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International Journal of Operations &Production Management,Vol. 20 No. 2, 2000, pp. 166-186.# MCB University Press, 0144-3577

Suppliers and environmentalinnovation

The automotive paint processCharlette A. Geffen

Pacific Northwest National Laboratory, Richland, Washington, USA

Sandra RothenbergRochester 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 environmentalarena. How a plant responds to these issues has significant implications for the cost and quality ofplant operations. This paper uses three case studies of US assembly plants to examine the role ofpartnerships between original equipment manufacturers (OEMs) and their suppliers inimproving the environmental performance of manufacturing operations. We find that strongpartnerships with suppliers, supported by appropriate incentive systems, were a significantelement of the successful application of innovative environmental technologies. Supplier staffmembers were an important part of achieving environmental performance improvements whilemaintaining production quality and cost goals. The management factors influencing the extentand nature of supplier involvement are identified. The results of this work point to the importanceof suppliers in addressing the manufacturing challenges of the future.

IntroductionAutomobile assembly plants worldwide face increasing pressures in theenvironmental arena. These pressures come in the form of stringent, complex,and costly regulations and demands from a growing number of stakeholdersfor improved environmental performance. In the past, most companies in theUSA approached environmental compliance as an added cost of production,installing end-of-pipe technologies to their manufacturing processes ratherthan evaluating fundamental process or technology changes which couldprevent pollution at the source. Increasing costs of traditional modes ofcompliance and advances in materials and process technology, however, aredriving some companies to consider more innovative approaches toenvironmental problems (Richards and Pearson, 1998).

In automobile manufacturing, environmental issues and strategicinvestment decisions about technological change have become criticalmanagement issues. One potential path for achieving environmentalperformance improvements while maintaining production quality and costgoals at the plant level is through unique partnerships with suppliers. Before

The current issue and full text archive of this journal is available athttp://www.emerald-library.com

This research was supported by the Massachusetts Institute of Technology (MIT) InternationalMotor Vehicle Program. The authors would like to thank the companies and individuals thatparticipated in this study and the three anonymous reviewers of this manuscript and the editorfor their comments and suggestions.

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the 1980s, automakers' relationships with suppliers were characterized byshort-term contracts, arms-length relationships and multiple suppliers per part(Helper, 1991). Since the 1980s, however, researchers have shown evidence of amovement to closer and more cooperative supplier-OEM relationships likethose found in the Japanese auto industry (Dyer and Ouchi, 1993; Cusumanoand Takeishi, 1991; Helper, 1991). The close supplier-manufacturerrelationships observed in Japan's auto industry are thought to be a key factor inthe success of Japanese manufacturers by contributing to decreaseddevelopment 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 developmentof new products and technical innovations in vehicles (Helper and Sako, 1995;Keenan, 1996). First-tier suppliers are taking on larger responsibilities fordesign and quality, although the extent of supplier involvement variessignificantly across automotive companies (Flynn and Belzowski, 1996). Insome cases, first-tier suppliers are performing the functions of systemsintegrators for the second- and third-tier suppliers. However, the role ofsuppliers in designing and adopting new processes and technologies forenvironmental improvement has not been examined to date.

Our research, based on case studies of environmental management andperformance at automotive assembly plants, explores the extent to whichsuppliers are a primary source of product and process innovation in bringingenvironmental improvements to the plant. The structure of this paper beginswith an initial presentation of the problem context involving the environmentalchallenges and related costs of automotive painting. This context is followedby a discussion of emerging evidence on the changing roles of suppliers inmanufacturing operations. Next, the research method used for this work andthe data from the three case studies is presented. The paper ends with adiscussion of results and conclusions.

The environmental challengeMost automotive companies and customers are concerned about theenvironmental and safety impacts generated through the use of automobiles.While the major environmental impacts during the life cycle of an automobileare generated during the use of the product itself, the environmental impacts ofthe automobile manufacturing process are also of significance (Keoleian et al.,1997; Graedel and Allenby, 1997). The primary source of air emissions andhazardous wastes at an automotive assembly plant can be traced to a singleunit operation: automotive painting (AAMA, 1997). Over 80 percent of theenvironmental concerns at these facilities stem from the paint shop and relatedoperations (Lowell et al., 1993).

The painting process is a complex, multistage operation that is extremelyenergy intensive. It is also the primary source for air emissions of regulatedchemicals, including volatile organic compounds (VOCs) and hazardous airpollutants (HAPs). Automotive paint consists of a system of up to six layers of

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different coating materials that are applied separately but must work togetherto provide corrosion protection, durability, and color. Each of these layers hasits own special performance requirements and must be formulated to bond withthe next layer, to form a durable coating that will not flake or peel. Solid andhazardous wastes are created in the painting process from waste paint throughoverspray (paint that does not adhere to the vehicle surface) and chemicalsused to clean the paint lines and application equipment. These emissions placeGeneral Motors (GM), for instance, among the top ten companies in the USAwith the largest total chemical releases as reported by the US EnvironmentalProtection Agency's (EPA) Toxic Release Inventory (TRI) (US EPA, 1998). Thepainting process is also a major cost of production, with large capitalinvestments and high material costs. Specific costs for automotive paintmaterials vary depending on the exact chemical formulation, the color, and theapplication process used. In general, however, coating materials representabout half the cost of painting the vehicle (Nallicheri, 1993). Furthermore,quality in automotive painting is critical to product sales. As noted in onemarketing journal, `̀ for most new car buyers, color and appearance are nearlyas important as price'' (Marketing News, 1995). Assembly plants thus mustbalance reductions in environmental emissions and production costs whilemaintaining the quality of the vehicle finish.

The cost of complianceOver the last decade, there has been a consistent trend toward the reduction ofenvironmental releases in the automotive manufacturing sector, as measuredby the EPA's toxic release inventory data. This is primarily in response toincreasingly stringent regulatory limits on allowable levels of emissions at theplants (Praschan, 1994). Most automotive assembly plants today achieve theseresults through the use of abatement equipment, rather than materialsubstitution. Yet, the capital and operating costs of traditional environmentalcontrol technologies are significant. For example, more than 60 percent ofGeneral Motor's annual pollution control costs (which in 1996 were over $110million for their US automotive operations) are devoted to air emissions control(General Motors Corporation, 1997). US industrial investments in pollutioncontrol and abatement were more than $100 billion annually in 1992; thesecosts were expected to double by the year 2000 (Sheridan, 1992). The 1990Clean Air Act Amendments are anticipated to add another $20 billion to $50billion a year to pollution control costs (Shrivastava, 1993). The automotiveindustry portion is estimated to be about 10 percent of that total in capitalequipment alone (King, 1994).

Increasing costs of compliance coupled with advances in materials andprocess technology are now driving some companies to consider moreinnovative approaches to solving environmental problems (Schmidheiny, 1992;Porter and van der Linde, 1995). One of the most effective means for reducingemissions and hazardous wastes from automotive painting is to reduce thelevel and number of input chemicals through material substitution. New paint

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and coating materials, such as waterborne and powder paints, can bespecifically formulated to contain fewer volatile organics and other regulatedchemicals, leading to lower levels of pollutants for treatment or control.However, the importance of the paint finish to product sales, coupled with theexpense and inherent complexities of the painting process, make automakersreluctant to adopt these newer technologies without extensive testing. Newmaterials or technologies must meet exceedingly strict performance andquality requirements before being considered for adoption in an assemblyplant. It can take years for new formulations to be tested and for suppliers andautomakers to reach mutual agreement on readiness for use. Introducing newmaterials into the production process can require significant capitalinvestments in application equipment and related operating expenses intraining for new procedures (Geffen, 1997).

There is some evidence that the automotive industry as a whole is beginningto think about pollution prevention and clean product design. Chrysler isdeveloping a life cycle management system that is focused on understandingand managing the environmental impacts of design and manufacturing processdecisions at all stages of the life cycle (DeLadurantey et al., 1996). GeneralMotors is exploring `̀ design for environment'' tools to understand better thepotential environmental impacts of its products and processes at early stages ofconceptual design and development (General Motors Corporation, 1997). Themajor US automotive companies and their coating materials suppliers areparticipating in collaborative research on low-emission paints through aconsortium formed under the US Council for Automotive Research (USCAR).One of the primary goals of the consortium is to test and evaluate paintmaterials, 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 yieldmajor advances in environmental performance. However, successful transitionto new technologies based on environmental performance requires incentivesfor change within a company, and the technical capacity and organizationalcommitment necessary for implementing such change. A few US automotiveassembly plants are experimenting with advanced materials and technologiesto reduce the environmental impact of their manufacturing processes andimprove the quality of their products. Plants and companies vary, however, intheir success at moving such technologies from experiments in theirlaboratories to implementation at high-volume, full-scale production.

Supplier involvement: emerging evidenceMost existing research on supplier involvement in manufacturing has focusedon the influence of supplier/customer relations on more traditional measures ofmanufacturing performance, such as product quality or cost. This researchshows that one of the benefits to manufacturers from stronger relationshipswith suppliers is that suppliers often serve several customers within related

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industries and thus have greater access to external information and experiencewith different technologies (Clark and Fujimoto, 1991). From the supplier'sperspective, being closer to the technology and processes in use and buildingcloser relationships with their customers can also lead to increased levels ofinnovation (Tyre and von Hippel, 1997; von Hippel, 1988). Many innovationsrequire the development of complementary assets before they can besuccessfully adopted in practice (Teece, 1986). These assets may include relatedtechnology or know-how that is not necessarily housed within the boundariesof a single company. Teece (1986) points out the importance of collaborationamong companies which contribute different elements of a technologicallyinterdependent system, where strong coordination and information flowsacross company boundaries are required for successful implementation.

Cohen and Levinthal (1990) argue that the ability of a firm to recognize newexternal information and assimilate it is critical to its innovative capabilities.This ability, however, is developed by building on prior experience andknowledge. Integrating new technology developed outside the company intointernal manufacturing and production processes can be problematic if thetechnical expertise to understand and utilize that technology does not existwithin the company (Hamel and Prahalad, 1994). A lack of sufficient corecapabilities in environmental skills and related know-how often is the reasonwhy manufacturers are more likely to develop add-on innovations that can beeasily incorporated into existing processes than invest in extensivemodifications of existing products or processes (Kemp, 1993). Suppliers, bybroadening the diversity and span of existing knowledge in the manufacturingprocess, 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 betweenadvanced manufacturing innovations and environmental performance,suggesting that supplier involvement is an important mechanism in thisrelationship. Little empirical work has been done in this area, however. The setof case studies presented in this paper addresses that gap. The links betweenmaterial use, production process and environmental impacts in manufacturingfacilities suggest that the important role of suppliers in acquiring andassimilating external information, extending the capacity of a firm toimplement radical innovation, may also hold in the area of environmentalinnovation. Rothenberg (1999), for example, found that extra- and intra-organizational knowledge are essential components of environmentalinnovations. Because in-house suppliers span internal and externalorganizational boundaries, they are often the critical sources of this knowledge.(In this usage, an `̀ in-house'' supplier is not employed by the manufacturer butis one who develops a close working relationship with the manufacturer andhas personnel located full-time at the manufacturer's site).

Emerging evidence in the automobile industry suggests that suppliers are asource of innovative ideas for environmental improvements. An evaluation byGeffen (1997) of patents on paints, coatings, and related materials provides

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evidence of the domination of paint suppliers as the source of innovation for thedevelopment of new products that reduce environmental impact through newmaterials and chemical design. That work further points to the dynamics of theinnovation process in developing new materials. While ideas for new productsare often identified by both automakers and paint suppliers working together,suppliers are relied upon for the technical capacity for formulation and theconsideration of environmental criteria in these products. In a survey ofautomotive assembly plants in North America and Japan, Rothenberg (1999)also found evidence of participation by chemical and paint suppliers inenvironmental innovation. Survey respondents reported that suppliers play animportant role not only in improving the performance of paint shop operations,but also in initiating ideas for achieving reductions in environmental effectsfrom the use of solvents and chemicals. These studies suggest that supplierparticipation can influence the introduction and successful implementation ofenvironmental innovations at the plant level. They do not fully address,however, the question of the nature of the participation required, or the contextneeded for supplier involvement to result in improved and sustainedenvironmental performance.

Factors important to successful innovationThe 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 overallstrategy and structure of a business, and its commitment to technologicalinnovation and change (Ettlie et al., 1984). Of particular interest in this researchwere the factors that might influence incremental versus radical innovation inthe paint shop. Incremental innovations present less risk to the adoptingorganization and fit readily within existing production processes or requireonly minor changes to products (Utterback, 1994). Conversely, radicalinnovation is built on new principles that require new technical competenciesand skills, and often new organizational approaches to product design andmarketing (Henderson and Clark, 1990).

Radical innovations generally require significant adaptation of operatingprocedures, and/or investments in new equipment and processing technology.Shifts from traditional paint materials and application technologies toinnovations such as waterborne or powder coatings thus represent a radicalinnovation for the automotive industry. Successful implementation of radicalenvironmental innovation requires a commitment to innovation, a strongenvironmental policy, and the capacity to implement these new technologies atthe operating level. The experience and resource base of a company (in terms ofits plant and equipment, technical knowledge and experience, and managementapproach), as well as internal management processes and organization areimportant to the success of radical innovation (Cohen and Levinthal, 1990;Ettlie et al., 1984).

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The importance of both management and technology factors to thesuccessful development and implementation of radical innovation is illustratedin Figure 1. This conceptual framework guided the acquisition of data on themanagement approaches and technology strategies of the companies andplants evaluated in the case studies. It conceptually depicts the links amongorganizational and technology strategies and the capacity of a company toimplement radical innovation. Some of the important factors for developingand adopting radical innovation are listed in this framework.

Exploring the dynamics of supplier roles in introducing and implementingenvironmental innovations in manufacturing requires comparisons among thefactors identified in Figure 1. Of particular interest in this research was thedegree to which suppliers contributed to the successful implementation ofenvironmentally-relevant innovations at the plant by extending the technicalcapacity and resources of a company. The methodology used for this work isoutlined in the next section of this paper, followed by a description of each ofthe three case studies.

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

ManagementStrategy

TechnologyStrategy

ImplementationCapacity

•Flexible, team-oriented structure

•Proactiveenvironmental policy

•Supportive incentivesystems

•Commitment toinnovation

•Scanning- internal & external

•Investment inleading technology

•Fit with production process•Technical expertise &

know-how•Experience & resource base

– suppliers as partners

Figure 1.Factors important tosuccess in radicalinnovation: a frameworkfor analysis

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or eliminate regulated materials were an important part of their environmentalstrategies. These plants were all relatively early adopters of revolutionary newpaint materials and technologies. The willingness to adopt a new, relativelyuntried paint technology (waterborne paint) on important product lines suggests amanagement commitment to technological innovation and support forexperimentation. The primary difference among these plants was their approachto supplier involvement in plant operations and environmental improvement.

A case study approach was taken for a number of reasons. Very littleresearch and theory development has been done on the role of suppliers inenvironmental innovation. Eisenhardt (1989) highlights the importance of casestudies in exploring new areas of research, where theory is still emerging.Furthermore, case studies allow for a detailed investigation of the factorsencountered in identifying and integrating new technology into the plant andprovide a rich set of data (both qualitative and quantitative) for evaluating theresults (Yin, 1994).

Primary data were collected through site visits and extensive interviewswith corporate and plant management at each assembly plant. Multiple on-siteinterviews were conducted at each site by two interviewers over a three-monthperiod. The interviews ranged in length from one to eight hours. The mostextensive interviews were conducted with the environmental staff at the plantand the suppliers and operations staff in the paint department. All of the plantmanagement, paint department management, and environmental staff at eachplant were interviewed, as well as the paint materials and chemicals supplierstaff assigned to daytime shifts. In addition, telephone interviews wereconducted with the research and management staff involved in paint andrelated chemicals product and process decisions at each automotivemanufacturer's and major supplier's corporate headquarters.

At Plant A, ten people were interviewed over a three-day period, includingthe plant manager, the paint department manager, all three of the plant'senvironmental staff, four in-house suppliers, and one line worker in the paintdepartment. At Plant B, 30 people were interviewed during a one-month stay atthe plant. Formal interviews were conducted with management and staff at alllevels, including all of the plant's environmental staff and paint departmentsuppliers. Interviewers also participated in various team meetings, especiallyenvironmental team meetings, and worked with staff on the assembly line. AtPlant C, 12 employees were formally interviewed, including the plant manager,the paint department manager, two environmental staff, two suppliers, and sixline workers and team leaders. Quantitative and qualitative data related to theoperation of the plant, the paint process, management styles, supplier roles, andenvironmental practices were collected.

Taped interviews were transcribed and non-taped interviews were typed upquickly and reviewed with interviewees to ensure accuracy. Corporateplanning documents, internal materials, and environmental reports were alsoreviewed. The primary data were enhanced with an extensive review ofsecondary source material. Data on environmental performance were obtained

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from an analysis of the EPA Toxic Release Inventory (TRI) database for theyears 1989 through 1995 (US EPA, 1998). These data were used in conjunctionwith data provided by the plants on environmental releases and chemicals andmaterials inventories. Production data for each plant were collected to allowcomparisons among plants on a per-vehicle basis.

Data were analyzed using what Miles and Huberman call in case displays.They state, valid analysis requires and is driven by, displays that are focusedenough to permit a viewing of a full data set in the same location, and arearranged systematically to answer the research questions at hand (Miles andHuberman, 1994, p. 92). The interviews were coded into four general areas,linked to the analytic framework developed from existing theory on technologymanagement and innovation (see Figure 1). Technology strategy elements werecoded principally under paint technology and process innovation. Managementstrategy elements were coded under two categories: plant managementapproach; and environmental policy and management. The role of suppliers,particularly as it related to the implementation capacity for the plant, wascoded as the fourth area. Coded segments were then separated from the fieldnotes and placed in two primary display formats, both of which are suggestedby both Miles and Huberman (1994) and Yin (1994). The first format was atemporal ordering of the data, in which specific events were placed in time linesto gain a sense of each plant's historical development. A time line was createdfor both general environmental management and paint shop-specific activity.The second format was a comparative matrix, in which the coded segmentswere categorized and placed in a matrix to explore how the plants differed fromone another. In this matrix, a mixture of direct quotes and summary phraseswere used.

Our research is focused on understanding the role of suppliers in enhancingthe manufacturer's ability to successfully take on radical environmentalinnovation, in this case in the form of new materials and process technologiesthat reduce pollution at the source. In this context, it is important to understandthe dynamics of the supplier/OEM relationship, the involvement of suppliers inintroducing and implementing new technology, and the performance resultsachieved. The three case studies, described in the next section, focused onunderstanding these issues.

Case studies of supplier innovationThis section of the paper describes the relevant data for the three automotiveassembly plants included in this study. The recent history and performance ofeach plant was examined over a time period from 1989 to 1995 to trace theresults of changes in technology and management approach. First, a briefdescription of the characteristics of each plant, including its approach tosupplier involvement over time, is offered. Second, the environmentalperformance of the plants is reviewed at different points in time. Plantemissions are compared at a baseline level (in 1989) prior to the adoption ofclose supplier partnerships, and then again in 1992 and 1994, over which time

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technology and management changes occurred. Finally, a comparativeanalysis of the data is presented. This section is followed by a broaderdiscussion of the implications of the study results.

Plant management approach and the role of suppliersPlant APlant A, an older plant, produced high-quality luxury cars (about 1,100 per dayduring full production) until 1993 using high-solvent paints. The managementapproach at the facility was relatively open and flexible, encouraging workersto provide input to management and supporting integrated work teams. Theplant has a history of worker involvement in process improvement. In 1990, theplant extended the team concept to the supplier of solvents and cleaningchemicals, appointing a single supplier located in-house to manage the needsacross the facility and to help establish environmental goals. In 1993, thefacility shifted production to a new vehicle type and underwent a number ofmajor process and management system changes. As part of its technologyshift, 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 solventsuppliers. The new program gave suppliers greater responsibility for keyproduction chemicals and elements of the paint process, involving them moreheavily in the operation of the plant. These suppliers were paid based on a setfee per vehicle painted rather than volume of materials sold. They were alsogiven an incentive for meeting environmental goals. Suppliers received apercentage of any savings achieved, as long as a high-quality finished vehiclewas produced. By 1994, a single supplier was providing all paint shop-relatedchemicals and coating materials, as well as those chemicals needed for the restof the plant operations.

As a result of implementing the partnership program, suppliers now play avery important role at Plant A, both in productivity improvements andenvironmental performance. In the first full year of operation under the newpartnership program (1994), the supplier saved over $1 million for the plant inimproved efficiencies and reduced waste. The automaker now relies heavilyupon suppliers to provide innovative products and process control, in additionto helping meet environmental goals at the plant.

The partnership arrangement with paint and chemical suppliers at Plant Ais relatively unique in the industry. First, a single supplier is used for the entirepaint system, including cleaning and treatment chemicals. This is a major shiftfor this plant, which not too many years ago had as many as five suppliersproviding the various materials required for the painting process. Moving to asingle supplier has allowed better tracking of chemical use at the plant. Thesupplier developed a detailed material tracking system that led to an improvedunderstanding by both parties of how to maximize the efficiency of thepainting operation as well as identify opportunities for plant-wide efficiencies.Having an on-site presence and increased process knowledge also allows the

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supplier staff to provide better technical support for solving productionproblems. Under this approach, cost and environmental trade-offs can be madeeffectively across the plant, at a facility level, rather than simply focusing onelements of the paint shop unit operations.

Second, contracts with suppliers are managed through the environmentalorganization and include requirements to meet plant environmental goals. AtPlant A, the corporate environmental policies are implemented through oneindividual at the plant, who reports to corporate management and who isresponsible for translating general corporate environmental goals intoimplementable performance objectives. He is also the primary contact for allsuppliers to the plant, coordinating needs and activities across departments toachieve quality, cost, and environmental improvements. This contractual andorganizational arrangement encourages the introduction of new products withlower VOC content and process improvement suggestions that reduceemissions and waste. The environmental manager at the plant notes that thepaint shop supplier `̀ has the responsibility to find materials that work, whetherthey manufacture them or not, and get them to us at a good price. They alsoneed to get the VOCs at the plant down. They report to me and must keep meand the plant manager happy!'' In addition to materials, the supplier provideson-site technical support and training to plant personnel and is responsible fortracking material usage and resultant emissions. These new contractualarrangements assign a broader role to suppliers in the environmentalmanagement of the plant, utilizing their technical expertise in partnership withplant personnel to accomplish business and environmental goals.

Plant BPlant B is a relatively new facility, producing about 1,100 mid-size vehicles perday. This plant was designed to accommodate the use of waterborne paints. Apowder anti-chip coating is also used for additional durability and replaces ahigh-VOC-containing liquid solvent, reducing VOC emissions from themanufacturing process. The management approach at the plant is relativelyopen and flexible, with workers encouraged to provide suggestions tomanagement and to work in teams to solve problems. The organizationalstructure at Plant B is built around business units that are comprised of teamsdedicated to specific tasks. The primary focus of the teams, however, is on cost,quality, and productivity issues at the plant. `̀ The real challenge'', according toone of the environmental engineers at the plant, `̀ is getting people to thinkabout how to reduce pollution at the source.''

An environmental manager coordinates environmental information amongthe different units. Management at Plant B has experimented with a number ofprograms for improving its environmental performance, although it has not (todate) explicitly involved suppliers in improving plant performance acrossbusiness units. It has tried to encourage innovation and change at the level ofthe business unit, however. For instance, the costs of waste handling andtreatment were originally allocated at the plant level. These costs were moved

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to the business unit level in 1992 and resulted in significant reductions in thegeneration and treatment of waste. It is this link between environment, safety,and cost that has most served to support environmental performanceimprovement projects at Plant B. Although the environmental staff say theyhave good support from leadership on environmental issues, the importance offinancial measures at the plant often results in cost reduction as the primarymotivation for environmental projects.

Suppliers at this facility are viewed as team members, but report directly tothe unit operation they supply. Different suppliers provide each of the primarymaterials and related chemicals for the painting process, with the processintegration performed by the paint department manager. These suppliers arepaid for sales, based on product volume, but are not paid an incentive formeeting environmental goals. No one supplier has responsibility for chemicalsor materials across the various departments at Plant B. In the paint shop, up tosix different suppliers provide the many materials needed. A single supplierwas commissioned in 1992 to provide cleaning chemicals and solvents to theplant, and to provide new product ideas to improve efficiencies of variousbusiness units (including environmental performance). This supplier has beenworking to identify ways to reduce the VOC content of and emissions fromthese materials and invests in its own research and development to try to bringnew products to the facility. This supplier also initiated a solvent reclamationprogram at Plant B. About 70 percent of all purge solvents are now reclaimedthrough this program. The solvent supplier, however, is not in a position toidentify broader improvements across different unit operations, at the facilitylevel, with respect to the other sources of emissions and wastes from the plant.

Plant CPlant 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 thepainting process, primarily to lower the VOC emissions from the plant. Theplant management approach is relatively traditional, with hierarchicalreporting arrangements and managers and supervisors clearly identified bytheir white shirts and ties. Management priorities are on specific productiongoals and quality measures, with progress posted on signs throughout thefacility. Ideas from workers for improvements are submitted through a formalsuggestion program. Suppliers have well-defined roles in providing materialsfor the paint shop, and a number of different suppliers serve the needs of thefacility. Suppliers are paid based on volume of materials and/or chemicals soldand are not invited to be a part of setting or achieving environmentalperformance goals.

Plant C has two environmental engineers, both of whom report to the managerfor central engineering. In interviews with these staff members, they reportedthat about 75 percent of their time was focused on environmental matters, most

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of which dealt with reporting and compliance requirements. As a result,environmental staff at Plant C had much less involvement with the productionprocess or with suppliers than staff at Plants A and B.

The relationship with suppliers in the paint shop is limited primarily to theprovision of materials and equipment. The suppliers have much more of anarms-length relationship than observed at the other facilities. While paint shopmanagement and staff said that they place a high value on supplier expertisefor help in optimizing the process and monitoring the quality of the coatingprocess, the suppliers do not have an avenue at this facility to easily supplythat expertise. They are paid based on volume of high-quality materialprovided, and there are no other financial incentives related to improving paintprocesses or environmental performance. The large number of differentsuppliers and the highly competitive nature of the business preclude a view ofprocess improvements at the department level or the introduction of innovativematerials that might cut across unit operations.

Changes over time in environmental performanceThe baseline performance of the assembly plants, as measured by TRIemissions in 1989 (1991 for Plant B, its first full year of operation) is shown inTable I. Despite the use of waterborne paint technology and a flexible, team-oriented management approach, Plant B generated the highest level ofemissions among these facilities. Plant A, with a relatively open managementapproach, had similar levels of emissions to Plant C (about eight pounds ormore TRI emissions per vehicle produced). At that time, all three plants utilizedtraditional arms-length contracting approaches with their suppliers and eachhad a variety of vendors providing the materials and chemicals used in thepaint shop and other areas of the plant.

Differences in the environmental performance of the plants began to emergeas changes in relationships with suppliers occurred over time. Table II showsthe performance of these facilities in 1992. By this point in time, Plants A and Bhad begun to move toward more of a partnership arrangement with keysuppliers. Plant C, while retaining a more traditional approach to supplier

Table I.1989 Comparativeenvironmentalperformance: baseline

Plant A Plant Bb Plant C

Annual production (vehicles) 256,600 95,821 189,500Total TRI emissions (lb) 1,979,274 1,036,399 1,623,300Normalized TRI emissions (lb/vehicle)a 7.74 10.82 8.57Paint technology Solvent-based Waterborne Solvent-basedSupplier responsible forenvironmental performance No No No

Notesa The industry average in 1989 was about nine pounds per vehicleb Baseline data are for 1991, first full year of production

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relationships, had shifted to the new waterborne paint technology in 1990. Yet,without the expertise of the suppliers, the plant had a difficult time integratingthe new materials into its process. According to an engineer who worked in thepaint shop at that time, `̀ the first year was hell ± we couldn't figure out how toproperly apply the stuff and get all the process parameters right.'' Emissionsfrom Plant C in 1990 increased by almost 40 percent over 1989 as it attemptedto implement the waterborne technology. Interestingly, the best performer in1992 was Plant A, which was using a solvent-based paint technology butbeginning to develop a stronger partnership with suppliers. The solventsupplier at Plant A succeeded in achieving efficiencies in material use andreductions in the VOC and regulated chemical content of the cleaners used atthe facility.

Table III shows the performance of the plants in 1994. Plant A, whichintroduced waterborne paints in 1993, continued to outperform the other twofacilities. According to both the paint department manager and theenvironmental coordinator at the plant, the presence of the paint supplier as amajor partner facilitated the plant's success in integrating the waterbornematerials into the painting process. `̀ We realize that the supplier is the technicalexpert ± and we depend on them for that,'' said the environmental coordinator.

Table III.1994 Comparitive

environmentalperformance: Plant A

shows the greatestimprovement

Plant A Plant B Plant C

Annual production (vehicles) 242,822 280,002 161,669Total TRI emissions (lb) 361,426 1,072,482 871,844Normalized TRI emissions (lb/vehicle)a 1.49 3.83 5.39Paint technology Waterborne Waterborne WaterborneSupplier responsible forenvironmental performance Yes Yes, limited No

Notesa The industry average in 1994 was about 5 pounds per vehicle. The range of performancevaried widely, however, from about 1.5 to 14 pounds. Over 60 percent of plants emitted over4 pounds per vehicleb 1993 data

Table II.1992 Comparative

environmentalperformance:

differences amongplants emerge

Plant A Plant B Plant C

Annual production (vehicles) 152,649 212,112 157,335Total TRI emissions (lbs) 567,497 859,676 1,108,205Normalized TRI emissions (lbs/vehicle)a 3.72 4.05 7.04Paint technology Solvent-based Waterborne WaterborneSupplier responsible forenvironmental performance Yes, limited Yes, limited No

Notea The industry average in 1992 was about 6.5 pounds per vehicle

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He continued, `̀ One of the things I really enjoy is that every month we have ameeting to discuss key technical issues. The supplier brings in folks from theirother plants or their research labs.'' The combination of radical new materialsand process improvements implemented through a strong relationship with thesuppliers resulted in Plant A's environmental performance in 1994 exceedingthat of either Plant B or Plant C.

Analysis of management and performanceThe plants evaluated in this study all ultimately utilized radically newtechnology (e.g. waterborne paints) for their painting operations, but they haddifferent approaches to their relationships with suppliers. The similarities amongthese operations in terms of the use of new technology and management'senvironmental priorities suggest that supplier involvement is a keydifferentiating factor in their level of environmental performance. While all threeplants have emission levels at or below industry averages, Plant A showed thegreatest reductions and, over time, demonstrated improved performance in bothtotal emissions and those normalized by vehicle production. Plant A's initialreductions in emissions, from 1989 to 1993, occurred without the implementationof the innovative waterborne paint technology. Plant management had, however,implemented a partnership with its solvent supplier that included environmentalperformance goals. Once waterborne paints were introduced to the plant, itachieved additional improvements in environmental performance. Thepartnership arrangement with the paint supplier was instrumental to the successof waterborne technology at Plant A. The presence of suppliers in the facility,with responsibility for materials and process results, helped the plant personnelobtain better and more timely data and facilitated problem solving. The supplierwas also able to bring additional innovative products and process ideas to thefacility for other parts of the manufacturing operation. As one in-house suppliersaid, `̀ they let us experiment more with new products and approaches, andencouraged us to be more innovative [than our other customers].'' Managing thesupplier contract through the environmental coordinator reinforcedenvironmental priorities and the importance of pollution prevention.

The management culture at Plant A was also an important factor. Thepositive attitude of employees at Plant A was mentioned by both managementand line workers as a key factor in the plant's success. The philosophy at thisplant, according to the environmental coordinator, was to identify yourproblem, and get your problem into the hands of the right person (i.e. the onewith the technical knowledge, skills and resources to help find a solution).

Plant B also utilized advanced paint technology and had an overallmanagement style that encouraged and supported innovation. However, it didnot involve the suppliers in the implementation of the waterborne paint systemand did not initially achieve the expected environmental performance. Whilethe plant had an open relationship with suppliers and tried to involve them inprocess decisions that related to their products, it had a large number ofsuppliers with whom it was working. This plant underutilized the expertise of

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suppliers by focusing them too narrowly on the specific needs of a singledepartment. Paint materials were supplied by a set of competitors who hadlittle incentive to collaborate on improvements. This approach limited theability of the paint shop suppliers to identify and implement new products toachieve cost and environmental efficiencies facility-wide (balancing the needsof one unit operation against another). Significant improvements inenvironmental performance were achieved when the plant implemented apartnership with the solvent supplier.

Plant C, while utilizing advanced paint technology, never developed arelationship with suppliers that capitalized on the competencies they had inunderstanding how to use the new materials most effectively to achieveenvironmental improvements. The environmental engineers at Plant C reliedon the paint suppliers, in particular, for data on paint toxicity and emergingregulatory requirements, but suppliers were not encouraged to take theinitiative in thinking about changes to the painting process. Process problemsoften generated arguments between supplier and automaker staff, rather thanleading to constructive working sessions about potential solutions. The lack ofa partnership with the suppliers also limited Plant C's ability to gain theanticipated environmental benefits from the use of the waterborne painttechnology.

DiscussionThese case studies suggest that closer supplier-manufacturer relations, wherethe relevant product expertise resides in the supplier, can contribute toimproved environmental performance through the implementation ofinnovative materials and related processes. As suppliers learn more about themanufacturing operation, they are better able to understand the kinds ofproducts that best serve the customer's needs. Within the protection and trustof a partnership with the manufacturer, they are more willing to share theirinnovative ideas. One on-site supplier expressed the benefits to both parties of astronger partnership as follows: `̀ It basically gives us more latitude to put ourexpertise to work for the customer''. Suppliers who believe their top ideas willsimply be passed on to competitors are more reluctant to share.

The results of this research also reinforce the importance of suppliers assources of expertise in implementing innovative technology in a complexmanufacturing environment. Plant A, which had a strong partnership with itsprimary supplier when it implemented waterborne paints, did so effectivelyand 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. Insteadof the expected improvements in environmental performance, the plantexperienced increases in emissions and frustrations with getting the newtechnology to work. The integrated nature of the materials and applicationprocess of automotive painting requires that suppliers and OEMs worktogether to achieve successful results. This suggests that the importance of

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cospecialized assets, as described by Teece (1986), and the challenges intransferring tacit knowledge, particularly across company boundaries, extendto environmental innovations.

Evidence from this research also suggests, however, that the managementapproach at the plant influences the OEM/supplier relationship and the ability todraw on supplier expertise to extend the capacity of a company to take on radicalenvironmental innovation. In this study, Plants A and B were undertaking closersupplier relations as part of a general movement observed in the US automotiveindustry toward more Japanese-style supplier management practices (Flynn andBelzowski, 1996). If this corporate movement did not exist, providing asupportive culture for extending greater responsibilities to suppliers in general, itis doubtful that such close relations could have been developed between paintand solvent suppliers and their customers.

External conditions, such as fast-changing technology or regulatorystringency, can also drive companies to turn more to suppliers for innovation.Helper (1991), for example, argues that increasing uncertainty about the futuredirection and timing of environmental regulations requires more informationexchange and thus closer relations between automakers and suppliers. In thearea of product technology, Ettlie and Rubenstein (1981) found that regulationsregarding automotive emissions stimulated automobile manufacturers to bemore receptive and more willing to incorporate supplier innovations (such asmaterials and products that contributed to lightweight vehicles). In a survey ofpaint manufacturers and automakers, Geffen (1997) found that as the regulatorycomplexities and technological challenges of developing new coatings materialsgrew, automotive companies increasingly turned to suppliers for technical andenvironmental expertise.

Changes in environmental regulations for automotive paint shops have createdmore uncertainty and increased the need for new product and processinnovations. These increasing demands for improved environmental performancecreated a context in which manufacturers were more likely to look towardsuppliers for solutions and to take more risk in creating relationships based ongreater degrees of trust. The corporate managers for Plant A, for instance, see theimpact on their operations of a `̀never-ending wave of regulation''. Dealing moreeffectively with the environment has become an important element of their overalloperation. According to plant and corporate managers at Plant A, `̀we workclosely with our suppliers to find ways to remove regulated chemicals from ourprocess.''

The results of these case studies suggest that, regardless of the driver tostrengthen relationships with suppliers (whether part of an industry trend tomove toward Japanese-style partnerships or the need to access specializedsupplier expertise to address regulatory changes), these relationships doencourage and facilitate the introduction of radical environmental innovation tocomplex manufacturing processes. Supplier involvement was most successfulin the plant that offered the most supportive environment for this involvement.

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This suggests that maximizing the benefit of suppliers requires a broaderstrategy for accessing capability and forming partnerships outside traditionalcompany boundaries.

The partnership program at Plant A, with a single supplier managedthrough a single point of contact at the plant (the environmental manager), wasadopted as one element of an overall strategy for working with suppliers todraw more effectively on their expertise in identifying and implementingprocess efficiencies. Managers in Plant A's paint shop believe the supplier nowfeels more ownership for the problems in the plant, and are more willing toshare ideas. One plant supervisor said that plant management came to realizethat `̀ they (the suppliers) are as invested in fixing the process and getting aquality car out as we are.'' The security of a long-term relationship also focusesthe supplier on the needs of the automaker. The opportunity to develop a goodreputation through this arrangement was viewed as a positive business assetby the supplier. According to the corporate manager of one paint supplycompany, `̀ If we are given more responsibility, we can change the technologyand the process to match and create something that sells the vehicles better.Our incentive, after all, is for them to sell more cars''.

ConclusionSuppliers to automotive assembly plants have traditionally been pressured toreduce costs while maintaining product quality. With the relationship betweensupplier and manufacturer restricted to the sale and purchase of paint, thepossibilities for innovative approaches to reduce costs and gain efficienciesacross the various unit operations of the facility are limited. In our study, themost significant improvements in environmental performance were observedwhen innovative technology and open, flexible management approaches werecoupled with supplier expertise. Suppliers in partnership roles were morewilling to provide their latest innovations to their automotive partners and,with more knowledge of their customer's needs, better able to providetechnologies suited to particular facilities. The innovative technology needed toimprove the environmental performance of automotive assembly plants,however, requires skills and competencies from both suppliers (detailedknowledge of paint chemistry and environmental effects) and automakers(detailed knowledge of the final product requirements and assembly plantoperations). Implementing new technology at the assembly plant is best donethrough a partnership arrangement that allows these groups to work togethereffectively.

The environmental performance improvements achieved by the assemblyplants in this study required a high level of trust among the major partners,reinforced by contracting mechanisms that made it lucrative for the supplier toexpand its traditional role. They also required the OEM to manage a balance ofcompetencies to ensure against becoming over-dependent on supplierexpertise. But the potential benefits to a company in improved products and

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performance are important in today's competitive marketplace. Plants thatgave more responsibility to on-site paint and chemical suppliers obtained moreaccurate and timely data on their operations and environmental performance.

Results from this study demonstrate that material substitution in complexmanufacturing systems is not a simple process. Implementing radicalinnovation in an integrated technological system demands capabilities beyondthose likely to exist within a single company. As companies shift fromcontrolling pollution at facility boundaries to fundamentally rethinking theirproducts and processes to eliminate environmental impacts at the source, theyneed to expand their experience base and competencies by drawing on outsideexpertise. Suppliers can be an important source of enhanced competency forcompanies interested in environmental innovation. Successful implementationof those innovations, however, requires consideration of both management andtechnology 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 beimportant to achieving improved performance in manufacturing facilities. Ourresults extend this view to include environmental performance. We found themost effective partnerships were based on new contractual arrangements thatincluded consideration of environmental goals and encouraged broader sharingof innovative products and ideas across more elements of the productionsystem. While there are some limits to the case study approach, this workclearly points to a new direction for research in understanding the dynamics ofenvironmental innovation and potential mechanisms for change.

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(Dr Charlette Geffen is the Associate Director for Strategic Planning at Battelle, PacificNorthwest National Laboratory (PNNL), where she is responsible for identifying emergingtechnologies and new business initiatives for the laboratory. She recently completed a PhD atthe Massacheusetts Institute of Technology, where she conducted research on the role ofsuppliers and innovative science and technology in environmental management andperformance improvement in the US automotive industry. Dr Geffen has an MBA from theUniversity of Washington, and a BS in Civil Engineering from Stanford University. She is also afaculty member in the Technology Management Program at the Washington State UniversitySchool of Business, where she teaches strategic management of technology. Dr Geffen has heldvarious research and management positions at Battelle, PNNL since 1977, with a focus onenvironmental 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. ProfessorRothenberg received her BS in Bioengineering from Syracuse University, an MS degree inTechnology & Policy from the Massachusetts Institute of Technology (MIT), and her PhD inorganization studies from the Sloan School of Management at MIT. She has also worked for theGlobal Environmental Assessment Program at Harvard University, the MIT InternationalMotor Vehicle Program, the US Office of Technology Assessment, and the MIT Technology,Business and Environment Program. Professor Rothenberg's research has primarily focused onenvironmental management within the automobile industry, where her interests have includedcorporate environmental strategy and management, lean manufacturing and environmentalperformance, regulation and technical innovation, international environmental management,worker participation, and environmental activism within firms.)