suppliers and environmental innovation: the automotive paint

International Journal of Operations and Production Management. Volume 20, No. 20, 2000. pp. 166-186

Suppliers and Environmental Innovation: The Automotive Paint Process

Published in International Journal of Operations and Production Management. Volume 20, No. 20, 2000. pp. 166-186

Dr. Charlette A. Geffen Dr. Sandra Rothenberg Associate Director Assistant Professor Strategic Planning Rochester Inst. of Technology Pacific Northwest National Laboratory College of Business 902 Battelle Blvd., MSIN: K1-50 108 Lomb Memorial Drive Richland, WA 99352 Rochester, NY 14623 (509) 375-3646 (716) 475-6032 [email protected] [email protected]

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 U.S. 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.


Keywords: Innovation, Environmental Management, Process Improvement, Suppliers, Partnerships, Automotive Painting

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 United States 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 the 1980s, automakers’ relationships

with suppliers were characterized by short-term contracts, arms-length relationships and multiple

suppliers per part (Helper, 1991). Since the 1980s, however, researchers have shown evidence of a

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


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% 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 different coating materials that are applied separately but must work together 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 used to clean the paint lines and

application equipment. These emissions place General Motors (GM), for instance, among the top ten

companies in the United States with the largest total chemical releases as reported by the U.S.

Environmental Protection Agency’s (EPA) Toxic Release Inventory (TRI) (U.S. 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% of General

Motor's annual pollution control costs (which in 1996 were over $110 million for their U.S. automotive

operations) are devoted to air emissions control (General Motors Corporation, 1997). U.S. 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% 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 specifically formulated to contain fewer volatile organics and other regulated

chemicals, leading to lower levels of pollutants for treatment or control. 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 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, Kainz and Prokopyshen, 1996).

General Motors is exploring “design for environment” tools to better understand the potential

environmental impacts of their products and processes at early stages of conceptual design and

development (General Motors Corporation, 1997). The major U.S. automotive companies and their

coating materials suppliers are participating in collaborative research on low-emission paints through a

consortium formed under the U.S. 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, Patel and March, 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 U.S. 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 industries and

thus have greater access to external information and experience 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 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 who

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 suppliers1 span internal and external organizational

boundaries, they are often the critical sources of this knowledge.


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 development of new products that reduce environmental impact through new materials and

chemical design. That work further points to the dynamics of the 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 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, Bridges and O'Keefe, 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 and Ettlie, Bridges and O'Keefe, 1984).

The importance of both management and technology factors to the 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 implement radical innovation. Some of the

important factors for developing and adopting radical innovation are listed in this framework.

Take in Figure 1


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 U.S. 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 or eliminate regulated materials

were an important part of their environmental strategies. These plants were all relatively early adopters

of revolutionary new paint materials and technologies. The willingness to adopt a new, relatively 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.


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 3-month period. The interviews ranged in length from 1 to 8 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, twelve 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. This primary data was enhanced with an extensive review of

secondary source material. Data on environmental performance was obtained from an analysis of the

EPA Toxic Release Inventory (TRI) database for the years 1989 through 1995 (U.S. EPA, 1998).

This data was 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.” 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: 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: 1) plant management approach and

2) 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 analysis of the data is presented. This section is

followed by a broader discussion of the implications of the study results.


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 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 chemicals 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 onsite

presence and increased process knowledge also allows the supplier staff to provide better technical

support for solving production problems. Under this approach, cost and environmental tradeoffs 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 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 their environmental


performance, although they have not (to date) explicitly involved suppliers in improving plant

performance across business units. They have 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 generation and treatment of waste. It is this link between environment,

safety, and cost that has most served to support environmental performance 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.

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% 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% of their time was

focused on environmental matters, most of which dealt with reporting and compliance requirements. As

a result, 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 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.

Take in Table I

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

relationships, had shifted to the new waterborne paint technology in 1990. Yet, without the expertise

of the suppliers, the plant had a difficult time integrating 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 properly apply the stuff and get all the process parameters right.” Emissions from Plant C in

1990 increased by almost 40% over 1989 as it attempted to implement the waterborne technology.

Interestingly, the best performer in 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.

Take in Table II

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. He continued, “One of the things I really enjoy is that every month we have

a 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.


Take in Table III

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 their solvent supplier that

included environmental performance goals. Once waterborne paints were introduced to the plant, they

achieved additional improvements in environmental performance. The partnership arrangement with

their 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, they 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, they had a large number of suppliers with whom they

were working. This plant underutilized the expertise of suppliers by focusing them too narrowly on the

specific needs of a single department. Paint materials were supplied by a set of competitors who had

little incentive to collaborate on improvements. This approach limited the 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 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 onsite 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

cospecialized assets, as described by Teece (1986), and the challenges in 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 environmental innovation. In this study, Plants A and B were

undertaking closer supplier relations as part of a general movement observed in the U.S. 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 strategy for accessing capability and forming partnerships outside traditional company

boundaries.

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

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 performance are important in today's

competitive marketplace. Plants that 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 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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Table I. 1989 Comparative Environmental Performance: Baseline

Plant A Plant B (b) Plant C

Annual Production (vehicles) 256,600 95,821 189,500 Total TRI Emissions (lbs)

1,979,274 1,036,399 1,623,300

Normalized TRI Emissions (lbs/vehicle) (a)

7.74 10.82 8.57

Paint Technology Solvent-based Waterborne Solvent-based

Supplier Responsible for Environmental Performance

No No No

(a) The industry average in 1989 was about 9 pounds per vehicle. (b) Baseline data is for 1991, first full year of production.


Table II. 1992 Comparative Environmental Performance: Differences Among Plants Emerge

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


3.72 4.05 7.04

Paint Technology Solvent-based Waterborne Waterborne Supplier Responsible

for Environmental Performance

Yes, limited Yes, limited No

(a) The industry average in 1992 was 6.5 pounds per vehicle.


Table III. 1994 Comparative Environmental Performance: Plant A Shows the Greatest Improvement

Plant A Plant B Plant C(b)

Annual Production (vehicles)

242,822 280,002 161,669

Total TRI Emissions (lbs)

361,426 1,072,482 871,844


1.49 3.83 5.39

Paint Technology Waterborne Waterborne Waterborne Supplier Responsible for Environmental Performance

Yes Yes, limited No

(a) The industry average in 1994 was about 5 pounds per vehicle. The range of performance varied widely, however, from about 1.5 to 14 pounds. Over 60% of plants emitted over 4 pounds per vehicle.

(b) 1993 data


Figure 1. Factors Important to Success in Radical Innovation: A Framework for Analysis

ImplementationCapacity

ManagementStrategy

TechnologyStrategy

•Commitment to innovation•Scanning - internal & external•Investment in leading technology

•Flexible, team- oriented structure•Proactive environmental policy•Supportive incentive systems

•Fit with production process•Technical expertise & know-how•Experience & resource base - suppliers as partners


[1] 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.

ImplementationCapacity

ManagementStrategy

TechnologyStrategy

•Commitment to innovation•Scanning - internal & external•Investment in leading technology

•Flexible, team- oriented structure•Proactive environmental policy•Supportive incentive systems

•Fit with production process•Technical expertise & know-how•Experience & resource base - suppliers as partners

suppliers and environmental innovation: the automotive paint

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