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IJOPM
20,2
166
International Journal of Operations &
Production Management,
Vol. 20 No. 2, 2000, pp. 166-186.
# MCB University Press, 0144-3577
Suppliers and environmental
innovation
The automotive paint process
Charlette A. Geffen
Pacific Northwest National Laboratory, Richland, Washington, USA
Sandra Rothenberg
Rochester Institute of Technology, Rochester, New York, USA
Keywords Innovation, Environmental management strategy, Process Management, Suppliers,
Partnering, Motor industry
Abstract Automobile assembly plants worldwide face increasing pressures in the environmental
arena. How a plant responds to these issues has significant implications for the cost and quality of
plant operations. This paper uses three case studies of US assembly plants to examine the role of
partnerships between original equipment manufacturers (OEMs) and their suppliers in
improving the environmental performance of manufacturing operations. We find that strong
partnerships with suppliers, supported by appropriate incentive systems, were a significant
element of the successful application of innovative environmental technologies. Supplier staff
members were an important part of achieving environmental performance improvements while
maintaining production quality and cost goals. The management factors influencing the extent
and nature of supplier involvement are identified. The results of this work point to the importance
of suppliers in addressing the manufacturing challenges of the future.
Introduction
Automobile assembly plants worldwide face increasing pressures in the
environmental arena. These pressures come in the form of stringent, complex,
and costly regulations and demands from a growing number of stakeholders
for improved environmental performance. In the past, most companies in the
USA approached environmental compliance as an added cost of production,
installing end-of-pipe technologies to their manufacturing processes rather
than evaluating fundamental process or technology changes which could
prevent pollution at the source. Increasing costs of traditional modes of
compliance and advances in materials and process technology, however, are
driving some companies to consider more innovative approaches to
environmental problems (Richards and Pearson, 1998).
In automobile manufacturing, environmental issues and strategic
investment decisions about technological change have become critical
management issues. One potential path for achieving environmental
performance improvements while maintaining production quality and cost
goals at the plant level is through unique partnerships with suppliers. Before
This research was supported by the Massachusetts Institute of Technology (MIT) International
Motor Vehicle Program. The authors would like to thank the companies and individuals that
participated in this study and the three anonymous reviewers of this manuscript and the editor
for their comments and suggestions.
the 1980s, automakers' relationships with suppliers were characterized by Suppliers and
short-term contracts, arms-length relationships and multiple suppliers per part environmental
(Helper, 1991). Since the 1980s, however, researchers have shown evidence of a innovation
movement to closer and more cooperative supplier-OEM relationships like
those found in the Japanese auto industry (Dyer and Ouchi, 1993; Cusumano
and Takeishi, 1991; Helper, 1991). The close supplier-manufacturer
relationships observed in Japan's auto industry are thought to be a key factor in 167
the success of Japanese manufacturers by contributing to decreased
development time, lower costs, and increased product quality (Bozdogan et al.,
1998; Clark and Fujimoto, 1991; Dyer and Ouchi, 1993).
Supplier involvement is also becoming more important in the development
of new products and technical innovations in vehicles (Helper and Sako, 1995;
Keenan, 1996). First-tier suppliers are taking on larger responsibilities for
design and quality, although the extent of supplier involvement varies
significantly across automotive companies (Flynn and Belzowski, 1996). In
some cases, first-tier suppliers are performing the functions of systems
integrators for the second- and third-tier suppliers. However, the role of
suppliers in designing and adopting new processes and technologies for
environmental improvement has not been examined to date.
Our research, based on case studies of environmental management and
performance at automotive assembly plants, explores the extent to which
suppliers are a primary source of product and process innovation in bringing
environmental improvements to the plant. The structure of this paper begins
with an initial presentation of the problem context involving the environmental
challenges and related costs of automotive painting. This context is followed
by a discussion of emerging evidence on the changing roles of suppliers in
manufacturing operations. Next, the research method used for this work and
the data from the three case studies is presented. The paper ends with a
discussion of results and conclusions.

The environmental challenge

Most automotive companies and customers are concerned about the
environmental and safety impacts generated through the use of automobiles.
While the major environmental impacts during the life cycle of an automobile
are generated during the use of the product itself, the environmental impacts of
the automobile manufacturing process are also of significance (Keoleian et al.,
1997; Graedel and Allenby, 1997). The primary source of air emissions and
hazardous wastes at an automotive assembly plant can be traced to a single
unit operation: automotive painting (AAMA, 1997). Over 80 percent of the
environmental concerns at these facilities stem from the paint shop and related
operations (Lowell et al., 1993).
The painting process is a complex, multistage operation that is extremely
energy intensive. It is also the primary source for air emissions of regulated
chemicals, including volatile organic compounds (VOCs) and hazardous air
pollutants (HAPs). Automotive paint consists of a system of up to six layers of
IJOPM different coating materials that are applied separately but must work together
20,2 to provide corrosion protection, durability, and color. Each of these layers has
its own special performance requirements and must be formulated to bond with
the next layer, to form a durable coating that will not flake or peel. Solid and
hazardous wastes are created in the painting process from waste paint through
overspray (paint that does not adhere to the vehicle surface) and chemicals
168 used to clean the paint lines and application equipment. These emissions place
General Motors (GM), for instance, among the top ten companies in the USA
with the largest total chemical releases as reported by the US Environmental
Protection Agency's (EPA) Toxic Release Inventory (TRI) (US EPA, 1998). The
painting process is also a major cost of production, with large capital
investments and high material costs. Specific costs for automotive paint
materials vary depending on the exact chemical formulation, the color, and the
application process used. In general, however, coating materials represent
about half the cost of painting the vehicle (Nallicheri, 1993). Furthermore,
quality in automotive painting is critical to product sales. As noted in one
marketing journal, ``for most new car buyers, color and appearance are nearly
as important as price'' (Marketing News, 1995). Assembly plants thus must
balance reductions in environmental emissions and production costs while
maintaining the quality of the vehicle finish.

The cost of compliance

Over the last decade, there has been a consistent trend toward the reduction of
environmental releases in the automotive manufacturing sector, as measured
by the EPA's toxic release inventory data. This is primarily in response to
increasingly stringent regulatory limits on allowable levels of emissions at the
plants (Praschan, 1994). Most automotive assembly plants today achieve these
results through the use of abatement equipment, rather than material
substitution. Yet, the capital and operating costs of traditional environmental
control technologies are significant. For example, more than 60 percent of
General Motor's annual pollution control costs (which in 1996 were over $110
million for their US automotive operations) are devoted to air emissions control
(General Motors Corporation, 1997). US industrial investments in pollution
control and abatement were more than $100 billion annually in 1992; these
costs were expected to double by the year 2000 (Sheridan, 1992). The 1990
Clean Air Act Amendments are anticipated to add another $20 billion to $50
billion a year to pollution control costs (Shrivastava, 1993). The automotive
industry portion is estimated to be about 10 percent of that total in capital
equipment alone (King, 1994).
Increasing costs of compliance coupled with advances in materials and
process technology are now driving some companies to consider more
innovative approaches to solving environmental problems (Schmidheiny, 1992;
Porter and van der Linde, 1995). One of the most effective means for reducing
emissions and hazardous wastes from automotive painting is to reduce the
level and number of input chemicals through material substitution. New paint
and coating materials, such as waterborne and powder paints, can be Suppliers and
specifically formulated to contain fewer volatile organics and other regulated environmental
chemicals, leading to lower levels of pollutants for treatment or control. innovation
However, the importance of the paint finish to product sales, coupled with the
expense and inherent complexities of the painting process, make automakers
reluctant to adopt these newer technologies without extensive testing. New
materials or technologies must meet exceedingly strict performance and 169
quality requirements before being considered for adoption in an assembly
plant. It can take years for new formulations to be tested and for suppliers and
automakers to reach mutual agreement on readiness for use. Introducing new
materials into the production process can require significant capital
investments in application equipment and related operating expenses in
training for new procedures (Geffen, 1997).
There is some evidence that the automotive industry as a whole is beginning
to think about pollution prevention and clean product design. Chrysler is
developing a life cycle management system that is focused on understanding
and managing the environmental impacts of design and manufacturing process
decisions at all stages of the life cycle (DeLadurantey et al., 1996). General
Motors is exploring ``design for environment'' tools to understand better the
potential environmental impacts of its products and processes at early stages of
conceptual design and development (General Motors Corporation, 1997). The
major US automotive companies and their coating materials suppliers are
participating in collaborative research on low-emission paints through a
consortium formed under the US Council for Automotive Research (USCAR).
One of the primary goals of the consortium is to test and evaluate paint
materials, equipment, and related facility processes with low emission potential
(Prylon et al., 1995).
Moving the evaluation of environmental impacts from ``end-of-pipe''
considerations to an integral part of product development and design can yield
major advances in environmental performance. However, successful transition
to new technologies based on environmental performance requires incentives
for change within a company, and the technical capacity and organizational
commitment necessary for implementing such change. A few US automotive
assembly plants are experimenting with advanced materials and technologies
to reduce the environmental impact of their manufacturing processes and
improve the quality of their products. Plants and companies vary, however, in
their success at moving such technologies from experiments in their
laboratories to implementation at high-volume, full-scale production.

Supplier involvement: emerging evidence

Most existing research on supplier involvement in manufacturing has focused
on the influence of supplier/customer relations on more traditional measures of
manufacturing performance, such as product quality or cost. This research
shows that one of the benefits to manufacturers from stronger relationships
with suppliers is that suppliers often serve several customers within related
IJOPM industries and thus have greater access to external information and experience
20,2 with different technologies (Clark and Fujimoto, 1991). From the supplier's
perspective, being closer to the technology and processes in use and building
closer relationships with their customers can also lead to increased levels of
innovation (Tyre and von Hippel, 1997; von Hippel, 1988). Many innovations
require the development of complementary assets before they can be
170 successfully adopted in practice (Teece, 1986). These assets may include related
technology or know-how that is not necessarily housed within the boundaries
of a single company. Teece (1986) points out the importance of collaboration
among companies which contribute different elements of a technologically
interdependent system, where strong coordination and information flows
across company boundaries are required for successful implementation.
Cohen and Levinthal (1990) argue that the ability of a firm to recognize new
external information and assimilate it is critical to its innovative capabilities.
This ability, however, is developed by building on prior experience and
knowledge. Integrating new technology developed outside the company into
internal manufacturing and production processes can be problematic if the
technical expertise to understand and utilize that technology does not exist
within the company (Hamel and Prahalad, 1994). A lack of sufficient core
capabilities in environmental skills and related know-how often is the reason
why manufacturers are more likely to develop add-on innovations that can be
easily incorporated into existing processes than invest in extensive
modifications of existing products or processes (Kemp, 1993). Suppliers, by
broadening the diversity and span of existing knowledge in the manufacturing
process, can increase the ability of a manufacturing firm to recognize, access,
and utilize new external knowledge.
Recent research by Florida (1996) indicates a positive relationship between
advanced manufacturing innovations and environmental performance,
suggesting that supplier involvement is an important mechanism in this
relationship. Little empirical work has been done in this area, however. The set
of case studies presented in this paper addresses that gap. The links between
material use, production process and environmental impacts in manufacturing
facilities suggest that the important role of suppliers in acquiring and
assimilating external information, extending the capacity of a firm to
implement radical innovation, may also hold in the area of environmental
innovation. Rothenberg (1999), for example, found that extra- and intra-
organizational knowledge are essential components of environmental
innovations. Because in-house suppliers span internal and external
organizational boundaries, they are often the critical sources of this knowledge.
(In this usage, an ``in-house'' supplier is not employed by the manufacturer but
is one who develops a close working relationship with the manufacturer and
has personnel located full-time at the manufacturer's site).
Emerging evidence in the automobile industry suggests that suppliers are a
source of innovative ideas for environmental improvements. An evaluation by
Geffen (1997) of patents on paints, coatings, and related materials provides
evidence of the domination of paint suppliers as the source of innovation for the Suppliers and
development of new products that reduce environmental impact through new environmental
materials and chemical design. That work further points to the dynamics of the innovation
innovation process in developing new materials. While ideas for new products
are often identified by both automakers and paint suppliers working together,
suppliers are relied upon for the technical capacity for formulation and the
consideration of environmental criteria in these products. In a survey of 171
automotive assembly plants in North America and Japan, Rothenberg (1999)
also found evidence of participation by chemical and paint suppliers in
environmental innovation. Survey respondents reported that suppliers play an
important role not only in improving the performance of paint shop operations,
but also in initiating ideas for achieving reductions in environmental effects
from the use of solvents and chemicals. These studies suggest that supplier
participation can influence the introduction and successful implementation of
environmental innovations at the plant level. They do not fully address,
however, the question of the nature of the participation required, or the context
needed for supplier involvement to result in improved and sustained
environmental performance.

Factors important to successful innovation

The innovation process requires both the development of new technologies
(inventions) and the acceptance and implementation of these technologies
(adoption) by industry. Decisions in both these areas are related to the overall
strategy and structure of a business, and its commitment to technological
innovation and change (Ettlie et al., 1984). Of particular interest in this research
were the factors that might influence incremental versus radical innovation in
the paint shop. Incremental innovations present less risk to the adopting
organization and fit readily within existing production processes or require
only minor changes to products (Utterback, 1994). Conversely, radical
innovation is built on new principles that require new technical competencies
and skills, and often new organizational approaches to product design and
marketing (Henderson and Clark, 1990).
Radical innovations generally require significant adaptation of operating
procedures, and/or investments in new equipment and processing technology.
Shifts from traditional paint materials and application technologies to
innovations such as waterborne or powder coatings thus represent a radical
innovation for the automotive industry. Successful implementation of radical
environmental innovation requires a commitment to innovation, a strong
environmental policy, and the capacity to implement these new technologies at
the operating level. The experience and resource base of a company (in terms of
its plant and equipment, technical knowledge and experience, and management
approach), as well as internal management processes and organization are
important to the success of radical innovation (Cohen and Levinthal, 1990;
Ettlie et al., 1984).
IJOPM The importance of both management and technology factors to the
20,2 successful development and implementation of radical innovation is illustrated
in Figure 1. This conceptual framework guided the acquisition of data on the
management approaches and technology strategies of the companies and
plants evaluated in the case studies. It conceptually depicts the links among
organizational and technology strategies and the capacity of a company to
172 implement radical innovation. Some of the important factors for developing
and adopting radical innovation are listed in this framework.
Exploring the dynamics of supplier roles in introducing and implementing
environmental innovations in manufacturing requires comparisons among the
factors identified in Figure 1. Of particular interest in this research was the
degree to which suppliers contributed to the successful implementation of
environmentally-relevant innovations at the plant by extending the technical
capacity and resources of a company. The methodology used for this work is
outlined in the next section of this paper, followed by a description of each of
the three case studies.

Method
By comparing the environmental management practices and performance of three
plants, this paper explores the elements of successful strategies for integrating
innovative environmental technologies into manufacturing processes, with a
particular focus on the role of suppliers. Our research was based on case studies of
the application of innovative paint materials at three US automotive assembly
plants from different automotive companies, representing a variety of supplier/
OEM relationships. All three plants exhibited strong commitments to leadership
in environmental performance and technological innovation. While compliance
with environmental regulations and related permit requirements was a priority at
these facilities, each plant had an environmental policy that stated a commitment
to move beyond compliance. Investments in innovative technologies that reduce

Management Technology
Strategy Strategy

•Flexible, team- •Commitment to

oriented structure innovation
•Proactive •Scanning
environmental policy - internal & external
•Supportive incentive •Investment in
systems Implementation leading technology
Capacity

Figure 1. •Fit with production process

Factors important to •Technical expertise &
success in radical know-how
innovation: a framework •Experience & resource base
for analysis – suppliers as partners
or eliminate regulated materials were an important part of their environmental Suppliers and
strategies. These plants were all relatively early adopters of revolutionary new environmental
paint materials and technologies. The willingness to adopt a new, relatively innovation
untried paint technology (waterborne paint) on important product lines suggests a
management commitment to technological innovation and support for
experimentation. The primary difference among these plants was their approach
to supplier involvement in plant operations and environmental improvement. 173
A case study approach was taken for a number of reasons. Very little
research and theory development has been done on the role of suppliers in
environmental innovation. Eisenhardt (1989) highlights the importance of case
studies in exploring new areas of research, where theory is still emerging.
Furthermore, case studies allow for a detailed investigation of the factors
encountered in identifying and integrating new technology into the plant and
provide a rich set of data (both qualitative and quantitative) for evaluating the
results (Yin, 1994).
Primary data were collected through site visits and extensive interviews
with corporate and plant management at each assembly plant. Multiple on-site
interviews were conducted at each site by two interviewers over a three-month
period. The interviews ranged in length from one to eight hours. The most
extensive interviews were conducted with the environmental staff at the plant
and the suppliers and operations staff in the paint department. All of the plant
management, paint department management, and environmental staff at each
plant were interviewed, as well as the paint materials and chemicals supplier
staff assigned to daytime shifts. In addition, telephone interviews were
conducted with the research and management staff involved in paint and
related chemicals product and process decisions at each automotive
manufacturer's and major supplier's corporate headquarters.
At Plant A, ten people were interviewed over a three-day period, including
the plant manager, the paint department manager, all three of the plant's
environmental staff, four in-house suppliers, and one line worker in the paint
department. At Plant B, 30 people were interviewed during a one-month stay at
the plant. Formal interviews were conducted with management and staff at all
levels, including all of the plant's environmental staff and paint department
suppliers. Interviewers also participated in various team meetings, especially
environmental team meetings, and worked with staff on the assembly line. At
Plant C, 12 employees were formally interviewed, including the plant manager,
the paint department manager, two environmental staff, two suppliers, and six
line workers and team leaders. Quantitative and qualitative data related to the
operation of the plant, the paint process, management styles, supplier roles, and
environmental practices were collected.
Taped interviews were transcribed and non-taped interviews were typed up
quickly and reviewed with interviewees to ensure accuracy. Corporate
planning documents, internal materials, and environmental reports were also
reviewed. The primary data were enhanced with an extensive review of
secondary source material. Data on environmental performance were obtained
IJOPM from an analysis of the EPA Toxic Release Inventory (TRI) database for the
20,2 years 1989 through 1995 (US EPA, 1998). These data were used in conjunction
with data provided by the plants on environmental releases and chemicals and
materials inventories. Production data for each plant were collected to allow
comparisons among plants on a per-vehicle basis.
Data were analyzed using what Miles and Huberman call in case displays.
174 They state, valid analysis requires and is driven by, displays that are focused
enough to permit a viewing of a full data set in the same location, and are
arranged systematically to answer the research questions at hand (Miles and
Huberman, 1994, p. 92). The interviews were coded into four general areas,
linked to the analytic framework developed from existing theory on technology
management and innovation (see Figure 1). Technology strategy elements were
coded principally under paint technology and process innovation. Management
strategy elements were coded under two categories: plant management
approach; and environmental policy and management. The role of suppliers,
particularly as it related to the implementation capacity for the plant, was
coded as the fourth area. Coded segments were then separated from the field
notes and placed in two primary display formats, both of which are suggested
by both Miles and Huberman (1994) and Yin (1994). The first format was a
temporal ordering of the data, in which specific events were placed in time lines
to gain a sense of each plant's historical development. A time line was created
for both general environmental management and paint shop-specific activity.
The second format was a comparative matrix, in which the coded segments
were categorized and placed in a matrix to explore how the plants differed from
one another. In this matrix, a mixture of direct quotes and summary phrases
were used.
Our research is focused on understanding the role of suppliers in enhancing
the manufacturer's ability to successfully take on radical environmental
innovation, in this case in the form of new materials and process technologies
that reduce pollution at the source. In this context, it is important to understand
the dynamics of the supplier/OEM relationship, the involvement of suppliers in
introducing and implementing new technology, and the performance results
achieved. The three case studies, described in the next section, focused on
understanding these issues.

Case studies of supplier innovation

This section of the paper describes the relevant data for the three automotive
assembly plants included in this study. The recent history and performance of
each plant was examined over a time period from 1989 to 1995 to trace the
results of changes in technology and management approach. First, a brief
description of the characteristics of each plant, including its approach to
supplier involvement over time, is offered. Second, the environmental
performance of the plants is reviewed at different points in time. Plant
emissions are compared at a baseline level (in 1989) prior to the adoption of
close supplier partnerships, and then again in 1992 and 1994, over which time
technology and management changes occurred. Finally, a comparative Suppliers and
analysis of the data is presented. This section is followed by a broader environmental
discussion of the implications of the study results. innovation
Plant management approach and the role of suppliers
Plant A
Plant A, an older plant, produced high-quality luxury cars (about 1,100 per day 175
during full production) until 1993 using high-solvent paints. The management
approach at the facility was relatively open and flexible, encouraging workers
to provide input to management and supporting integrated work teams. The
plant has a history of worker involvement in process improvement. In 1990, the
plant extended the team concept to the supplier of solvents and cleaning
chemicals, appointing a single supplier located in-house to manage the needs
across the facility and to help establish environmental goals. In 1993, the
facility shifted production to a new vehicle type and underwent a number of
major process and management system changes. As part of its technology
shift, waterborne paints were introduced to reduce VOC emissions.
Management also implemented a new partnership with the paint suppliers,
extending the approach that had earlier been developed for the solvent
suppliers. The new program gave suppliers greater responsibility for key
production chemicals and elements of the paint process, involving them more
heavily in the operation of the plant. These suppliers were paid based on a set
fee per vehicle painted rather than volume of materials sold. They were also
given an incentive for meeting environmental goals. Suppliers received a
percentage of any savings achieved, as long as a high-quality finished vehicle
was produced. By 1994, a single supplier was providing all paint shop-related
chemicals and coating materials, as well as those chemicals needed for the rest
of the plant operations.
As a result of implementing the partnership program, suppliers now play a
very important role at Plant A, both in productivity improvements and
environmental performance. In the first full year of operation under the new
partnership program (1994), the supplier saved over $1 million for the plant in
improved efficiencies and reduced waste. The automaker now relies heavily
upon suppliers to provide innovative products and process control, in addition
to helping meet environmental goals at the plant.
The partnership arrangement with paint and chemical suppliers at Plant A
is relatively unique in the industry. First, a single supplier is used for the entire
paint system, including cleaning and treatment chemicals. This is a major shift
for this plant, which not too many years ago had as many as five suppliers
providing the various materials required for the painting process. Moving to a
single supplier has allowed better tracking of chemical use at the plant. The
supplier developed a detailed material tracking system that led to an improved
understanding by both parties of how to maximize the efficiency of the
painting operation as well as identify opportunities for plant-wide efficiencies.
Having an on-site presence and increased process knowledge also allows the
IJOPM supplier staff to provide better technical support for solving production
20,2 problems. Under this approach, cost and environmental trade-offs can be made
effectively across the plant, at a facility level, rather than simply focusing on
elements of the paint shop unit operations.
Second, contracts with suppliers are managed through the environmental
organization and include requirements to meet plant environmental goals. At
176 Plant A, the corporate environmental policies are implemented through one
individual at the plant, who reports to corporate management and who is
responsible for translating general corporate environmental goals into
implementable performance objectives. He is also the primary contact for all
suppliers to the plant, coordinating needs and activities across departments to
achieve quality, cost, and environmental improvements. This contractual and
organizational arrangement encourages the introduction of new products with
lower VOC content and process improvement suggestions that reduce
emissions and waste. The environmental manager at the plant notes that the
paint shop supplier ``has the responsibility to find materials that work, whether
they manufacture them or not, and get them to us at a good price. They also
need to get the VOCs at the plant down. They report to me and must keep me
and the plant manager happy!'' In addition to materials, the supplier provides
on-site technical support and training to plant personnel and is responsible for
tracking material usage and resultant emissions. These new contractual
arrangements assign a broader role to suppliers in the environmental
management of the plant, utilizing their technical expertise in partnership with
plant personnel to accomplish business and environmental goals.

Plant B
Plant B is a relatively new facility, producing about 1,100 mid-size vehicles per
day. This plant was designed to accommodate the use of waterborne paints. A
powder anti-chip coating is also used for additional durability and replaces a
high-VOC-containing liquid solvent, reducing VOC emissions from the
manufacturing process. The management approach at the plant is relatively
open and flexible, with workers encouraged to provide suggestions to
management and to work in teams to solve problems. The organizational
structure at Plant B is built around business units that are comprised of teams
dedicated to specific tasks. The primary focus of the teams, however, is on cost,
quality, and productivity issues at the plant. ``The real challenge'', according to
one of the environmental engineers at the plant, ``is getting people to think
about how to reduce pollution at the source.''
An environmental manager coordinates environmental information among
the different units. Management at Plant B has experimented with a number of
programs for improving its environmental performance, although it has not (to
date) explicitly involved suppliers in improving plant performance across
business units. It has tried to encourage innovation and change at the level of
the business unit, however. For instance, the costs of waste handling and
treatment were originally allocated at the plant level. These costs were moved
to the business unit level in 1992 and resulted in significant reductions in the Suppliers and
generation and treatment of waste. It is this link between environment, safety, environmental
and cost that has most served to support environmental performance innovation
improvement projects at Plant B. Although the environmental staff say they
have good support from leadership on environmental issues, the importance of
financial measures at the plant often results in cost reduction as the primary
motivation for environmental projects. 177
Suppliers at this facility are viewed as team members, but report directly to
the unit operation they supply. Different suppliers provide each of the primary
materials and related chemicals for the painting process, with the process
integration performed by the paint department manager. These suppliers are
paid for sales, based on product volume, but are not paid an incentive for
meeting environmental goals. No one supplier has responsibility for chemicals
or materials across the various departments at Plant B. In the paint shop, up to
six different suppliers provide the many materials needed. A single supplier
was commissioned in 1992 to provide cleaning chemicals and solvents to the
plant, and to provide new product ideas to improve efficiencies of various
business units (including environmental performance). This supplier has been
working to identify ways to reduce the VOC content of and emissions from
these materials and invests in its own research and development to try to bring
new products to the facility. This supplier also initiated a solvent reclamation
program at Plant B. About 70 percent of all purge solvents are now reclaimed
through this program. The solvent supplier, however, is not in a position to
identify broader improvements across different unit operations, at the facility
level, with respect to the other sources of emissions and wastes from the plant.

Plant C
Plant C is an older plant that was built to produce large-sized, luxury vehicles
(about 1,000 per day) using high-solvent paints. In 1990, new materials,
including waterborne paints and a non-solvent purge, were introduced to the
painting process, primarily to lower the VOC emissions from the plant. The
plant management approach is relatively traditional, with hierarchical
reporting arrangements and managers and supervisors clearly identified by
their white shirts and ties. Management priorities are on specific production
goals and quality measures, with progress posted on signs throughout the
facility. Ideas from workers for improvements are submitted through a formal
suggestion program. Suppliers have well-defined roles in providing materials
for the paint shop, and a number of different suppliers serve the needs of the
facility. Suppliers are paid based on volume of materials and/or chemicals sold
and are not invited to be a part of setting or achieving environmental
performance goals.
Plant C has two environmental engineers, both of whom report to the manager
for central engineering. In interviews with these staff members, they reported
that about 75 percent of their time was focused on environmental matters, most
IJOPM of which dealt with reporting and compliance requirements. As a result,
20,2 environmental staff at Plant C had much less involvement with the production
process or with suppliers than staff at Plants A and B.
The relationship with suppliers in the paint shop is limited primarily to the
provision of materials and equipment. The suppliers have much more of an
arms-length relationship than observed at the other facilities. While paint shop
178 management and staff said that they place a high value on supplier expertise
for help in optimizing the process and monitoring the quality of the coating
process, the suppliers do not have an avenue at this facility to easily supply
that expertise. They are paid based on volume of high-quality material
provided, and there are no other financial incentives related to improving paint
processes or environmental performance. The large number of different
suppliers and the highly competitive nature of the business preclude a view of
process improvements at the department level or the introduction of innovative
materials that might cut across unit operations.

Changes over time in environmental performance

The baseline performance of the assembly plants, as measured by TRI
emissions in 1989 (1991 for Plant B, its first full year of operation) is shown in
Table I. Despite the use of waterborne paint technology and a flexible, team-
oriented management approach, Plant B generated the highest level of
emissions among these facilities. Plant A, with a relatively open management
approach, had similar levels of emissions to Plant C (about eight pounds or
more TRI emissions per vehicle produced). At that time, all three plants utilized
traditional arms-length contracting approaches with their suppliers and each
had a variety of vendors providing the materials and chemicals used in the
paint shop and other areas of the plant.
Differences in the environmental performance of the plants began to emerge
as changes in relationships with suppliers occurred over time. Table II shows
the performance of these facilities in 1992. By this point in time, Plants A and B
had begun to move toward more of a partnership arrangement with key
suppliers. Plant C, while retaining a more traditional approach to supplier

Plant A Plant Bb Plant C

Annual production (vehicles) 256,600 95,821 189,500

Total TRI emissions (lb) 1,979,274 1,036,399 1,623,300
Normalized TRI emissions (lb/
vehicle)a 7.74 10.82 8.57
Paint technology Solvent-based Waterborne Solvent-based
Supplier responsible for
environmental performance No No No
Table I.
1989 Comparative Notes
a
environmental The industry average in 1989 was about nine pounds per vehicle
b
performance: baseline Baseline data are for 1991, first full year of production
relationships, had shifted to the new waterborne paint technology in 1990. Yet, Suppliers and
without the expertise of the suppliers, the plant had a difficult time integrating environmental
the new materials into its process. According to an engineer who worked in the
paint shop at that time, ``the first year was hell ± we couldn't figure out how to
innovation
properly apply the stuff and get all the process parameters right.'' Emissions
from Plant C in 1990 increased by almost 40 percent over 1989 as it attempted
to implement the waterborne technology. Interestingly, the best performer in 179
1992 was Plant A, which was using a solvent-based paint technology but
beginning to develop a stronger partnership with suppliers. The solvent
supplier at Plant A succeeded in achieving efficiencies in material use and
reductions in the VOC and regulated chemical content of the cleaners used at
the facility.
Table III shows the performance of the plants in 1994. Plant A, which
introduced waterborne paints in 1993, continued to outperform the other two
facilities. According to both the paint department manager and the
environmental coordinator at the plant, the presence of the paint supplier as a
major partner facilitated the plant's success in integrating the waterborne
materials into the painting process. ``We realize that the supplier is the technical
expert ± and we depend on them for that,'' said the environmental coordinator.

Plant A Plant B Plant C

Annual production (vehicles) 152,649 212,112 157,335

Total TRI emissions (lbs) 567,497 859,676 1,108,205
Normalized TRI emissions (lbs/
vehicle)a 3.72 4.05 7.04
Paint technology Solvent-based Waterborne Waterborne Table II.
Supplier responsible for 1992 Comparative
environmental performance Yes, limited Yes, limited No environmental
performance:
Note differences among
a
The industry average in 1992 was about 6.5 pounds per vehicle plants emerge

Plant A Plant B Plant C

Annual production (vehicles) 242,822 280,002 161,669

Total TRI emissions (lb) 361,426 1,072,482 871,844
Normalized TRI emissions (lb/
vehicle)a 1.49 3.83 5.39
Paint technology Waterborne Waterborne Waterborne
Supplier responsible for
environmental performance Yes Yes, limited No
Table III.
Notes 1994 Comparitive
a
The industry average in 1994 was about 5 pounds per vehicle. The range of performance environmental
varied widely, however, from about 1.5 to 14 pounds. Over 60 percent of plants emitted over performance: Plant A
4 pounds per vehicle shows the greatest
b
1993 data improvement
IJOPM He continued, ``One of the things I really enjoy is that every month we have a
20,2 meeting to discuss key technical issues. The supplier brings in folks from their
other plants or their research labs.'' The combination of radical new materials
and process improvements implemented through a strong relationship with the
suppliers resulted in Plant A's environmental performance in 1994 exceeding
that of either Plant B or Plant C.
180
Analysis of management and performance
The plants evaluated in this study all ultimately utilized radically new
technology (e.g. waterborne paints) for their painting operations, but they had
different approaches to their relationships with suppliers. The similarities among
these operations in terms of the use of new technology and management's
environmental priorities suggest that supplier involvement is a key
differentiating factor in their level of environmental performance. While all three
plants have emission levels at or below industry averages, Plant A showed the
greatest reductions and, over time, demonstrated improved performance in both
total emissions and those normalized by vehicle production. Plant A's initial
reductions in emissions, from 1989 to 1993, occurred without the implementation
of the innovative waterborne paint technology. Plant management had, however,
implemented a partnership with its solvent supplier that included environmental
performance goals. Once waterborne paints were introduced to the plant, it
achieved additional improvements in environmental performance. The
partnership arrangement with the paint supplier was instrumental to the success
of waterborne technology at Plant A. The presence of suppliers in the facility,
with responsibility for materials and process results, helped the plant personnel
obtain better and more timely data and facilitated problem solving. The supplier
was also able to bring additional innovative products and process ideas to the
facility for other parts of the manufacturing operation. As one in-house supplier
said, ``they let us experiment more with new products and approaches, and
encouraged us to be more innovative [than our other customers].'' Managing the
supplier contract through the environmental coordinator reinforced
environmental priorities and the importance of pollution prevention.
The management culture at Plant A was also an important factor. The
positive attitude of employees at Plant A was mentioned by both management
and line workers as a key factor in the plant's success. The philosophy at this
plant, according to the environmental coordinator, was to identify your
problem, and get your problem into the hands of the right person (i.e. the one
with the technical knowledge, skills and resources to help find a solution).
Plant B also utilized advanced paint technology and had an overall
management style that encouraged and supported innovation. However, it did
not involve the suppliers in the implementation of the waterborne paint system
and did not initially achieve the expected environmental performance. While
the plant had an open relationship with suppliers and tried to involve them in
process decisions that related to their products, it had a large number of
suppliers with whom it was working. This plant underutilized the expertise of
suppliers by focusing them too narrowly on the specific needs of a single Suppliers and
department. Paint materials were supplied by a set of competitors who had environmental
little incentive to collaborate on improvements. This approach limited the innovation
ability of the paint shop suppliers to identify and implement new products to
achieve cost and environmental efficiencies facility-wide (balancing the needs
of one unit operation against another). Significant improvements in
environmental performance were achieved when the plant implemented a 181
partnership with the solvent supplier.
Plant C, while utilizing advanced paint technology, never developed a
relationship with suppliers that capitalized on the competencies they had in
understanding how to use the new materials most effectively to achieve
environmental improvements. The environmental engineers at Plant C relied
on the paint suppliers, in particular, for data on paint toxicity and emerging
regulatory requirements, but suppliers were not encouraged to take the
initiative in thinking about changes to the painting process. Process problems
often generated arguments between supplier and automaker staff, rather than
leading to constructive working sessions about potential solutions. The lack of
a partnership with the suppliers also limited Plant C's ability to gain the
anticipated environmental benefits from the use of the waterborne paint
technology.

Discussion
These case studies suggest that closer supplier-manufacturer relations, where
the relevant product expertise resides in the supplier, can contribute to
improved environmental performance through the implementation of
innovative materials and related processes. As suppliers learn more about the
manufacturing operation, they are better able to understand the kinds of
products that best serve the customer's needs. Within the protection and trust
of a partnership with the manufacturer, they are more willing to share their
innovative ideas. One on-site supplier expressed the benefits to both parties of a
stronger partnership as follows: ``It basically gives us more latitude to put our
expertise to work for the customer''. Suppliers who believe their top ideas will
simply be passed on to competitors are more reluctant to share.
The results of this research also reinforce the importance of suppliers as
sources of expertise in implementing innovative technology in a complex
manufacturing environment. Plant A, which had a strong partnership with its
primary supplier when it implemented waterborne paints, did so effectively
and with the intended reductions in environmental emissions from the plant.
Plant C, on the other hand, while adopting the radical waterborne technology,
was unable to integrate it into the manufacturing operation on its own. Instead
of the expected improvements in environmental performance, the plant
experienced increases in emissions and frustrations with getting the new
technology to work. The integrated nature of the materials and application
process of automotive painting requires that suppliers and OEMs work
together to achieve successful results. This suggests that the importance of
IJOPM cospecialized assets, as described by Teece (1986), and the challenges in
20,2 transferring tacit knowledge, particularly across company boundaries, extend
to environmental innovations.
Evidence from this research also suggests, however, that the management
approach at the plant influences the OEM/supplier relationship and the ability to
draw on supplier expertise to extend the capacity of a company to take on radical
182 environmental innovation. In this study, Plants A and B were undertaking closer
supplier relations as part of a general movement observed in the US automotive
industry toward more Japanese-style supplier management practices (Flynn and
Belzowski, 1996). If this corporate movement did not exist, providing a
supportive culture for extending greater responsibilities to suppliers in general, it
is doubtful that such close relations could have been developed between paint
and solvent suppliers and their customers.
External conditions, such as fast-changing technology or regulatory
stringency, can also drive companies to turn more to suppliers for innovation.
Helper (1991), for example, argues that increasing uncertainty about the future
direction and timing of environmental regulations requires more information
exchange and thus closer relations between automakers and suppliers. In the
area of product technology, Ettlie and Rubenstein (1981) found that regulations
regarding automotive emissions stimulated automobile manufacturers to be
more receptive and more willing to incorporate supplier innovations (such as
materials and products that contributed to lightweight vehicles). In a survey of
paint manufacturers and automakers, Geffen (1997) found that as the regulatory
complexities and technological challenges of developing new coatings materials
grew, automotive companies increasingly turned to suppliers for technical and
environmental expertise.
Changes in environmental regulations for automotive paint shops have created
more uncertainty and increased the need for new product and process
innovations. These increasing demands for improved environmental performance
created a context in which manufacturers were more likely to look toward
suppliers for solutions and to take more risk in creating relationships based on
greater degrees of trust. The corporate managers for Plant A, for instance, see the
impact on their operations of a ``never-ending wave of regulation''. Dealing more
effectively with the environment has become an important element of their overall
operation. According to plant and corporate managers at Plant A, ``we work
closely with our suppliers to find ways to remove regulated chemicals from our
process.''
The results of these case studies suggest that, regardless of the driver to
strengthen relationships with suppliers (whether part of an industry trend to
move toward Japanese-style partnerships or the need to access specialized
supplier expertise to address regulatory changes), these relationships do
encourage and facilitate the introduction of radical environmental innovation to
complex manufacturing processes. Supplier involvement was most successful
in the plant that offered the most supportive environment for this involvement.
This suggests that maximizing the benefit of suppliers requires a broader Suppliers and
strategy for accessing capability and forming partnerships outside traditional environmental
company boundaries. innovation
The partnership program at Plant A, with a single supplier managed
through a single point of contact at the plant (the environmental manager), was
adopted as one element of an overall strategy for working with suppliers to
draw more effectively on their expertise in identifying and implementing 183
process efficiencies. Managers in Plant A's paint shop believe the supplier now
feels more ownership for the problems in the plant, and are more willing to
share ideas. One plant supervisor said that plant management came to realize
that ``they (the suppliers) are as invested in fixing the process and getting a
quality car out as we are.'' The security of a long-term relationship also focuses
the supplier on the needs of the automaker. The opportunity to develop a good
reputation through this arrangement was viewed as a positive business asset
by the supplier. According to the corporate manager of one paint supply
company, ``If we are given more responsibility, we can change the technology
and the process to match and create something that sells the vehicles better.
Our incentive, after all, is for them to sell more cars''.

Conclusion
Suppliers to automotive assembly plants have traditionally been pressured to
reduce costs while maintaining product quality. With the relationship between
supplier and manufacturer restricted to the sale and purchase of paint, the
possibilities for innovative approaches to reduce costs and gain efficiencies
across the various unit operations of the facility are limited. In our study, the
most significant improvements in environmental performance were observed
when innovative technology and open, flexible management approaches were
coupled with supplier expertise. Suppliers in partnership roles were more
willing to provide their latest innovations to their automotive partners and,
with more knowledge of their customer's needs, better able to provide
technologies suited to particular facilities. The innovative technology needed to
improve the environmental performance of automotive assembly plants,
however, requires skills and competencies from both suppliers (detailed
knowledge of paint chemistry and environmental effects) and automakers
(detailed knowledge of the final product requirements and assembly plant
operations). Implementing new technology at the assembly plant is best done
through a partnership arrangement that allows these groups to work together
effectively.
The environmental performance improvements achieved by the assembly
plants in this study required a high level of trust among the major partners,
reinforced by contracting mechanisms that made it lucrative for the supplier to
expand its traditional role. They also required the OEM to manage a balance of
competencies to ensure against becoming over-dependent on supplier
expertise. But the potential benefits to a company in improved products and
IJOPM performance are important in today's competitive marketplace. Plants that
20,2 gave more responsibility to on-site paint and chemical suppliers obtained more
accurate and timely data on their operations and environmental performance.
Results from this study demonstrate that material substitution in complex
manufacturing systems is not a simple process. Implementing radical
innovation in an integrated technological system demands capabilities beyond
184 those likely to exist within a single company. As companies shift from
controlling pollution at facility boundaries to fundamentally rethinking their
products and processes to eliminate environmental impacts at the source, they
need to expand their experience base and competencies by drawing on outside
expertise. Suppliers can be an important source of enhanced competency for
companies interested in environmental innovation. Successful implementation
of those innovations, however, requires consideration of both management and
technology factors, and close coordination between the supplier and the OEM.
This study reinforces the emerging view that partnerships that build long-
term relationships of trust and give greater responsibility to suppliers can be
important to achieving improved performance in manufacturing facilities. Our
results extend this view to include environmental performance. We found the
most effective partnerships were based on new contractual arrangements that
included consideration of environmental goals and encouraged broader sharing
of innovative products and ideas across more elements of the production
system. While there are some limits to the case study approach, this work
clearly points to a new direction for research in understanding the dynamics of
environmental innovation and potential mechanisms for change.
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(Dr Charlette Geffen is the Associate Director for Strategic Planning at Battelle, Pacific
Northwest National Laboratory (PNNL), where she is responsible for identifying emerging
technologies and new business initiatives for the laboratory. She recently completed a PhD at
the Massacheusetts Institute of Technology, where she conducted research on the role of
suppliers and innovative science and technology in environmental management and
performance improvement in the US automotive industry. Dr Geffen has an MBA from the
University of Washington, and a BS in Civil Engineering from Stanford University. She is also a
faculty member in the Technology Management Program at the Washington State University
School of Business, where she teaches strategic management of technology. Dr Geffen has held
various research and management positions at Battelle, PNNL since 1977, with a focus on
environmental and energy management and technology policy and innovation.
Sandra Rothenberg is an Assistant Professor at the Rochester Insititute of Technology,
College of Business, where she teaches leadership and organizational behavior. Professor
Rothenberg received her BS in Bioengineering from Syracuse University, an MS degree in
Technology & Policy from the Massachusetts Institute of Technology (MIT), and her PhD in
organization studies from the Sloan School of Management at MIT. She has also worked for the
Global Environmental Assessment Program at Harvard University, the MIT International
Motor Vehicle Program, the US Office of Technology Assessment, and the MIT Technology,
Business and Environment Program. Professor Rothenberg's research has primarily focused on
environmental management within the automobile industry, where her interests have included
corporate environmental strategy and management, lean manufacturing and environmental
performance, regulation and technical innovation, international environmental management,
worker participation, and environmental activism within firms.)