Stephens (2000) states that ―If you cannot measure it, you cannot control it. If you cannot control it, you cannot manage it. If you cannot manage it, you cannot improve it‖. In fact, the lack of relevant performance measures has been recognized as one of the major problems in process management and the management of supply chain strategies (Lai, Ngai, & Cheng, 2002). Performance measurement is the process of quantifying the value of differentiation and efficiency of various actions of a firm (Williamson, Spitzer and Bloomberg, 2000). Differentiation is when a firm does something unique from competitors in ways that are discernible to the customer (Williamson et al., 2000) and
efficiency measures how economically a firm‘s resources are utilized when providing a pre-specified level of customer satisfaction (Shepherd & Gunte, 2006). Shepherd and Gunter (2006) describe performance measurement of a firm as the overall set of metrics used to quantify both the efficiency and differentiated action. The overall firm performance (P) will be the weighted mean of cost efficiency and environmental differentiation (Frederick, 2006). Indeed the resource based view (RBV) theory explains why some firms are able to create a competitive advantage and superior performance (Ketchen & Hult, 2007). The RBV has also been leveraged to explain the impact of SCM practices on firm performance outcomes. In fact, the motive behind SCM is to improve supply chain competitiveness in order to create value for firms (Ketchen & Hult, 2007) through enhanced efficiency and differentiation (Fugate et al., 2010).
Efficiency focuses on reductions to the total cost of supply chain operations, necessary to provide a target level of customer value (Christopher and Peck, 2004) that enhance customer service and customer satisfaction (Cooper & Schindler, 2006). In addition, firm managers are finding that they must work to create value beyond the performance of efficiency in the highly competitive global business environment (Fugate et al., 2010).Value can be found through differentiating functions to perform better than the competition (Christopher & Peck 2004). Differentiation, therefore, focuses on creating value for the firm through benchmarking and adherence to best practices to differentiate their supply chains from the competition (Fugate et al., 2010). Thus for this study, firm performance will be viewed in two dimensions; cost efficiency and environmental differentiation (Christopher & Peck 2004; Fugate et al. 2010). Shepherd and Gunter, (2006) singled out the two as some of the reliable dimensions of looking at firm performance. The two firm performance dimensions of efficiency and differentiation are discussed in more detail in the next sections.
2.2.8.1 Cost Efficiency
Efficiency is defined as a measure of how well resources are employed (Mentzer et al., 2001). A key step in value generation for the firm is based on cost reductions and
efficiency improvements (Lambert & Burduroglu, 2000). Measuring firms‘ efficiency is the comparison of the resources that are used for operations, against the outcomes that are derived and expected from the resource usage (Mentzer et al., 2001). Improving efficiency is a primary performance objective of firms (Mentzer et al. 2001; Lee, 2002). This is accomplished through the reduction of operating expenses, the efficient use of fixed capital, and the efficient use of working capital, while meeting or exceeding a necessary level of customer service (Lambert & Burduroglu, 2000). These are achieved to a large extent through reduction of cost of inputs, lowering of cost of energy and water, reduction of waste management cost and reduction of hazardous material management cost reduction of environmental related liability cost, reduction of cost of storage, improvement of delivery time, reduction of cost of transportation and reduction product cycle time in the manufacturing firms (Lambert & Burduroglu, 2000).
In essence, efficiency may result when wastes are reduced or eliminated; ideally resulting in reduced costs (Lee, 2002). Therefore, for the purposes of this study, the dimension of efficiency as an indicator of firm performance and a consequence of green SCM practices is defined as cost efficiency in this study.
2.2.8.2 Environmental Differentiation
Supply chain management activities improve performance beyond that of efficiency to be competitive (Fugate et al., 2010). Another way that value can be created is through differentiation, or when a firm does something unique from competitors in ways that are discernible to the customer (Williamson et al., 2000).
Differentiation can be applied to green aspects of performance (Christmann, 2000). Firms which are able to provide products that are designed, manufactured and supplied to the end customer through processes that are less impactful on the environment can differentiate themselves from the competition (Reinhardt, 2003). Environmental differentiation is defined as environmental management that focuses on environmental product characteristics and environmental product markets (Christmann, 2000). Ultimately, environmental differentiation equates to the ability of managers to create a
unique image of environmentally friendly products and processes that translate to higher demand (Banerjee, 2003).
According to Reinhardt, (1998), environmental differentiation is the degree to which managers find or create a demand for environmental quality in products, establish credible information about environmental claims, and create inimitability of environmental products and supply chain operations. Environmental differentiation can be created via take-back services, recycled materials in products and packaging, the use of non-hazardous materials in manufacturing and packaging, and durable, high quality products (Handfield et al. 2005; Preuss 2005). Reinhardt, (2003) added increase of eco- friendly reputation, higher price (premium) compared to competitors, increment in sales from eco-products, expansion of eco- market share, improvement of conservation of energy and water , increment in production of echo-unique products, improvement of echo-management of hazardous material and increment of brand loyalty from eco- branding as critical features of environmental differentiation by firms. Therefore, differentiation, as an indicator of firm performance and as an outcome of green supply chain management practices, is defined as environmental differentiation in this study. 2.3 Conceptual Framework
The objective of this study was to test the hypotheses that relates to GSCM practices, supply chain ecocentricity and relate them to firm performance. The framework of the associations tested is presented in Figure 2.1. According to this model, the association of individual GSCM practices with firm performance was tested. The association of GSCM practices cumulatively with firm performance was tested. Lastly, a test was done to determine the moderating effect of supply chain ecocentricity on the association of GSCM practices cumulatively with firm performance.
Firm performance in this study was taken from Williamson, Spitzer and Bloomberg (1990) view of performance measure. They view performance as a combination of cost efficiency and environmental differentiation. Cost efficiency represents reduction of operation costs and environmental differentiation represents improved reputation and
tagging eco-premium on products. Connelly et al (2010) suggest that GSCM theories should be tested in terms of their association with performance. Theories relating to GSCM practices were extended into and tested in the context of Kenya.
Figure 2. 1 Model of Hypothesized Relationships
Supply chain ecocentricity Green Procurement Green Manufacturing Firm Performance: Cost efficiency Environmental differentiation H0: 2 Green Distribution Environmentall y-oriented reverse Logistics H0: 4 H0: 3 H0: 1 H0: 5
Independent Variables Moderating Variable