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LCA For ENV
LCA For ENV
LCA For ENV
of Value Chains
Promoting Life-cycle Thinking
in Industrial Networks
Hanna-Leena Pesonen
University of Jyväskylä, Finland
< www.jyu.fi/economics
C
ompanies are today facing increasing demands from various
stakeholders concerning the environmental performance of their products and
processes. According to Sinding (2000), firms not only face the deterministic ele-
ments of public environmental regulation, but also the additional demands from
stakeholders and society at large. Consumers are asking for green products, public
authorities place growing demand on companies’ environmental performance, employees
and neighbourhood residents are concerned about the health and safety aspects of
production and non-governmental organisations are running campaigns for sustain-
ability (Fig. 1). Sustainability includes development in three sectors: environmental,
social and economic sustainability (WCED 1987). This paper, however, concentrates on
the environmental dimension of sustainability in the context of industrial networks.
Value chain
Transport
Stakeholders
Main contractor
NGOs Employees
Consumer
Waste management
Life-cycle thinking
Environmental management of companies has until recently focused on cleaning up
production. Methods such as pollution prevention and cleaner production have been
typical for these purposes. While the amount of process-based emissions has decreased,
the environmental impacts of other phases of product life-cycle (especially product use
and disposal) are now receiving increasing attention. In developed countries the indus-
trial processes are no longer responsible for the most significant environmental impacts;
rather, it is the later phases of the product life-cycle. As a consequence, environmental
management of companies has shifted from production-oriented methods more
towards a product-oriented approach.
Life-cycle assessment (LCA) is a technique developed to support the product-oriented
environmental policies of companies. LCA studies the environmental aspects and poten-
tial impacts throughout a product’s life (i.e. cradle-to-grave) from raw material acqui-
sition through production, use and disposal. The general categories of environmental
impacts needing consideration include resource use, human health and ecological
consequences (ISO 1997). What is studied in LCA is actually not the product itself, but
the whole system of production, use and disposal processes needed to provide the
product (Weidema 1997): that is, the whole value chain. Consequently, the focus of prod-
uct development should not be on product characteristics alone, but rather on improving
the entire product life-cycle. Figure 2 gives an example of a product life-cycle and
describes the relationship between product life-cycle and value chains (corresponding
to supplier chains).
Value chain
Transport
Stakeholders
Main contractor
NGOs Employees
Consumer
Waste management
t Evaluating the potential environmental impacts associated with those inputs and
outputs
t Interpreting the results of the inventory analysis and impact assessment phases in
relation to the objectives of the study
The possible application areas of LCA are manifold. Figure 3 includes the possible
internal application areas for LCA. In addition, LCA provides important information to
external audiences, such as shareholders (to analyse the potential environmental
impacts of their investment), consumers (to assess the environmental impact of a
product), environmental pressure groups (to be used, for example, in green consumer
guides), as well as other interested parties (company’s immediate neighbours, environ-
mental authorities, etc).
A typical external use for LCA can be found in the eco-labelling schemes. Eco-labels
are one method to communicate green claims to consumers. When the eco-labelling
schemes are widely accepted and recognised by consumers, they can be a very effective
tool of communication because they offer an easy-to-read indication about the environ-
mental performance of a product. According to Fuller (1999), moving towards LCA-
based consumer information and eco-labelling systems as the ‘ways and means’ of
Limitations of LCA include problems with the reliability of the data and results of the
assessment and the static nature of the methodology. Regardless of the weaknesses and
limitations of the method, LCA has been very useful in promoting a completely new way
of thinking in business development: life-cycle thinking. Life-cycle thinking and, corre-
spondingly, life-cycle management, means an integrated approach to study the environ-
mental aspects of products and to reduce the environmental burdens related to them
during the whole product life-cycle. Life-cycle thinking offers valuable insight into
product development, customer education, marketing communication and distribution
solutions and how environmental aspects can be integrated into these areas of business.
According to life-cycle thinking, increased co-operation and shared responsibility
between different actors of society are needed to tackle environmental problems. A
fundamental change from the so-called ‘end-of-pipe’ technologies towards a totally new
approach based on the precautionary principle, where environmental aspects guide both
material and energy flows, is required. Since the ultimate goal of sustainable develop-
ment and life-cycle management can be achieved only by concerted action on the part
of all the relevant actors working together in partnership, co-operation of companies in
the work for the environment is also required.
Industrial networks
To understand the company’s connection to its business environment and relationships
with its partners in the market, it is important to understand the business network in
which it is operating. A network consists of a set of relationships; a single relationship
does not appear as an isolated entity, rather as a part of a larger whole. Explanations of
what is happening in a certain relationship can be searched for in factors external to the
relationship itself (Håkansson and Snehota 1995).
Industrial companies often have a limited number of customers and suppliers that,
together, form the most significant part of the company’s sales or turnover. Most income
and costs of a company are typically dependent on the few main business relationships.
SMEs in particular are often dependent on a single or a few important customers.
Therefore it is of extreme importance to invest in these main relationships. According
to Easton (1992), relationships provide continuity and stability with an increased ability
to plan, reduce costs and increase effectiveness of both partners.
Relationships are connected into a business network; the performance of one com-
pany is dependent on its relationships with several counterparts. Further, a change in
one relationship can mean a changing business environment for a whole chain of
counterparts. This connectedness of business relationships, or chain effect resulting
from connectedness, is a typical feature of life-cycle management. The main contractor
in a value chain is obliged to have control over the environmental impacts along the
whole life-cycle of its product.
The cornerstone of a successful industrial network is the ability and willingness to
take responsibility for the partner organisation. According to the traditional marketing
philosophy, the seller’s primary goal is to satisfy the customer’s needs. It is, however,
not enough in a network. Nor is it enough to aim for customer satisfaction. A company
is able to build a strong and long-lasting relationship only when it is committed to
developing the relationship based on both partners’ needs and to provide the partner
organisation with additional value (Storbacka and Lehtinen 1998). The idea of shared
responsibility for the environment is of the utmost importance in life-cycle thinking. In
order to be able to control the whole life-cycle of a product, the main contractor of a value
chain has to take responsibility for its suppliers and subcontractors. Thus there is a clear
link between the philosophies of life-cycle management and industrial network
management.
Value chain
Transport
Stakeholders
Main contractor
NGOs Employees
Consumer
Waste management
where the quality of the products is crucial. This increases their dependency on reliable
subcontractors and suppliers. Their willingness to play an active part in the development
process of the environmental quality of their subcontractors and suppliers also supports
this view. Subcontractors, in turn, are economically highly dependent on their accounts
with these main contractors. In fact, these companies were in many cases important—
if not the most important—customers of the SMEs.
It could be stated that all of these relationships had reached a mature, long-term stage,
where extensive adaptations on behalf of the network participants can be made. The
realised adaptations during the project are discussed in the section on adaptation
processes, below.
Conclusions
Case-specific results
According to a feedback survey on a number of development projects within the metal
industry in central Finland (Keski-Suomen Liitto 1999), results of the INGENIA project
(Fig. 5) for the supplier SMEs include positive development in the number of employees,
staff motivation, investments, company profitability, and new customer and partner
contacts. The best results were achieved in increasing the motivation of the employees:
every supplier SME reported an increase in staff motivation. Most of the companies have
also made changes to their manufacturing procedures (data systems revised, more
efficient production due to better design, increased ability to react to customer needs,
documented work instructions, etc.) because of the project. According to the participat-
ing SMEs, the project has been helpful in the development of both product and functional
quality. They also estimate that the competitiveness of the companies has improved.
One participating SME had even invested in new production facilities because of growing
demand, thereby doubling its production area.
New partners No
Profitability improved
New investments
0 10 20 30 40 50 60 70 80 90 100
No. of firms (%)
The INGENIA project also reached the main goal of the leading contractors: their
control over the environmental issues of the value chain increased. The first round of
supplier audits conducted by the main contractors was completed in spring 2000. The
quality and environmental management systems of the SMEs now meet the require-
ments of these main contractors. In addition, one of the SME companies is aiming at
environmental management system certification according to ISO 14001 before the end
of 2000. Altogether, the INGENIA project has enabled the expansion of the number of
recognised subcontracting SMEs in central Finland, which has been very important to
both the main contractors in the region as well as to the subcontractors themselves.
Typical barriers in the development of intra-organisational environmental manage-
ment include institutional, economic, organisational and informational problems (Sinding
2000). Some of these problems were also encountered in the INGENIA project. Only one
supplier was reluctant to take part in the training or otherwise participate in the devel-
opment process. Others appreciated the support and help that was given to them.
Despite some problems, the experiences from networking and promotion of life-cycle
thinking in the INGENIA network have been predominantly very positive. The most
important reasons for the very uncomplicated situation within the network during the
project were, first, the companies’ voluntary participation in the project and, second, the
main contractors’ pressure and simultaneous support for the SMEs.
Even though the INGENIA project itself is already over, co-operation between partici-
pating companies continues. To be successful, partnership needs continuous attention.
It is not correct to assume that partnership could be built up during a short project and
then automatically flourish forever. The idea of continual improvement behind the
philosophy of environmental management systems means that the work for the develop-
ment of the system and the improvement of environmental performance is never over,
but is an ongoing effort to improve the level of environmental performance of the
organisation. Correspondingly, to keep the partnership alive and efficient, both network-
ing partners have to be willing to invest in the common relationship in the future. In
the INGENIA network this will mean, at least, more work with information management,
regular supplier audits and co-operation in any future product or process design and
manufacturing development issues.
Management implications
The main contractors of industrial value chains often have limited influence and control
over the whole value chain. When the product reaches the main contractor, many of the
crucial environmental decisions have already been made earlier in the value chain. Life-
cycle thinking, however, requires that the environmental impacts of the product are
studied and minimised during the whole value chain and the main contractor has the
ultimate responsibility for the environmental performance of the product towards the
end-user. Active co-operation with suppliers and subcontractors increases the main
contractor’s control and information about the whole value chain and reduces the risks
associated with the environmental burdens of the products.
Industrial networks raise the question of interdependencies of partners in the net-
work. As was discussed in the previous section, in the INGENIA project the main con-
tractors were clearly the dominant partners. However, it is possible for both participants
to benefit from co-operation, as was the case in the INGENIA project.
Environmental initiatives in SMEs are often inhibited by a general lack of resources,
capacity and capabilities (Biondi et al. 1998). In the INGENIA project the industrial
network approach between the main contractors and their supplier SMEs proved to be
an efficient approach to overcome these problems. The main advantage in involving the
SMEs in the environmental management system development together with the main
contractors was the very strong motivation this solution gave to the subcontractors.
Because of the demand of an important customer (in many cases the most important
one) to improve their environmental performance, they felt pressure to actively take part
in the project. At the same time, however, the subcontractors were given a lot of support
in their development process (training, consulting, etc.) and were not left alone with
their problems. The subcontractors, who took active part in the project, were also able
to improve their bargaining power with other actors in the network (other subcon-
tractors, competitors).
According to the lessons learned during the INGENIA project, networking strongly
supports the promotion of life-cycle thinking in value chains. The network implies a
measure of control over other network participants and through these organisations to
the whole value chain. Sustainable management must balance three factors: customer
satisfaction, organisational goals and ecological sustainability (Fuller 1999). Network
theory offers a framework for understanding the nature of co-operation required by life-
cycle thinking and the integration of Fuller’s ideas about sustainable management into
business. Network theory also provides management tools for promoting life-cycle
thinking in value chains.
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