Supply Chain Uncertainty and Environmental Management

Read this article, which examines the impact of supply chain uncertainty on environmental management spending in manufacturing. Focus on the sections of Supply Chain Uncertainty and Linking Supply Chain Uncertainty to Environmental Management. What is your definition of uncertainty in supply chain management?

Linking Supply Chain Uncertainty to Environmental Management

Building on the ABV, this section establishes the link between supply chain uncertainty and two aspects of environmental management: (i) the extent of the resources spent on environmental improvement (size of the environmental spending 'pie') and (ii) the allocation of environmental spending between pollution control and pollution prevention (how the environmental spending 'pie' is shared). One of the main characteristics of supply chain uncertainty is the additional managerial pressure it imposes to achieve operational objectives. Among other things, it can be argued that it diverts limited managerial and organizational attention away from environmental issues. The ABV becomes an interesting theoretical lens in that particular context.

The ABV suggests that managerial attention allocated to different issues is determined by three principles. First, the managers have limited cognitive capacity to give all of the managerial issues the adequate level of attention. Often referred to as bounded rationality, this principle leads to manager's selective attention. The notion of bounded rationality in the environmental management literature starts to make inroads particularly in studies pertaining to the intersection of environmental policy and 'corporate' response – its direct application to environmental decisions within business organizations remains, however, quite sparse.

The second ABV's principle suggests that the degree of managerial attention directed to a particular issue or event depends on the operating contexts. This second principle emphasizes on the 'situation' as a key determinant of the manager's attention focus. For example, Muller and Whiteman suggest that a corporation's geographical proximity to emerging human needs (e.g., from a natural disaster) amplifies its philanthropic response to those needs. Finally, each organization have policies and procedures that guide the limited managerial attention to specific issues. For example, an organization like Walmart focuses on cost reduction as indicated by their everyday low price strategy percolating throughout the organization and incite the different functions in the organization to devote more attention for operational and supply efficiency (even those related to environmental management). Ocasio, calls this third factor the structural distribution of attention.

The ABV has recently been used as a theoretical lens in the business sustainability literature – for example, the ABV was leveraged to explain corporate social responsibility and performance, climate change adaptation, and green information system practices adoption. Pinske and Gasbarro study on the oil and gas industry indicates that different attention channels (selective, situated, and structural) lead to different climate change adaptation strategies.

Environmental spending is defined here as all of the resources that can be directed toward environmental improvement projects. The resources can be money, time, or people – the notion of time and people is directly and positively linked to the attention available to address environmental issues. The basic premise of this paper is that as supply chain uncertainty increases the managerial attention devoted to peripheral or noncore activities is reduced. In other words, bounded rationality compound by an operating context plagued by supply chain uncertainty limits the managers' attention to adequately attend to green issues. With an increasing level of supply chain uncertainty more organizational resources including managerial attention are channeled to core supply chain activities. For instance, several organizations facing uncertainty would build flexibility in the supply chain taking the form of buffer inventory, a larger supply base, or excess capacity all of which requires more resources to implement or manage – by the same token less resources are available for environmental management.

H1: As supply chain uncertainty increases, the resources allocated to environmental management decreases.

The environmental management literature has emphasized the difference between eliminating pollution at the source and abating the pollution after it is created. Building on the operations strategy (structural vs. infrastructural elements), Klassen and Whybark introduced a classification of environmental technologies into three mutually exclusive groups. First, pollution prevention is defined as structural changes aiming to reduce pollution at the source. Structural changes are physical and 'tangible' changes made to products and/or process. The second group of technologies is pollution control which includes the structural changes that assure a proper treatment of the pollution after it is created. End-of-pipe technologies are a good example of pollution control. Finally, all other investments that are infrastructural by definition such as training, audits, documentation, or procedures constitute the third group named management systems. The nature of management systems can be either for preventive activities (e.g., procedures to reduce energy consumption) or control purposes (e.g., audit, training regarding response to a spill). Hence, the focus here is on the contrast between pollution prevention and pollution control as structural-related spending.

As the uncertainty increases in the supply chain, it creates additional constraints on the already limited organizational and managerial attention. The literature suggests that as constraints increase on resources including attention, the propensity to innovate is reduced. Resource constraints can also bias managers toward the exploitation of existing procedures and operations capabilities rather than exploring new ways of operating. In essence, supply chain uncertainty fosters the adoption of an exploitation approach to operations rather than an exploration approach. Pollution prevention with technical changes to products and/or significant equipment modifications affects the core of organization activities, and as such, it is more aligned with an exploration approach. In other words, supply chain uncertainty is not conducive for pollution prevention. In contrast, pollution control devices allow to address an environmental issue without tampering with the existing technical systems (product or process) – facing high level of supply chain uncertainty, a manager would lean on keeping the existing technologies and the related capabilities intact, privilege the exploitation of the existing operational competences, and opt for less disruptive pollutio control technologies.

H2: As supply chain uncertainty increases, the allocation of resources to environmental management is shifted from pollution prevention to pollution control.