Firm and Nonprofit Levers to Improve Supplier s Environmental Performance


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Karaer Ö., Kraft T., Khawam J.

Manufacturing and Service Operations Management, Toronto, Canada, 28 - 30 June 2015

  • Publication Type: Conference Paper / Full Text
  • City: Toronto
  • Country: Canada
  • Middle East Technical University Affiliated: Yes

Abstract

This paper is based on the authors' work with GreenBlue, an environmental nonprofit that develops science-based decision tools for industry. Recently, in an effort to increase the transparency of the chemicals and substances being used in supply chains, GreenBlue created Material IQ (MIQ), a tool that helps suppliers to safely share sensitive toxicity and compliance data with their customers. Due to its ability to act as a marketplace where a firm can compare suppliers' information, MIQ has the potential to introduce competition amongst suppliers to improve their environmental performance. As GreenBlue takes MIQ to market, it must determine when to promote the use of MIQ and whether to recommend firms use it to create competition between suppliers or to collaborate with suppliers. We study GreenBlue's problem in two parts. First, we investigate when a firm can use either supplier competition or cost sharing to improve a supplier's environmental performance. Based on our findings, we then develop insights into when and how GreenBlue should promote the use of MIQ to firms. Our results demonstrate that from a f'rm's perspective, supplier competition often generates the highest environmental quality and the highest firm prof't and thus, is typically the firm's preferred strategy. However, from GreenBlue's perspective, supplier competition is rarely feasible since it can harm the financial health of suppliers. Instead, GreenBlue's preferred strategy is generally for a firm to use MIQ by either sharing costs with its supplier or by relying on the existing market incentives to drive the supplier's quality decision.