Buyer and Nonprofit Levers to Improve Supplier Environmental Performance
Venue
Production and Operations Management (2016) (to appear)
Publication Year
2016
Authors
Ozgen Karaer, Tim Kraft, John Khawam
BibTeX
Abstract
Material IQ (MiQ) is a new decision tool designed by GreenBlue to help suppliers
safely share sensitive chemical-toxicity data with their customers. As GreenBlue
takes MiQ to market, it must determine under what market conditions to promote the
use of MiQ and when to recommend that a buyer use its implementation as an
opportunity to work with an existing supplier. We study GreenBlue’s problem in two
parts. First, we investigate when a buyer can use a wholesale-price premium and/or
buyer-supplier cost sharing to improve a supplier’s environmental performance.
Based on our findings, we then develop insights into GreenBlue’s strategy. We model
both a single-supplier and a supplier-competition setting. We find that in the
single-supplier setting, if the buyer’s optimal strategy is to offer the supplier a
premium, then he also fully subsidizes her investment cost to build quality. By
developing the supplier’s capabilities, the buyer can increase the impact of the
premium he offers. In the supplier-competition setting, although cost sharing is
less effective as a lever, cases can occur in which the buyer chooses to share
costs and prevent the incumbent supplier from having to compete. From GreenBlue’s
perspective, promoting the use of MiQ and cost sharing are often viable strategies
when there exists a one-to-one relationship between a buyer and a supplier.
However, GreenBlue’s strategy becomes more restricted when competition exists
between suppliers. Only when the relative market awareness of quality is high and
there is a dominant party in the supply chain should GreenBlue recommend the use of
MiQ.
