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Environmental performance in supply chains:

an empirical study in Colombian
manufacturing companies

Conference Paper · July 2017

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 Environmental performance in supply chains: an
empirical study in Colombian manufacturing
companies

Mariana Trujillo (matrujilloga@unal.edu.co)

Facultad de Ingeniería y Arquitectura, Universidad Nacional de Colombia

William Sarache
Facultad de Ingeniería y Arquitectura, Universidad Nacional de Colombia

Abstract

This paper suggests a green index as a benchmarking tool to assess the environmental
performance of manufacturing companies using the Green Supply Chain Management
(GSCM) approach. A methodology is proposed for index design and application. The
DEMATEL method is used to obtain weights and causal relations of those green practices
which are the focus of this study, and their corresponding dimensions. The proposed index
was applied in two manufacturing companies in the automotive industry of Colombia.
Our findings confirm the applicability of this index in a real-world supply chain, and
highlight its managerial implications.

Keywords: Green supply chain management, environmental performance measurement

index, green practices.

Literature Review
As a consequence of environmental pressures, companies have implemented different
initiatives to improve their processes (Shang et al., 2010). Process improvement from the
green approach involves the green performance evaluation as baseline. In the literature,
there are several tools to evaluate environmental performance; among them, the
ISO14031, the Global Reporting Initiative (GRI) and the Life Cycle Assessment (LCA)
approach are the most renowned. However, some authors (Shaw et al., 2010; Yu and
Ramanathan, 2015; Bulsara et al., 2016), argue that these tools are not entirely appropriate
to assess environmental performance due to three main limitations: 1) The lack of an
integrated system of indicators; 2) The non-inclusion of all environmental practices of the
supply chain and, 3) They are oriented more toward informing than on pondering and
understanding numerical indexes.

1
 As an alternative, the Green Supply Chain Management (GSCM) concept emerges.
GSCM is defined as “integrating environmental thinking into supply-chain management,
including product design, material sourcing and selection, manufacturing processes,
delivery of the final product to the consumers as well as end-of-life management of the
product after its useful life” (Srivastava, 2007, p: 55). Environmental performance
evaluation, from the GSCM approach, allows a company to identify its weaknesses with
regard to the environment, and improve its capabilities with the aim of reducing risks and
negative impacts on the environment (Dey and Cheffi, 2013; Bulsara et al., 2016).

Azevedo et al. (2016) and Ferrerira et al. (2016) argue that while many articles on
environmental performance assessment in organizations have been published, the
emphasis on assessing the environmental performance of supply chains has been
relatively limited. In relation to the above, Galeazzo et al. (2014) state that, from the
context of the natural resource-based view (NRBV), environmental performance is the
result of the application of green practices. Thus, several studies have provided empirical
evidence of the positive effect on firm environmental performance as a result of GSCM
practices implementation and environmental investment (Hajmohammad et al. 2013;
Galeazzo et al., 2014; Govindan et al., 2015).

In a systematic literature review of 319 articles, 10 environmental practices that

conform to the GSCM approach were identified in this work. Likewise, in a second
systematic literature review, 113 articles related to environmental performance
measurement were evaluated, and the seven most significant articles were identified.
These studies proposed environmental performance indicators using the GSCM approach
(see Table 1).

Table 1 – Some relevant works in the field of environmental performance indicators using the
GSCM approach
GSCM practices
and technology
Environmental

manufacturing
environmental

Green human
collaboration
management

information
distribution
purchasing

Marketing
Ecodesign

resources
Internal

logistics
Reverse

systems
Green

Green

Green

Green

Green

Author

Lau(2011) X X
Ma and Liu (2011) X
Azevedo et al.(2013) X X X X
Sarache et al.(2015) X X X X X X X
Sellito et al.(2015) X X X X X X
Azevedo et al.(2016) X X X X
Ferreira et al.(2016) X x

According to Table 1, none of the aforementioned seven papers proposed an

environmental performance index integrating the 10 identified GSCM practices. Ma and
Liu (2011) propose an index combining two methods (DEA-AHP) for the suppliers’
selection, including environmental and non-environmental criteria. Azevedo et al. (2013)
proposes an ecosilient index to assess the greenness and resilience of automotive
companies, and the corresponding supply chain. Sellito et al. (2015) assess the GSCM
practices performance in two companies from the automotive sector in Brazil, based on
the prioritization of strategic, operational and innovation practices in each link of the
supply chain. Sarache et al. (2015) propose a multicriteria indicator to measure
2
environmental performance employing the GSCM approach, based on eight processes.
Azevedo et al. (2016) suggest a lean, agile, resilient, and green (LARG) index as a
benchmarking tool to assess the leanness, agility, resilience and greenness of six
automotive companies, and their corresponding supply chains (SC). Finally, Ferreira et
al. (2016) propose several environmental indicators to assess performance within the four
perspectives of the Balanced Score Card.

Since the literature reflects a lack of an integrated indicator which fully covers all green
practices throughout the supply chain, the study was oriented to the following research
question:

How should an index be designed to assess the environmental performance of

manufacturing companies using the GSCM approach?

The aim of this paper is to propose a composite green index to reflect the
environmental performance of manufacturing companies. The proposed index was
structured by the aggregation of 10 environmental practices related to the GSCM
approach. By using the proposals of international experts in GSCM topics, the
DEMATEL method is used to hierarchize the green practices and dimensions and also,
to identify the causal relationship between them.

Methodology
For the design and application of the index a three-step methodology was applied (see
Figure 1).

Stage 1. Stage 2. Stage 3.

Application of Construction of Green Index
DEMATEL method Green Index validation

Figure 1-Methodology structure

Stage 1. Application of DEMATEL method

The Decision Making Trial and Evaluation Laboratory (DEMATEL) (Li and Tzeng,
2009) was used to evaluate the interdependencies of practices influencing environmental
performance. This technique is a decision-making method based on pairwise
comparisons. It uses expert opinions and the Graph Theory to provide a hierarchical
structure of the factors in a system, showing their mutual impact and influence on
relationships. DEMATEL helps to develop a causal structure between factors, instead of
a direct structure by clarifying relationships (Chen, 2012). In particular, DEMATEL was
used to prioritize green practices and their interrelationships (Shafiee et al., 2014).
Considering the contributions of Sumrit and Anuntavoranich (2013) and Falatoonitoosi
et al. (2014), the following seven steps were used to rank and weigh environmental
practices, as well as to identify causal relationships between them:

Step 1. Operationalization of green practices.

Step 2. Selection of experts.
Step 3. Making the direct-influenced matrix.
Step 4. Calculating the direct-influenced matrix normalization.
Step 5. Achieving the total-relation matrix.
3
 Step 6. Ranking and weighting of green practices.
Step 7. Identification of causal group and receiver group.

Stage 2. Construction of Green Index

The main objective of this section is to propose a composite index to evaluate companies’
levels of environmental performance. Since the index is composed of a set of 𝑛 practices,
the overall performance will be affected by the aggregation of individuals. In a first step
it is necessary to calculate the company performance according to Equation (1).

Equation (1):
𝐺𝐼 = 𝑓[(𝑤𝑥1 × (𝑃𝑥1 ), 𝑤𝑥2 × (𝑃𝑥2 ), 𝑤𝑥3 × (𝑃𝑥3 ), … , 𝑤𝑥𝑛 × (𝑃𝑥𝑛 )]

Where, (𝑃𝑥𝑖 ) represents the level of implementation level of the practice x (x = x1…x10).
A total of 𝑛 practices are considered. In turn, 𝑤𝑥𝑖 represents the weight of the green
practices.

Stage 3. Green Index validation

Since the main objective of this study is to propose a Green Index to assess the
environmental performance in manufacturing companies, a convenient case study was
carried out to illustrate the application of the Green Index. This approach is appropriate
when the boundaries of a phenomenon are not only unclear, but where there is no control
over behavioral events (Rowley, 2002).

Results

Stage 1. Application of DEMATEL method

Zhu et al. (2008b) and Liu et al. (2012) state that variable operationalization involves
converting their abstract concepts into empirical ones, which can be measured through
the application of a data collection instrument. Table 2 presents the environmental
practices used in this investigation. Based on the literature review, ISO 14031 and the
Global Reporting Initiative, a total of 10 environmental practices were identified with
their most representative set of dimensions.

Table 2 – Practices operationalization

Green practice Code
Internal environmental management IM
Ecodesign DE
Environmental collaboration CO
Green purchasing PU
Green manufacturing MA
Green distribution DI
Green Marketing MK
Reverse logistics RL
Green human resources HR
Green information systems and technology ST

As the information requested in the survey requires in-depth knowledge and solid
experience regarding GSCM issues, a panel of experts was carried out. (Chan et al., 2001).
The panel was composed by researchers with great experience and relevant scientific

4
publications in the field of GSCM. A total of 10 experts on the GSCM topic from different
countries were invited to participate in this study. Their profiles are presented in Table 3.

Table 3 – Experts profile

Expert Country Experience (years): Level of education
E1 China >20 PhD
E2 Brazil 40 PhD
E3 United Kindom >10 PhD
E4 U.S >20 PhD
E5 India, China 10 Postdoc
E6 Mexico 6 PhD
E7 Malaysia >10 PhD
E8 Brazil 20 PhD
E9 Colombia 20 PhD
E10 Colombia 20 PhD

Virtual interviews were conducted with the experts to make pairwise comparisons
between any two criteria (practices and dimensions). Based on the collected data, steps
(3), (4) and (5) of the DEMATEL method were applied to establish the hierarchy
(weighing) between environmental practices, as well as to identify the so-called cause
group and receiving group. Results are shown in Table 4.

Table 4- Hierarchy, weighting and causal relationships

Cause Receiving
Green practice Rank Weight
group group
Internal environmental management (IM) 5 0.103 X
Ecodesign (ED) 2 0.106 X
Environmental collaboration (CO) 3 0.105 X
Green purchasing (PU) 7 0.100 X
Green manufacturing (MA) 1 0.108 X
Green distribution (DI) 8 0.093 X
Green Marketing (MK) 9 0.093 X
Reverse logistics (RL) 4 0.104 X
Green human resources (HR) 10 0.084 X
Green information systems and technology (ST) 6 0.102 X

According to Table 4, green manufacturing plays the most important role among all
environmental practices, while green human resources is the least important. The cause
group consists of environmental collaboration, ecodesign, internal environmental
management, reverse logistics, green human resources, green information systems and
technologies, while the receiving group consists of green manufacturing, green
purchasing, green distribution and green marketing. Although green manufacturing plays
the most important role among all environmental practices, ecodesign is the practice of
greatest impact on the receiving group. On the other hand, green manufacturing is the
practice that receives the greatest impact from the cause group.

Stage 2. Construction of Green Index

The proposed composite green index is constructed using the weights and causal relations
determined through the DEMATEL method. The Simple Additive Weighting (SAW) and
the Weighted Product (WP) were selected as aggregation methods for the composite
Green Index (GI). After weights and causal relations were computed, it was possible to
suggest the use of the GI (Equation 1) to assess the environmental performance for
manufacturing companies through a composite indicator (Equation 2).
5
Equation (2):
6 10
𝑤𝑖
𝐺𝐼 = (∑ 𝑤𝑖 𝑃𝑥𝑖 ) (∏ 𝑃𝑥𝑖 )
𝑖=1 𝑖=7

𝐺𝐼 = (0.106𝑃𝑥1 + 0.105𝑃𝑥2 + 0.104𝑃𝑥3 + 0.103𝑃𝑥4 + 0.102𝑃𝑥5 + 0.084𝑃𝑥6 ) ∗

((𝑃𝑥7 )0.108 ∗ (𝑃𝑥8 )0.100 ∗ (𝑃𝑥9 )0.093 ∗ (𝑃𝑥10 )0.093 )

where: x1=ED; x2=CO; x3=RL; x4=IM; x5=ST; x6=HR; x7=MA; x8=PU; x9=DI; x10=MK.
𝑃𝑥𝑖 = represents, for a specific company, the level of implementation of practice x i. The
implementation level for each practice is assessed by the level of implementation of its
dimensions. The implementation level for each dimension is assessed on a five point
Likert scale, where 1 means “dimension not implemented” and 5 “dimension practice
totally implemented”.

As the scale used for all the indicator dimensions are between 1 and 5, the absolute
minimum and maximum values of GI obtained using Equation (3) are GImin= 0.13 and
GImax= 6.09. Using these values, the total performance score (GI) for each company can
be converted to a composite green index (CGI) between 0 and 100, using Equation (3).
Greater value of CGI implies a better performance on average across all measures.

Equation (3):
(𝐺𝐼 − 𝐺𝐼𝑚𝑖𝑛 ) ∗ 100
𝐶𝐺𝐼 =
(𝐺𝐼𝑚𝑎𝑥 − 𝐺𝐼𝑚𝑖𝑛 )

The new converted Composite Green Index (CGI) ranges from 100 (all practices are
completely deployed in the company) to 1 (no practice has been implemented by the
company). Table 5 shows the scale used to evaluate the environmental performance.

Table 5- Evaluation Scale

Range General green performance
100 ≤ CGI ≤ 71.46 Excellent
71.46 <CGI ≤ 58.01 Good
58.01 < CGI ≤ 28.23 Fair
28.23 < CGI ≤ 9.41 Poor
9.41 < CGI ≤ 0 Very poor

Stage 3. Green Index validation

A case study in the Colombian automotive industry was chosen to illustrate the
application of the proposed Composite Green Index. Two companies within the
Colombian automotive industry were selected. The Colombian auto components industry
sells 30 % of its production capacity in foreign markets. This industrial sector plays a
strategic role in the economy, representing 4 % of the country’s Gross Domestic Product
(ANDI, 2016).

To avoid bias in study, data related to personal judgment of the automotive company’s
managers were obtained through structured interviews. Structured face-to-face interviews
were chosen, as they provide a flexible instrument to become familiar with the object
studied, while providing a flexible mode of data gathering (Azevedo et al., 2016). In
Company 1, the coordinator of the so-called Integrated Management System was
6
interviewed; in Company 2, the Environmental Manager was interviewed. Table 6
summarizes the two case study profiles, according to experience (years in business),
financial assets, product lines and company size.

Table 6- Case studies profile

Experience
Financial assets Product Company size
Company (years in Interviewed
(millions COP $) lines (employees)
business)
Integrated
management
Company 1 20 years > 400.000 Motorcycles 500-1000
system
coordinator
Company >20 years >100.000 Buses 500-1000 Environmental
manager

The selected companies have some common characteristics. Both companies are
automakers, controlling the entire production cycle, from product design to product
manufacturing and distribution. Company 1 produces eight different models of
motorcycles, managing its operations according to a lean philosophy. Company 2
produces nine different models of buses, managing its operations according to the JIT
production philosophy.

Green Index calculation

In the first stage, data related to the implementation of green practices were collected at
each company. Only Company 1 is certified according to ISO 14001. Considering the
weights shown in Table 7, it was possible to compute the green performance for each
company (CGI). Table 7 shows the green performance for individual companies,
according to Equation (2) and Equation (3).

Table 7-Individual company performance.

Green practices Company 1 Company 2 ∑ 𝑃𝑥𝑖⁄
2
PIM 5.30 4.79 5.04
PED 4.23 1.70 2.96
PCO 0.63 0.85 0.74
PPU 3.24 2.59 2.92
PMA 3.65 2.07 2.86
PDI 3.77 4.52 4.15
PMK 0.66 3.11 1.89
PRL 3.73 4.10 3.92
PHR 4.10 4.21 4.16
PST 2.79 0.63 1.71
CGI 33.75 28.33 62.08
General green performance Fair Fair Good

According to Table 7 the green practice with the highest levels of implementation is
internal environmental management. This may be explained by the adoption of
environmental programs, environmental policies and the support provided by senior
managers of environmental initiatives. As a strategic imperative into the overall strategy
of the organization, the adoption of environmental sustainability is a necessary precursor
to successful implementation of other green practices (Zhu et al, 2008a; Green et al.
2012). Weak performance in terms of environmental collaboration can be explained by
several barriers to its implementation, such as lack of government policies to create
7
environmental collaboration through supply chains, the use of environmental monitoring
instead of environmental collaboration, and the limited understanding of environmental
management and environmental collaboration in the supply chain (Vachon and Klassen,
2008; Green et al., 2012).

Also, Company 1 seems to have the best performance and responsibility, according to
the Composite Green Index score. This seems reasonable since Company 1 has ISO
14001 certification, which has a strong influence on internal environmental management
performance. This situation also has a strong impact on the composite Green Index
results, because it is a causal practice that directly affects other green practices. Company
2 is the worst performer. This finding can be explained because this company has poor
performance in causal practices such as environmental collaboration, eco-design and
green information systems and technology. Compiling the green performance for each
company into the converted composite Green Index (CGI) an overall value of 62.08 is
obtained. Since the converted Green Index is between 0 and 100, this means a good
overall performance for the analyzed companies.

Conclusions
This paper follows an innovative approach, suggesting an integrated composite index,
called the Green Index, to assess the performance manufacturing companies in terms of
10 GSCM practices identified from a systematic review of 319 articles. Also, the results
of literature review reflected a lack of an integrated index which fully covers all ten green
practices. Therefore, it was proposed a novel methodology for the design and application
of an environmental performance index using the GSCM approach that not only integrates
all practices, but also, reflects causal relationship between them.

The results indicated that practices such as internal environmental management, eco-
design, environmental collaboration, green human resources, green information system
and technologies and reverse logistics, have a causal influence on other environmental
practices. Thus, companies that performed well in these practices reflected not only a
good general level of performance, but also good performance in operational practices,
such as green purchasing, green manufacturing, green distribution and green marketing.

Also, the analyzed companies performs in an average level, mainly because there are
practices like internal environmental management performing in a high level of
implementation, while there are practices like environmental collaboration which is still
at an underdeveloped level, mainly because there is a lack of understanding of this
practice in the supply chain members. Managers can adjust their organization’s
performance according to the score achieved with the Green Index, in order to reduce
environmental risks and impacts, while improving company ecological efficiency.

Relevance/contribution
The methodology proposed for the environmental performance assessment is an
important contribution to managers. From a theoretical perspective, the Green Index
contributes to the development of integral indexes that considers the causal relationships
between green practices. The Green Index supports the identification of causal practices
which affect other practices. This contributes to individual company, allowing the
identification of its current environmental performance as a baseline to deploy continuous
improvement actions according to the existing policies and governmental regulations in
environmental issues. From the industrial sector perspective, the Green Index can be used
8
as a benchmarking tool not only to make comparisons between companies but also to
identify environmental areas to improve the entire sector.

Despite the important contributions of this investigation, study limitations should be

noted. First, the proposed index is focused on the automotive industry, so the obtained
results describe the particular reality of the analyzed companies. Building on this study,
future research should be directed toward the application and validation of the proposed
Green Index in a larger number of companies and industries.

Acknowledgments
This study was funded by the Universidad Nacional de Colombia (Hermes project
34802).

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