003) and the evidence presented by the supplier case studies. This was intended
to capture an aggregate measure of the supplier’s underlying commitment to its
environmental responsibilities using a scale which indicated environmental commitment
as expressed through the organization’s policies, values and employee awareness
programs. The extracted scale for environmental commitment is shown in Table II.
Customer’s environmental performance requirements. A measure for the customer’s
environmental performance requirements for its suppliers was derived from three items
developed largely during the preliminary study. Firstly, a measure of the customer’s
explicit or contract-based environmental performance requirements wasused to indicate a
minimum expectation from suppliers (i.e. compliance to the ISO14001 management
standard). Secondly, a measure of the customer’s more implicit or less tangible
environmental performance requirements – such as its own values or policies that the
supplier might try to emulate – was used to indicate the customer’s policy or position
statement with regard to its environmental responsibilities. Finally, a measure of the
customer’s actual commitment to its environmental performance requirements for
suppliers was used to indicate the extent to which suppliers expected the customer to
penalize them for non-compliance with say ISO14001 or other contract-based
requirements. The extracted scale for customer’s environmental performance
requirements is shown in Table III.
Conditions of the customer-supplier relationship. To explore the effect of supply
“conditions” on the relationship between the customer’s environmental performance
requirements and the supplier’s environmental commitment the analysis includes three
moderator variables. These include variables for Investment (after Handﬁeld and
Bechtel, 2002; Krause et al., 2000), Contracts (after Heide and Stump, 1995) and
Assessment (after Krause et al., 2000 and Klassen and Vachon, 2003). The individual
moderator variables for Investment,Contracts and Assessment are shown in Table IV.
1. Our ﬁrm has a clear policy statement urging
environmental awareness in every area of the
business 0.826 0.701 0.891 p,0.001
2. Protecting the environment is a central corporate
value in our ﬁrm 0.916
3. At our ﬁrm, we make a concerted effort to make
every employee understand the importance of
environmental management 0.851
Extracted scale for
Returned surveys were analysed using linear regression analysis with SPSS V.12. Data
were checked ﬁrst for normality assumptions using normal probability plots and tests
for kurtosis and skewness. Items were reduced into relevant scales using factor
analysis (principal component with a varimax rotation) and factor loadings of less than
0.65 were excluded (Tables II, III and IV). Tests for multi-collinearity were completed
using variance-inﬂation and tolerance factors. Overall, signiﬁcance of the regression
model was assessed using the test statistics of standardized (
) co-efﬁcients, standard
error of the co-efﬁcient, Fand adjusted R
. A ﬁnal moderated multiple regression
(MMR) analysis was used to test H2a-2c after that described in Baron and Kenny
(1986) and later in Aguinis (2004).
According to Hair et al. (1998) a minimum number of 50 observations is required to
conduct a factor and regression analysis. The main problem associated with a small
sample size in statistical analyses described by Hair et al. (1998) and other authors
(Tabachnick and Fidell, 2001) is the inability to detect statistically signiﬁcant
relationships that only appear in larger samples. Alternatively, larger sample sizes
attract heightened sensitivity in that normally weak relationships can appear more
signiﬁcant than they would in a smaller sample. Techniques can be used to add conﬁdence
to the statistical ﬁndings arising from a regression analysis ora MMR analysis on a small
sample size. These include an additional methodology such as qualitative interviews or
case studies either pre-survey or post and conﬁning the number of variables in any
analysis to a minimum number so as to maximize the degrees of freedom (Hair et al., 1998).
Although small sample sizes suffer from problems of generalisability and low statistical
power, any highly signiﬁcant relationships found during an appropriate statistical
analysis often can prove more robust than when found in a large and statistically sensitive
sample (Hair et al., 1998; Tabachnick and Fidell, 2001).
1. Our major customer requires us to achieve
ISO14000 certiﬁcation 0.923 0.663 0.762 p,0.001
2. Our major customer has a clear policy statement
on their commitment to the environment 0.847
3. Our major customer would withhold our supply
contract if we did not meet their environmental
performance requirements 0.677
Extracted scale for
Investment We dedicate and reserve equipment and capacity speciﬁcally to maintain this
Contracts We have signed an extensive agreement (or contract) with this customer
specifying price, quality and lead-time
Assessment This customer assesses our operations (e.g. questionnaire) from time to time
The primary relationship which is proposed between the main construct supplier’s
environmental commitment and customer’s environmental focus is articulated through
H1. The results of the regression analysis for H1 are shown in Table V. In Table V,
standardized co-efﬁcients and adjusted R
values are provided to describe the results
of the analysis.
The results of the regression analysis show no statistically signiﬁcant relationship
between the supplier’s level of environmental commitment and the customer’s
environmental performance requirements. At the item-speciﬁc level, one variable
contributed most of the predicted variance in the relationship between the
supplier’s environmental commitment and customer’s environmental performance
requirements – supplier certiﬁcation to ISO14001 – with the remaining two items
predicting much less.
The second stage of the analysis involved including a series of condition variables
as moderators of the primary relationship described by H1. Using MMR analysis, the
results of this analysis which describes and tests H2a-2c is shown in Table VI.
In Table VI, standardized co-efﬁcients are shown for the regression analysis for
each of the moderator variables – Investment (H2a), Contracts (H2b) and Assessment
(H2c) – along with adjusted R
values, change in adjusted R
values between the
un-moderated and moderated models and the Fstatistic.
Customer’s environmental performance requirements
Customer requires us to achieve ISO14000 certiﬁcation 0.314 0.063
Customer has a clear policy statement on their commitment
to the environment 0.075
Customer would withhold our supply contract if we did not
meet their environmental performance requirements 20.048
p,0.001. Standardised co-efﬁcients are shown as
Testing H1 – regression
analysis of environmental
Environmental commitment (Y)
Moderator variables (Z) DR
Investment: we dedicate and reserve equipment and
capacity speciﬁcally to maintain this relationship 0.104 7.15 **
Contracts: we have signed an extensive agreement
(or contract) with this customer specifying price,
quality and lead-time 0.015 0.87
Assessment: this customer assesses our operations
(e.g. questionnaire) from time to time 0.028 1.59
p,0.1; *p,0.05; **
p,0.001. Standardised co-efﬁcients are shown as
Testing H2a,2b and 2c –
MMR analysis of
In the MMR analysis, the primary regression relationship between the environmental
commitment construct and the customer’s environmental performance requirement
construct becomes statistically signiﬁcant for the Investment model (change in adjusted
is signiﬁcant at p,0.001) but not for the Contracts or Assessment models.
As other authors have described, the environmentally committed organization can be
more reliably considered to have well-developed systems and practices of
environmental management, have higher levels of environmental performance and
be more likely to respond to its customer’s environmental performance requirements.
For the customer’s environmental performance requirements, the presence of
Investment between the customer and the supplier provided a signiﬁcant inﬂuence on
the response of the supplier to its customer’s needs. In the analysis a measure of
transaction-speciﬁc investment or asset-speciﬁcity (termed Investment) was provided
by the item – We dedicate and reserve equipment and capacity speciﬁcally to maintain
this relationship. This represented sunk assets for the supplier that as they were
increased, also decreased their value as re-deployable assets. In the relationship
between the customer’s environmental performance requirements and the supplier’s
environmental commitment, the Investment condition as a moderator proved highly
signiﬁcant as a predictor of variance in the environmental commitment construct
(signiﬁcance of the change in adjusted R
value – p,0.01).
The inﬂuence of the customer’s environmental performance requirements on the
supplier’s level of environmental commitment was not signiﬁcant unless speciﬁc
customer-supplier relationship conditions were also present to moderate the supplier’s
response. The customer’s environmental performance requirements were not
accommodated in a homogenous manner across all customers as might have been
expected from the ﬁndings described by previous research, but were instead dealt with
by the supplier in a more heterogeneous manner according to the importance of the
In the absence of customer-supplier relationship conditions – that is without
any “legitimacy” for the customer’s environmental performance requirements, as
assessed by the supplier – the relationship described by hypothesis H1 was not
The process of supplier performance improvement can often involve a long-term
cooperative effort by the customer including new equipment, supplier training and
deployment of customer staff into the supplier’s plant. It can also take a low
involvement form whereby the customer relies on the competitive force of the market
to extract performance improvement (Krause et al., 2000; Scannell et al., 2000;
Handﬁeld et al., 2000).
Going back to Williamson (1975) and the original transaction cost framework it is
the existence of either transaction-speciﬁc investments and/or contracts that both
minimises supplier opportunism from the customer’s perspective and has positive
performance implications for the relationship. As described in the literature review,
higher levels of asset speciﬁcity between the customer and supplier have been found
by other authors to lead to positive performance gains for both ﬁrms involved in the
exchange (Dyer, 1997; Handﬁeld and Bechtel, 2002).
The ﬁndings described in this study support the importance of asset-speciﬁc
investments in the relationship between a customer’s environmental performance
requirements and their potential to improve the supplier’s commitment to its
environmental responsibilities. Without Investment the supplier appears much less
likely to be responsive to the customer’s requirements for environment-related
These ﬁndings are supported by observations made during earlier discussions with
operations managers in Australian automotive component supplier ﬁrms such that
suppliers were desirous of emulating or adopting their customer’s environmental
practices especially where the supply relationship was described by the supplier as
being most critical to their ﬁrm’s survival.
Conclusions and further research
Encapsulating environmentally relevant goals, practices or technologies within supply
requirements bears signiﬁcant potential for large organizations to impart new
knowledge to their under-resourced suppliers. It provides a modus for organizations to
extend their goals of corporate social responsibility, communicate their commitment
to such goals and provide a leadership role to their suppliers.
The major ﬁnding of this research was that the customer’s environmental
performance requirements can have a positive inﬂuence on a supplier’s strategic level
of commitment toward its environmental responsibilities. The presence of relationship
conditions that promote greater levels of ﬁnancial commitment between the supplier
and the customer – relationship-speciﬁc investment – is expected to increase this
inﬂuence. Increasing levels of the supplier’s strategic environmental commitment is in
turn expected to have a positive impact on the supplier’s environmental performance.
A practical application of these ﬁndings may be that customers consider the
application of any program of green-supply in a hierarchical manner such that critical
or strategic suppliers receive more intensive assistance or development with their
environmental performance. Non-strategic suppliers, particularly those that provide
more commodity goods or are sourced on a market basis, could be required to certify to
a basic level of compliance such as an industry management standard (ISO14001). This
provides the customer with a minimum assurance of risk management and
environmental performance without the associated transactional investment. At a less
tangible level our study suggests that customers should remain conscious of the old
adage “Do as I say and not as I do” such that suppliers may become less responsive to
the customer’s environmental performance requirements where the customer does not
demonstrate a level of commitment toward its environmental performance that
exceeds its own requirements for the supplier.
Ideally a customer intending to upgrade the environmental performance of its
suppliers could consider that its suppliers are initially likely to wait for the customer to
determine their environmental responsibilities for them. With time these suppliers will
develop these competencies and determine their own strategies or responsibilities. The
customer’s goal for those organizations involved in its supply chain should be at a
minimum, to reduce their overall waste burden or generation of pollution in both
hazardous and non-hazardous forms. This has a dual purpose of both decreasing the
organization’s actual or potential impact on the environment and also reducing costs
for supply chain stakeholders.
The exploratory nature of this study has provided for the development of a more
rigorous conceptual model that may be applied to further studies of the implications of
supply greening. Of particular interest will be the use of the revised model and
hypotheses to a larger sample size or different industry. Many additional questions still
remain surrounding the relationship factors that might support, inﬂuence or degrade
any customer or supplier-driven program of supply greening. This study has been able
to provide some empirical support for a number of potential new theories in a large and
under-developed ﬁeld of research. Customer-driven programs of green-supply remain a
potentially powerful tool for reducing the environmental impacts of product supply
chains in addition to the inﬂuence that other non-ﬁnancial stakeholders (government,
community, employees) may have.
The conduct of this research is limited to the Australian automotive industry and its
constituents. Although this industry is populated by a number of global assemblers
and many organizations supplying internationally, the study’s participants operated
and resided within the Australian cultural context. Equally, this industry operates and
supplies almost entirely toward the provision of only automotive goods. The analysis
and ﬁndings of this research should be considered with respect to this context.
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