You are on page 1of 18

MEASURING THE EFFECTIVENESS OF THE COUNTRYS GREEN SUPPLY CHAIN FROM A MACRO PERSPECTIVE Hokey Min, Department of Management,

BAA 3008C, College of Business Administration, Bowling Green State University, Bowling Green, Ohio 43403, Tel: 419-372-3442, Fax: 419372-6057, E-mail: hmin@bgsu.edu Ilsuk Kim, Department of Management, BAA 3019C, College of Business Administration, Bowling Green State University, Bowling Green, Ohio 43403, Tel: 419-372-3416, E-mail: ikim@bgsu.edu Abstract A Logistics Performance Index (LPI) is often used as way to measure the efficiency of the logistics and its related activities of a particular country. Although LPI is known to be positively related to the national income level - the higher the LPI, higher the national income level and vice versa, LPI alone cannot predict the extent of the countrys commitment to green logistics or green supply chain management. Since there is no known measure for the countrys green logistics efficiency, we come up with a hybrid index combining both LPI and the Environmental Performance Index (EPI) which is periodically compiled by the World Bank. Unlike LPI, EPI has the significantly weaker association with the national income level than does LPI. In other words, EPI is not paralleled with LPI. That is to say, some countries may choose to increase their income level at the expense of the environment degradation. Given that active logistics and supply chain related activities can impact carbon footprints such as greenhouse gas emission, we investigate the inter-dynamics between logistics/supply chain management and environmental sustainability. To combine LPI with EPI to measure the extent of the countrys commitment to green logistics/supply chain management, we propose a data envelopment analysis (DEA) that aims to generate the so-called green LPI by taking the LPI as an output and the EPI as an input. In this paper, we will examine to see if the green LPI is a good indicator of the countrys efficiency in managing green logistics/supply chain activities and whether the goal of logistics/supply chain efficiency is in conflict with that of environmental quality improvement. In addition, this paper will examine whether the countrys higher level of green logistics/supply chain activities can positively influence its competitiveness in the global marketplace. Keywords: logistics performance index (LPI), environmental performance index (EPI), data envelopment analysis (DEA) 1. INTRODUCTION Logistics is one of the most important business activities that are essential for sustaining our daily lives. Like all other business activities, however, logistics often produce undesired byproducts. The extensive use of fossil burning fuels and the subsequent emissions of pollutants like are examples of the undesired byproducts. These undesired byproducts accelerated the speed of global warming that threatens the well-being of human species. In an effort to tacking global warming issues, both practitioners and academicians alike have paid increasing attention
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

66

to Green Supply Chain Management (GSCM). In fact, the number of studies on this subject has exploded in the published literature for the last two decades. Even with the restrictive scope of GSCM, Srivastava (2007) reported to find at least 1,500 articles published in scholarly journals and edited books. While the body of knowledge on GSCM has grown dramatically, the firms environmental performance has yet to be on a par with its other dominating business performance indicators such as cost, time or quality. In reality, many firms still focus on higher profitability, a greater market share, and better cash flow instead of Corporate Social Responsibility (CSR) or Environmentally Responsible Logistics (ERL). Many prior studies indicated that the firm tended to consider CSR or ERL when it was forced by public pressure or by government regulations (Holt and Ghobadian, 2009; Zhu et al, 2007; Zhu, et al, 2003; Bro and Junquera, 2003; Zhuang and Synodinos, 1997). As such, to make the firm more accountable for its environmental commitments, governments should play a mentoring role through the establishment of environmental yardsticks and the introduction of appropriate legislations. In this paper, we seek to instigate a change of mindsets and perspectives among the government sector by embedding a Green concept within the Logistics Performance Index (LPI). By combining EPI with LPI, we develop a new measure called Green LPI (GLPI). This new measure is calculated by DEA (Data Envelopment Analysis). Since GLPI is designed to assess the green logistics performance of a country, we rank each countrys efforts of green logistics based on its GLPI. This ranking will help us identify the best-case green logistics practices that other countries lagging green logistics performances can emulate. 2. THE LPI, THE EPI AND GREEN LPI (GLPI) 2.1. The LPI The LPI was first introduced in 2007 through the cooperation between the World Bank and its academic partners. It is an international benchmarking tool focused specifically on measuring the trade and transport facilitation friendliness of a particular country, inducing them to realize logistics challenges and opportunities it encounters. In fact, it is closely monitored by policy makers and professionals in both developing and developed economies as is the cases of other important international indicators like Global Competitiveness Index (GCI) published by the World Economic Forum. The compilation of the index is performed primarily through the online survey of approximately 1,000 professionals from multinational firms in 130 countries, engaged primarily in international freight forwarding operations. The LPI is comprised of two components: International and Domestic. The International LPI evaluates each country in six areas: Efficiency of the customer clearance process (Customs): speed, simplicity and predictability of border control agencies including customs Quality of trade and transport-related infrastructure (Infrastructure): ports, railroads, and information technology Ease of arranging competitively priced shipments (International shipments) 67

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

Competence and quality of logistics services (Logistics quality and competence): transport operators and customs brokers Ability to track and trace consignment (Tracking and tracing) Frequency with which shipments reach the consignee within the schedule or expected time (Timeliness)

The phrases in the parenthesis correspond to the exact title of data categories used in the 2010 LPI report. The respondents evaluate eight countries randomly selected based on their involvement in international trade. Five evaluation scales, from very low to very high are used. To generate a single, summary indicator combining the scores of the six different areas, a principal component analysis (PCA) was used. The final country scores were produced after converting the responses into logarithms and then averaged them across all the respondents for a given country. The domestic part of LPI is not included in the overall country score, i.e., the national ranking, but is used as a way to assess the following areas: Logistics environment Core logistics process Institutions Performance/cost

The assessment is made by the respondents residing in the countries under evaluation. The same five evaluation scales are used. It is also complemented with quantitative information provided by the respondents on particular aspects of international supply chains in their countries of work including import/export, lead time, supply chain costs, customs clearance, and the percentage of shipments subjected to physical inspection. For government policy makers and business leaders, being competitive is the overriding concern in interpreting their position in LPI just like in the case of the Global Competitiveness Index. The only difference is that LPI represents more micro perspective by covering trade logistics operations, whereas GCI being more macro by covering the overall domestic competitiveness. The global supply chain supports an international production network where speed and reliability of delivery have precedence over others such as environment, health or safety. An one-point difference in the LPI score implies two to four additional days for moving imports and exports between the port and a companys warehouse (Arvis, et. al., 2010). At times, therefore, higher logistics efficiency is achieved at the expense of environmentally less friendly mode of transportation such as air which emits substantially higher (twenty times or so) amount of (NTM, 2005-2006). Given the different ways of achieving competitiveness, that is being either efficient in using resources or allocating more inputs, that is, more man-hours or equipment-hours, without being efficient, it is important for us to note that the LPI is not free of distortion, particularly from the perspective of environment. This is reflected in the fact that there are noticeable over achievers or under achievers relative to their income levels although the LPI is known to be positively related to national income level higher the LPI, higher the income level and vice versa. Figure 1 shows clearly the positive relationship between LPI and the national income level, with Rsquare of 70.7%. The typical developed economies like the United States, Germany and
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

68

Singapore situate at the northeastern corner combining very high income and with equally high LPI scores. It is worthy to note, however, the relatively high performances shown by some of the typical low cost countries (LCCs) like China, India or Vietnam. Their LPI scores are even above those of developed economies like Portugal, Greece and Iceland. They may have achieved it at the expense of transportation efficiency simply by employing more resources, thereby increasing the pollutants footprints. The World Bank report of 2010 LPI in fact cites that majority of the survey respondents showed high level of dissatisfaction on the rail services. This will obviously undermine the logistics performance of a country employing rail more than its peers. Therefore, it is a highly plausible that countries and businesses shun rail transport although it is an environmentally friendly mode of transportation

Figure 1: Regression between the LPI and national income 2.2 The EPI The EPI is the product of collaboration between the World Economic Forum and the academia including Yale and Columbia Universities. It was first published in 1999 as the Environmental
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

69

Sustainability Index (ESI). In 2006 the Pilot EPI was published, thereafter the EPI is published biannually, in 2008 and 2010. The EPI measures two core objectives of environmental policy, namely Ecosystem Vitality and Environmental Health.
Policy categories Environmental burden of disease Air pollution (effects on humans) Water (effects on humans) Indicators Environmental burden of disease Indoor air pollution Access to water Access to sanitation Ecosystem Vitality Air pollution (effects on ecosystem) Sulfur dioxide emissions per populated land area Nitrogen oxides emissions per populated land area Non-methane volatile organic compound emissions per populated land area ozone Ecosystem Water quality index Water stress index Water scarcity index Biome protection Biodiversity & habitat Marine protection Critical habitat protection Growing stock change Forestry Forest cover change Fisheries Marine trophic index Trawling intensity Agriculture Agricultural water intensity Agricultural subsidies Pesticide regulation 2.1 2.1 4.2 2.1 0.8 1.3 2.1 4.2 25 6.3 50 6.3 6.3 2.1 0.7 4.2 0.7 0.7 2.1 1 1 2.1 1 1 2.1 4.2 4.2 4.2 50 Weights (%)

Environmental Health

Water (effects on ecosystem)

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

70

Greenhouse gas emissions per capita Climate Change CO2 emissions per electricity generation Industrial greenhouse gas emissions intensity

12.5 6.3 6.3 25

Table 1: The EPI Indicators and assigned weights Ecosystem Vitality covers the policy categories for air pollution, water, biodiversity and habitat, forestry, fisheries, agriculture and climate change. Environmental Health covers the policy categories for environmental burden of diseases, air pollution and water. The EPI captures for each country the impact of the environmental changes on their people (human) and ecosystem. The indicators for measuring the environmental impact per each policy categories and the weights assigned to them in calculating overall country index is shown in Table 1. In total the EPI has 10 core policy categories and 25 indicators capturing the performance of countries for each category. Absent a clear consensus on how best to construct composite indices that combine disparate issues, the 2010 EPI reports says that equal division of the EPI into subscores into humans and nature is not a matter of science but rather a policy judgment. Further assigning of the weights for each indicators level was the outcome of similar policy judgment. Although national income correlates highly with the EPI scores, the degree of correlations is substantially weakened compared with the case between the LPI and national income. The result of simple regression generates the R-squared value of 21.7 % whereas in the case of LPI the value is 70.7 %. Typical wealthy nations of northern Europe like Sweden, Switzerland and Norway show very high EPI scores. On the other hand, poor nations of Africa and Asia are located in the southwestern corner of the Figure, combining very low income levels with very low EPI scores. Since the nations are in low development level, it seems unlikely that these nations will undertake meaningful environmental measures that might interfere with economic development. Their situation supports common perception that only the wealthy nations can afford a clean environment. But this perception is refuted by the high EPI scores registered by some of the low cost countries (LCCs) like Colombia or Panama; the World Bank define the Per Capita PPP (Purchasing Power Parity) of $11,906 to the dividing line between LCCs and high cost countries. Theirs in fact are higher than those of developed countries like Netherlands, Belgium as well as the US. Overall countries with renewable power sources like hydropower and geothermal energy fare better than others. Very low LPI scores of the oil producing, wealthy nations of the Middle East such as Kuwait, Bahrain and United Arab Emirates also reflect this.

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

71

Figure 1: Regression between the EPI and national income 2.3 The Meaning of GLPI A large part of the research efforts in green management and GSCM is about reverse logistics. In this sense, being green in the management context is about recyclability. Other than that, the terminology is loosely defined or not defined at all. Bearing this in mind, we judge that it is necessary to establish a clear meaning of Green in the context of this study. Green supply chain strategies refer to efforts to minimize the negative impact of firms and their supply chains on the natural environment (Mollenkopf, et. al., 2010). Another important concept frequently appearing in the logistics literature is sustainability. The World Commission on Environmental and Development (the Brundtland Commission) defined sustainable development that meets the needs of the present without compromising the ability of future generations to meet their own needs (Kleindorfer, et. al., 2005). The meaning of Green becomes clearer when compared with that of lean, a byword in logistics. Lean supply chain strategies focus on waste reduction, helping firms eliminate non-value adding activities related to excess time, labor, equipment, space, and inventories across the supply chain (Corbett and
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

72

Klassen, 2006). Better route planning, education in ECO-driving, better coordination of transfers of shipments are some examples of actions that will not only lower costs but also will stem the negative impacts caused by logistics activities on environment (Kohn and Brodin, 2008). When waste is minimized as part of environmental management, it results in better utilization of natural resources, improved efficiency and higher productivity and reduces operating costs. Improved environmental performance of the firm is translated into tremendous marketing advantage, and this will lead to improved revenue, increased market share, and new market opportunities. In sum, Green is a macro concept encompassing lean manufacturing, GSCM and recyclability, all of which independently or in conjunction with others will mitigate the negative impacts of business operations on the environment, make both the business and the environment more sustainable and ultimately result in higher performance for the firms and a country as whole. This concept of green as being a all encompassing, proactive strategy is made clearer when we combine the LPI with EPI to gain an insight in developing a new measure to assess the logistics proficiency of a country from the perspective the environment along with the traditional emphasis on productivity and competitiveness.

Figure 2: Regression between the LPI and EPI


Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

73

Figure 2 shows the relationship between the LPI and EPI, one being competitiveness oriented the other being environment oriented. Being competitive without considering for the environment is not sustainable. The countries located at the northeast corner combine the high LPI scores with equally high EPI. These countries provide a benchmark for being Green as well as being competitive. This is the meaning of green this paper intends to present by introducing new measure assessing the logistics performance of the countries from the perspective of the environment or sustainability. 3. LITERATURE REVIEW Literatures dealing with international comparison of the country level environmental performance or the related issues such as sustainable development are scarce. Those dealing with international comparison of national level logistics comparison are equally scarce. Although the LPI had been first published in 2007 logistics research utilizing or related with this invaluable undertaking seems almost not existing. Key word search using the LPI on the research data base such as Business Source Complete or Ohio Link EJC (Electronic Journal Center) fails to generate any hits. Keyword search on the same data base using the EPI and ESI (Environmental Sustainability Index), the forerunner of EPI, generate several hits. None of them have direct bearings on logistics, supply chain management or the LPI, however. For example, Morse and Fraser (2004) provides a critical evaluation of the 1999 ESI, arguing that the ESI creates a misleading impression that Western countries are more sustainable than the developing world due to its methodological bias including indicator selection. Similarly, Atici (2009) and Siche et al (2008) critically appraise the ESI to make it capture more relevant, accurate information on the environmental sustainability of the countries. Despite not being an international comparison, Hens et al (2004) applies the ESI methodology to calculating the ESI score of Shandong Province, China and finds that the province is far from a position of sustainable development as compared to other countries of the world. The work of Vachon and Mao (2008) is unique for dealing with the ESI from the logistics perspective. Using the data from The Global Competitiveness Report (2004-2005) and the 2005 Environmental Sustainability Index (ESI), they examine the linkage between supply chain strength and sustainable development encompassing environmental performance, corporate environmental practices and social sustainability. Nearly complete absence of the researches in the logistics and supply chain management academia on the LPI/ESI/EPI and other issues emanating from them can be explained in two ways. Firstly, a country level research is predominantly considered as the proper domain of economics research since the management academia in general is usually interested in firm level analysis. The second reason lie in the source of research data required for country level comparative researches and hence is related with the first reason. For this particular kind research the use of secondary data is naturally adequate and practical because those data are usually available from public sources like the publications of national government, international
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

74

organizations or non-profit organizations. The usual issue areas of the management research in general are not covered by these sources, however. We need to notice that the newly emerged management research agenda such as CSR and green GSCM owe their advent largely to the awareness by the general public on the global or national environmental issues and the governmental regulatory policies and legislations responding to them. This linkage of issues covering both the business and the public sectors mandates the logistics academia pay research efforts to country level issues like the LPI or green LPI, however scant its research base is at the current stage. 4. THE RESEARCH FRAMEWORK 4.1 The relationship between environment and logistics activity The logistics activity encompasses many areas including procurement, manufacturing, packaging, distribution, transportation and warehousing. All of these are prone to have some impact on the environment in varying degrees. Within the scope of logistics activities, environmentally friendly logistics structure are characterized by fewer movements, less handling, shorter transportation distances, more direct shipping routes and better utilization (Wu and Dunn, 1995). But there seems to be no easy, clear cut answer to how this can be achieved without harming the effectiveness of logistics systems to support international or domestic trade. One obvious way of curbing the emissions from logistics sector is to arbitrarily controlling the transportation demand by using fewer and larger vehicles despite the risk of the widening gap with the actual demand generated from the market. Given the fact that the timeliness and cost are the paramount quality standards in the trade economy, it would not be a farfetched speculation that most of firms and countries tacitly place higher priority on business performance in lieu of the environmental concerns. Absent the proactive measures on the part of the business firms to curve these negative impacts on the environment, governments around the world usually resort to regulatory measures to mitigate the impacts. Besides, international regimes like the Kyoto Protocol, designed curve the global green house gas emissions, also plays vital role in these endeavor. Recognizing the tradeoff between the environmental initiatives and the economic growth, however, individual governments usually take a great care in order not to create detrimental effects retarding economic progress. The defaulting stance upheld by the US as to the domestic ratification of the Kyoto Protocol exemplifies the precarious situation national governments face when pursuing ambitious environmental protection initiatives. As a right reflection of this reality, the academia conceives it as a contentious issue whether there is a trade-off relationship between environmental protection initiatives and economic growth or firms performance. In fact, a great portion of researches including empirical ones on Green Management are concentrated on the nature of relationship between the environmental practices and the firms performances, predominantly financial ones. Based on the case of 3M, Shrivastava (1995) argues that the adoption of environmental goals such as zero pollution and the
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

75

environmental technologies enhances competitiveness of firms. Goldsby and Stank (2000) find that implementation of ERL is positively associated with world class logistics performance. According to many research, ERL primarily focuses on reverse logistics including not only recycling but also source reduction/conservation and disposal. Rao and Holt (2005) finds the cause and effect relationship between greening the different phases of the supply chain and firms competitiveness and economic performance based on the survey of the executive level managers ISO 14001 certified organizations in the Philippines, Indonesia, Malaysia, Thailand and Singapore. Some researchers find that the adoption of green practices results in the improvement of the quality. The existence of a positive relationship between proactive environmental practices and the firms performance were supported by the works of Klassen and Whybark (1999), Zhu and Sarkis (2004), Lpez-Gamero et al. (2010). According to GanzlezBenito and Ganzlez-Benito (2005), however, although operational performances such as quality and reliability can be improved with the adoption of the environmental practices, no evidence was found to prove likewise in the case of the financial performance. Their work is based on the sample of 186 Spanish industrial companies. Sarkis and Cordeiro (2001) also show a similar conclusion on the sample of the US companies. Montabon et. al. (2007) also find a positive relationship between some of environmental management practices and firm performance based on the survey of the US and international corporations but concede that so many other factors in addition to environmental management practices affect the firm performance such as ROI (Return on Investment) the result is not without limitation. Overall the results are mixed, rather than conclusive. 4.2 Linking the LPI with EPI Among the variety of activities engaged in logistics, the transport sector is one of the main sources of pressure on the environment, particularly regarding air pollution and noise (Aronsson and Brodin, 2006). With regards to emissions in the case of EU, the transport sector is responsible for a volume of 910 million tons, representing 44 percent of the total emissions from fossil fuels in 2001. Compared to 1991, this represents an increase over 22 percent, although the overall emissions from fossil fuels increased only by 4 percent (Eurostat, 2003). In this sense, therefore, the LPI is a key driver of EPI. Since the LPI is a comprehensive measure of a nations logistics performance, encompassing the diverse areas like government, regulations, law enforcement and industry, some of the LPI elements are irrelevant or insignificant in determining a countrys EPI score. Figure 3 graphically captures this relationship between the major sectors of a country and the influence flow from them to the LPI, then to EPI. For example, a countrys score of the customs element of LPI is influence by the regulatory policy and the caliber of law enforcement agencies like the immigration or customs duties. Those activities associated with Customs, however, have no direct bearings on EPI simply because they do not generate any pollutants. The same can be said of International Shipment, Logistics Quality and Competence, and Tracking and tracing. They are influenced by the market characteristics such as the levels of sophistication and competition, and the quality of workforce but do not generate pollutants to the environment.

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

76

Figure 3: Influence relationship between a countrys LPI and EPI

Infrastructure and Timeliness are the important determinants of the EPI. For a better Infrastructure a country has to expand the network of roads, rails and port facilities, all of which involves construction and it in turn generates even more demand for transportation. In this intermodal choice is important; whether to have more rails than roads and vice versa. Rail is environmentally friendly mode of transportation, but it is costlier to build than roads and less flexible. Therefore, a government is likely to adopt rail for the sake of efficiency not only in the respect of transportation itself but also of the finance. Timeliness is equally important driver. To be on time, many will pay premium. Premium results in the increase in the employment of shipments of less than truck load and priority shipments employing truck vs. rail, air vs. truck, all of which means more trucks on the road, burns more fuel on the ground and air. This in turn means more pollutants emitted to the environment. Since we are interested in the pollutants footprint of logistics activities, not all of the elements of the LPI are considered in linking with the EPI. Some of the categories need to be left out. Among the total of 11 data categories of the LPI we judged that those listed below are removed from the linkage. The results are summarized in Table 2 below.

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

77

Data Categories Customs

Inclusion X

Reasons Pertains to bureaucratic red tapes, over regulation and transparency: no direct impact on the environment

Infrastructure (L1)

Subjected to availability/expanse of road/rail networks, and construction, maintenance and usage: direct impact on the environment

International shipment LPI

Refers to market condition (openness/competition): no direct relations with the environment

Logistics quality and competence

Refers to human development (labor quality) and market sophistication: no direct relations with the environment

Tracking and tracing Timeliness (L2)

X O

(same as above) Subject to intermodal decisions and the availability/expanse of transportation network, fuel consumptions: direct impact on the environment

Outdoor air pollution (E1) Sulfur dioxide emissions (E2) Nitrogen oxides emissions (E3) Non-methane volatile organic EPI compound emission (E4) Ecosystem ozone (E5) Greenhouse gas emissions (E6) Industrial greenhouse gas emissions (E7)

O O O O Key indicators of the environmental conditions and performance

O O O

Table 2: The Relevant Factors of LPI and EPI for DEA Run 4.3. Data Envelopment Analysis (DEA) DEA was developed by Charnes et al (1978) as an auditing tool for evaluating public programs, particularly those of education and health care areas. The pool of literature employing as a research tool began to appear from the early 1980s and has expanded into wide areas of academic disciplines including engineering as well as management. The DEA model defines the efficiency of DMU (Decision Making Unit) as the maximum ratio of weighted outputs to weighted inputs subject to the condition that the ratios for every DMU are less than or equal to unity. The model is mathematically presented as:

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

78

Max

Subject to: ; j = 1,, n , Where: , , are the unknown outputs and inputs of jth DMU and are the variable weights, assigned to output r and input i, respectively. 0; r = 1,,s ; i=1,, m

The solution of the model will determine the values of , . The optimization process, based on linear programming methodology, gives the DMU represented by the subscript 0 among the set of j = 1,,n DMUs the most favorable weights possible to maximize its efficiency score. The solutions are based on four different DEA models; Input minimizing constant returns to scale model Input minimizing variable returns to scale model Output maximizing constant returns to scale model Output maximizing variable returns to scale model

The results (efficiency score) of the different DEA models are identical between the input minimization and output maximization models. The constant returns to scale and the variable returns to scale models produce different results, however. Constant returns to scale assume that if an input factor is increased, then the output of a DMU will increase the same proportion. Variable returns to scale have two different properties: increasing returns to scale and decreasing returns to scale. In the increasing returns to scale, output increases more than the proportion by which an input increases, and vice versa. Therefore, the kind of model to use must be carefully decided in consideration of the context of the problems to solve. From the view of assessing a green LPI by way of linking LPI with EPI, the input minimizing constant returns to scale DEA model seems more realistic than others. This is because countries would like to run their trade logistics network efficiently while minimizing their externalities as much as possible. As to the matter of returns to scale, presuming constant returns to scale is a natural choice unless there is a substantive rationale to use variable returns to scale. The 2010 LPI covers 155 countries and the 2010 EPI covering 163 countries, thereby producing 146 countries for which both the LPI and EPI scores are available for DEA model run. For the sake of linking the LPI and EPI and facilitating the DEA run, the combined Logistics/Environmental Performance Index (Green LPI: GLPI) is defined as: GLPI =

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

79

As summarized in Table 2, therefore, two of the LPI data (L1 and L2) are to be included as output factors and six of EPI data (E1~E7) as input factors. Then, a DEA run determines the optimized weight for each of these data elements and also the maximum GLPI for each country.

5. RESEARCH QUESTIONS From an analytical point of view what is expected from the results of DEA solution is the GLPI rankings of 163 countries are significantly altered as the result of factoring in the EPI elements, mostly pollutants emitted from the economic activities to which logistics is a significant part. Based upon the earlier finding that LPI shows a stronger degree of association with the national income level than that the EPI has with it and even lesser degree of association between the LPI and EPI themselves, we posit the following propositions to test with the outcome of DEA run. Proposition 1: Sparsely populated northern European countries like Norway, Sweden and Denmark will sustain equally high GLPI scores as in the LPI. Proposition 2: Some of developing and developed countries, notably Vietnam, China, South Korea, Belgium, Netherlands or Germany, with high export/import oriented economies will make significantly lower GLPI scores than the LPI scores. Proposition 3: Those middle income countries such as Columbia, Costa Rica and Algeria, combining the mediocre LPI scores with relatively high EPI scores will see their GLPI scores significantly improved. Proposition 4: Typical poor nations in Africa or Middle East will see their performance in GLPI suffer even more than in the LPI or the EPI. Proposition 5: Overall, the degree of association between the GLPI and the national income will become even less discernable than in the cases of the LPI and EPI.

If the above propositions are proved to hold according to the outcome of DEA runs, we expect that it will provide new impetus and inspiration for the policy makers of the national governments, international logistics professionals and multinational firms to renew their efforts to greening their supply chains, their transport logistics section in particular. Pursuing such a policy initiatives is becoming increasingly important in light of the fact that the transportation sector keeps on increasing its share in the world economy as a result of the globalization of manufacturing and business operations. In this we need to pay attention to the EU Commission findings that from the mid 1980s to the early 2000s the transportation volumes have increased more than GNP in Europe.

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

80

REFERENCES Aronson, H. and Brodin, M. (2006), The environmental effect of changing logistics structures, The International Journal of Logistics Management, 17 (3), 394-415 Arvis, J., Mustara, M., Ojala, L., Shepherd, B. and Saslavsky, D. Connecting to compete, trade logistics in the global economy: the logistics performance index and its indicators, The Word Bank/IBRD, 2010, Washington, DC Atici, C. (2009), Pollution without subsidy?: What is the environmental performance index overlooking, Ecological Economics, 68, 1903-1907 Bro, J. and Junquera, B. (2003), Influence of the perception of the external environmental pressures on obtaining the ISO 14001 standard in Spanish industrial companies, International Journal of Production Research, 41 (2), 337-348 Charnes, C., Cooper, W. and Rhodes, E. (1978), Measuring the efficiency of decision making units, European Journal of Operational Research, 2 (6), 429-444 Corbett, C. and Klassen, R. (2006), Extending the horizons: environmental excellence as key to improving operations, Manufacturing and Service Operations Management, 8 (1), 5-22 Eurostat (2003), Panorama of Transport, Statistical Overview of Transport in the European Union, Office for Official Publications of the European Communities, Luxembourg Goldsby, T. and Stank, T. (2000), World class logistics performance and environmentally responsible logistics practices, Journal of Business Logistics, 21 (2), 187-208 Gonzlez-Benito, J. and Gonzlez-Benito, . (2005), Environmental proactivity and business performance: an empirical analysis, Omega, 33 (1), 1-15 Hens, L., Zhu, Y. and Zhao, J. (2004), Environmental sustainability index of Shandong Province, China, International Journal of Sustainable Development and World Ecology, 11 (3), 227-233 Holt, D. and Ghobadian, A. (2009), An empirical study of green supply chain management practices amongst UK manufacturers, Journal of Manufacturing Technology Management, 20 (7), 2009 Klassen, R. and Whybark, D. (1999), The impact of environmental technologies on manufacturing performance, Academy of Management Journal, 42 (6), 599-615 Kleindorfer, P., Singhal, K. and van Wassenhove, L. Sustainable operations management, Production and Operations Management, 14 (4), 482-492 Lpez-Gamero, M., Molina-Azorn, J. and Claver-Corts, E. (2010), The potential of environmental regulation to change managerial perception, environmental management, competitiveness and financial performance, Journal of Cleaner Production, 18 (10-11), 963974 Kohn, C. and Brodin, M. (2008), Centralised distribution systems and the environment: how increased transport work can decrease the environmental impact of logistics, International Journal of Logistics: Research and Applications, 11 (3), 229-245
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

81

Mollenkopf, D., Stolze, H., Tate, W. and Ueltschy, M. (2010), Green, lean, and global supply chains, International Journal of Physical Distribution and Logistics Management, 40 (1/2), 1441 Montabon, F., Sroufe, R. and Narasimhan, R. (2007), An examination of corporate reporting, environmental practices and firm performance, Journal of Operations Management, 25 (5), 998-1014 Morse, S. and Fraser, E. (2004), Making dirty nations look clean?: the nation state and the problem of selecting and weighting indices as tools for measuring progress towards sustainability, Geoforum, 36 (5), 625-640 NTM, the Network for Transport and Environment, www.ntm.a.se (accessed during 2005-2006) Rao, P. and Holt, D. (2005), Do green supply chains lead to competitiveness and economic performance?, International Journal of Operations and Production Management, 25 (9), 898916 Sarkis, J. and Cordeiro, J. (2001), An empirical evaluation of environmental efficiencies and firm performance: Pollution prevention versus end-of-pipe practice, European Journal of Operational Research, 135 (1), 102-113 Shrivastava, P. (1995), Environmental technologies and competitive advantage, Strategic Management Journal, 16, Summer, 183-200 Siche, J., Agostinho, F., Ortega, E. and Romeiro, A. (2008), Sustainability of nations: Comparative study between environmental sustainability index, ecological footprint and the emergy performance indices, Ecological Economics, 66, 628-637 Srivastava, S. (2007), Green supply-chain management: A state-of-the-art literature, International Journal of Management Reviews, 9 (1), 53-80 Vachon, S. and Mao, Z. (2008), Linking supply chain strength to sustainable development: a country-level analysis, Journal of Cleaner Production, 16 (15), 1552-1560 Wu, H. and Dunn, S. (1995), Environmentally responsible logistics systems, International Journal of Physical Distribution and Logistics Management, 25 (2), 20-38 Zhu, Q. and Sarkis, J. (2004), Relationships between operational practices and performance among early adopters of green supply chain management practices in Chinese manufacturing enterprises, Journal of Operations Management, 22 (3), 265-289 Zhu, Q., Sarkis, J. and Geng, Y. (2004), Green supply chain management: pressures, practices and performance, International Journal of Operations and Production Management, 25 (5), 449-468 Zhu, Q., Sarkis, J. and Lai, K. (2007) Green supply chain management: pressures, practices and performance within the Chinese automobile industry, Journal of Cleaner Production, 15, 10411052 Zhuang, L. and Synodinos, D. (1997) Legislation for the environment: does it work? an empirical study into selected UK-based chemical manufacturing firms Management Decision, 35 (7), 508-518
Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

82

Hokey Min is James R. Good Chair in Global Supply Chain Strategy in the Department of Management at the Bowling Green State University. He was Distinguished University Scholar and Founding Director of the UPS Center for World-wide Supply Chain Management and the Center for Supply Chain Workforce Development at the University of Louisville. He earned his Ph.D. degree in Management Sciences and Logistics from the Ohio State University. His research interests include global logistics strategy, e-synchronized supply chain, benchmarking, and supply chain modeling. He has published more than 130 articles in various refereed journals including European Journal of Operational Research, Journal of Business Logistics, Journal of the Operational Research Society, Transportation Journal, and Transportation Research. Ilsuk Kim is a Visiting Scholar in the Department of Management at Bowling Green State University. He holds Ph.D., M.S. and B.S. degrees from Lancaster University, US Naval Postgraduate School and South Korea Air Force Academy respectively. His papers have been published or due to be published in International Journal of Services and Operations Management, Journal of Operational Research Society and Defense Analysis. Dr. Kims research interest includes supply chain management, green logistics and humanitarian logistics.

Proceedings of the First Annual Kent State International Symposium on Green Supply Chains Canton, Ohio July 29-30, 2010

83