TAN 2019

Int. J. Sustainable Strategic Management, Vol. 7, Nos. 1/2, 2019
91
Green supply chain management: impact on
environmental performance and firm competitiveness
Cheng Ling Tan*
Graduate School Business,
Universiti Sains Malaysia,
11800 Penang, Malaysia
Email: tanchengling@usm.my
*Corresponding author
Suhaiza Hanim Mohd. Zailani
Faculty of Business and Accountancy,
Universiti Malaya,
50603 Kuala Lumpur, Malaysia
Email: shmz@um.edu.my
Sieow Chin Tan
Graduate School Business,
Universiti Sains Malaysia,
11800 Penang, Malaysia
Email: tsc0611@yahoo.com
Sook Fern Yeo
Faculty of Business,
Multimedia University,
75450, Bukit Beruang, Melaka, Malaysia
Email: yeo.sook.fern@mmu.edu.my
Abstract: Unrestrained industrialisation resulting in environmental pollution
has mobilised the unstinting endeavours of scientist, researchers, policy makers
and ecologist in a quest to rapidly unearth solutions to mitigate further
environmental deterioration. One promising ongoing development is green
supply chain management (GSCM), which promises a reduction of pollution
and waste in manufacturing. GSCM achieves this through the mechanism of
improving manufacturing efficiency, by reducing costs, enhancing
product quality and improving product delivery. This study applies the natural
resource-based view, and quantitatively examines the impact of the
implementation of GSCM on firm environmental performance, and firm
competitiveness. Data was collected from 122 sampled firms, analysed, and
evaluated in two ways. Firstly, using partial least squared-structured equation
modelling (PLS-SEM), results indicate that ‘green procurement’, and ‘green
supplier and customer collaboration’, have a significant positive relationship
with both firm environmental performance, and, firm competitiveness.
Secondly, using importance-performance matrix analysis (IPMA), both ‘green
Copyright © 2019 Inderscience Enterprises Ltd.
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procurement’ and ‘green supplier and customer collaboration’ are mapped in
the high in importance/high-performance quadrant. The practical
recommendations are for organisations to prioritise efforts and resources
towards ‘green procurement’ and ‘green supplier and customer collaboration’
in order to maximise the return on ‘green’ investment.
Keywords: green supply chain management; GSCM; green procurement; green
production; firm environmental performance; firm competitiveness;
manufacturing firm; supplier; customer; collaboration.
Reference to this paper should be made as follows: Tan, C.L., Zailani, S.H.M.,
Tan, S.C. and Yeo, S.F. (2019) ‘Green supply chain management: impact on
environmental performance and firm competitiveness’, Int. J. Sustainable
Strategic Management, Vol. 7, Nos. 1/2, pp.91–112.
Biographical notes: Cheng Ling Tan is Associate Professor and Deputy Dean
of the Graduate School of Business at the University of Sains Malaysia. She
lectures on operations strategies alongside supervisory MBA, DBA, and PhD
students in the fields of management, innovation, operations management,
supply chain management, and quality management. Her research
accomplishment has been noted in many international referred journals,
research grants, and training and consultancy. She has served as a peer reviewer
for numerous international publications.
Suhaiza Hanim Mohd. Zailani is a Professor of Supply Chain at the Faculty of
Business and Accountancy, University Malaya. Her research interest is mainly
on the development of three key areas: quality management, supply chain
management and Halal issues. Her achievement in supply chain management is
excellence as evident in number and quantum of publications, research grants,
consultations, training, industrial linkages, and professional appointments that
she has successfully secured and fulfilled. Her expertise has also been
recognised within the academia as she has been appointed as the editorial board
members for almost 50 international referred journals and conferences.
Sieow Chin Tan is an MBA graduate from Graduate School of Business,
Universiti Sains Malaysia. She is currently working with a multi-national
company at Free Trade Zone, Bayan Lepas at Penang. Her main research
interest is in the field of supply chain management, particularly in green supply
chain.
Sook Fern Yeo is a Lecturer at the Faculty of Business, Multimedia University
in Melaka. She commenced career as a lecturer with 16 years of teaching
experience. She teaches marketing for bachelor degree programs, specifically
understanding management, fundamentals of marketing, service marketing,
brand management and strategic marketing. She supervises undergraduate
students mainly in marketing, human resource, and international business. She
also published in internationally refereed conference papers, journal articles,
and book chapters.
1
Introduction
In the intensively competitive world, the competition exists not only between
organisations but also among the supply chains. In recent years, the rapid technological
development and modern transportation system have made the entire supply chain of an
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93
organisation to be more effective and efficient. Therefore, supply chain management
(SCM) plays a very critical role as a key factor to improve organisational performance
and to gain a competitive advantage (White and Mohdzain, 2009). Excellence in SCM
dictates the significant aspect of customer satisfaction, operating performance and many
other key performance indicators of the companies that determine the competitiveness of
a company. However, to win more businesses,many companies are demanding the
suppliers to implement green supply chain management (GSCM) practices and comply
with additional environmental requirements (Lee et al., 2012). The increasing pressure of
the environmental issue caused by the industrial activities has also urged many
companies to establish environmental key performance indicators. With the close
monitoring on the environmental performance, the companies will be able to produce
better goods and deliver the better services at a lower cost compared to others which are
operating in the same economic context and hence increase the firm competitiveness
(Testa and Iraldo, 2010).
Many studies recommended that companies shall implement GSCM in order to
become more environmental accountable (Ciliberti et al., 2008) as well as to improve the
firm environmental performance and its competitiveness (Hervani et al., 2005; Tan et al.,
2018). The companies apply the green practices in their supply chain ranging from green
purchasing, green production (GP), reverse logistic, supplier and customer collaboration
to investment recovery (Zhu and Sarkis, 2006). Practically, the companies implementing
GSCM will incorporate the green purchasing of environmentally-friendly materials as
well as incorporating the 3R (reduction, reuse, and recycling) in the procurement policy.
The usage of environmentally-friendly materials will ensure the environmentally-friendly
processes in the production (Ninlawan et al., 2009; Ramakrishnan et al., 2015). Reverse
logistics is one of the GSCM practices that commonly adopted among the companies to
retrieve the products from end users such as packaging cases for re-use and redistribution
(Ninlawan et al., 2009). The companies believe that through the efforts in recycling and
reuse will derive greater value from materials and products as well as reduce inventory
and waste, and hence bring the investment recovery in long-term (Zhu et al., 2005, 2008).
Many researchers revealed that GSCM practices will help the manufacturing
companies reduce cost and increase productivity, resulting in the firm’s ability to
differentiate itself from others, thereby achieving better environmental and financial
performance and secure more competitive advantage, resulting in higher firm
competitiveness (Lopez-Gamero et al., 2009; Tan et al., 2016). The companies that are
proactive in environmental issue may boost company’s environmental performances and
at the same time, help to increase firm competitiveness (Lefebvre et al., 2003). Therefore,
competitive forces make going green an inevitable course, where companies either
comply voluntary or abide by environmental regulatory enforcement (Burke and
Gaughran, 2005).
Despite many manufacturing companies aware that GSCM as a tool for waste
elimination, cost-efficiency, and at the same time environmentally friendly (Ninlawan
et al., 2009), the implementation of GSCM practices in Malaysia is still slow. This
reflects that there may be still many issues in the GSCM implementation at the aggregate
level of the manufacturing companies which has hindered the overall initiatives of the
manufacturing companies to implement it. Given the importance of the green practices on
the companies’ environmentally-friendly image and firm competitiveness, this paper
focuses the study of the impact of GSCM on firm environmental performance and firm
competitiveness.
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2
Literature review
2.1 Green supply chain management
Today, businesses are progressing towards sustainable solutions (Menzel et al., 2010) and
are obliged to adopt the three bottom lines, that is, the 3P-people, profit and planet (Tan
and Zailani, 2009) in order to achieve lasting success. Many environmentally-responsible
companies implement sustainability practices through the adoption of GSCM (Mohan
Kumar et al., 2017; Menzel et al., 2010).
GSCM practices are internal and external environmental management system that
encompass investment recovery, green purchasing, GP and green distribution or
marketing, investment recovery, and reverse logistics in the SCM (Hervani et al., 2005;
Menzel et al., 2010; Ninlawan et al., 2009; Rao and Holt, 2005). It is viewed as a form of
environmental innovation (Zhu et al., 2010). The scope of GSCM practices covers the
flow of material from the supplier, entire manufacturing process as well as the outbound
logistics such as marketing and labelling.
GSCM is not discretionary (Handfield et al., 1997) but are needed to mitigate the
negative impact of industrialisation on the environment (Eltayeb et al., 2010a). Most of
the companies implement GSCM practices to restrain business activities that have a
negative impact on the natural environment (Tan et al., 2017; Gilbert, 2000). The initial
cost invested in GSCM can be very expensive, however, it can be offset by operating
efficiency, waste and energy reduction, improved quality, as well as less rework and
reject quantity in the long run (Shen, 2010). GSCM practices help to improve the firm’s
environmental performance and financial performance (Yang et al., 2010; Rao and Holt,
2005) and contributed directly to the firm’s competitiveness.
Table 1
SCOR model versus GreenSCOR model
SCOR
GreenSCOR
Plan
Included processes of the plan,
schedule and coordinated in supply
chain activities.
Collaboration with suppliers or
customers on environmental issues.
Source
Associated with the procurement of
materials and services to fulfil
requested demand.
Select supplier certified with
environmental management system
(EMS).
Made
Covered processes of transforming
input into the output to meet requested
demand.
Minimising material usage.
Deliver
Associated with the processes of
storing, packing and delivering
products and services.
Design route for minimising fuel
consumption.
Return
Associated with processes of delivering
and receiving from customer and
suppliers, including the return of
products, and commonly called as
reverse logistic.
Take back for reuse/recycle.
Source: Adopted from Supply Chain Council (2010)
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In this study, three GSCM practices are selected namely green purchasing, GP, and green
supplier and consumer collaboration, which are derived from the GreenSCOR model.
GreenSCOR is a modified version of the existing SCOR model and includes the
environmental process, as well as the process’s metric and performance. GreenSCOR
explained five key supply chain environmental processes, namely Plan, source, make,
deliver, return, which has been presented in Table 1 (Supply Chain Council, 2010).
2.2 Environmental performance
A significant and growing of study has attempted to examine the highly sought area of
environmental performance. In recent years, the firm’s environmental performance
concept has been used in several studies (Poser et al., 2012). Definitions of the
environmental performance concept are elaborated next. Environmental impacts caused
by the company’s operations covering operations management and inputs and outputs, as
well as strategic dimensions for managing stakeholder expectations (Poser et al., 2012).
On the other hand, environmental performance is also defined as the corporation activity
on environment impact (Sharma and Vredenburg, 1998). Besides, environmental
performance has been defined as the extent of environmental activities taken by a
company to mitigate environmental impacts (Schultze and Trommer, 2012). Based on
Chien and Shih (2007), management performance and operational management consist of
environmental aspect whereby management performance covers a wide range of
measurement such as environmental policies, certification of the environmental system,
community social responsibility as well as the company image. The previous study
indicated that better environmental performance assured legal compliance and material
efficiency (Zorpas, 2010). An investigation by Nawrocka and Parker (2009) had stressed
on a more comprehensive evaluation of an organisational success should take into the
considerations of the compliance on environmental policies and standards, certification of
the environmental system, waste reduction strategies, cost-saving technologies as well as
a systematic operational practice. In enhancing the study in environmental performance,
previous studies also look into the firm’s community social responsibility, company
image and material efficiency (Chien and Shih, 2007; Zorpas, 2010).
Conversely, Freedman and Janggi (1992) and Levy (1995) indicated that there were
firms with good environmental practices were not viewed positively by the market. There
was a negative relationship between good environmental and economic in a short term.
Similar finding found on reduction in toxic emission is not positively influenced on firm
economic performance (Iraldo et al., 2009). Nawrocka and Parker (2009) stated that
investing in environmental management seems to be the extra burden if the firm’s focus
is cost instead of quality. By looking into short-term profit, the environmental investment
may not attractive due to weak market response. Nevertheless, technological investment
in terms of environmental innovation is capable to develop new technology and solutions
which will reduce operating cost (Testa and Iraldo, 2010).
Environmental performance affects economic performance in terms of cost (Rao and
Holt, 2005). Waste reduction, used material reduction in production will increase
efficiency followed by reduced operation cost despite better utilisation of natural
resources. Greening inbounds lead to cleaner manufacturing and significantly outbound
function as well as competitive and economic performance (Rao and Holt, 2005). Green
adoption leads to increased sales, revenue and new market opportunities. Business
activities with minimum negative impact on the natural environment will displace
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competitors who fail to establish good environmental management. Additionally,
environmental practices manage to cut cost along the firm’s supply chain through a series
of internal practices such as inventory management, efficient resources consumption, cost
reduction in waste treatment and discharge and to avoid the risk of penalty for
non-compliances as well as cases of environmental accident (Chien and Shih, 2007;
Singh et al., 2008). Greening any phase of supply chain potential to turn into economic
and financial performance (Rao and Holt, 2005).
In the pursing of economic outcome, the firm should consider the environmental
burden and try to minimise the impact on the planet where a human being is dependent
on it. Social justice has to be taken into account simultaneously in achieving balance
deployment between environmental and economic return (Chien and Shih, 2007). On the
other hand, the direct impact of environmental practices on financial and marketing
performance is negative; however, it positively affects financial and marketing
performance in the long term (Yang et al., 2010). Therefore, measures of firm
environmental performance are included in the final research model.
2.3 Firm competitiveness
The traditional definition of firm competitiveness is the competitive advantage of the firm
against competitors in delivering goods and services effectively and efficiently in
response to market demands (Bendavid-Val and Perine, 2003). The previous paradigm of
firm performance was the primacy of concern of internal firm operations and cost
differentiation with less attention given to upstream and downstream operations (Porter,
1990). Recent developments in environmental sustainability as part of CSR (Choi et al.,
2017) have expanded the need for green initiatives as part of the success criteria of firms
(Burke and Gaughran, 2005).
The view today has since evolved to include the upstream deliverables and
downstream dependency vertical aspects of the value chain in any consideration of firm
competitiveness in relation to environmental sustainability (Testa and Iraldo, 2010). A
research study by Rao and Holt (2005) define firm competitiveness in the context of
GSCM as the successful minimisation of waste and the achievement of cost savings. The
primary benefits of high firm competitiveness in GSCM is the promotion of synergy and
efficiency within organisations and with business partners, with secondary benefits of
enhanced corporate image, competitive advantage and marketing exposure (Rao and
Holt, 2005; Chien and Shih, 2007). This outlook is backed by empirical studies of firms
(Rao and Holt, 2005; Chien and Shih, 2007; Nawrocka and Parker, 2009; Tan and
Zailani, 2009) which have demonstrated the conclusive linkage of firm effectiveness with
various measures of firm performance.
Focusing specifically on measures of firm competitiveness, Rao and Holt (2005)
propose that effective criteria involve measurements of quality improvement, improved
efficiency, productivity improvement, and cost saving. Contemporary empirical GSCM
research literature (Vachon and Klassen, 2008; Li et al., 2004; Singh et al., 2008; Yang
et al., 2010) concurs broadly with Rao and Holt (2005) with regards to the utilisation of
the three key measures of price/cost, quality and delivery as measures of firm
competitiveness. Given the wide consensus in published studies, the proposition of firm
competitiveness as defined by the three dimensions (delivery, cost, and quality) is,
therefore, a valid part of the research model.
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Underlying theory: natural resource-based view
Since the environmental competitiveness has turned to be very important in doing
business, the natural resources-based view (NRBV), developed from its original theory,
Resource-based View (Vachon and Klassen, 2008) is well-fit to explain the research
framework of this study. On top of the firm major resources argued by Grant (1991) in
RBV namely, financial and economic resources, physical resources, human resources
(people), technical resources (i.e., innovation capabilities), and intangible resources
(business goodwill) (Testa and Iraldo, 2010), NRBV added natural environment (external
environmental) as the firm valuable resource which will makes firm to be competitive.
NRBV explained that the combination of resources from both internal and external in the
supply chain creates higher organisational capabilities to fulfil customers’ expectations
(Vachon and Klassen, 2008). Hence, a firm that has excellent internal resources and
external resource in the entire supply chain (involving suppliers and customers) will
contribute to better firm’s performance and competitiveness (Steinle and Schiele, 2008).
The source of firm competitiveness should not be limited to internal resources
capabilities but also from the external environment. Collaborative relationship of both
internal resources with external environment accentuates the development of new
technology and new competencies (Eltayeb et al., 2010). Based on the NRBV argument,
GSCM which covers both components of internal and external resources can help the
companies to overcome uncertainty and complexity (Zhu et al., 2006), and then lead to
the better environmental performance and firm competitiveness.
4
Research framework and hypotheses development
4.1 Green purchasing and firm environmental performance
Green purchasing is the activities that include the 3Rs (reduction, reuse, and recycling) of
materials in the procurement process (Ninlawan et al., 2009). Green purchasing strategies
comprise of a large part of inbound logistics and it is the environmental control at the
upstream supply chain which involves the suppliers (Rao and Holt, 2005). These
suppliers are usually required to ensure materials supplied are environmentally-friendly
and produced in environmentally-friendly processes. Sometimes, the green purchasing
activities may include providing design specification to the supplier, holding seminars,
audit on supplier’s internal environmental management. Companies that emphasise in
green purchasing will help to increase the firm environmental performance. Hence, our
next hypothesis is as follows:
Hypothesis 1 (H1) Green purchasing will positively influence firm environmental
performance.
4.2 GP and firm environmental performance
GP is the greening of the production phase or the internal supply chain. It emphasises
operation efficiency, particularly minimise the impact of production on the environmental
(Tan et al., 2002). GP can be operationalised through eight variables, that is,
environmentally-friendly raw materials, substitution or replacement of materials,
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environmentally-friendly design, environmental concern, minimisation of waste
emission, cleaner process and recycling in production stage (Rao and Holt, 2005).
Companies that practice GP are highly efficient in its production process as it generates a
very little environmental impact (Ninlawan et al., 2009). It also helps to reduce
production waste and pollution to various streams (Menzel et al., 2010). Based on the
preceding information, it is posited that:
Hypothesis 2 (H2) GP will positively influence firm environmental performance.
4.3 Green supplier and customer collaboration
Green supplier and customer collaboration involve an organisation with its suppliers and
customers for environmental management and solution. The general collaboration
includes joint venture (Vachon and Klassen, 2008), customer support and education (Rao,
2004). Suppliers support includes providing direct onsite technical support, financial
assistance to help supplier, education activities such as holding seminars, creating
awareness and sharing on the know-how knowledge with the supplier, or joint ventures
that enable the long-term collaborative relationship to develop cleaner technology.
Similarly, customers are given the opportunity to attend educational activities, seminars
and sharing sessions that enable them to appreciate environmental friendly practices in
production and eventually increase the environmental performance of the company.
Therefore, the following hypothesis is offered.
Hypothesis 3 (H3) Green supplier and consumer collaboration will positively influence
firm environmental performance.
4.4 Firm environmental performance and firm competitiveness
Business performance serves as the fundamental purpose for external reporting and
internal business control and analysis (Hervani et al., 2005) for continuous improvement.
In a supply chain where multiple vendors, suppliers, customers, retailers and
manufacturers involved, the activities carried out at each party has contributed to
environmental impact significantly. Accumulated of these environmental impacts may
affect the firm environmental performance which will later jeopardise the firm image and
then affect the firm competitiveness in business. In the study of environmental policy
standards, Nawrocka and Parker (2009) expanded on the positive influence of firm
environmental performance activities on firm competitiveness and have found the factors
to correlate. This finding has been bolstered by a recent study (Yu et al., 2017)
demonstrating a clear relationship with environmental performance. Therefore, it is
important to understand the influence of the firm environmental performance on the firm
competitiveness (Hervani et al., 2005). Due to the firm competitiveness comprises of
three dimensions namely firm competitiveness in delivery, price and quality, the
subsequent section will discuss the hypotheses development accordingly.
4.5 Firm environmental performance and firm competitiveness in delivery
In the manufacturing context, the customer is looking for responsiveness and flexible
services to be incorporating in the supply chain to improve the delivery. The direct
effects of good environmental management increase the manufacturing firm’s operational
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99
optimisation and efficiency as well as improve its delivery in the entire supply chain
(Bendavid-Val and Perine, 2003). Manufacturing firm operated in a sustainable context
will generate sustainable profit and then increase its competitiveness. Based on the above
discussion, the hypothesis is developed:
Hypothesis 4 (H4) Firm environmental performance positively influences firm
competitiveness in delivery.
4.6 Firm environmental performance and firm competitiveness in price
Manufacturing firm’s operation interacts with the natural environment in term of energy
consumption and waste management will contribute to the saving of production cost and
production efficiency. The cost saving will be transferred to the customer thereby
increasing a firm’s competitiveness in the marketplace. Cost saving from manufacturing
cost able to reduce end product cost and offer the products at a more competitive price
besides the increased profitability. Based on the preceding discussion, it is posited that:
Hypothesis 5 (H5) Firm environmental performance positively influences firm
competitiveness in price.
4.7 Firm environmental performance and firm competitiveness in quality
Any negative environmental impact affects the liability of the firm at the overall level.
Therefore, manufacturing firm adopted environmental management to reduce the risk
exposure to environmental liabilities such as fine and accident happen due to improper
environmental management. Environmental management is closely related to product
quality and safety as well as worker healthiness and safety. The manufacturing
companies have proper environmental management will improve its product quality. The
high product quality perceived by the customer will increase the firm competitiveness in
the market. Thus, the next hypothesis is formulated as below:
Hypothesis 6 (H6) Firm environmental performance positively influences firm
competitiveness in quality.
5
Research design
5.1 Sample
A total of 541 firms with ISO 14001 certification had been selected purposively through
the Malaysian Federation of Manufacturer (FMM) Directory Year 2010 and Malaysian
Certified Online Database. Of the 541 ISO 14001certified firms, 10 firms that are located
in Penang were selected for the pilot survey and the remaining 531 firms were used as
samples for this study. The unit of analysis is the firms with ISO 14001 certification. The
respondents acting on behalf are administrators working in the Environment, Health and
Safety Department, that is, those holding a managerial or administrative position in
operational, quality, production supply chain and engineering department.
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5.2 Instrument
GSCM practices were measured by three subscales, that is, green purchasing [six items,
adopted from Eltayeb et al. (2010b)], GP (four items, adopted from Zhu and Sarkis,
2004), green supplier and customer collaboration (seven items adopted from Zhu and
Sarkis, 2004). Firm environmental performance is measured by seven items proposed by
Zhu and Sarkis (2004). Firm competitiveness is assessed using a total of 14 items of
instrument proposed by Li et al. (2004), where firm competitiveness in price has five
items; firm competitiveness in quality has five items, and firm competitiveness in
delivery has four items (see Appendix).
5.3 Data collection process
Self-administered questionnaires were distributed to the samples through the human
resources (HR) managers. In the cover letter, researchers requested the HR managers to
distribute the questionnaires to the right respondent who may hold the senior manager
position in operations/supply chain or factory manager. The follow-up calls made to the
respective HR managers after two weeks to remind them of the collection of the
questionnaire from the respondents. After the collection of the questionnaire, the HR
manager returned the questionnaire using the provided envelopes with stamps. Of the
531 questionnaires distributed, 131 questionnaires were returned, but only 122 were
found usable, which resulting a response rate of 23.6%.
5.4 Respondents’ profile
The participating manufacturing companies were mainly from Penang (38.5%), Selangor
(25.4%), Johor (9.0%), Perak (7.4%), Kuala Lumpur (5.7%), Melaka (4.9%), Kedah
(4.1%), Negeri Sembilan and Sarawak (2.5%). Half of the responding manufacturing
companies are from the electronic/electrical industry (50.8%), followed by basic metal,
metals product and machinery(18%), rubber and plastics (9.0%), others (7.4%), chemical
(5.7%), infrastructure/construction (2.5%), textile and wearing apparels (1.6%),
wood-based products /furniture (1.6%) and food and beverages (0.8%). With regard to
the ownership status of the companies, 69% of the companies are 100% foreign owned
companies, followed by 100% local owned companies (25%), and the remaining 6% was
joint venture companies. Among 122 participating companies, 101 were large firm size
with the employee number more than 150; while 49 were small and medium firm size
with the employee number less than 150.
6
Data analyses
To rule out the influence of common method bias, Harmon’s single factor analysis was
carried out. Unrotated factor analysis reveals the presence of ten factors with a total
variance of 73.791%, and the first factor contributes 29.563% of the variance. Apart from
that, care was taken during the construction of the instrument and also the data collection
process. A two-stage analytical procedure (Anderson and Gerbing, 1988; Hair et al.,
2014; Ramayah et al., 2016) involving SmartPLS 3.0 software (Ringle et al., 2015) was
utilised to test the hypotheses.
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6.1 Measurement model
The first step in PLS-SEM analysis is to evaluate the measurement model in order to
determine how well the items load on the hypothetical construct. This involves
examining the reliabilities of the indicators, the latent variables, internal consistency
(composite reliability), and construct validity (loadings and average variance extracted)
as well as discriminant validity (Fornell-Larcker criterion and Heterotrait-Monotrait
ratio). Table 2 reveals that the measurement model has adequate construct validity as
suggested by Hair et al. (2010).
Table 2
Variance inflation factor, loadings, composite reliability, and average variance
extracted
Construct
Items
VIF
Loadings
Composite
reliability
Average
variance
extracted
Firm
competitiveness in
delivery (FCD)
FCD1
1.382
0.753
0.866
0.619
FCD2
2.436
0.876
FCD3
1.863
0.724
FCD4
1.563
0.786
FCP1
3.446
0.893
0.909
0.669
FCP2
2.035
0.742
FCP3
2.979
0.893
FCP4
2.374
0.82
FCP5
2.137
0.725
0.885
0.607
0.918
0.615
0.895
0.684
Firm
competitiveness in
price (FCP)
Firm
competitiveness in
quality (FCQ)
Firm
environmental
performance (FEP)
Green purchasing
(GP)
FCQ1
1.436
0.715
FCQ2
2.332
0.849
FCQ3
2.167
0.754
FCQ4
2.217
0.826
FCQ5
1.614
0.745
FEP1
2.033
0.686
FEP2
3.215
0.838
FEP3
2.525
0.789
FEP4
2.148
0.795
FEP5
2.201
0.785
FEP6
2.040
0.757
FEP7
2.383
0.828
GP1
2.246
0.911
GP2
2.615
0.899
GP3
1.835
0.771
GP4
1.908
0.709
Note: *AVE = average variance extracted.
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C.L. Tan et al.
Table 2
Variance inflation factor, loadings, composite reliability, and average variance
extracted (continued)
Loadings
Composite
reliability
Average
variance
extracted
2.665
0.862
0.905
0.614
1.882
0.777
0.842
0.517
Construct
Items
Green production
(GPR)
GPR1
GPR2
GPR3
1.519
0.681
GPR4
1.723
0.742
GPR5
3.239
0.869
GPR6
2.037
0.754
Green supplier and
customer
collaboration
(GSCC)
VIF
GSCC3
1.577
0.744
GSCC4
1.277
0.692
GSCC5
1.809
0.623
GSCC6
2.365
0.74
GSCC7
1.780
0.785
Note: *AVE = average variance extracted.
Two items (GSCMSC1, loading = 0.449, and GSCMSC2, loading = 0.609) and two items
of GP (GP5, loading = 0.420, and GP6, loading = 0.451) were deleted were deleted due
to undesirable loadings and low AVE. The loadings of all other items were satisfactory
(that is, between 0.686 and 0.911). Composite reliability of all constructs ranges from
0.866 to 0.918, while the AVE for all constructs is between 0.517 and 0.684. The
variance inflation factors (VIF) for all items are below 0.5, that is, ranging from 1.381 to
3.239, showing that there is no serious multicollinearity issue.
6.2 Discriminant validity
Assessment of discriminant validity is needed to prevent multicollinearity issues. Both
the Fornell and Larcker criterion and the Heterotrait-Monotrait ratio (HTMT) are used to
determine the discriminant validity of the constructs. As shown in Table 3, the
correlations of all variables are lower than the square root of AVE, thus proving that the
constructs have adequate discriminant validity (Fornell and Larcker, 1981).
In addition, Henseler et al. (2015) have also suggested using Heterotrait-Monotrait
(HTMT) ratio to assess discriminant validity as a criterion. Our results as depicted in
Table 4 depicts that the values ranged from 0.255 to 0.819. Since the HTMT values in
this study did not exceed the threshold of 0.85 proposed by Kline (2015) and 0.90 as
suggested by Gold et al. (2001), it can be inferred that discriminant validity has been
ascertained.
Green supply chain management
Table 3
Discriminant validity: Fornell-Larcker criterion
FCD
FCD
103
FCP
FCQ
FPE
GP
PR
SC
0.787
FCP
0.509
0.818
FCQ
0.614
0.502
0.779
FPE
0.409
0.307
0.401
0.784
GP
0.228
0.354
0.204
0.361
0.827
PR
0.339
0.368
0.333
0.534
0.611
0.784
SC
0.28
0.282
0.261
0.493
0.661
0.606
0.719
Notes: Values on the diagonal (bolded) are square root of the AVE while the
off-diagonals are correlations.
GP = green production, GPR = green procurement, GSCC = green supplier and
customer collaboration, FPE = firm environmental performance, FCD = firm
competitiveness in delivery, FCP = firm competitiveness in price, and
FCQ = firm competitiveness in quality.
Table 4
Heterotrait-Monotrait ratio (HTMT)
FCD
FCP
FCQ
FEP
GP
GPR
GSSC
FCD
FCP
0.520
FCQ
0.769
0.521
FEP
0.424
0.347
0.411
GP
0.299
0.425
0.255
0.358
GPR
0.435
0.370
0.403
0.581
0.676
GSSC
0.337
0.312
0.316
0.516
0.819
0.685
6.3 Structural model
To assess the structural model, the R2, standard beta and the corresponding t-values were
obtained via a bootstrapping procedure with 5,000 resamples, as shown in Table 4. Apart
from that, predictive relevance (Q2) and the effect sizes (f2) were also reported (Hair
et al., 2014). In Table 5, all hypotheses were supported, except the path of GP to Firm
Environmental Performance (beta = -0.072, t = 0.812). GP, PR, and SC explained 33.5%
of the variance explained of FEP. FPE, on the other hand, contributes 16.8% to firm
competitiveness in delivery, 9.4% to firm competitiveness in price, and 16.1% to firm
competitiveness in quality (Table 5). According to Cohen (1988) guidelines, the value of
0.02, 0.15, and 0.35 represent small, medium, and large effects respectively. From
Table 5, it can be observed that the effect size (f2) is medium for firm environmental
performance to firm competitiveness (cost, quality and delivery), while the effect size for
green procurement and supplier and customer collaboration are also medium. GP, green
procurement, and supplier and customer collaboration explained 33.5% of the variance of
firm environmental performance. The predictive relevance (Q2) for firm environmental
performance is 0.187, for firm competitiveness is 0.053 for cost, 0.082 for quality, and
0.089 for delivery.
104
C.L. Tan et al.
Table 5
H1
Hypotheses testing
Hypothesis
Std beta
Std error
T statistics
Decision
R square
f square
GP → FEP
0.427
0.071
5.726**
Supported
0.168
0.237
H2
GPR → FEP
0.329
0.073
4.181**
Supported
0.094
0.131
H3
GSCC → FEP
0.418
0.075
5.351**
Supported
0.161
0.228
H4
FEP → FCD
-0.072
0.108
0.812
Not supported
0.335
0.013
H5
FEP → FCP
0.399
0.097
4.141**
Supported
0.143
H6
FEP → FCQ
0.31
0.099
3.123**
Supported
0.082
Notes: **p< 0.01, *p< 0.05.
GP = green production, GPR = procurement, GSCC = supplier and customer
collaboration, FEP = firm environmental performance, FCD = firm
competitiveness in delivery, FCP = firm competitiveness in price, and
FCQ = firm competitiveness in quality.
6.4 Importance-performance matrix analysis
The importance-performance matrix analysis (IPMA) has been performed in this study to
analyse areas for further improvement. Variables with high importance and low
performance can be easy identified through assessing IPMA (Hock et al., 2010). Further
from the IPMA results, it contributes as insights for the management to overcome and
improve on identified areas with low performance and high importance (Schloderer et al.,
2014). Table 6 illustrates the IPMA analysis resulted from the SmartPLS. The importance
value is the direct effect of an exogenous variable on an endogenous variable, whereas
the performance value is the latent variable score on a scale from 0 to 100. The IPMA
results for the endogenous variable of firm environmental performance are presented in
Figure 1. The IPMA shows that the endogenous variable firm environmental
performance, the highest performance belongs to GP (60.414) whereas the lowest
performance is supplier and customer collaboration (50.641). Also, with the aid of the
importance-performance matrix, it shows that the most important variable for firm
environmental performance is green procurement with a rating point of 0.344. Thus, the
results from IPMA analysis describe the areas which need improvements with regards to
firm environmental performance is on green procurement. The IPMA of environmental
performance reveals that the construct GP has high performance, but it is not an
important variable in the prediction of firm environmental performance. Furthermore, it
has also proven in Table 5 that GP is not significantly influencing firm environmental
performance. Hence, the firm should not focus too much on GP and perhaps should focus
more on green procurement and concentrate on enhancing supplier and customer
collaboration.
Table 6
IPMA results
Latent variable
Environmental performance
Direct effect(importance)
Index value (performance)
Green production
–0.060
60.414
Green procurement
0.344
58.811
Supplier and customer collaboration
0.288
50.641
Green supply chain management
Figure 1
7
105
Importance-performance matrix map (see online version for colours)
Discussion and conclusions
From the above analysis, it can be seen that GSCM has a positive impact on firm
environmental performance, which resulted in firm competitiveness with respect to cost,
quality and delivery. The relation between GSCM practices and firm performances and
firm competitiveness is thus confirmed, as stipulated by previous studies (Chien and
Shih, 2007; Eltayeb et al., 2010a; Lefebvre et al., 2003; Li et al., 2004; Mollenkopf and
Closs, 2005; Ninlawan et al., 2009; Rao and Holt, 2005; Testa and Iraldo, 2010; Yang
et al., 2010; Zhu and Sarkis, 2004; Zhu et al., 2010).
The results of the study provide several suggestions for manufacturing companies in
Malaysia. In particular the environmental, health, and safety manager, operational
manager, quality manager, production manager, and supply chain manager can use the
findings from this study to increase firm’s participation in green initiatives along the
supply chain and to realise the performance outcomes. The findings from this study
indicated that green purchasing and supplier and customer collaboration appeared to have
a positive impact on firm performances and competitiveness. These served as motivation
to encourage firms to implement GSCM practices. Managers of the firms should view
GSCM practices positively instead of an extra burden to the firms. For firms that are
interested to implement GSCM practices may start by involving in the two practices that
were found to be significantly related to performance outcomes and competitiveness in
order to improve the firm’s performance and bring benefit to the society at large. For
instance, adhering to the legislation compliances in E&E industry is the most common
green purchasing activity which was initiated by the European Union. Firms can further
extend to the rest of the green purchasing element such as supplier selection and
evaluation based on environmental criteria. Firm overall efficiency will be transmitted to
monetary cost saving. These two GSCM practices cover the whole supply chain from
purchasing to close loop supply chain.
106
C.L. Tan et al.
However, not all green supply chain practices are significant in increasing firm
environmental performance. For example, only green procurement and green supplier and
customer collaboration have a significant effect on environmental performance and firm
competitiveness, while GP is found to have insignificant effect on firm environment
performance and firm performance. Firm competitiveness is analysed by the ration of
cost/benefit (Testa and Iraldo, 2010) and is measured by efficiency in process and
effectiveness in the outcome. Green purchasing emphasised on the balance between cost,
quality, delivery, and environmental concept in the green purchasing network. It is
necessary to select the right supplier, who can help to ensure that the purchased product
contains green attribute. The traditional role of purchasers, such as on-time delivery and
delivery of the right part and the right quantity (Handfield et al., 2002) helps to ensure
on-time delivery of final products. Green purchasing is also positively related to the
quality of products. For example, the Electronic Industry Code of Conducts has helped to
ensure suppliers of electronic goods to supply quality product to customers.
For supplier and customer collaboration, the exiting collaborative activities in
Malaysia concentrate mainly on Type 1 collaboration (Eltayeb et al., 2010b), that is,
limited to product forecast sharing and electronic purchase order through electronic data
interchange (Whipple and Russell, 2007). In view of the significance of supplier and
customer collaboration in ensuring firm environmental performance and firm
competitiveness, it is necessary for the parties involved to have more collaborative effort
to take advantage of the situation.
GP has been found to have a significant influence on firm competitiveness in terms of
price (Yang et al., 2010), but not firm competitiveness in terms of quality and delivery.
Rao’s (2004) study revealed that in the South-East Asian region, financial limitation and
lack of technical know-how had limited the implementation of cleaner and lean
production. In this study, GP was found to have an insignificant impact on firm
environmental performance and firm competitiveness. Most of the manufacturing
perceived that GP requires a huge investment, for instance, substitute the material with
environmental-friendly material and redesigning the production floor with environmental
design. Due to the constraints faced by most of the manufacturing companies in term of
the financial, they do not perceive the GP implementation is possible in the short term.
Therefore, the result reveals the insignificant lead to environmental performance. Thus,
organisations need to focus their attention on green procurement and green supplier and
customer collaboration in order to increase firm environment performance and firm
competitiveness.
Hence, it can be concluded that GSCM practices in Malaysia are still at the infancy
stage. Even though the social responsibility of social awareness has increased,
cost/benefit is still the major concern for the majority of Malaysian firm. Besides the
identified outcomes, antecedents for GSCM practices need to be identified so that
incentives programs can be designed to motivate the implementation of GSCM practices
in Malaysian firms. Related regulatory bodies, government, education institutions need to
play their respective role to create a sustainability society.
Finally, every research is subject to some limitations. This study considers only three
GSCM practices which pertain to green purchasing, GP, and supplier and customer
collaboration. Future research may include other GSCM practices such as eco-design,
supplier management, external GSCM practices, and lifecycle management to widen the
research scope. In addition, this study used the cross-sectional approach that measures the
variables at a point of time. This approach restricts the ability to prove the direction of
Green supply chain management
107
causality. It is preferable to have a sufficient time frame between the implementation of
GSCM practices to the time when measurement of firm performance and competitiveness
are taken. Longitudinal research would help to validate the causal relationship and to
obtain more accurate result.
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Appendix
Table A1
Measurement items for the studied variables
Firm environmental
performance
• Air emission of my organisation has been reduced as compared to my
competitor.
• Hazardous substance or waste of my organisation has been reduced
as compared to my competitor.
• Consumption for hazardous/harmful/ toxic materials of my
organisation has been reduced as compared to my competitor.
• Frequency of environmental accidents of may organisation has been
reduced as compared to my competitor.
• The indirect or direct material usage through green improvement
programs of my organisation has been reduced as compared to my
competitor.
• My organisation complying to environment law, regulations and
standards, improved of environmental situation as compared to my
competitor.
• Waste water and solid waste emission of my organisation has been
reduced as compared to my competitor.
Firm
competitiveness in
price
• My organisation offer competitiveness price compared to may
competitor.
• My organisation offer price as low or lower than our competitor.
• My organisation direct manufacturing cost/ production cost reduced
compared to my competitor.
• My organisation total product cost reduced compared to my
competitor.
• My organisation raw material cost reduced compared to my
competitor.
Firm
competitiveness in
quality
• My organisation able to compete based on quality
• My organisation offer products that are highly reliable as compared
to my competitor.
• My organisation offer products that durable as compared to my
competitor.
• My organisation offer high quality product to our customer as
compared to my competitor.
• My organisation offer product which is conformance to design
Firm
competitiveness;
delivery
• My organisation deliver needed kind of product as compared to my
competitor.
• My organisation delivers customer order on time as compared to my
competitor.
• My organisation meeting delivery due date as compared to my
competitor.
• My organisation order fulfilment speed increased as compared to my
competitor.
Source: Eltayeb et al. (2010), Li et al. (2004) and Zhu and Sarkis (2004)
112
Table A1
C.L. Tan et al.
Measurement items for the studied variables
Green purchasing
• My organisation selects their supplier based on environmental
criteria.
• My organisation use a questionnaire to collect information about its
suppliers’ environmental aspects, activities, and/ or management
system.
• My organisation makes sure that its purchased products must contain
green attribute such as recycled or reusable items.
• My organisation makes sure that its purchased products must not
contain green environmental undesirable item such as lead or other
hazardous or toxic materials.
• My organisation evaluates its suppliers based on specific
environmental criteria.
• My organisation evaluates the environmental aspects of its
second-tier suppliers.
Green production
• My organisation utilised environmentally friendly raw materials in its
production.
• My organisation implements cleaner technology process for energy,
water and waste saving in its production process.
• My organisation takes into consideration environmental design in its
production.
• My organisation implements internal recycling of materials in its
production.
Green supplier and
customer
collaboration
• My organisation provide design specification that include
environmental requirement for purchased item
• My organisation cooperates with supplier for meeting environmental
objectives
• My organisation request suppliers to obtain ISO14001
• My organisation performs environmental audit for suppliers’ internal
management.
• My organisation cooperates with customer for eco-design.
• My organisation cooperates with customer for cleaner production.
• My organisation cooperates with customer for green packaging
Source: Eltayeb et al. (2010), Li et al. (2004) and Zhu and Sarkis (2004)