Elking-Jan-2021

Do Firms Spend More on Suppliers That Have Environmental Expertise? An Empirical Study of U.S. Manufacturers’ Procurement Spend?

ABSTRACT:  Stakeholders expect focal firms to improve their environmental performance. While firms may be able to accumulate the environmental expertise needed to achieve this goal internally, doing so may require significant time and resource commitments. Alternatively, buyer firms can leverage their suppliers’ existing environmental expertise and gain access to such expertise when they purchase products and services from these suppliers. The purpose of this study was to develop and test theory regarding under what conditions suppliers’ environmental expertise influences a buying firms’ procurement spend with these suppliers. We ground our study in transaction cost economics and agency theories and empirically test our hypotheses using a unique buyer–supplier dyadic data set.

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What inspired you to write about this?

As a researcher, I have a particular fascination with the role of innovation as it pertains to supply chain management. In today’s competitive environment, firm’s must look beyond their own boundaries and leverage external resources, such as their suppliers, to access broader pools of knowledge and expertise. One particularly salient area of focus is that of environmental performance and the associated challenges that firms face in adapting to a dynamic market with rapidly changing stakeholder expectations. My co-authors and I wanted to investigate what factors incentivized buyer firms to seek out and leverage the environmental capabilities of their suppliers, and when buyers would focus more on the internal development of such expertise

What is the impact you hope this research will have?

As sustainability issues continue to grow in importance, a firm’s supply chain relationships are becoming increasingly important as a mechanism to acquire valuable knowledge and expertise, especially with respect to environmental capabilities. While the “make-or-buy” decision has been a core element of research in supply chain management, we demonstrate the incredible complexity that underlines this issue in the environmental domain. For instance, we not only have to consider a buyer’s financial position, but also examine factors such as their absorptive capacity, potential reputational effects, the signals to shareholders accompanying such decisions, and the impact of executive pay incentives tied to ESG performance. Our research suggests that there is an economic incentive for suppliers to develop and promote their own environmental expertise as a means to gain business from buyer firms, especially from buyers in a strong financial position and those actively scanning the market for environmental capabilities. 

What else are you working on? 

I am currently working on a number of related research projects, including a project that further examines innovative capabilities within the supply chain and the associated effects on buyer performance, as well as a study investigating how a firm’s supply chain strategy and managerial leadership styles interact as antecedents of sustainability performance.