University of Patras Department of Mechanical and Aeronautical Engineering Industrial Management and Information Systems Lab Doctoral Thesis The Εnvironmental Attribute of Μanufacturing strategy An Evolutionary Institutional Approach G. Papachristos Patra 2012 “The dogmas of the quiet past are inadequate to the stormy present, the occasion is piled high with difficulty and we must rise with the occasion. As our case is new so we must think anew and act anew. We must disenthrall ourselves and then we shall save our country.” Abraham Lincoln 2nd Annual Meeting of Congress December 1862 “Do not seek to follow in the footsteps of the wise. Seek what they sought.” Matsuo Basho 1644 – 1694 “If you improve it, please let us all know.” J.D.Sterman 23/5/2011 (personal communication) Acknowledgements This thesis is a piece of work that carries reflections of personal traits and competencies formed in interaction with people in more than a decade. An expression of gratitude is in order for Drs Adamides, Karacapilidis and Van den Bergh, all those who supported this, those who taught me to seek and those that set an example to aspire or avoid, willingly or unbeknownst to them. Abstract This thesis analyses competition and competition in supply chains. It focuses on the case of coopetition between an Original Equipment Manufacturer (OEM) and retailers, that collaborate in the forward supply chain and compete in the reverse. The thesis concentrates on the strategic options available to OEM in order to keep the remanufacturing operations of the retailer from eroding its market share. It analyses the impact that OEM strategic responses have on the environmental impact of the entire supply chain and each actor independently. The main contribution is in demonstrating the inherent trade offs in such a supply chain context. In attempting to abate competition, the OEM has a range of options available. It faces a stale mate: it can neither defend completely against competition, not improve substantially the environmental performance of the supply chain. Methodologically the analysis is based on the Resource Based View of theory competition, sociotechnical systems theory, system dynamics modelling and simulation methodology, and organizational complexity theory. Initially the supply chain is analysed through modelling and simulation at the micro level of the OEM and the retailer. In light of the trade offs inherent in the configuration of the supply chain, the case for the difficulty of endogenous change towards an configuration with an enhanced environmental performance is build based on organizational complexity, and manufacturing theory. Consequently, the problem of change is analysed at the level of sociotechnical systems theory, where the supply chain is viewed as part of the overall industrial production system. Drawing on this, propositions about system intervention are established. Their implications in terms of the environmental performance of the supply chain are tested at the micro level by modifying appropriately the model. The results show that a different supply chain configuration of increased environmental performance is possible. Table of Contents Chapter 1 1 Introduction..................................................................................................................................1 1.1 Research Question and Methodology......................................................................................1 1.2 Thesis Structure...........................................................................................................................9 1.3 Contribution...............................................................................................................................10 Chapter 2 2 Perspectives on Industrial Production & Sustainability .....................................................12 2.1 Introduction – Impetus for Change........................................................................................12 2.2 Manufacturing: The Current Paradigm.................................................................................14 2.2.1 The Rise of Manufacturing.........................................................................................14 2.2.2 Threats to Sustainability..............................................................................................15 2.2.3 Issues & Influences on The Manufacturing Paradigm ..........................................16 2.3 Potential Change Directions.....................................................................................................20 2.3.1 Small Scale Innovation................................................................................................20 2.3.2 Large Scale Innovation................................................................................................27 2.4 Factors of Change in Manufacturing .....................................................................................28 2.4.1 The Role of Regulation................................................................................................29 2.4.2 The Role of Technology...............................................................................................32 2.4.3 The Role of Organizations..........................................................................................34 2.5 Synthesis: Why Change in Both Scales is Necessary............................................................40 2.6 Thesis Proposal..........................................................................................................................42 2.7 Summary.....................................................................................................................................42 Chapter 3 3 Remanufacturing Operations Strategies in the Current Institutional Environment.....44 3.1 Introduction .............................................................................................................................44 3.2 Issues in Closed Supply Chains.............................................................................................45 3.3 Competition in Supply Chains..............................................................................................49 3.4 Dynamic resource-based co-opetition in supply chains with remanufacturing activities: Case presentation and research questions.........................................................52 3.5 Strategic analysis of the case – development of research questions................................54 3.6 Relevant Methodologies ........................................................................................................58 3.6.1 The Resource Based View...........................................................................................58 3.6.2 System Dynamics.........................................................................................................59 3.7 Dynamic resource-based co-opetition in supply chains with remanufacturing activities: Research approach and assumptions.................................................................60 3.8 The System Dynamics Model: State 1...................................................................................65 3.9 The Competitive and Environmental Effects of Operations Strategies...........................69 3.10 The Effect of Rationing...........................................................................................................72 3.11 The Effect of Initial Recycling Capacity ..............................................................................75 3.12 The Effect of OEM Learning Pace.........................................................................................78 3.13 Sensitivity Analysis ................................................................................................................80 i 3.14 Discussion and Concluding Remarks...................................................................................81 Chapter 4 4 Closed Loop Operations Strategies in a Transformed Institutional Environment..........85 4.1 Introduction................................................................................................................................85 4.2 Firm Adaptation: The Suppression of Exploration Under Adverse Performance...........86 4.2.1 The Dynamics of Exploration Suppression...............................................................89 4.2.2 Implications for the Remanufacturing Case..............................................................91 4.3 Impediments to Organizational Performance Improvements............................................92 4.3.1 The NK Model of Organizational Adaptation .......................................................93 4.3.2 Adaptation on Rugged Landscapes.........................................................................94 4.3.3 Implications for the Remanufacturing Case............................................................96 4.3.4 Complex Organizations and Multiple Goals..........................................................96 4.3.5 Implications for the Remanufacturing Case............................................................97 4.3.6 Imitation of Complex Strategies................................................................................98 4.3.7 Implications for the Remanufacturing Case............................................................99 4.3.8 Social & Technical Factors in Inducing Remanufacturing..................................101 4.3.9 The Complexity of Decisions Making....................................................................105 4.4 The Link to Sociotechnical Transitions.................................................................................108 4.4.1 System Wide Propositions.........................................................................................113 4.5 The System Dynamics Model: State 2...................................................................................114 4.6 Results.......................................................................................................................................117 4.7 Conclusions..............................................................................................................................125 Chapter 5 5 Summary & Conclusions .......................................................................................................127 5.1 Summary...................................................................................................................................127 5.2 Insights at the Micro Scale: Supply Chain Actors ..............................................................131 5.3 Insights at the Macro Scale: Policy Makers..........................................................................133 5.4 Future Research Outlook........................................................................................................134 References......................................................................................................................................136 Appendices 1. Model Variables ........................................................................................................................152 2. Modifications of State 1 for State 2 model..............................................................................155 3. Model Equation Listing............................................................................................................156 Publication List.............................................................................................................................161 ii List of Figures & Tables Chapter 1 List of Figures & Tables Figure 1.1 Considering manufacturing activities at two levels..................................................1 Figure 1.2 Firm strategies, time & organizational scales ............................................................4 Figure 1.3 Change at the macro level – industrial production system transformation...........5 Figure 1.4 Industrial production system transition......................................................................8 Chapter 2 List of Figures & Tables Figure 2.1 Levels of firm environmental engagement...............................................................26 Figure 2.2 Factors in sustainable supply chain practices...........................................................29 Figure 2.3 Niches of sustainable industrial production.............................................................32 Figure 2.4 Society, technology and organizations......................................................................42 Chapter 3 List of Figures & Tables Figure 3.1 Current and prospective states of the manufacturing system...............................44 Figure 3.2 Causal loop diagram of the model............................................................................64 Figure 3.3 Stock and flow structure.............................................................................................66 Figure 3.4 Supply chain topology................................................................................................68 Figure 3.5 The effect of rationing on sales and remanufacturing............................................73 Figure 3.6 The effect of rationing on competitiveness..............................................................74 Figure 3.7 The effect of rationing on utilization.........................................................................74 Figure 3.8 Supply chain environmental indicators with capacity for the scenarios investigated.....................................................................................................................75 Figure 3.9 The effect of initial recycling capacity on the competitiveness of the OEM and the retailer for small and large markets, stable and growing..................................77 Figure 3.10 Environmental impact of the supply chain with OEM recycling capacity.........77 Figure 3.11 The effect of the OEM’s production learning on the competitiveness a) of the OEM, and b) of the remanufacturer (small and large markets, stable and growing............................................................................................................................78 Figure 3.12 The effect of the OEM’s production learning pace on the a) remanufacturing capacity built and b) total quantity of used products remanufactured (in small and large initial markets, stable and growing)..........................................................79 Figure 3.13 The effect of the pace of production learning on the environmental performance of the supply chain (for small and large initial markets, stable and growing) ..........................................................................................................................79 Table 3.1 Table: A selection of relevant strategy and operations literature............................51 Table 3.2 The system dynamics model’s output variables........................................................70 Table 3.3 Calculation of aggregate environmental output variables.......................................70 Table 3.4 Sensitivity analysis.........................................................................................................81 Chapter 4 List of Figures & Tables Figure 4.1 Interaction among complexity and organization decisions for exploration and exploitation.....................................................................................................................86 iii Figure 4.2 Causal loop diagram: The suppression of exploration..........................................90 Figure 4.3 Conceptual representation of NK landscape..........................................................94 Figure 4.4 Outsider knowledge transfer in sociotechnical regimes.....................................112 Figure 4.5 Stock and flow diagram of state 2 model..............................................................116 Figure 4.6 Supply chain environmental performance............................................................118 Figure 4.7 Total inflow to the system stable market...............................................................118 Figure 4.8 Total supply chain disposed material....................................................................120 Figure 4.9 Total supply chain profit in growth market..........................................................121 Figure 4.10 OEM profit in growth market.................................................................................122 Figure 4.11 Total retailer profit in growth and stable market.................................................122 Figure 4.12 Environmental performance in state 2 with collection % and returns to OEM ..........................................................................................................................................................123 Figure 4.13 Total system inflow in state 2 with collection % & returns to OEM..................124 Figure 4.14 Figure Total disposed material in state 2 vs collection % & returns to OEM...125 Table 4.1 State 1 vs State 2 assumptions.....................................................................................115 Table 4.2 Comparative results for stable markets.....................................................................117 Table 4.3 Comparative results with 7% market growth rate...................................................117 iv Chapter 1 Introduction 1.1 Research Question & Methodology Climate change and environmental degradation are more than just an interesting research topic. Their effects are manifest, in the natural and the social world, at the individual and the collective level. They have been researched in scientific forums, made headlines in newspapers and received a lot of attention in the public debate. Climate change is occurring and it has been convincingly linked to anthropogenic activities (IPCC, 2007). This has brought a shift in our perception about the impact of human activities. It has placed a responsibility on humans both at an individual and a collective level. For businesses, in particular, environmental management is becoming a significant strategic parameter that goes beyond publishing annual carbon footprint accounts and actions under Corporate Social Responsibility programs or even promotional activity intended to stir eco-consumerism. Firms, particularly those operating in the manufacturing sector, through their manufacturing activities, resource management and use, have an impact on other firms, on their supply chains, and on the natural environment and human welfare. This impact can be considered at two scales using different approaches (Figure 1.1): i. At the micro level of the individual firm and its supply chain by using an operations strategy perspective to analyse the way that firm resources and capabilities are deployed to achieve business objectives and maintain competitive advantage (Slack & Lewis, 2002). ii. At the macro level of the prevailing paradigm of the industrial system by using sociotechnical transition approaches in order to contextualise the assumptions under which firm operations strategy is formed (Geels, and Schot, 2007). Macro Scale: Transition Industrial System Approaches Production Activities Micro Scale: Business Supply Chain Strategy Figure 1.1: Considering manufacturing activities at two levels
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