Towards a Greener World : Examining Green Sourcing in Supply Chain Management

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Linköping University | IEI Master Thesis | Industrial Engineering and Management

Spring term 2020 | LIU-IEI-TEK-A--20/03837--SE

Linköping University SE-581 83 Linköping, Sweden

Towards a Greener World – Examining Green

Sourcing in Supply Chain Management

A qualitative study at two large organisations in Sweden

Isak Jansson

Carl Kling

Supervisor: Markus Radits Examiner: Alf Westelius

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Abstract

Purpose – The purpose of this study is to explore green sourcing in supply chain management by the example of two large organisations.

Design/methodology/approach – This study followed an iterative cycle of reviewing literature and empirics as well as conducting analysis and discussion. The literature gathered for this thesis was collected by reviewing ten academic journals as well as publications found through database search. Empirical data was collected from two case organisations, ABB Robotics and Vattenfall, through interviews, internal documents and public statements. The empirical data was analysed separately for each case organisation by use of an analytical model constructed from the literature findings. Thereafter, similarities and differences between the organisations were discussed as well as the thesis’ contributions to green sourcing literature.

Findings – We found that although both ABB Robotics and Vattenfall incorporate environmental sustainability to some degree in their respective sourcing processes, their individual performance differed. The main difference between the organisations was found to be the visibility and managerial drive towards the realisation of environmental goals within the sourcing department. From our observations, it was found that Vattenfall to a large extent embraced their environmental goals and that these trickled down to the sourcing department. ABB Robotics on the other hand had numerous environmental goals on corporate level but these lacked visibility in the sourcing department. In comparison to our literature findings is was found that for environmental goals, Vattenfall was in more alignment with the suggestions by the scholars. For the other identified areas important for green sourcing, that being supplier assessment, supplier performance evaluation and supplier collaboration, both organisations were more aligned with our literature findings.

Practical implications – In this thesis, four primary elements of green sourcing have been identified: environmental goals, supplier assessment, supplier performance evaluation, and supplier collaborations. Out of these, we found that the first element, environmental goals, is an enabler for the other elements of green sourcing to further evolve and is therefore essential for green sourcing. Originality/value – By looking beyond public statements and policies of environmental sustainability, this thesis has provided a unique insight in how two large organisations have implemented environmental sustainability in practice, from a sourcing perspective.

Keywords – Green sourcing, environmental sustainability, supply chain management, strategic sourcing, supplier assessment, supplier performance evaluation, supplier collaboration

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Acknowledgement

This thesis marks the end of our five years at Linköping University. Firstly, we would like to thank Sveds-Hjalmar Söderlund at ABB Robotics for his time and hospitality when welcoming us. Furthermore, we would like to express gratitude to ABB Robotics for welcoming us during our pre-study and for enabling us to work on this thesis project. We also want to thank those who participated in our study at ABB Robotics.

We would like to thank everyone that participated from Vattenfall, for taking their time to support us in our research. We direct special thanks to Arjan Pouw at Vattenfall, without whom we would not have been able to get in touch with the right people and information. Our thesis is richer thanks to his efforts and coordination.

We would like to thank our supervisor, Markus Radits, for giving us direction and guidance. Also, our examiner, Alf Westelius, for providing wise input. Thank you both for your insights.

Lastly, we would like to thank Henrik and Oscar, our opponents and our friends. They have supported us throughout the spring, both in terms of the master thesis and personally. We thank them for always being there for us, through thick and thin.

This thesis has enabled us further our knowledge on both the areas strategic sourcing and environmental sustainability and throughout the project we have had our ups and downs. But we made it through. This has been an experience unlike any other. It has been fun, and now we are proud to show you the result.

Thank you all.

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Figures

Figure 1 - Supply management process in a typical organization (Sollish & Semanik, 2011)... 6

Figure 2 - Simons’ (1995) Levers of Control framework ... 16

Figure 3 - Representation of interactive and diagnostic control systems by Jannesson & Nilsson (2016) ... 18

Figure 4 - The elements of green sourcing captured in the analytical model ... 20

Figure 5 - Our research process in this thesis ... 26

Figure 6 - Vattenfall's framework of process based instruments to move towards sustainable supply chain (Vattenfall, 2020) ... 42

Figure 7 - The relations between the elements of sourcing ... 69

Tables

Table 1 - Thesis disposition ... 4

Table 2 - Journals and years of publication subject to scanning ... 27

Table 3 - Interviewees at the case organisations ... 29

Table 4 - Interviewees we could not meet ... 29

Table 5 - Title and description of the interviewees at ABB Robotics ... 36

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List of Abbreviations

Abbreviation Meaning Description

KPI Key Performance Indicator Metric used to measure performance in a particular activity

PPM Parts per Million KPI used by ABB Robotics to measure quality, see Section 5.1.1

SOR Speed of Resolution KPI used by ABB Robotics to measure service, see Section 5.1.1

OTD On-Time Delivery KPI used by ABB Robotics to measure supplier delivery time, see Section 5.1.1

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Introduction

The following chapter begins with a background of the studied topic with the objective to give context and perspective to the field and the study. Thereafter, the purpose of this thesis is formulated and presented in conjunction with the research questions. Next, the limitations and delimitations are explored and reflected upon. And lastly, this chapter ends with a section describing the disposition of this thesis.

1.1 Background

Over the last decades, environmental sustainability has become increasingly important for organisations as stakeholders’ awareness of continuous environmental deterioration have intensified (Dembkowski & Hanmer-Lloyd, 1994; Golicic & Smith, 2013). Customers are demanding increasingly greater environmental accountability, pressuring a growing number of organisations to not only do what they are legally obligated to, but also to take a proactive environmental approach by developing environmental programs including initiatives for waste reduction, material recycling, and energy conservations efforts (Handfield, et al., 1997; Carter, et al., 2006). According to Chen (2008), numerous organisations do in fact try to improve their environmental accountability by working with innovation related to energy-savings, pollution-preservation, and waste reduction. As concluded by Chen, accomplishments in these areas, positively correlate with stakeholders’ perception of the organisation’s environmental sustainability, thereby improving the firm’s green reputation.

The more recent trend within environmental sustainability centres around the supply chain in particular. While organisations focus more on their core competences, their environmental impact becomes heavily dependent upon their suppliers (Seuring & Müller, 2008). Many organisations have therefore recognised the importance of making sure that their suppliers have implemented similar environmental practices as themselves to achieve positive long-term environmental effects (Sharma & Henriques, 2005). If an organisation succeeds in the quest of making its supply chain more environmentally sustainable, or ‘green’ as it often is referred to, many benefits are told to be derived. From a societal point-of-view, in the form of facilitating compliance with environmental legislation (Green, et al., 1996) and moves towards sustainability (Russel, 1998; Miller & Szekely, 1995). From an economic point-of-view, in the form of managing reputational risk, meaning the probability of financial loss due to insufficient environmental accountability (Drumwright, 1994). And lastly, from an organisational point-of-view to the purchasing and supply process in the form of supporting corporate environmental objectives (Lamming & Hampson, 1996; Green, et al., 1996; Noci, 1997). Although improving environmental sustainability in the supply chain should be beneficial in terms of an appropriate and immediate response to a continuous environmental deterioration, implementing

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green initiatives is not an easy task and the hurdles are high. Potential challenges may include an upfront unattractive cost tied to researching what needs to be done in order to initiate the green conversion. It could also be difficulties finding the right balance between marketing environmental efforts to customers, while at the same time avoiding too grandiose statements, making the environmental initiatives untrustworthy. Furthermore, it could also be difficulties managing change in the organisation (Horney & Nelson, 2013), or that some customers may not be willing to pay extra for products that are green, which may affect the overall profitability of the organisation (Bhattacharjee, 2015).

In the past years, many efforts towards developing green supply chains have been explored in the literature. For example, Beamon (1999) proposed a redefined supply chain by exploring how industrial development and environmental protection can coexist in symbiosis, or Handfield et al. (2005), by developing a framework suggesting how companies can change from ordinary supply chain practices to successfully integrating green initiatives. However, as noticed by Bowen et al. (2002), few firms have actually developed green supply chains in reality, thus leading to a gap between the desirability of sustainable supply chains in theory and actual implementation of proactive programmes towards greener supply chains in practise. The ideas by Bowen et al. received further attention more than ten years later by Igarashi et al. (2013), who said that academic articles dealing with incorporation of environmental aspects in supply chain are almost exclusively based on analytical research which is the reason as to why there is a clear need of empirical research, especially in the form of case studies. With this understanding in mind, this report consequently seeks to explore green supply chains at two large and well-known organisations. To limit the scope further, we have chosen to focus on the supply chain leading from the supplier to the organisation, more specifically, on the relations the organisation have with their suppliers. In regard to environmental sustainability, a process often referred to as green sourcing.

With respect to this, we employed a multiple case study of two large organisations in Sweden. The first one, ABB Robotics, is a manufacturing company located in the eastern part of Sweden, operating on a global scale with more than 6000 suppliers. The other organisation, Vattenfall, is Sweden’s largest producer of fossil free electricity. The result of the study will provide an in-depth view of the specific organisations and by that, according to Gummesson (2000) and Siggelkow (2007), contribute to the existing literature since a specific case is argued to have the potential to be indicative of a general phenomenon which in turn can be strengthen by other cases. To further delve into the topic as well as to provide a point of reference, this thesis will also study existing literature on developing general procedures towards achieving and maintaining green sourcing and identifying common challenges and issues towards its evolution. Choosing this approach will, in addition to exploring to what extent the focal organisations practices green sourcing, also allow for comparisons between empirical observations and the literature.

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1.2 Purpose and Research Questions

From the background it is evident that realising a green supply chain is very important to counteract environmental deterioration, as well as to implement trustworthy environmental accountability as demanded by more and more stakeholders. However, as the hurdles are high and the potential challenges are many, it becomes interesting to research how, and to what extent, two chosen organisations work with green sourcing today. Thus, a research agenda is revealed, and the purpose of this study can hereby by summarised as follows:

The purpose of this study is to explore green sourcing in supply chain management by the example of two large organisations.

To address the stated purpose of this thesis, two research questions have been derived. Below follows each question together with a short description and a set course of action to yield meaningful answers.

I. How do the focal organisations apply green sourcing in practice?

The first question is developed with the intent to grasp the current prevalence of green sourcing in our focal organisations today. How, and to what extent does environmental sustainability trickle down to the processes of strategic sourcing? To address the first question, we began with a literature study, exploring the different facets of green sourcing to guide the gathering of empirical data. From the literature study, we also developed an analytical model, used to structure the findings and facilitate later analysis.

II. How do the focal organisations’ green sourcing efforts compare to the academic literature in the field?

The second question continues along the same path, utilising the results from the first question and widens the perspective by analysing differences and similarities with the collected literature. This approach allows for comparison between what is suggested in the literature and what is implemented in reality, precisely what is needed to give a meaningful answer to the second research question.

1.3 Limitations and Delimitations

To complete this study within our desired time frame of 20 weeks, a handful of delimitations had to be made. Most significantly, we were limited on how many organisations we could study. While studying more organisations would give a broader perspective, it would sacrifice depth. With this in mind, we chose to study two organisations because it gives a slightly wider perspective than one, but still allows for sufficient depth. A drawback from this decision was that even though we could cover all areas we wanted at the case organisations, we could only interview one person within each area of responsibility due to limited time, which in term entails the risk of bias by the interviewees’ views.

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Moreover, as sourcing is a comprehensive and large field, all if its aspects and facets could not be explored to the same depth due to the time constraint. As of this, some parts were only covered in general terms, not exploring all potential details. One example of this is the usage of supplier selection models in the sourcing process, this is a complex field on its own and a further exploration would sacrifice depth in other areas.

Lastly, the literature and prior research available to us for this thesis was limited by what is offered by the library of Linköping University and open publications. Empirics gathered at the case organisations were limited to what the subjects are comfortable sharing to us as researchers. To not violate that trust, we cannot fully disclose gathered documentation and information.

1.4 Disposition

The disposition of this thesis is divided into eight consecutive chapters. The numbered sections can be seen in Table 1 along with a short description of their contents.

Table 1 - Thesis disposition

Chapter Content

1. Introduction This chapter introduces the background, purpose, research questions and disposition of the report.

2. Literature Review This chapter reviews the literature used to analyse the empirics. The chapter is divided into two sections, domain literature and method literature.

3. Empirical Context This chapter introduces the cases and organisations studied.

4. Method This chapter details on the research design, data collection and data analysis.

5. Empirics This chapter presents the collected data, including interviews and organisational documents.

6. Analysis This chapter analyses the collected empirics by utilising the literature review and the analytical model.

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8. Conclusion This chapter concludes the study by summarising key takeaways as well as answering the research questions stated in the introduction.

Literature Review

In the following chapter, the literature review findings are presented. Based on the concepts proposed by Lukka & Vinnari (2014), the notions of domain and method literature is utilised. Domain literature defines the scope by laying the foundation and defining key concepts of the studied topic. While, method literature identifies the perspective used to analyse the collected empirics. Important to note is that the terms domain literature and method literature are not absolute nor static, the definitions may vary depending on the context and the roles may interact with each other over time. In the end of the chapter, the analytical model is presented. This is done by integrating the domain and method literature into a conceptual model that will be used to analyse the collected empirics in the subsequent chapter.

2.1 Domain Literature

This chapter is divided into three sections. First, an introduction to the subject strategic sourcing is given to earn an understanding of the area which this thesis revolves around. Thereafter, environmental sustainability is introduced before we explore green sourcing.

2.1.1 Strategic Sourcing

Sourcing is a growing area within the academia with more articles on the subject being published every year (Giuniperoa, et al., 2019). However, to understand the context of the studied cases, the recent developments in the sourcing field, and in order to make a novel contribution, it is important to first understand the basics. That is to understand what strategic sourcing is, and why it matters. Beginning with a definition, strategic sourcing ‘… is an organizational procurement and supply management process used to locate, develop, qualify, and employ suppliers that add maximum value to the buyer’s products or service.’ (Sollish & Semanik, 2011, p. 1). Moreover, the major objective of strategic sourcing is ‘…to engage suppliers that align with the strategic business and operational goals of the organization.’ (Sollish & Semanik, 2011, p. 1). A supply management process utilised in a typical organisation is shown in Figure 1.

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Figure 1 - Supply management process in a typical organization (Sollish & Semanik, 2011)

The figure showcases the different phases included in the complete sourcing process and demonstrates which activities are associated with strategic sourcing and which are associated with the procurement process. Essentially, strategic sourcing does not include day-to-day activities as acquisitions, individual quotations, routine buying activities, logistics or payment. Strategic sourcing is in contrast mostly concerned with the process that ends with the actual selection of the supplier. That is, all steps required to gather all necessary information to help facilitate that decision, including setting up requirements, undergoing a prequalification process, sending out requests for information, RFx in Figure 3, to the speculative suppliers and thereafter actually selecting the supplier. When choosing a supplier, many criteria need to be taken into consideration. This is required because the performance of the supplier affects the performance of the buying organisation (Choy, et al., 2002). Traditionally, these selection criteria have included cost, quality, and delivery. However, in today’s global economy, additional criteria have become increasingly important. Nowadays, strategic sourcing is not only concerned with short-term profit maximisation, the objective is instead aimed at developing long-term supplier relationships. Therefore, factors of suppliers’ stability and potential for collaborative developments are of growing importance. These factors can take form as criteria of financial strength, technology and innovation level, cost reduction capabilities and suppliers’ co-operative attitude, which are all of equal importance to consider in addition to the traditional criteria mentioned above (De Toni & Nassimbeni, 2001; Valk & Wynstra, 2005). Due to these multiple factors needing to be weighed against each other, the activity of selecting a supplier is often complicated (Choy, et al., 2002).

Two central terms important to comprehend in the field of sourcing are strategic supplier and upstream supply chain. The first one is a term used to indicate a supplier that is accountable for a considerable amount of an organisation’s business, usually around 60-80%. The term upstream supply chain refers to the supply chain leading towards the organisation and consists of the organisation’s suppliers, and their suppliers, and so on. The downstream supply chain on the other hand is leading from the organisation to the end consumer.

To facilitate guidance and direction to employees in the strategic sourcing department as well as to other important stakeholders, Sollish & Semanik (2011) writes about the importance of a strategic sourcing plan. The strategic sourcing plan usually follows a standardised format where the

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organisation’s mission and vision statements are referenced systematically. The strategic sourcing plan should also clearly incorporate customer requirements that are identified in the overall business plan of the organisation. To understand the content of this plan and how it can be formed is of high relevance of our topic since it is often here new initiatives like green initiatives begin. The fundamental cornerstones of the plan are described in the section below (Sollish & Semanik, 2011).

To begin with, the strategic sourcing plan should contain a statement of the strategic sourcing departments’ mission and vision that clearly aligns with the organisations’ mission and vision statement to avoid conflicting goals. Moreover, it is of great importance that the strategic sourcing departments’ mission and vision statement are communicated and enforced within the organisation to avoid the very common procedure to create documents just to be placed on the shelf (Sollish & Semanik, 2011). From this learning by Sollish & Semanik, we understand that green initiatives in the strategic souring unit should presumably begin in the strategic plan, and more specific, in that plan’s mission and vision statement section.

Another cornerstone of the strategic sourcing plan is the environmental analysis. In this section, the organisation should outline the current market and condition it is operating in, including the supply chain and the primary customer. The environmental analysis thusly provides the background of which the rest of the strategic sourcing plan is developed from. It is important to highlight that if there is change in the conditions, market, or customer, the strategic sourcing plan needs to be revisited and revised (Sollish & Semanik, 2011). From this learning, we see that in relation to green sourcing, undertaking an appropriate environmental analysis should be important. We believe that in order to improve something, there is certainly a need to understand what is being done presently. That is, how do the organisation perform today with regard to environmental sustainability? What are the conditions and the boundaries? And perhaps most important, how do the organisations’ customers value green initiatives? Questions that can be answered by emphasising the importance of environmental analysis in the strategic sourcing plan.

The plan should also include an opportunity analysis consisting of potential opportunities and areas of improvement. Those opportunities are derived from an analysis that preferably should be conducted in cross-functional teams. This analysis often intends to spot gaps by benchmarking with industry standards to determine disparities between current practise in the organisation and best practise in the industry (Sollish & Semanik, 2011). Here, we believe that in relation to green sourcing, an opportunity may be to further develop the supply chain. And by the help of the gap analysis, the cross-functional team is hereby encouraged to identify best practises in the industry.

2.1.2 Environmental Sustainability

In order to fulfil the purpose to explore green sourcing in supply chain management by the example of two large organisations, it is highly relevant to first understand what environmental sustainability

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is, and how it is defined in the literature. A thorough grasp of environmental sustainability will help us be more critical in our analysis through understanding of its nuances and will increase our ability to spot potential overuse of the term environmental sustainability in our case companies.

Beginning with the fundamentals, today’s notion of environmental sustainability was proposed by Goodland in (1995). Along with the concept, Goodland provided a definition of environmental sustainability as something that ‘…seeks to improve human welfare by protecting the sources of raw materials used for human needs and ensuring that the sinks for human wastes are not exceeded, in order to prevent harm to humans.’ (Goodland, 1995, p. 3). Since its introduction, the term environmental sustainability has seen a substantial rise in popularity within the academia, organisations, and politics. However, with such a rise in popularity follows an obvious risk of overuse as well as the term losing substance (Károly, 2011). As stated by Károly, the term environmental sustainability has to some extent become a corporate buzzword applied so commonly and without substance that it is almost like a ‘…synonym for everything that is positive.’ (Károly, 2011, p. 1). With this in mind, to provide clarity and to articulate a future direction for professionals and environmental managers, Morelli (2011) redefined the concept by highlighting the ecology and its interconnectedness, summarising environmental sustainability as:

‘…meeting the resource and services needs of current and future generations without compromising the health of the ecosystems that provide them, …and more specifically, as a condition of balance, resilience, and interconnectedness that allows human society to satisfy its needs while neither exceeding the capacity of its supporting ecosystems to continue to regenerate the services necessary to meet those needs nor by our actions diminishing biological diversity.’ Morelli (2011, p. 6).

By embracing Morelli’s (2011) current definition of environmental sustainability we can now move on to explore its interconnections with organisations today. The idea that environmental sustainability is interconnected with businesses was initially proposed over two decades ago with the hypothesis that the overall goals of an organisations do not need to conflict with the general idea of environmental preservation (Barbier, 1987; Lovins, et al., 1999; Holliday, et al., 2002). Ever since, environmental sustainability has become increasingly important for organisations as stakeholders’ awareness has risen by consequence of organisations environmental deterioration (Dembkowski & Hanmer-Lloyd, 1994; Golicic & Smith, 2013). A growing number of customers demand organisations to take a proactive approach in the form of initiating waste reducing programs, recycling materials and taking energy conservation efforts (Handfield, et al., 1997; Carter, et al., 2006). As found by Chen (2008), improving environmental performance improves the reputation of environmental sustainability of the organisation, which positively affects the image of the organisation.

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Business and Environmental Sustainability

Numerous scholars have conducted research investigating the existence of a potential correlation between environmental performance and business performance. For example, studies by Klassen & Mclaughlin (1996) and King & Lenox (2001) all suggest that an improved environmental performance positively correlates with a stronger financial performance and that reduced emissions can contribute to a higher financial performance. According to the aforementioned scholars, implementing green initiates can be justified from multiple standpoints, not only from an ethical perspective as the right thing to do, but also from a financial point-of-view.

However, implementing green initiatives is not an easy task and there are many hurdles to overcome. In addition to the previously touched upon factors including an upfront unattractive cost tied to initiating the conversion, or difficulties implementing change in an organisation (Horney & Nelson, 2013), some case studies have further investigated the topic in greater detail. One of them being Johansson & Ledskog (2015), undertaking a case study aimed at sustainability evaluation at IKEA in southeast Asia. The study showcases numerous difficulties associated with improving environmental sustainability on a local level. The performance was hindered by lack of delegation and involvement, employees were difficult to motivate as shown by an unwillingness to change everyday behaviour. Another difficulty found in the study was performance hindered by lack of individual feedback and incentives, exemplified by a water consumption problem in one of the studied department stores. One of the set objectives was namely to lower the amount of water used in the store and as a precaution, a measurement system was installed. However, the only measurement used was total water consumption in the warehouse, making it almost impossible to follow up behaviour in the different departments or track were excess water usage had occurred. With this, the study demonstrates the importance of having well-functioning and sufficient measurements in place, as well as designing metrics which contribute to fulfilling their purpose (Johansson & Ledskog, 2015).

International Environmental Standardisation

To improve environmental performance in terms of minimising the organisation’s effect on the environment, as well as to ensure compliance with law and other environmental regulations, the ISO-14001 standard is commonly used among organisations. To become certified, the organisation of focus must fulfil all requirements stated in the standard and be granted by an accredited certification body1_{. Examples of some requirements among many in ISO-14001 include: an established}

environmental policy, implementing a plan to realise the policy, and to continually improve the environmental efforts within the organisation. The certification can be granted to any organisation and is not specific to any particular industry (International Organization for Standardization, 2015).

1_{An accredited certification body is an organisation certified by an authority to undertake audit processes. In Sweden, this} authority is called SWEDAC (SWEDAC, 2020). The certification process is associated with a yearly cost.

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In theory, ISO-14001 can serve as a comprehensive framework to confirm continued environmental performance improvement and legal compliance. However, some critics argue the opposite, claiming that some firms merely use ISO-14001 certification as an image-builder and that it is used only for public relations efforts (Rondinelli & Vastag, 2000).

In a case study by Boiral (2007), it was found that although compliance with ISO-14001 most often resulted in real performance improvements, these improvements were primarily administrative in nature. When later investigating the cases more thoroughly, Boiral found that daily practises in the organisations still remained rather decoupled from the description of ISO-14001 and employees only had a vague understanding of its content. Examples also include case studies on a local level were lack of government collaboration and lack of know-how obstructed the organisation’s ability to learn and adapt to the practices required for ISO-14001 certification, found by Ramadan et al. (2015). In short conclusion we see that although ISO-14001 can be an indication of environmental excellence, it is also important to understand that it may not be the case in every example.

Greenwashing

Another highly relevant topic to discuss closely related to environmental sustainability is the topic of greenwashing, which is defined as ‘...disinformation disseminated by an organization so as to present an environmentally responsible public image.’ – 10th_{edition of the Concise Oxford English Dictionary.}

According to Ramus & Montiel (2005) the concept is simple, environmental policy is easy to write, and stakeholders want organisations to make them, but unlike financial reports, organisations are not required to verify environmental policies by a third party. Therefore, one cannot be certain whether an organisation’s public commitment to an environmental policy actually translates into corporate greening activities or not (Ramus & Montiel, 2005).

However, according to a recent study by Bowen (2014), there is evidence that the more obvious kinds of greenwashing may be on decline. The reason is told to be a combination of factors such as an increased stakeholder vigilance, monitoring technologies and social media. Hence making obviously exaggerated environmental marketing claims being less effective (Lyon & Montgomery, 2013). Despite this apparent progress, authors such as Bowen & Aragon-Correa (2014) still argue that scholars will have to approach the terrains of evaluating environmental performance in a more careful way since it is very likely that organisations’ tactics will change and become more shrewd. Furthermore, Ramus & Montiel (2005) mean that third party audits and verification may be the only valid method of assuring the public of environmental accountability. So, with a brief understanding of greenwashing and how it may take form within organisations, it becomes evident that a critical lens is needed when exploring how environmental sustainability is incorporated in the supply chains of organisations. For us as researchers, it becomes important to explore beyond publicly announced environmental policies by understanding real-life practises and day-to-day activities.

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2.1.3 Green Sourcing

In this chapter we explore the concept of green sourcing. Although, before exploring the facets of green sourcing, it is beneficial to define green sourcing and its role in organisations. From our literature review for this thesis we have found a plethora of green sourcing definitions. Some publications use overhauling definitions such as ‘Green Supply Chain Management’, and then narrowing it to the sourcing process, or ‘Sustainable Sourcing’, to then narrow it to only covering the environmental side of sustainability. Other scholars have called it ‘Green Purchasing’ when focusing on the purchasing process. In this thesis, the term ‘Green Sourcing’ is chosen because it reflects the dual focus on environmental sustainability and sourcing. To this end, we borrow the description of green sourcing from Min & Choi (2019):

‘…green sourcing is referred to as an environmentally conscious purchasing practice that reduces or eliminate sources of waste and promotes the sustainability (e.g. recycling and reclamation) of purchased materials without adversely affecting performance requirements of such materials.’ Min & Choi (2019, p. 2):

Green sourcing is gaining more and more importance for organisations. This because, as described by Choy et al. (2002), organisations are moving from being producers of goods to outsourcing their activities to the supply chain. As outsourcing takes a larger role in organisations, the environmental impact grows more dependent on the supply chain (Seuring & Müller, 2008) and the management attention shifts from competition between firms to competition between supply chains (Christopher, 2007). Furthermore, external stakeholders often view an organisation as responsible for their supply chain (Dou, et al., 2018). As attention turns toward supply chains, the responsibilities of sourcing grow. Since sourcing is the responsibility over the choice of suppliers, and therefore the upstream supply chain (Sollish & Semanik, 2011). Moreover, as stakeholders are becoming more aware of environmental sustainability (Dembkowski & Hanmer-Lloyd, 1994; Golicic & Smith, 2013), green sourcing is of growing importance.

While organisations might want to focus on improving the environmental sustainability of the supply chain, Pagell & Wu (2009) recommend to first perform well on traditional and common operational measurements before focusing on green sourcing. By traditional operational measurements they are referring to metrics such as cost, quality and delivery time, which are most commonly used in sourcing (Pagell & Wu, 2009). According to Wu & Pagell (2011) there are many uncertainties in the decision making of environmental sustainability in sourcing. This is due to all information not being available to managers (Wu & Pagell, 2011). Lindroos (2015) means that the first step is to define what ‘green’ means to the organisation. This is achieved by identifying a set of criteria that the organisation deems relevant for sourcing (Lindroos, 2015). With these as foundation, environmental decisions are easier to make, and becomes relevant from a business perspective (Wu & Pagell, 2011; Lindroos, 2015).

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The remainder of this chapter is divided into four sections. The sections are based on overarching themes we have noticed in the green sourcing literature. They form four distinct categories which have received significant attention and therefore seem to be central for green sourcing. These are environmental goals, supplier assessment, measuring supplier performance and supplier relations. Environmental Goals

Yusoff et al. (2016) found that economic development is often prioritised when going against environmental development. For better results of green sourcing, the environmental goals should align with the business goals, this to avoid them clashing or contradicting each other (Pagell & Wu, 2009; Yusoff, et al., 2016). To mitigate this risk, the environmental goals needs to be updated as soon as the business goals are, and vice versa. To integrate sustainability in the organisational processes, the managerial efforts need to drive towards both sustainability and innovation (Pagell & Wu, 2009; Dou, et al., 2018). Lintukangas et al. (2019) have identified that innovation, which they define as openness to try new ideas, in organisations is central for development and implementation of sustainable processes in organisations as well as supply chains. Therefore, organisations should foster innovation in their strategic sourcing to gain better environmental sustainability in their supply chain (Lintukangas, et al., 2019).

Furthermore, Pagell & Wu (2009) found that employees must be motivated and feel responsible for reaching the environmental goals for those to have a chance to be realised. Measuring and rewarding employees based on their contributions to positive green sourcing development results, enhance the outcomes significantly (Pagell & Wu, 2009). Large & Gimenez Thomsen (2011) highlight the importance of employee responsibility for environmental sustainability and recommend that the purchasing department should have a strategic level. This means that the purchasing department should have a formal long-term plan to develop and support business and environmental strategy as well as participate directly in the business’ strategic planning process. (Large & Gimenez Thomsen, 2011).

Supplier Assessment

Setting base requirements when entering partnerships is a good way to make sure that the suppliers and buyers have the same expectations. From the buyer’s side it can be of interest to conduct assessments of suppliers to ensure that suppliers comply with those requirements. As Yusoff et al. (2016) point out, it is important to conduct regular audits to make sure that the set conditions are kept. And for environmental sustainability, it is especially important that audits are utilised to make sure that the requirements are followed. However, as further stated by Yusoff et al. (2016), to develop appropriate indicators in these audits have proven to be a major challenge.

In addition, Large & Gimenez Thomsen (2011) found that green supplier assessment is a key factor for green sourcing practices. Although, Sanchaa et al. (2019) warn practisers of having too rigid

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systems for both monitoring of suppliers’ performance as well as to ensure that suppliers fulfil set requirements. As such systems can simply create too much cost for the supplier, both in terms of reporting and for fixing deviations from the requirements. As a result, the economic performance of the supplier can become worse than before (Sanchaa, et al., 2019).

Furthermore, Lindroos (2015) argues that excessive environmental requirements on the supplier can make the relation too bureaucratic by requiring suppliers to spend much time and resources to monitor and report their own performance. Although, as told by Kumar et al. (2012), this does not have to be the case. Kumar et al. has found that exerting additional managerial effort on suppliers can have small negative impact on the suppliers’ overall performance. Furthermore, it can contribute to improvements of the environmental sustainability in the supply chain (Kumar, et al., 2012). Lindroos (2015) instructs buyers to be wary of the effects their demands may have on suppliers. Buyers should ensure that they do not disrupt their suppliers’ operations, as suppliers need to be able to focus primarily on their core activities to maintain effectiveness (Lindroos, 2015).

Measuring Supplier Performance

According to Beamon (1999), to be able to green the supply chain, organisations must develop procedures that focus on operational analysis, continuous improvement, measurement, and objectives. At the centre of this, are performance measurement systems (Beamon, 1999). Beamon means that these performance measure must include some metrics for waste as well as energy and usage of resources. However, in a literature study, Ahi & Searcy (2015) found that there is no general agreement on what should be measured in this area. They found over 2000 metrics, although less than half appeared in the reviewed literature more than once. Only 26 metrics were mentioned in ten or more publications. In Ahi & Searcy’s study the conclusion was that the most common metrics for green supply chains are quality, energy use and hazardous emissions. Lindroos (2015) found in her study that a popular milestone for environmental progress is ISO-14001 certification However, as we have found in Section 2.1.2, ISO-14001 may be a problematic indicator of a suppliers environmentally sustainable practices. Lindroos (2015) also highlights that ISO-14001 or equivalent environmental management system certification is not a sufficient metric for comparison between suppliers.

Designing performance measurements is told to be a difficult task, as expressed by Igarashi et al. (2013). Translating environmental criteria into meaningful, practical and measurable variables often poses challenges, both for purchasers and suppliers (Igarashi, et al., 2013). Correia et al. (2013) also note that it is hard to define ways to measure the environmental impact of suppliers. There are multiple metrics that could be used, and these are very dependent on the organisation and its context (Correia, et al., 2013). Akcan & Tas (2019) conducted a literature review of several case studies where decision models were applied in different organisations to rank the most applicable environmental metrics for strategic sourcing. From this literature review, it was found that none of the cases shared the same top ranked metrics (Akcan & Tas, 2019). This seems to showcase that there is no perfect way to measure

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supplier environmental performance because it is bound by context. Another possible explanation is that the perfect metrics to measure suppliers’ environmental performance have not yet been found. As stated by Dou et al. (2018), research in this area is relatively immature, a realisation we have come to as well through our literature review.

Another topic of discussion within the literature of sourcing deals with the process of selecting a supplier, and more specifically, what selection models can be used to guide this decision. From a literature study by Govindan et al. (2015), it is concluded that the implementation of green issues within the supplier selection process is rather limited. However, among the papers that integrated various environmental dimensions identified in the study, it was found that the most commonly used criterion for supplier decision was environmental management system, with sub criteria such as having an ISO-14001 certification, followed by the suppliers’ green image and environmental performance (Govindan, et al., 2015).

Supplier Relations

Supplier relations play an important part in green sourcing. Jabbour et al. (2015) has found that for suppliers to improve their operational performance through green practices, they need support from their customers. Sanchaa et al. (2019) state that collaborations give the supplier access to external sources of knowledge, information and resources that enable sustainability development and are needed if organisations want to extend their sustainability in the supply chain (Sanchaa, et al., 2019). Pagell & Wu (2009) as well as Dou et al. (2018) further enforce this by stating that to achieve greener sourcing, the relations with suppliers should be viewed as long-term collaborations.

Pagell & Wu (2009) also instruct buyers to ensure transparency in their supply chain, which means that they should gather information on profitability of actors throughout the supply chain. This to ensure that all actors throughout the supply chain are financially stable and have economic possibility to further develop. Furthermore, as stated by Pagell & Wu (2009), buyers should help their suppliers develop and reduce supplier risk, defined as the potential risk that suppliers fail to deliver. While Dou et al. (2018) highlight the importance of trust and information sharing to reach those long-term relations. According to Christopher (2007), the capability to establish close and long-term relationships with suppliers and other strategic partners has become a crucial factor in creating competitive advantage. Once long-term relations are established, the buyer needs to provide financial and human resources to aid the suppliers in environmental improvement, according to Dou et al. (2018).

2.2 Method Literature

This chapter describes the method literature. Here, the Levers of Control framework (Simons, 1995) is introduced, which will be used to categorise the findings from our literature review. The framework was chosen because we found it representative of practices buyers apply in strategic sourcing, as well

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as the categories of green sourcing observed in our literature review. Due to this, the framework can be utilised to categorise the findings of our literature review to yield structure for our analysis. The method literature will be combined with the findings from the collected domain literature to create the analytical model for this thesis, which will be further explored in Section 2.3.

2.2.1 The Levers of Control Framework

Simons (1995) divide control into four control systems, belief, boundary, diagnostic and interactive, see Figure 2. Control systems are mechanisms in organisations to monitor performance and guide employees. Applying control systems allows for catching errors in, and issues with, the business strategies as well as leading development in the right direction (Simons, 1995). According to Jannesson & Nilsson (2016), having specific or elaborate control systems may yield good results but risk the company’s operations being too focused on short-term goals. Furthermore, as described by Catasús & Cäker (2016), new control measures can conflict with other ideas within the organisation and managing control takes time and focus. With more control, more administration is needed as well, and more objectives lead to more stress for those involved in the process (Catasús & Cäker, 2016). More elaborate control systems risks of being rigid, limiting opportunities for creativity or exploration of new concepts for those controlled, and might even harm the operations as result (Catasús & Cäker, 2016; Jannesson & Nilsson, 2016). Therefore, designing control systems, to maximise value while not making them too rigid, poses a challenge (Catasús & Cäker, 2016; Jannesson & Nilsson, 2016). For control systems to be successful, senior management have to encourage exploration and innovation (Simons, 1995). Continuing this section, the control systems are further described in the order they appear in the framework.

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Figure 2 - Simons’ (1995) Levers of Control framework

Belief Systems

Belief systems guide exploration and allow testing of new ideas. Belief systems are the methods management utilises to communicate, and enforce, values, purpose, and desired direction for developments. Among the belief systems are the core values, as well as how these are related to the strategic goals, of the organisation. The purpose of the belief system is to inspire and guide search and discovery for new business developments and opportunities. For organisational change, belief systems and commitment to them, are vital. For employees to be committed, they first must believe in the organisational values and be willing to make the effort to reach organisational goals. More commitment yields higher performance (Simons, 1995).

Boundary Systems

The function of boundary systems is the opposite. Boundary systems establish limits to opportunity seeking, defining what direction to not explore and what is not allowed. They should be designed to prevent practices and ideas which may have negative effect on the organisation. Boundary systems allow for freedom within certain bounds and build over time as the organisations learn. To induce the wanted behaviour, sanctions or punishments are dealt to those that break the boundaries. Boundary systems are often presented through official organisational documents, such as codes of conduct, where the restrictions and requirements are presented. Although, having systems in place does not grant that they are followed, the systems might fall when stood against employees’ values or practices

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that have been created through tradition and history of the organisation. For the boundary systems to change behaviour of those controlled, the threat of sanctions needs to be clear and unambiguous (Simons, 1995).

Diagnostic Control Systems

Diagnostic control systems are the formal information systems that are used by managers to monitor outcomes and ensure strategic alignment through performance metrics. For successful diagnostic systems, three features are required. The ability to measure outputs of processes, existence of predetermined standards to weigh against and ability to correct deviations from the standards (Simons, 1995). To design performance measures, it is vital to analyse the organisational strategy and how metrics are related to the goals (Simons, 1995; Jannesson & Nilsson, 2016).

The goals should be challenging for employees to be motivated to reach them. Meaning that they should neither be too easy nor too difficult to reach (Simons, 1995). The goals should be specific, chosen on how well they communicate strategy and how they influence behaviour. This to not create confusion among subordinates. Responsibilities for reaching the goals, as well as the metrics used to measure progress, should be agreed upon between employees and management (Jannesson & Nilsson, 2016). To find metrics which fulfil these criteria, the goals and measurements should be set jointly by managers and subordinates. The development of performance metrics should be a continuous process (Simons, 1995; Jannesson & Nilsson, 2016).

Interactive Control Systems

Competition is a main driver for innovation in an organisation. Strategic uncertainties, factors outside direct management control that can affect the organisation strategy, are in constant state of flux. The purpose of interactive control systems is to focus the attention in the organisation to handle the uncertainties and drive discussion of possible business developments. An interactive control system should generate information that is important and reoccurring in discussions in high management. For successful interactive control systems, frequent attention is required from managers at all operational levels. Furthermore, the data needs to be regularly discussed throughout the organisation (Simons, 1995). While high level management can decide what strategic direction the organisation should take, they lack knowledge of daily operations. Therefore, higher management need information from the operational levels of the organisation to be able to explore directions which the strategy can evolve (Simons, 1995; Jannesson & Nilsson, 2016).

The role of interactive control systems is to enable a dialogue between the strategic managerial and operational levels, where upper management give information of the desired strategies and lower levels reply with the possibilities and challenges (Simons, 1995). Jannesson & Nilsson (2016) instruct that for best use of interactive control systems this conversation between managerial levels should be continuous and Catasús & Cäker (2016) warn that employees put under time pressure may avoid

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participating in discussion and dialogue. The value of the diagnostic and interactive information systems lies in the dialogue and feedback the systems enable (Simons, 1995; Catasús & Cäker, 2016). This relation is represented in Figure 3. To retrieve most value from the systems, the tactical and operational information needs to be able to be easily exchanged within the organisation (Jannesson & Nilsson, 2016).

Figure 3 - Representation of interactive and diagnostic control systems by Jannesson & Nilsson (2016)

2.3 Analytical Model

In this section we conjoin the method literature with the topic of green sourcing. By doing this, we identify four distinct elements of green sourcing which form the analytical model that is used for the analysis in this thesis.

While the other elements of green sourcing revolve around the process and procedure involving suppliers, our adaptation of belief system to green sourcing is focused on internal factors in the case organisations. The role of belief systems is to guide development. In green sourcing, this is done through environmental goals, as found in our literature study which highlight the importance of environmental goals being represented in strategic sourcing. This can be done in several ways. It could be through belief systems communicating the environmental goals, similar to how Large & Gimenez Thomsen (2011) recommend that sourcing should have a long-term plan to support environmental strategy. Progress towards environmental goals could be forced by setting boundaries on the employees involved in sourcing, requiring them to choose suppliers of certain kind, or by diagnostic

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control systems giving the employees responsibility over the environmental performance as recommended by Pagell & Wu (2009) and Large & Gimenez Thomsen (2011). Furthermore, there should be encouragement from managerial levels toward achieving these goals in sourcing (Pagell & Wu, 2009; Dou, et al., 2018) through interactive control systems collaborating and innovating to find new developments. While these are applications of different control systems, they guide those involved in sourcing in their work and application of green sourcing practices. Therefore, we have chosen to gather these under the first element of green sourcing, environmental goals.

Boundary systems often used in strategic sourcing are codes of conduct, documents which state what requirements the suppliers must follow. To ensure that the supplier is staying true to those requirements, audits or assessments are conducted by the buyer. This is a practice which scholars (Large & Gimenez Thomsen, 2011; Yusoff, et al., 2016) have stated hold a vital role in green sourcing. Due to this, we have identified the requirements set through documents, as well as the audit and assessment of these, as the boundary systems which should be used to ensure the environmental performance of suppliers. Therefore, the second element of green sourcing is identified to be supplier assessment. Continuing onward, we examine diagnostic control systems. These are often applied in strategic sourcing as metrics or performance indicators to evaluate operational performance of suppliers. According to our literature review, evaluating the environmental performance, in addition to operational performance, of suppliers is a key component for green sourcing. Although there is much uncertainty on how these can be designed and applied, scholars seem agreed on that these are needed (Beamon, 1999; Ahi & Searcy, 2015; Lindroos, 2015; Akcan & Tas, 2019). Therefore, we have identified supplier performance evaluation as the third element of green sourcing.

We have observed, in sourcing, that the relations between buyers and suppliers can be represented through interactive control systems. For this case, we have identified that buyers take the role of top management in interactive control systems, with goals and strategies they want to achieve through the relationship, while suppliers represent the operational levels. The communication and cooperation between these are through interactive control systems. For green sourcing, both long-term relations and collaborations are stated as important factors for successful implementation (Christopher, 2007; Pagell & Wu, 2009; Jabbour, et al., 2015; Dou, et al., 2018; Sanchaa, et al., 2019). Through long-term relations and collaborations, the buyer can communicate their desired strategies as well as understand the context of their suppliers. Therefore, we have identified that collaborations and long-term relations with suppliers take the role of interactive control systems in, and in turn are the fourth and final element of, green sourcing.

By setting Simons’ (1995) Levers of Control framework in the context of green sourcing, we have identified the elements of green sourcing as well as the analytical model that acts as template for our analysis, see Figure 4. The analysis of both case organisations follow the structure of the analytical model, one element at a time. By utilising the analytical model, we can categorise the empirical data

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collected which aids us in analysing the presence of the elements of green sourcing in the case organisations. Furthermore, the shared structure of analysis for the two case organisations makes the results of these easier to compare. This comparison is done in Section 7.1.

Figure 4 - The elements of green sourcing captured in the analytical model

Empirical Context

In this thesis, two large Sweden based organisations are studied. The first one, ABB Robotics, is a supplier of robots and robot software to be used in manufacturing. They have three factories, one in China, one in the USA and one in central Sweden. The organisation is selling business to business with customers all over the world. They design the parts for their products, with some exceptions for standard parts such as screws, but outsource the production of these to their suppliers. This leads to much of the environmental impact of their products is being produced upstream in the supply chain. ABB Robotics is one of four business units included in the ABB Group, each unit has its own sourcing department. ABB Group have, in total, over 6000 suppliers. As written in their Annual Report, they are committed to reduce emissions and state that ‘Sustainability, like innovation, is in the DNA of ABB.’ (ABB Group, 2020, p. 22). They also claim that ‘Sustainability is, and will remain at the centre of our activities.’ (ABB Group, 2020, p. 22), and they are, according to themselves, recognised as a leading contributor to a sustainable world. The second case organisation, Vattenfall, is one of Europe’s largest producer and distributor of electricity. Vattenfall has been in business for more than 100 years

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and supplies both industries as well as private consumers with electricity. Vattenfall’s main environmental commitment is to make fossil-free living possible within one generation. According to themselves, this is realised by a commitment to reduce CO2 emission throughout their entire value

chain, using resources in a sustainable way, and by protecting natural environment and biodiversity. Vattenfall’s global supplier base consists of approximately 26,000 suppliers and Vattenfall claim that their supplier engagement strategy strives to increase the influence in their supply chain and improve suppliers’ sustainability performance (Vattenfall, 2020).

With a brief understanding of ABB Robotics’ and Vattenfall’s operation and business philosophies, it is possible to identify both similarities and differences. Both organisations are large and operates on a global scale. However, the sectors which they operate in are vastly different. ABB Robotics being in the manufacturing industry sector while Vattenfall is a producer of electricity. Furthermore, according to the organisations’ environmental policies, both organisations make rather grandiose claims regarding their commitment to be a contributor to a more sustainable world. While ABB Robotics state that sustainability is in their DNA, Vattenfall is committed to make fossil-free living possible within one generation. Bold statements that makes it interesting for us to further analyse to what extent they are reflected and incorporated in the organisations’ upstream supply chains, and more specifically in the strategic sourcing departments.

3.1 Case 1 – ABB Robotics

After having an initial dialogue with the head of sourcing at ABB Robotics’ strategic sourcing unit, it became evident that he showed interest in the role of environmental sustainability in the sourcing process. He was however unsure to what extent it was implemented at the company. He knew that ABB Group showed commitment to a rather ambitious environmental policy but had no in-depth insight how environmental sustainability permeated day-to-day activities in the sourcing processes. He did however know that ABB Robotics had, in recent times, been declined as a supplier to customers due to their inability to demonstrate environmental impact in their supply chain. With these insights in mind, he first of all became curious to find out to what extent environmental sustainability was incorporated in the sourcing processes, and secondly, how ABB Robotics compared to other large organisations and suggestions by the literature. As a recommendation, to us researchers, he proposed Vattenfall as a company interesting to investigate and compare ABB Robotics with. He had namely heard that Vattenfall was eminent in their environmental sustainability efforts and was thusly curious to get an insight in their operations. With our intention the employ a multiple case study at two large organisations, this become an excellent choice.

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3.2 Case 2 – Vattenfall

Vattenfall’s goal is to make fossil free living possible within one generation. Therefore, they are driving the transition to a more sustainable energy system through growth in renewable production and energy solutions for their customers. Furthermore, Vattenfall claim that they actively cooperate with their suppliers, customers and partners to reduce emissions in the complete value chain. Vattenfall participate in numerous projects, local as well as global, to accelerate the transition towards environmental sustainability (Vattenfall, 2020).

However, this has not always been the case. Vattenfall have throughout the years been subject to heavy criticism. Mainly through their acquisitions of brown coal plants in Germany, a form of electricity generation which is classified as one of the most carbon intense. As of this, in 2009, the research and campaign group Corporate European Observatory, declared Vattenfall as the winner of the Climate Greenwash Awards which Vattenfall was nominated for ‘…its mastery of spin on climate change, portraying itself as a climate champion while lobbying to continue business as usual, using coal, nuclear power, and pseudo-solutions such as agrofuels and carbon capture storage.’ (Climate Greenwash Awards, 2009). Some years later, in 2016, Vattenfall sold the entirety of their coal plants in Germany with the motivation to accelerate its shift to greener energy and has since then been rewarded numerous prices for their sustainability work. In 2018 they received the grade ‘Leader’ by Sustainalytics, a global provider of research and awards within the field of society and control (Vattenfall, 2020). Moreover, In 2019, Vattenfall received a gold rating from EcoVadis, an online platform providing supplier ratings for global supply chains where a gold rating corresponds to being the top one percentage of 40,000 organisations evaluated (Vattenfall, 2020). So, with a brief understanding of Vattenfall’s background, an interesting opportunity arose to get a valuable insight in the operations and try to comprehend real-life procedures. Have Vattenfall successfully managed to incorporate environmental sustainability in their practices as their recently awarded prices narrate? And if this is the case, what can organisations such as ABB Robotics learn from Vattenfall?

Method

In this chapter, the methodology used in this thesis is presented. The chapter starts with the design and process of the conducted research. Thereafter, a thorough description of the data collection is presented. Lastly, we present the method taken for analysing the collected empirical data.

4.1 Research Design

In this section the approach taken towards our research is explained. Before diving into the design of our study, we believe it to be of value to revisit the research questions of this thesis. They represent