Research of evaluation indexes and method for green supply chain management

Economic Management Journal October 2013, Volume 2, Issue 4, PP.111-117

Research of Evaluation Indexes and Method for Green Supply Chain Management Yiqing Lu, Chen Li School of Information Management, Beijing Information Science and Technology University, Beijing, 100192, China #Email: luyiqing@126.com

Abstract This study has examined the interdependence among the proposed aspects and criteria used to assess GSCM in two hierarchical structures and the obtained results were compared to those from a real situation. In addition, the research status of GSCM was described, then the aspects and criteria involved qualitative preferences in GSCM evaluation; followed by the discussion on the evaluation method to evaluate a supply chain.

Keywords: Green Supply Chain Management; Eevaluation Indexes; Reasoning

1 INTRODUCTION Environmental management has evolved to inclusion of boundary-spanning activities in the supply chain, and both upstream and downstream activities are included in green supply chain management (GSCM) (Sarkis, 1998; Lee et al., 2009). The European Union has established a variety of environmental policies, including the restricted use of hazardous substances in electrical and electronic equipment (RoHS) and waste electronics and electrical equipment directives (WEEE) (These directives ban manufacturers, sellers, distributors and recyclers of electrical and electronic equipment from launching new equipment that contains hazardous materials and electronic waste on the market (Tseng et al., 2009a; Tseng, 2010). Zhu et al. (2008) showed that even though there are significant environmental reasons to motivate close-loop supply chains, regulatory, competitive and economic pressures also play roles in the adoption and implementation of closed loop supply chains across industries. Nonetheless, this study generated a hierarchical framework to represent firms when selecting suitable suppliers. Nevertheless, a limited understanding of the close-loop hierarchical structures of GSCM has hindered the development of a widely acceptable framework that characterizes and categorizes the relevant environmental activities.

Currently, a wide variety of studies on GSCM can be found in the literature (Zhu and Sarkis, 2004; Srivastava, 2007; Zhu et al., 2008; Tseng, 2010). Through GSCM, firms can select from a wide variety of suppliers and can leverage resources throughout the firm to eliminate the environmental impact of supply chain activities (Tseng et al., 2009b; Tseng, 2010). Firms typically expect their suppliers to go beyond environmental compliance and to develop efficient green product designs. In addition, suppliers are expected to assess the life cycle of a product. GSCM utilizes the supplier’s processes and technologies, as well as the supplier’s ability to integrate environmental concerns and to enhance the firm’s competitive advantage. Nevertheless, a firm’s suppliers must satisfy GSCM aspects and criteria under the constraints of incomplete information and subjective human preferences (uncertainty). A hierarchical structure is always the basis for multi-criteria decision making (MCDM). The GSCM evaluations are often based on subjective preferences or incomplete information in real systems.

In the literature, Sarkis (2003) proposed an open hierarchical decision framework based on the literature and environmentally conscious business practices for an evaluation of GSCM. Tseng and Chiu (2013) presented a study on practicing GSCM and selecting a green supplier that meets their requirements in a close-loop hierarchical structure. Choosing suitable suppliers is a key strategic task for eliminating the environmental impact in GSCM. Academically, Kainuma and Tawara (2006) extended the range of the supply chain to include reuse and recycling throughout the life cycle of products and services and proposed a multiple attribute utility theory to assess a lean and green supply chain; the performance of a supply chain is assessed not only from the managerial viewpoint but also - 111 www.emj-journal.org

from the viewpoint of environmental performance. Additionally, GSCM and logistics efforts have caused organizations to consider closing the supply chain loop. Within management practices, recoverable product environments and the design of the appropriate products and materials are important for environmentally conscious manufacturing and logistics (Seuring, 2004, Zhu et al., 2008). None of these studies has compared the results of the real status, close-loop and open hierarchical structures of GSCM together.

The objective of this study is to compare and evaluate the real status of GSCM. A challenge of this study is that GSCM evaluation involves uncertainty because of the rapid changes in environmental information, and these aspects and criteria are measured in linguistic terms. Additionally, in real situations, many aspects and criteria are interdependent in evaluating a supply chain. However, none of the prior GSCM literature has presented the closeloop and open hierarchical structures and compared their outputs.

In section 2 of this paper, a literature review of GSCM was provided. The evaluation indexes were described in section 3 and the method used to develop GSCM criteria was validated and presented in Section 4. This paper was concluded in section 5 by summarizing the results, implications, and limitations of this study and by discussing potential topics for future research.

2 LITERATURE REVIEW OF GSCM The GSCM criteria have been used to explain green planning, materials control and external information flows.

These criteria have been categorized into strategic, inter-organization, and internal service quality, addressing the challenge of selecting green suppliers and purchasing to improve a firm’s competitiveness. Wee and Quazi (2005) identified seven critical factors in their research into environmental management: top management commitment, the total involvement of employees, training, the use of green products and process design, supplier management, measurements, and information management. Chou and Chang (2007) proposed a system that evaluates alternative suppliers utilizing a supply chain management (SCM) strategy to identify supplier qualification criteria, and the resulting model allows decision-makers to incorporate the supply risks of individual suppliers into the process of final decision making. Chan and Kumar (2007) identified some of the important and critical criteria, including risk factors for the development of an efficient system for global supplier selection.

In addition, Zhu and Sarkis (2004) and Zhu et al. (2008) encompassed a set of GSCM practices useful for logistics management, including reducing packaging and waste, assessing suppliers based on environmental performance, developing more eco-friendly products, and reducing carbon emissions that are associated with the transport of goods. Walker et al. (2008) presented a GSCM that covers all of the phases of LCA, from the extraction of raw materials through the design, production, and distribution phases to the use of the product by consumers and the disposal of the product at the end of the LCA. Vachon and Klassen (2008) asserted that environmental collaboration was defined specifically to focus on inter-organizational interactions between supply chain members, including aspects such as joint environmental goal-setting, shared environmental planning, and collaboration to reduce the impact of pollution or other environmental issues. Hence, a green supplier is necessary for a firm to satisfy the GSCM criteria and to determine the suitability of a supplier (Lee et al., 2009).

In conclusion, economic performance is an important reason why manufacturing firms seek to implement environment practices. Previous studies showed that success in addressing environmental issues can provide new opportunities for competition and new ways to add value to core business and environmental practices. For example, internal and external GSCMs have positive relationships with an organization’s economic performance as a component of win-win propositions (Montabon et al., 2007, Lai et al., 2010, Wong et al., 2012). An environmentally conscious purchasing approach must be compliant with customers’ needs as well as regulations. This study proposed a hybrid technique based on addressing two proposed hierarchical structures. There are very few studies in which these close-loop and open structures are applied to solve a specific solution. Fuzzy set theory accounts for the vagueness of the language used to express qualitative criteria, whereas ANP addresses interdependence relations.

3 EVALUATION INDEXES The operation evaluation of a firm is an on-going process that requires continuous monitoring to maintain a high - 112 www.emj-journal.org

level of internal process evaluations across a number of criteria within an organization. Hermann (2007) defined GSCM as the direct involvement of firms with their suppliers and customers in planning jointly for solutions to reduce the environmental impact from production processes and products to attain environmental management.

Green design approaches to improve the competitiveness of the products and to select sound suppliers are needed to ensure that the materials and components satisfy environmental regulations, and that hazardous substances are not created throughout the production process, that the firm has a description of how to deliver finished goods to the market and that the service delivered to the consumer attracts additional consumers (Bhat, 1993, Chen and Paulraj, 2004). Tan et al. (2002) explored the relationships between supplier management practices, customer relations practices, and organizational performance, using purchasing, quality and customer relations to represent SCM. Moreover, Chen and Paulraj (2004) asserted that customer focus, competitive priority, strategic purchasing, and top management support are independently related; it is difficult to justify the independencies, and this assertion has invited many disputable arguments among the studies. The approach established environmental standards in its purchasing policies for suppliers, which involves supplier selection, evaluation, and relation development. Some studies explored vendor selection from environmental managerial perspectives to qualitative and quantitative considerations. Hence, the aspects of this study propose process control (AS1), supplier involvement (AS2), customer focus (AS3) and top management support (AS4). This approach integrated the most relevant activities, components, and characteristics that are found in the GSCM literature, proposed as criteria. Process control (AS1) means more focus placed on environmentally conscious practices, including reducing resources, eliminating waste, recycling and reuse, purification, and substituting materials without affecting material property. This aspect includes reducing the use of fresh water and increasing recyclability (C1); reducing the dispersion of toxic and hazardous materials (C2); reducing greenhouse gas emissions (C3); reducing the amount of hazardous waste that is generated (C4); and reducing the waste that is generated by contracted service/material providers (C5) (Walton et al., 1998, Zsidisin and Siferd, 2001, Min and Galle, 2001, Hsu and Hu, 2009).

Johnson (2009) identified a set of criteria that affect the success of supplier involvement (AS2) and conducted a discussion of emerging themes, as follows: providing a possible route for outsourcing that can participate in raw material or packaging life cycle assessment due to supplier involvement (C6); forming local partnerships between suppliers (C7); increasing the durability of products (C8); increasing the percent of products with take-back policies (C9); and either reducing the defective product rate or increasing the product yield rate (C10) (Liker et al., 1996, Hartley et al.,1997).

TABLE 1 EVALUATION INDEXES FOR GSCM

Aspects

Process control(AS1)

Supplier involvement (AS2)

Customer focus (AS3)

Top management support (AS4)

Criteria Reduce the use of fresh water and increase recyclability (C1) Reduce dispersion of toxic and hazardous materials (C2) Reduce greenhouse gas emissions (C3) Reduce amount of hazardous waste generated (C4) Reduce of waste generated by contracted service/material provides (C5) Percentage of suppliers participating in raw material or packaging life cycle assessment(C6) Percentage of suppliers from the local area (C7) Increase the durability of products (C8) Increase percent of products with take-back policies (C9) Reduce product defective rate or increase product yield rate(C10) Customer retention/percentage of growth with existing customers (C11) Customer acquisition: number of new green customers /total revenue to new green customers (C12) Customer satisfaction on green design and products (C13) Customer/supplier profitability on green products (C14) Service quality: customer/supplier complain rates (C15) Achieve zero lost workdays as result of work-related injuries and illness (C16) Increase the rate of employee suggested improvement in quality, social and environment health and safety performance (C17) Increase employee training on green knowledge (C18) Technological innovation as the main solution to un-sustainability(C19) Design all green products can be disassembled, reused or recycled, free hazardous materials (C20) - 113 www.emj-journal.org

The customer focus (AS3) is the goal of GSCM, which is to “create and maintain customers” (Levitt, 1985). The criteria for this aspect contain the responses to customer retention/percentage of growth with existing customers (C11); customer acquisition (number of new green customers/total revenue to new green customers) (C12); customer satisfaction on green products (C13); customer/supplier profitability on green products (C14); and service quality (customer/supplier complaint rates) (C15) (Johnston et al., 2004; Sousa, 2003; Tseng et al., 2008).

GSCM activities are involved with the top management support (AS4), which is a direct sustained competitive advantage that should be able to exploit unique competencies (Lado et al., 1992). This aspect emphasizes such criteria as achieving zero lost workdays as a result of work-related injuries and illness (C16); increasing the rate of employee-suggested improvements in the quality, social and environmental health and safety performance (C17); increasing employee training on green knowledge (C18); using technological innovation as the main solution to increase sustainability (C19); and using a design in which all green products can be disassembled, reused or recycled to free hazardous materials (C20) (Wilson and McDonald, 1996; Chen and Paulraj, 2004). Top management refers to a balance between short- and long-term profits in business operations.

Table 1 presents a description of this study on the aspects and criteria that are encountered. This evaluation creates a typical MCDM problem that is based on varying aspects and criteria and that discusses the measures associated with GSCM. The assessment should be especially concerned with determining what aspects and criteria have enabled the firm to be sustained in the long term.

4 EVALUATION METHOD Section 3 presents a total of 20 indicators from four aspects of the GSCM. When a supply chain is evaluated on whether the standards are met, a value can be given for each index, and the domain is set to be {0, 1, 2, 3, 4}, respectively, Equal important, Moderate important, Strong important, Demonstrated important and Extreme important. Let Vi, i=1,…,20 be the value of criterion i.

Let Si, i=1,…,20 be the minimum standard of each value of criterion i, Si is given by expert.

Now we present the requirements of the supply chain X. Firstly, there is no limit to X. r1:  acceptable(X) However, X is unacceptable if one of the requirements of the manufacturer is not met. r2: V1<S1  acceptable( X ) … ri: Vi-1<S i-1  acceptable( X ) … r21: V20<S20  acceptable( X ) Rules r2-r21 are exceptions to rule r1, so we add r2>r1, …,ri>r1, …, r21>r1 According to the above rules, program can be automatic reasoning out a supply chain whether the standards of GSCM are met or not.

5 CONCLUSIONS The proposed four aspects and twenty qualitative criteria are simultaneously considered and evaluated in this study.

GSCM requires identifying the appropriate measures to complete a robust study and to advance the body of knowledge in a field, both academically and practically. Academically, more attention must be paid to employing aspects and criteria, assessing the aspects and criteria for content validity and purifying them through extensive literature reviews to effectively and empirically advance theory within this field. In practice, firms can benefit from developing reliable and valid aspects and criteria. The practitioner applies these aspects and criteria for benchmarking and continuous improvement. Another contribution of this study is to guide firms in understanding the - 114 www.emj-journal.org

different hierarchical structures that comply with their real practices. To aid in the supplier selection of GSCM, this study has found a practical application of the MCDM tool when considering expert opinions.

The proposed analytical framework provides practitioners and researchers with a better understanding of the differences in the operations activities and specific management interventions that would improve the likelihood of excellent and useful research by examining the GSCM, as well as monitoring and control by management to track supplier selection dilemmas under GSCM requirements. However, there are many types of frameworks that have been proposed in the literature (Sarkis, 1998; Zhu, et al., 2008; Tseng et al., 2008, Tseng, 2010). In MCDM, most of the prior studies assist only at decision making, and only a few previous studies analyzed to find an explanation (Tseng and Lin, 2009). Few studies have provided a comparison of the hierarchical models and evaluated which model most closely resembles a real situation. To fill this gap, the present study compares two types of hierarchical structures among those often applied to MCDM. The results presented here show that the close-loop model helps to structure a difficult and often emotionally burdened decision. The hierarchical framework which has been modeled and examined through a comprehensive review within the firm’s operational conditions, can be used for MCDM. Moreover, a model that is aptly tailored for a specific case firm can easily be modified to suit and be applied to another firm’s management activities. In this manner, evaluators need to set only the relevant criteria about their firm to apply the approach. Consequently, the GSCM can be applied by using different aspects and criteria and can be further modified and refined if required.

This study is valid with a close-loop hierarchical structure, and a fuzzy measure establishes a foundation for future research and is appropriate for predicting uncertain aspects and criteria. The close-loop structure can be applied to evaluate and determine a firm’s GSCM supplier selection, to improve the firm’s performance and to provide the information that will have a substantial effect on reducing the overall uncertainty and risks for management.

Although an optimal solution might not exist because of the MCDM nature of the proposed problem, the proposed method leads to a choice of alternatives for the possible final suppliers.

ACKNOWLEDGMENTS This work was supported by the National Natural Science Foundation of China under Grant (No. 61272513), Funding Project for Academic Human Resources Development in Institutions of Higher Learning under the Jurisdiction of Beijing Municipality (No. PHR201106133), and the Projects in the National Science & Technology Pillar Program (No.2012BAH08B02).

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AUTHORS Yiqing Lu (1980- ). Instructor of Beijing Information Science

Chen Li (1962- ). Professor of Beijing Information Science and

and Technology University. Ph.D.in Management Science and

Technology University. Ph.D.

Engineering, School of Economics and Management, Beihang University.

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