Linking green purchasing capabilities to environmental and economic performance: The moderating role of firm size
Introduction
Green purchasing, also known as environmentally preferable purchasing (EPP), has become an important issue as concerns about our environment grow. Green purchasing refers to “making environmentally conscious decisions throughout the purchasing process, beginning with product and process design, and through product disposal,” according to Institute for Supply Management (ISM).1 Green purchasing practices encompass all environmental considerations regarding supply management decisions, along with traditional purchasing factors such as product price and supplier location. In 2012, the total cost of materials made up about 59% of the value of firms’ revenue in the U.S. manufacturing sector (U.S. Census Bureau, 2012). Given that purchasing accounts for a key upstream supply chain activity of the majority of firms, green purchasing plays in enabling comprehensive objectives of firms’ corporate social responsibilities (CSRs) (Blome and Paulraj, 2013). Accordingly, green purchasing has been an important topic for purchasing managers seeking to demonstrate corporate social responsibility (CSR) in their supply chains (Walker et al., 2012). Lefevre et al. (2010) assert that sustainability is accepted as a fourth dimension that purchasing managers focus their initiatives on, following price, quality, and time. In addition, according to the Principles of Sustainability and Social Responsibility of the Institute for Supply Management, social responsibility and sustainability practices in supply management are stipulated as a framework for supply professionals. Therefore, a growing number of firms are recognizing the roles that they play in sustainability initiatives with their suppliers. For example, several leading companies such as Puma, Coca-Cola, and McDonald's released their Sustainability Scorecards, which includes environmental responsibility, and applied it to their supply chain management. Wal-mart implemented the “CO2 scorecard” and saved over $3.4 billion through the reduction of packaging materials (Lefevre et al., 2010). Anheuser-Busch worked with lid suppliers to reduce the diameter of their can lid, and saved 20 million pounds of aluminium and energy needed for production and transportation each year (Turner and Houston, 2009). Accor Hotels purchased energy-efficient lights in 2300 hotels and yielded savings of 72 million kWh of electricity in one year (Lefevre et al., 2010).
Currently, many of the firms’ operations are outsourced to suppliers, and a firm's aggregate environmental impact increasingly depends on the environmental impacts of the company's supply chain partners (Tate et al., 2012). As the meaning of purchasing becomes wider in scope, chief purchasing officers (CPOs) and purchasing managers have adopted new dimensions of purchasing other than traditional dimensions, such as price, quality, reliability, and time (Kaufmann et al., 2014, Kull et al., 2014). Sustainable purchasing & supply management is one of such newly adopted dimensions (Lefevre et al., 2010). In other words, a firm's true environmental impact is affected by the purchasing capability of a buying firm. Growing interests in sustainable P&SM are also found in the academia. Green purchasing has been a popular research topic that reflects the prevailing concerns of practitioners. Myriads of studies have been conducted regarding green purchasing (Carter and Easton, 2011, Hoejmose and Adrien-Kirby, 2012), but the majority of these studies are confined to identifying green purchasing management; involving existing suppliers in environmental issues; selecting, managing, and evaluating environmentally oriented suppliers; and establishing the purchasing department's new role in environmental issues. Few studies have investigated the impact of green purchasing capabilities on environmental and economic performance (Tate et al., 2012). Environmental and economic performance linked with green supply chain management (GSCM) practices has been the topic of considerable interest in recent organisational research studies, but different constructs or variables have been used for environmental and economic performance (Trumpp et al., 2015; Bansal and Gao, 2006). Consequently, defining environmental and economic performance has presented a challenge mainly due to the lack of consensus and norms regarding the selection of constructs or variables to examine such performances. (Dixon-Fowler et al., 2013).
Despite the potential benefits of green purchasing to intangible assets, like reputation, or to environmental performance, like the reduced emission of carbon dioxide, the CSR movement is often discouraged by the high implementation costs of environmental programs (Min and Galle, 1997). Many business leaders believe that increased investment in environmental improvement raises the total purchasing costs and subsequently imperils the competitiveness of their companies. This perception seems to dominate in most business sectors (Lee et al., 2015, Pinkse and Kolk, 2010, Weinhofer and Hoffmann, 2010). However, the research on the relationship between green purchasing practices and firm performance has received relatively little attention in the previous literature (Hoejmose and Adrien-Kirby, 2012, Wang and Sarkis, 2013). In particular, no research has been conducted to examine the multiple relationships among green purchasing activities, environmental performance, and economic performance.
The current research investigates the relationships between green purchasing capabilities and firm performance. Particularly, it focuses on green purchasing capabilities as a success factor of both environmental and economic performances, since the green purchasing capability is not a collection of tools and techniques, but is, instead, a dynamic system connecting them, determined by the organisational capabilities that show many different aspects of the knowledge accumulated in the organisation. Researchers often distinguish between operational (or basic) capabilities and dynamic (or process) capabilities from various aspects of organisational capabilities (Helfat and Winter, 2011, Winter, 2003, Teece, 2007). According to Teece (2014), the dynamic capability framework is defined as “an entrepreneurial approach that emphasises the importance of (signature) business processes, both inside the firm and also in linking the firm to external partners.” Winter (2003) and Helfat and Winter (2011) argued that operational capabilities are based on ongoing activities and to make a living in the present whereas dynamic capabilities enable a company to extend how the company makes a living in the long term. Organisational capabilities are expected to affect the behaviour and the performance of a firm in different ways. In order to understand the impact of different capabilities of green purchasing, the performances of operational and dynamic capabilities need to be investigated separately.
In this research, we examine the three pair-wise relationships among green purchasing capabilities, environmental performance, and economic performance. This approach is based on the assumption that green purchasing capabilities will improve environmental performance, and eventually improve economic performance not directly but through cost reduction caused by increasing productivity and/or product quality. The relationship between successful green purchasing implementation and subsequent successful environmental and economic performance is important in the context of corporate environmental strategies, as there is a sequential logic embedded in environmental operational strategy implementation.
Previous research has found that the effect of organisational capabilities on firm performance is moderated by firm size (Teece et al., 1997, Wilden et al., 2013). On the one hand, large firms possess or have access to more resources, more flexibility to devote resources to strategic supply chain activities, and greater leverage in supplier relationships (Boyer et al., 1996, Wagner et al., 2003, Koufteros et al., 2007). Small and medium enterprises (SMEs), on the other hand, may face greater obstacles when adopting SCM practices, and they often show less capability to harness the benefits of SCM than their large firm counterparts (Vaaland and Heide, 2007). Hence, firm size is expected to play a role in the adoption of green supply chain practices (Bose and Pal, 2012). Therefore, this research also investigates the moderating effect of firm size on the relationship among green purchasing capabilities and environmental and financial performance.
The expected contributions of this study include, but are not limited to, the following. First, this study reinforces the existing body of knowledge regarding green purchasing capabilities as a part of organisational capabilities. Previous research about green purchasing or GSCM has rarely discussed organisational capability issues. On the other hand, this paper investigates the aspect of organisational capability in green purchasing practices. Second, this paper examines the relationship between different types of green purchasing capabilities and environmental and economic performance. This research is expected to fill the dearth of empirical research suggesting that the development of particular capabilities can contribute simultaneously to environmental and economic performance. Third, the paper explores the moderating effect of firm size on the relationship between green purchasing capabilities and firm performance.
The remainder of the paper is organised as follows. In Section 2, we examine the theoretical foundations of green purchasing capabilities and their link to environmental and economic performance. We also provide a theoretical framework and posit research hypotheses. In Section 3, we discuss the empirical research methodology and explain our measures. In Section 4, we report the results. Section 5 discusses the implications of our results. Finally, Section 6 concludes and suggests further research topics based on the limitations of the current study.
Section snippets
Research framework
The research framework is depicted in Fig. 1. This simple framework is designed to explore the relationships among green purchasing capabilities, environmental performance, and economic performance with regard to firm characteristics. Three main research questions are raised up in this study:
- 1.
Does green purchasing practice contribute to better firm performance?
- 2.
Why does one firm outperform others in the same industry, even when all of these companies utilise almost identical green purchasing
Questionnaire development
In this research, a survey was developed to explore the relationship between green purchasing capabilities and environmental and economic performance. The survey items used for this research were developed based on an extensive review of previous studies and interviews with senior managers in a broad cross-section of industries. The aim of these interviews was to assess the success factors and barriers posed by the environmental agenda on purchasing, and to capture managerial interpretations of
Results for the structural equation model
The SEM was used to test the causal relationship among green purchasing capabilities and environmental and economic performance. The robustness of the model was tested by a number of indices. The χ2 value, which is recognised as the measure of fit, was 363.7 and was determined to be significant at p < 0.001. The goodness-of-fit (GFI) was 0.815, which is higher than the conventional acceptance value (0.80). The comparative fit index (CFI), which measures the comparative reduction in
Implications
Based on the responses from 239 Japanese manufacturing companies, this study found several notable managerial implications for managers as well as policy makers. First, as predicted, the results support our hypothesis that green purchasing capabilities positively affect environmental and economic performance. This finding is important, since there have been a limited number of studies that have empirically tested whether green purchasing capabilities can lead to an increase in economic
Conclusions
This study offers a new and insightful direction for future empirical studies, since different approaches for operational and dynamic capabilities must not be neglected. Both operational and dynamic capabilities are positively related to environmental and economic performance. Therefore, firms need to develop an ambidextrous strategy for both operational and dynamic capabilities. However, these capabilities must be administered in different ways. Therefore, managers and stakeholders need to
Acknowledgements
We are grateful to the editor and reviewers for helpful comments and feedback. This study has been graciously supported by National Research Foundation of Korea. Funding for the data for this study was granted by the Korean Government (NRF-2013S1A2A1A01034449).
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