Environmental Management of Value Chains

judiciouslampManagement

Nov 8, 2013 (3 years and 11 months ago)

61 views

GMI 33
Spring 2001
© 2001 Greenleaf Publishing
45
Environmental Management
of Value Chains
Promoting Life-cycle Thinking
in Industrial Networks
Hanna-Leena Pesonen
University of Jyväskylä, Finland
Companies are facing increasing demand concerning the environmental perfor-
mance of their products. The focus of product development should not be on product
characteristics alone, but rather on improving the entire product life-cycle. Holistic
management of environmental impacts, i.e. life-cycle thinking, is needed. Life-cycle
thinking requires that the main contractors are aware of the environmental aspects
of their products within the whole value chain. This is currently placing growing pres-
sure on their supplier
SME
s. Environmental initiatives in
SME
s are, however, often
inhibited by lack of resources, capacity and capabilities.
Life-cycle thinking forces network co-operation. Here ideas about how network
dynamics could be helpful in finding new solutions to the problems of environmental
management in the value chain context are introduced. For the main contractor,
partnership means better control over the supplier chain. For the suppliers, a reliable,
long-term relationship offers better opportunities to allocate more efficiently scarce
manufacturing and development resources. The case of environmental management
system development process in a Finnish metal industry network illustrates the topic.
In the
INGENIA
project, special attention was paid, first, to the training of the staff
and, second, to the improvement of the communication system between main con-
tractors and suppliers.
● Environmental
management
systems
● Industrial
networks
● Life-cycle
thinking
● Metal industry
● Value chains
Hanna-Leena Pesonen is professor in corporate environmental management
at the University of Jyväskylä in Finland. Her current research interests
include material flow management and green marketing.
u
School of Business and Economics,
University of Jyväskylä,
PO
Box 35,
40351 Jyväskylä, Finland
!
hpesonen@tase.jyu.fi
<
www.jyu.fi/economics
ompanies are today facing increasing demands from various
stakeholders concerning the environmental performance of their products and
processes. According to Sinding (2000), firms not only face the deterministic ele-
ments of public environmental regulation, but also the additional demands from
stakeholders and society at large. Consumers are asking for green products, public
authorities place growing demand on companies’ environmental performance, employees
and neighbourhood residents are concerned about the health and safety aspects of
production and non-governmental organisations are running campaigns for sustain-
ability (Fig. 1). Sustainability includes development in three sectors: environmental,
social and economic sustainability (
WCED
1987). This paper, however, concentrates on
the environmental dimension of sustainability in the context of industrial networks.
One powerful group of stakeholders setting requirements for many companies—
especially for small and medium-sized enterprises (
SME
s)—are the main contractors in
industrial value chains. They have usually been the first to face the various environ-
mental demands of other stakeholder groups and have already been forced to improve
their environmental performance. The requirements concerning environmental perfor-
mance of companies typically move upstream in the value chain, because the main
contractors involved in environmental improvement become increasingly aware of the
environmental impacts of the raw materials and components of their products. This will
eventually lead to a situation where even the smallest companies in the value chain are
required to improve their environmental performance. Bradford (2000) has also noted
this, and she claims that, in the future especially, market pull issues and supply chains
will set growing demands for improving the environmental performance of
SME
s.
According to her studies, there is increasing pressure for
SME
s to adopt environmental
management systems, to label products and to pay attention to the concerns of
stakeholders.
hanna-leena pesonen
46
© 2001 Greenleaf Publishing
GMI 33
Spring 2001
C
Value chain
Product
life-cycle
Stakeholders
Raw materials
Transport
Supplier 2
Supplier 3
Supplier 1
Authorities
NGOs
Competitors
Employees
Main contractor
Consumer
Waste management
Figure 1 stakeholders, product life-cycle and value chains in industrial network
An effective way to communicate the environmental performance of a company to
its stakeholders is to have a certified environmental management system. Most of the
larger main contractors already have an environmental management system (
ISO
14001
and
EMAS
[Eco-management and Audit Scheme] are the most important environmental
management system standards) in place. The environmental management systems
strongly support life-cycle thinking in company environmental management, even
though there is no absolute requirement about life-cycle assessments in the environ-
mental management system standards. According to the
ISO
14001 standard, the
significant environmental aspects associated with activities, products or services should
be identified, but ‘this is not intended to require a detailed life-cycle assessment’ (
ISO
1996). The new
EMAS
regulation (European Commission 2001) includes a similar
notion. There is also increasing pressure for
SME
s to adopt environmental management
systems, mostly due to pressure from the main contractors in the value chain. This has
turned out to be the reality for many Finnish
SME
s as well.
It could be stated that life-cycle thinking forces network co-operation. Sinding (2000)
has presented some possible approaches (recycling systems, life-cycle assessment, life-
cycle oriented environmental management and industrial ecology) for pursuing inter-
organisational environmental management. These approaches, however, concentrate
mostly on the technical aspects of life-cycle management and fail to offer tools for the
management issues in value chains. Therefore, industrial network theory is discussed
here as a possible framework for understanding the nature of co-operation required by
life-cycle thinking, and to offer management tools for promoting life-cycle thinking in
value chains.
This paper first discusses the basic principles of life-cycle thinking and industrial
network theories. Then, a case study about the environmental management system
development process in a Finnish metal industry network is presented. This case is used
to illustrate how network dynamics could be helpful in finding new solutions to holistic
management of environmental impacts, i.e. life-cycle management. The paper con-
cludes with some case-specific results and management implications.
Life-cycle thinking
Environmental management of companies has until recently focused on cleaning up
production. Methods such as pollution prevention and cleaner production have been
typical for these purposes. While the amount of process-based emissions has decreased,
the environmental impacts of other phases of product life-cycle (especially product use
and disposal) are now receiving increasing attention. In developed countries the indus-
trial processes are no longer responsible for the most significant environmental impacts;
rather, it is the later phases of the product life-cycle. As a consequence, environmental
management of companies has shifted from production-oriented methods more
towards a product-oriented approach.
Life-cycle assessment (
LCA
) is a technique developed to support the product-oriented
environmental policies of companies.
LCA
studies the environmental aspects and poten-
tial impacts throughout a product’s life (i.e. cradle-to-grave) from raw material acqui-
sition through production, use and disposal. The general categories of environmental
impacts needing consideration include resource use, human health and ecological
consequences (
ISO
1997). What is studied in
LCA
is actually not the product itself, but
the whole system of production, use and disposal processes needed to provide the
product (Weidema 1997): that is, the whole value chain. Consequently, the focus of prod-
uct development should not be on product characteristics alone, but rather on improving
GMI 33
Spring 2001
© 2001 Greenleaf Publishing
47
environmental management of value chains: promoting life-cycle thinking in industrial networks
the entire product life-cycle. Figure 2 gives an example of a product life-cycle and
describes the relationship between product life-cycle and value chains (corresponding
to supplier chains).
According to the
ISO
14040 standard concerning environmental management, life-
cycle assessment and their principles and framework (
ISO
1997),
LCA
is defined as a
technique for assessing the environmental impacts associated with a product (see Fig.
3), by:
t
Compiling an inventory of relevant inputs and outputs of a product system
t
Evaluating the potential environmental impacts associated with those inputs and
outputs
t
Interpreting the results of the inventory analysis and impact assessment phases in
relation to the objectives of the study
The possible application areas of
LCA
are manifold. Figure 3 includes the possible
internal application areas for
LCA
. In addition,
LCA
provides important information to
external audiences, such as shareholders (to analyse the potential environmental
impacts of their investment), consumers (to assess the environmental impact of a
product), environmental pressure groups (to be used, for example, in green consumer
guides), as well as other interested parties (company’s immediate neighbours, environ-
mental authorities, etc).
A typical external use for
LCA
can be found in the eco-labelling schemes. Eco-labels
are one method to communicate green claims to consumers. When the eco-labelling
schemes are widely accepted and recognised by consumers, they can be a very effective
tool of communication because they offer an easy-to-read indication about the environ-
mental performance of a product. According to Fuller (1999), moving towards
LCA
-
based consumer information and eco-labelling systems as the ‘ways and means’ of
hanna-leena pesonen
48
© 2001 Greenleaf Publishing
GMI 33
Spring 2001
Value chain
Product
life-cycle
Stakeholders
Raw materials
Transport
Supplier 2
Supplier 3
Supplier 1
Authorities
NGOs
Competitors
Employees
Main contractor
Consumer
Waste management
Figure 2 product life-cycle
providing meaningful information to customers who desire to purchase ecologically
compatible products is a logical and inevitable application. In eco-labelling
LCA
can be
used for three different purposes:
t
To identify the stages of the life-cycle in which the most significant environmental
burdens take place, so that the labelling criteria can be developed to improve the
environmental attributes of these stages
t
To identify the most significant types of environmental burden in those stages and
over the life-cycle of the product, so that labelling criteria can be developed to address
those burdens
t
For certification and award of the eco-label for product applicants (Allen et al.1998)
Limitations of
LCA
include problems with the reliability of the data and results of the
assessment and the static nature of the methodology. Regardless of the weaknesses and
limitations of the method,
LCA
has been very useful in promoting a completely new way
of thinking in business development: life-cycle thinking. Life-cycle thinking and, corre-
spondingly, life-cycle management, means an integrated approach to study the environ-
mental aspects of products and to reduce the environmental burdens related to them
during the whole product life-cycle. Life-cycle thinking offers valuable insight into
product development, customer education, marketing communication and distribution
solutions and how environmental aspects can be integrated into these areas of business.
According to life-cycle thinking, increased co-operation and shared responsibility
between different actors of society are needed to tackle environmental problems. A
fundamental change from the so-called ‘end-of-pipe’ technologies towards a totally new
approach based on the precautionary principle, where environmental aspects guide both
material and energy flows, is required. Since the ultimate goal of sustainable develop-
ment and life-cycle management can be achieved only by concerted action on the part
of all the relevant actors working together in partnership, co-operation of companies in
the work for the environment is also required.
GMI 33
Spring 2001
© 2001 Greenleaf Publishing
49
environmental management of value chains: promoting life-cycle thinking in industrial networks
Direct applications
t
Product development
and improvement
t
Strategic planning
t
Public policy-making
t
Marketing
t
Other
Goal and scope
definition
Life-cycle assessment framework
Inventory analysis
Interpretation
Impact
assessment
Figure 3 phases and application areas of a life-cycle assessment (lca)
Source:
ISO
1997
Industrial networks
To understand the company’s connection to its business environment and relationships
with its partners in the market, it is important to understand the business network in
which it is operating. A network consists of a set of relationships; a single relationship
does not appear as an isolated entity, rather as a part of a larger whole. Explanations of
what is happening in a certain relationship can be searched for in factors external to the
relationship itself (Håkansson and Snehota 1995).
Industrial companies often have a limited number of customers and suppliers that,
together, form the most significant part of the company’s sales or turnover. Most income
and costs of a company are typically dependent on the few main business relationships.
SME
s in particular are often dependent on a single or a few important customers.
Therefore it is of extreme importance to invest in these main relationships. According
to Easton (1992), relationships provide continuity and stability with an increased ability
to plan, reduce costs and increase effectiveness of both partners.
Relationships are connected into a business network; the performance of one com-
pany is dependent on its relationships with several counterparts. Further, a change in
one relationship can mean a changing business environment for a whole chain of
counterparts. This connectedness of business relationships, or chain effect resulting
from connectedness, is a typical feature of life-cycle management. The main contractor
in a value chain is obliged to have control over the environmental impacts along the
whole life-cycle of its product.
The cornerstone of a successful industrial network is the ability and willingness to
take responsibility for the partner organisation. According to the traditional marketing
philosophy, the seller’s primary goal is to satisfy the customer’s needs. It is, however,
not enough in a network. Nor is it enough to aim for customer satisfaction. A company
is able to build a strong and long-lasting relationship only when it is committed to
developing the relationship based on both partners’ needs and to provide the partner
organisation with additional value (Storbacka and Lehtinen 1998). The idea of shared
responsibility for the environment is of the utmost importance in life-cycle thinking. In
order to be able to control the whole life-cycle of a product, the main contractor of a value
chain has to take responsibility for its suppliers and subcontractors. Thus there is a clear
link between the philosophies of life-cycle management and industrial network
management.
Company relationships in industrial networks
When looking at a single relationship in the network, networking should ideally create
a ‘win–win’ situation where both participants benefit. Network partners are not compet-
ing parties for whom one’s victory is the other’s loss. In industrial networks attention
should be paid to the relationship between companies as a whole, continuous improve-
ment of the co-operation, and long life of the relationship. In a business relationship,
competitiveness is not based solely on price competitiveness but, instead, on how suc-
cessfully the organisations are able to create additional value in their co-operation.
According to Håkansson and Snehota (1995), the more a company can help its counter-
parts to develop and become successful, the greater the chances it will become successful
itself.
Relationships between companies represent new possibilities to aim for better busi-
ness performance. According to Håkansson and Snehota (1995), two issues are of
particular importance for business performance in a network: first, how to mobilise the
various different counterparts of a company and, second, how to develop co-operative
hanna-leena pesonen
50
© 2001 Greenleaf Publishing
GMI 33
Spring 2001
posture and co-ordination mechanisms in interaction with others in order to solve
problems as they arise. When promoting life-cycle thinking in value chains, these two
issues are also central.
Partner positions in industrial networks
Partner positions in an industrial network are related to the perceived power and role
of the network participants. Mattson (1984) has presented four characteristics of the
partner positions. Functions describe the main task of a company in the network (e.g.
main contractors, suppliers, subcontractors and clients). The identity of the network of
companies is a second feature. The third aspect relates to the importance or power of
the company in the network, and the fourth to the level of analysis. Power in the network
can be used from two directions: from upstream or downstream in the value chain. The
upstream steering is referred to as ‘ecology pull’, and downstream steering as ‘ecology
push’ in environmental management literature. Positions can be defined at micro or
macro level. Micro-positions refer to relationships between individual companies and
macro-positions to the network as a whole (Easton 1992).
The power of a company over another is directly related to the degree of dependence
between them (
IMP
Group 1997). According to Ford (1997), it is often difficult for a
company to balance the need to demonstrate commitment to a client (or a supplier)
against the danger of becoming overly dependent on that client (or a supplier). Corre-
spondingly, the dependency of the subcontractors on their main contractors in a value
chain also brings some dangers to these companies. If they choose to adjust their opera-
tions according to the requirements of the main contractor, their vulnerability increases,
because they become even more dependent on one important customer. On the other
hand, if they succeed in making good use of the investments in adaptations in other
relationships, they might even be able to increase their competitiveness.
Adaptation process of partners
Within a network different resource elements and/or activities of the value chain
members can be tied together. This is referred to as adaptation process of partners.
Adaptation does not take place in every relationship; first network member organisa-
tions have to be committed and motivated to adjust their business processes according
to the common interest of the partners. Adaptation is typical in a relationship where the
partner is important and when the adaptation can have significance on the performance
of the partners.
The adaptation process includes investments in both hard (technology adjustments,
information system projects, etc.) and soft factors (distribution of know-how, develop-
ment of communication, etc.). Technical issues are often critical in value chain inter-
action, but partners should also create practices to transfer their know-how to the partner
organisation. The aim of technology adaptation can be interpreted as tying the produc-
tion technology of the subcontractor to the application technology of the main contractor
(
IMP
Group 1997). According to Håkansson and Snehota (1995), the relationships that
a company develops with others are important for the collection of available resources.
The adaptation thus makes it possible to mobilise and access the resources of others for
a company’s own purposes and advantage.
GMI 33
Spring 2001
© 2001 Greenleaf Publishing
51
environmental management of value chains: promoting life-cycle thinking in industrial networks
The case project
INGENIA
: a partnership in
environmental management system development process
The Finnish
INGENIA
project developed a model based on the industrial network
approach to find a solution to the typical difficulties of industrial network partners with
their environmental management. The aim of the
INGENIA
project was to develop
documented quality and environmental management systems according to the demands
of two main contractors (Safematic and
GWS
Systems, both operating globally and
employing over 200 people) for their 12
SME
suppliers from central Finland. All the
companies in the project were from the metal industry. The project started at the begin-
ning of 1998 and was completed during spring 2000.
The metal industry is the most important industrial employer in central Finland. Most
of the companies within the metal industry in central Finland are
SME
s and they are
typically subcontractors for major Finnish metal or high-tech companies. The subcon-
tractors include a number of small companies, which have difficulties in meeting the
demands of their main contractors concerning environmental management systems.
Life-cycle thinking requires that the main contractors are aware of the environmental
aspects and performance of their products within the whole value chain. This is cur-
rently placing growing pressure on their suppliers, as they are required to report on their
environmental burdens to the main contractors. A recent study on the Finnish metal
industry and its strategic visions for the next decade (Heinonen 1999) indicated that the
Finnish metal industry (100% of the respondents) is strongly in favour of the expansion
of life-cycle thinking within the industry in the next ten years. This will, in turn, gradually
place growing pressure on the
SME
s in the value chain to improve their environmental
performance.
As was discussed above, one effective way to communicate the environmental perfor-
mance of a company is to have a certified environmental management system. Today
the leading Finnish main contractors are increasingly asking for certified environmental
and quality management systems from their suppliers and subcontractors. Many have
already set a deadline for when their suppliers and subcontractors have to have a certi-
fication or the contract between the companies will be cancelled. These demands have
caused serious difficulties for many suppliers, especially
SME
s, which are lacking both
the resources and the capabilities to react to these demands. Developing an environ-
mental management system is potentially a huge project. At the very least, it is time-
consuming and requires know-how about various areas ranging from environmental
legislation and technology to employee motivation and training. In addition, quite often
the process of environmental management system development leads to changes in
production processes and information management systems, which in turn can be very
expensive.
According to the companies in this project, the most important target for improve-
ment in their operations was to develop partnerships in supply chains: that is, to improve
co-operation between the main contractor and its subcontractors. Partnership was seen
as a precondition for successful co-operation in environmental management system
development. For the main contractor, closer relationships with the subcontractors means
better control over the whole supply chain, including environmental performance, and
also increased customer satisfaction. Subcontractors, instead, find closer partnership
with the main contractor interesting because a reliable, long-term relationship gives the
SME
s better opportunities to more efficiently allocate their scarce manufacturing and
development resources.
The
INGENIA
project started in spring 1998 with an initial environmental review in
each of the companies, both main contractors and their suppliers. The
ISO
14001
hanna-leena pesonen
52
© 2001 Greenleaf Publishing
GMI 33
Spring 2001
standard was mainly followed in the development of the environmental management
systems. However, because the
ISO
14001 standard does not give specific guidelines
about initial environmental review, it was completed according to the guidelines of the
EMAS
regulation. Reports on the initial environmental reviews of the supplier companies
were also handed to their main contractors. These reports served as the first step in
supplier auditing and were later used as background material when planning the first
supplier audits.
The analysis of the initial environmental review was completed by an assessment of
staff skills. After this, the training needs for each company and their individual
employees were identified based on the results from both the initial environmental
reports and the staff skill assessments. Intensive attention was paid throughout the
project to the transfer of know-how from the main contractors to the suppliers. To
support the co-operation of the companies and to reach the aimed goal of partnership,
special attention was paid to the communication systems between companies.
The actual implementation phase of the environmental management system was
planned and carried out individually for each of the
SME
s taking into account the results
from the initial environmental review and the requirements of the main contractors.
The development process of the environmental management systems for the
SME
s was
supported by training, which was offered simultaneously to the participating compa-
nies. The
SME
s were encouraged to take responsibility for the process themselves. Con-
sulting was done in different phases throughout the project and there was help and
guidance available for the
SME
s, but the final responsibility lay within each company
and successful implementation of the system was based on active work within the
companies themselves.
The project was brought to an end with the first round of supplier audits conducted
by the main contractors. The purpose of the supplier audits was: to make sure that the
environmental management systems had been implemented in the participating
supplier
SME
s; to establish how their level of environmental performance had improved
since the initial environmental review; and to check whether the systems in place met
the requirements of the main contractors.
This case study does not discuss the full history of the network but, instead, concen-
trates on the emergence of one major force redirecting the network relationships: the
introduction of life-cycle thinking in the value chain. According to Bradford (2000), issues
to be considered when looking at how
SME
s are motivated to engage in improving their
environmental performance include training, use of information technology, network-
ing, assistance available to
SME
s, overcoming the barriers to innovation and organisa-
tional issues, and learning from past experiences. In the
INGENIA
project consideration
has been given to these same issues, especially to training, use of information technol-
ogy and networking.
Company relationships in the
INGENIA
network
In this case study the vertical relationships of the companies in the
INGENIA
network
were studied. Thus the main target of interest is in supplier chains, or value chains. The
idea of value chain and its position in an industrial network is presented in Figure 4.
Several value chains are interconnected to form product life-cycles.
The business relationships between the main contractors and all of their supplier
companies in the
INGENIA
project had already existed for years and there was a clear
interdependency between the network partners. The subcontractors could be seen as
external resources of the main contractor. The main contractor’s aim in the relationship
is to use these external resources in an efficient way (
IMP
Group 1997). Both of the main
contractors involved in the
INGENIA
project are active in highly specialised markets
GMI 33
Spring 2001
© 2001 Greenleaf Publishing
53
environmental management of value chains: promoting life-cycle thinking in industrial networks
where the quality of the products is crucial. This increases their dependency on reliable
subcontractors and suppliers. Their willingness to play an active part in the development
process of the environmental quality of their subcontractors and suppliers also supports
this view. Subcontractors, in turn, are economically highly dependent on their accounts
with these main contractors. In fact, these companies were in many cases important—
if not the most important—customers of the
SME
s.
It could be stated that all of these relationships had reached a mature, long-term stage,
where extensive adaptations on behalf of the network participants can be made. The
realised adaptations during the project are discussed in the section on adaptation
processes, below.
Partner positions in the
INGENIA
network
In the
INGENIA
project environmental management system development in the network
took the form of upstream steering. From the micro-position point of view, the main
contractors had a dominant position in the value chain, as they were the ones placing
demands for environmental management system certification on the subcontractors.
They took the initiative and passed requirements concerning environmental perfor-
mance upstream in the supplier chain. The subcontractors did not actually have too
much choice in this case. The strong driving forces for environmental performance
improvement, as typically in upstream steering, were customer requirements.
If we take a look at the network in the case of the
INGENIA
project from the macro-
position point of view, the main contractors are not dominating the network. They do
have an important position, but their environmental management decisions are highly
affected by several stakeholders as was discussed above.
hanna-leena pesonen
54
© 2001 Greenleaf Publishing
GMI 33
Spring 2001
Value chain
Product
life-cycle
Stakeholders
Raw materials
Transport
Supplier 2
Supplier 3
Supplier 1
Authorities
NGOs
Competitors
Employees
Main contractor
Consumer
Waste management
Figure 4 value chain
Adaptation processes in the
INGENIA
network
In the
INGENIA
project special attention was paid to the adaptation of soft factors. In
order to increase the flow of information and know-how between network partners, the
data communication systems of suppliers, and, especially, the connections between
main contractors and suppliers, were improved. First, the internal data processing sys-
tems (e.g. computer-aided design and manufacturing, documentation, order manage-
ment systems) of the
SME
s were updated (and in some companies built up). For this, a
lot of training was required. Second, it turned out to be useful to build the information
systems of subcontractors according to the requirements of their main contractors,
because then it would be possible to deliver designs, blueprints, orders and so on in
electronic form between partners. This also allows the network partners to develop their
environmental management systems together; a common database about current legal
and other requirements can be maintained in co-operation. Work for the adaptation of
the information systems between partners has already been done, but to take full
advantage of compatible information systems much more co-operation and training is
needed in the future. Here is one potential target for further adaptations for the partners.
Intensive attention was paid throughout the project to the transfer of know-how from
the main contractors to the suppliers. Based on the assessment of the training needs of
each company and its employees, a training programme for the
INGENIA
project com-
panies was developed. The staff of each of the
SME
s, altogether about 200 employees,
were trained in both quality and environmental management systems. The objective in
training was to integrate it into the everyday operations of each company. The training
was principally run in the participating firms, but a comprehensive course on quality
and environmental systems was offered simultaneously by the Jyväskylä Centre of Adult
Education. The environmental management system training followed the
ISO
14001
standard, which was also used as a guideline for system development in the companies.
Depending on the role of each employee, the training took from one or two days up to
a one-year course with lessons each week. An extremely significant aspect of common
training was to offer a forum for discussion, transfer of know-how and mutual learning
for the employees from both the main contractor companies and their supplier
companies.
Conclusions
Case-specific results
According to a feedback survey on a number of development projects within the metal
industry in central Finland (Keski-Suomen Liitto 1999), results of the
INGENIA
project
(Fig. 5) for the supplier
SME
s include positive development in the number of employees,
staff motivation, investments, company profitability, and new customer and partner
contacts. The best results were achieved in increasing the motivation of the employees:
every supplier
SME
reported an increase in staff motivation. Most of the companies have
also made changes to their manufacturing procedures (data systems revised, more
efficient production due to better design, increased ability to react to customer needs,
documented work instructions, etc.) because of the project. According to the participat-
ing
SME
s, the project has been helpful in the development of both product and functional
quality. They also estimate that the competitiveness of the companies has improved.
One participating
SME
had even invested in new production facilities because of growing
demand, thereby doubling its production area.
GMI 33
Spring 2001
© 2001 Greenleaf Publishing
55
environmental management of value chains: promoting life-cycle thinking in industrial networks
The
INGENIA
project also reached the main goal of the leading contractors: their
control over the environmental issues of the value chain increased. The first round of
supplier audits conducted by the main contractors was completed in spring 2000. The
quality and environmental management systems of the
SME
s now meet the require-
ments of these main contractors. In addition, one of the
SME
companies is aiming at
environmental management system certification according to
ISO
14001 before the end
of 2000. Altogether, the
INGENIA
project has enabled the expansion of the number of
recognised subcontracting
SME
s in central Finland, which has been very important to
both the main contractors in the region as well as to the subcontractors themselves.
Typical barriers in the development of intra-organisational environmental manage-
ment include institutional, economic, organisational and informational problems (Sinding
2000). Some of these problems were also encountered in the
INGENIA
project. Only one
supplier was reluctant to take part in the training or otherwise participate in the devel-
opment process. Others appreciated the support and help that was given to them.
Despite some problems, the experiences from networking and promotion of life-cycle
thinking in the
INGENIA
network have been predominantly very positive. The most
important reasons for the very uncomplicated situation within the network during the
project were, first, the companies’ voluntary participation in the project and, second, the
main contractors’ pressure and simultaneous support for the
SME
s.
Even though the
INGENIA
project itself is already over, co-operation between partici-
pating companies continues. To be successful, partnership needs continuous attention.
It is not correct to assume that partnership could be built up during a short project and
then automatically flourish forever. The idea of continual improvement behind the
philosophy of environmental management systems means that the work for the develop-
ment of the system and the improvement of environmental performance is never over,
but is an ongoing effort to improve the level of environmental performance of the
organisation. Correspondingly, to keep the partnership alive and efficient, both network-
ing partners have to be willing to invest in the common relationship in the future. In
the
INGENIA
network this will mean, at least, more work with information management,
regular supplier audits and co-operation in any future product or process design and
manufacturing development issues.
hanna-leena pesonen
56
© 2001 Greenleaf Publishing
GMI 33
Spring 2001
Figure 5 effects of the ingenia project to the supplier sme
s
0 10 20 30 40 50 60 70 80 90 100
Yes
Improvements in production
New partners
New customer contacts
Profitability improved
New investments
Motivation of employees improved
Number of employees increased
No
No. of firms (%)
Management implications
The main contractors of industrial value chains often have limited influence and control
over the whole value chain. When the product reaches the main contractor, many of the
crucial environmental decisions have already been made earlier in the value chain. Life-
cycle thinking, however, requires that the environmental impacts of the product are
studied and minimised during the whole value chain and the main contractor has the
ultimate responsibility for the environmental performance of the product towards the
end-user. Active co-operation with suppliers and subcontractors increases the main
contractor’s control and information about the whole value chain and reduces the risks
associated with the environmental burdens of the products.
Industrial networks raise the question of interdependencies of partners in the net-
work. As was discussed in the previous section, in the
INGENIA
project the main con-
tractors were clearly the dominant partners. However, it is possible for both participants
to benefit from co-operation, as was the case in the
INGENIA
project.
Environmental initiatives in
SME
s are often inhibited by a general lack of resources,
capacity and capabilities (Biondi et al. 1998). In the
INGENIA
project the industrial
network approach between the main contractors and their supplier
SME
s proved to be
an efficient approach to overcome these problems. The main advantage in involving the
SME
s in the environmental management system development together with the main
contractors was the very strong motivation this solution gave to the subcontractors.
Because of the demand of an important customer (in many cases the most important
one) to improve their environmental performance, they felt pressure to actively take part
in the project. At the same time, however, the subcontractors were given a lot of support
in their development process (training, consulting, etc.) and were not left alone with
their problems. The subcontractors, who took active part in the project, were also able
to improve their bargaining power with other actors in the network (other subcon-
tractors, competitors).
According to the lessons learned during the
INGENIA
project, networking strongly
supports the promotion of life-cycle thinking in value chains. The network implies a
measure of control over other network participants and through these organisations to
the whole value chain. Sustainable management must balance three factors: customer
satisfaction, organisational goals and ecological sustainability (Fuller 1999). Network
theory offers a framework for understanding the nature of co-operation required by life-
cycle thinking and the integration of Fuller’s ideas about sustainable management into
business. Network theory also provides management tools for promoting life-cycle
thinking in value chains.
References
Allen, D.T., F.J. Consoli, G.A. Davis, J.A. Fava and J.L. Warren (eds.) (1998) Public Policy Applications of
Life-cycle Assessment (Pensacola,
FL
: Society of Environmental Toxicology and Chemistry [
SETAC
]).
Biondi, V., M. Frei and F. Iraldo (1998) ‘Environmental Management System Implementation by
SME
s:
EU
Experience and Perspectives’, in 7th Greening of Industry Network Conference (Rome: Greening of
Industry Network).
Bradford, D. (2000) ‘Motivating
SME
s towards Improved Environmental Performance’, in The Institute
for Prospective Technological Studies (
IPTS
) Report (Seville, Spain: European Commission Joint
Research Centre) 41: 25-29.
Easton, G. (1992) ‘Industrial Networks: A Review’, in B. Axelsson and G. Easton (eds.), Industrial Net-
works: A New View of Reality (London: Routledge).
European Commission (2001) Regulation (
EC
) No. 761/2001 Allowing Voluntary Participation by Organi-
sations in a Community Eco-management and Audit Scheme (
EMAS
).
GMI 33
Spring 2001
© 2001 Greenleaf Publishing
57
environmental management of value chains: promoting life-cycle thinking in industrial networks
Ford, D. (1997) ‘The Development of Buyer–Seller Relationships in Industrial Markets’, in D. Ford (ed.),
Understanding Business Markets: Interaction, Relationships and Networks (London: Dryden Press): 39-
54.
Fuller, D.A. (1999) Sustainable Marketing, Managerial-Ecological Issues (Thousand Oaks,
CA
: Sage).
Håkansson, H., and I. Snehota (eds.) (1995) Developing Relationships in Business Networks (London:
Routledge).
Heinonen, R. (1999) Liiketoiminta ja teknologia: Kohti strategisia yritysverkkoja (Business and Technology:
Towards Strategic Networks) (Helsinki:
MET
).
IMP
Group (1997) ‘An Interaction Approach’, in D. Ford (ed.),Understanding Business Markets: Interaction,
Relationships and Networks (London: Dryden Press): 3-22.
ISO
(International Organisation for Standardisation) (1996)
ISO
14001. Environmental Management:
Specification with Guidance for Use (Geneva:
ISO
).
ISO
(International Organisation for Standardisation) (1997)
ISO
14040. Environmental Management: Life
Cycle Assessment—Principles and Framework (Geneva:
ISO
).
Keski-Suomen Liitto (1999) Metallitoimialan kehittämishankkeiden palautekysely Keski-Suomessa 1999
(Feedback Survey about the Development Projects within Metal Industry in Central Finland 1999)
(Jyväskylä, Finland: Keski-Suomen Liitto).
Mattson, L.-G. (1984) ‘An Application of a Network Approach to Marketing: Defending and Changing
Market Positions’, in N. Dholakia and J. Arndt (eds.), Changing the Course of Marketing: Alternative
Paradigms for Widening Marketing Theory (Greenwich,
CT
:
JAI
Press).
Sinding, K. (2000) ‘Environmental Management beyond the Boundaries of the Firm: Definitions and
Constraints’, Business Strategy and the Environment 9: 79-91.
Storbacka, K., and K. Lehtinen (1998) Asiakkuuden ehdoilla vai asiakkaiden armoilla (Co-operation or Cus-
tomer Dependence) (Porvoo, Finland:
WSOY
).
WCED
(World Commission on Environment and Development) (1987) Our Common Future (Oxford,
UK
:
Oxford University Press).
Weidema, B.P. (1997) Environmental Assessment of Products: A Textbook on Life Cycle Assessment (Vantaa,
Finland: The Finnish Association of Graduate Engineers [
TEK
]).
q
hanna-leena pesonen
58
© 2001 Greenleaf Publishing
GMI 33
Spring 2001