MANAGING WASTE IN MANUFACTURING FIRMS FOR EFFECTIVE PRODUCTION
CHAPTER TWO
LITERATURE REVIEW
2.1. Introduction
This part of the thesis will discover the different ways of managing waste in organizations and explore the possible benefits related to each method based on existing literature and research.
2.2Theoretical Foundation of the Study
This study is anchored on four theories that includes, resource-based view, institutional theory, resource dependence theory, and stakeholders’ theory.
2.2.1Resource Based View
The resource based view holds that firms can earn supra-normal returns if they have superior resources and the resources are protected by some form of isolating mechanism preventing their diffusion throughout the industry (Hibbets,Albright, & Funk, 2003). According to resource based view, organizations that own “strategic resources” have important competitive advantages over organizations that do not. A strategic resource aid in improving the organization’s effectiveness and efficiency while neutralizing the opportunities and threats of competitors (Muhittin&Reha, 1990). Jay Barney who is considered as the father of modern RBV suggests that, there can be heterogeneity or firm- level differences among firms that allow some of them to sustain competitive advantage. Therefore, the RBV emphasis on strategic choice, changing the firm’s management with the important tasks of identifying, developing and deploying key resources to maximize returns (Razzaque&Sheng, 2009).Although the hotel industry is extremely competitive, hotels that practice waste management practices turn a profit virtually every year. The capacity of a firm to cooperate and coordinate resources is seen as an intangible resource and earning positive returns on the value of resources depends on its sustainability.
Although many hotels offer similar products, the resource competencies of brand image, waste management, human resources and information technology can differentiate each from its competitors (Hibbets et al., 2003). This theory is of relevance to thestudy because the current situation in the hotel industry is characterized by increased competition and consequently demands effective operational decision‐making processes based on sufficient performance information. As a result, the hotels need to use the scarce resources efficiently, analyze and measure the performance of all services that play a crucial role in hotel organizations. In any case, there is an increased need for performance measurement and waste management tools that facilitate the development of organizational waste management strategies and the assessment of the success of organizational operational performance (Cruz, 2007). To measure the performance of hotel organizations, traditional measures such as cost reduction have been valued as an important control tool (Brander & Atkinson, 2001). In thesetraditional measures, tangible resources are well recorded because they meet criteria such as the flowof benefits to the company and the accurate determination of historical costs(Zambon, 2002).
2.2.2Institutional Theory
Institutional theory of organization provides a rich complex view of the organization. The theory states that, organizations are influenced by normative pressures, sometimes arise from external sources such as state, other times arising from withinthe organization itself. The theory further argues that, under some conditions, these pressures lead the organization to be guided by legitimated elements from standard operating procedures to professional certification and state requirement, which often have the effect of directing attention away from task performance. Delmas and Toffel (2003) developed a model of institutional pressures on environmental management which integrated institutional pressures with characteristics of organization to explain the adoption of waste management practices at a facility. Based on the Institutional theory, Delmas and Toffel model illustrated that, stakeholders’ actions are moderated by the firm’s own characteristics to adopt waste management practices.
The application of the institutional theory to waste management is an area that iscurrently in its infancy (Ketchen&Hult, 2007), particularly when the attention of focus is on sustainability of the environment and greening supply chain in hotel operations (Etzion, 2007). The strength of institutional theory in this study is it has been used extensively in studies exploring environmental management organizations (Hoffman, 1997;1999; Delmas, 2004; Bansal 2005) and it offers explanations of why certain practices are chosen without an obvious economic returns (Berrenet,1998;Meyer &Rwan, 1977; DiMaggio & Powell, 1983). The theory is key to this study because it will be used to explain how changes in social values, technological advancements and regulations affect decisions on “green” sustainable activities (Ball & Craig, 2010; Rivera, 2004) and waste management (Hoffman &Ventresca, 1999; Brown et al., 2006, Fowler and Hope, 2007).
2.2.3Stakeholders’ Theory
As stated previously, organizations are redefined by stakeholder’s theory as a grouping of stakeholders and purpose of the organization should be to manage the interests, needs and viewpoints of these diverse stakeholders. In order to ensure stakeholders rights and participation in decision making, the management of organizations has responsibility to manage the organizations to benefit all stakeholders (Freeman, 1984).Business need to identify the needs of their stakeholders and strive to meet their maximum expectations (Kotter, 2006).Therefore success of any company depends on how the management manages the relationships with stakeholders. Thus without support of stakeholders, there is no reason for a firm to exist (Libido Ten, 2007). According to Freeman (1984), stakeholders are those groups who are vital to the survival and success of the corporation.
Waste management issues are regarded as a part of the overall social responsibility of firms and are best approached by stakeholders’ theory (Crespedes, 2003). Gurumurthy (2011) argued that, stakeholders monitor and enforce regulatory, economic and social license requirements to seek leverage by exploiting a variety of license terms. This implies that organizations performance on waste management is influenced byregulatory, social and economic licenses granted.
The implication of the stakeholder theory in this study is that hotels should put additional emphasis on the dimensions of waste management and hotel performance in the analysis of the interests of the stakeholders because the interests of the organization can be nurtured by an interactive symmetrical two way communication with the stakeholders (Madsen &Uihoi, 2001). Hotels need to communicate constantly with all stakeholders on waste management strategies it has put in place to a conducive work organizational operation environment.
2.2.4Resource Dependence Theory
This theory is concerned with how organizational behavior is affected by external resources the organization utilizes, such as raw materials. The theory is of great importance to this study because the success of any organization is determined by its ability to gather, alter and exploit-raw materials faster than competitors. Resource dependence theory is underpinned by the idea that resources that are controlled by organizations are key to organizational success and that access and control over resources is a basis of power. This means that organizational strategies must becarefully considered in order to maintain open access to resources (Pfeffer&Salancik, 1978).
Resources dependence theory (RDT) maintains that organizations are resource – insufficient; they strive to acquire and sustain resources from their external environment that are controlled by external actors who exert demands on organization. These actors perceive certain advantages in their relationship with the organizations and exercise power through control over resources. The heavier the dependence on external resources, the more the demands of particular actors controlling these resources are influential (Pfeffer1982; Oliver 1991).
Increased consumption, resulting from rapidly increasing number of people on our planet, follows the fact that our natural resources are becoming more and more limited (Madu, 2007). Therefore, prices for raw materials are going up, which in turn causes problems for organizations in manufacturing fields (Jonsson et al., 2011). Hence, the increasing cost of raw materials and energy is forcing organizations to rethink their product manufacturing processes.
This raises the question whether the design and/or distribution of the product could be modified in order to minimize costs and maximize value to the organization. In the best- case scenario, this could open new opportunities for organizations to sell their used equipment, by-products from manufacturing processes and used resources that have previously been incinerated in order to produce energy. (Cronin et.al., 2011)
Although huge steps have been taken towards a greener future in the organizational world, still today, sustainability, and as a big part of it production of waste and its management, is a struggle. Schrettle et al. (2013) cited in Penttilä (2016; 76) identifies that it needs constant attention in order for organizations to minimize their environmental impacts.
Especially organizations operating in the manufacturing field are becoming more and more of an eyesore for both consumers and governments, and are forced to constantly focus on developing their green habits (Sarkis, 2001). Therefore, the current situation
calls for serious action on using our resources efficiently, if we were to sustain the prevailing quality of life. In addition, we should focus on preserving the current natural diversity. (Madu, 2007)
2.3.Definitions
2.3.1.Waste Management
In the Finnish Waste Act 2011, waste management is defined as ‘the collection, transport, recovery and disposal of waste, including monitoring and supervision of such operations and the aftercare of disposal sites--‘. In addition, in this thesis, efficient waste management is referred to a method that efficiently reduces the amount of produced waste and is at the same time to some extent considered environmentally friendly.
2.3.2.Waste
In the context of waste management, where waste is a solid, physical product, Christensen (2011) defines it as ‘left-over, a redundant product or material of no or marginal value for the owner and which the owner wants to discard’ (p.3). What is note- worthy is that the definition of what concretely is defined as waste depends on the specific situation and owner’s perception in addition to time, location, state and personal preferences (Christensen, 2010).
According to European Council Waste Framework Directive (2008a) cited in Lilja (2016: 11) and the Finnish Waste Act (2011) ‘Waste’ shall mean any substance or object which the holder discards or intends or is required to discard’. However, it should be noted that this does not include possible by-products (the Finnish Waste Act, 2011).
2.3.3.By-product
A by-product is not defined as waste when ‘--It results from a production process whose primary aim is not the production of that substance or object--’ (the Finnish Waste Act, 2011). In addition, it is required that it is certain for the ‘product’ to have further use, it can be used just as it is ‘without any further processing (other than normal industrial practice), the [product] is produced as an integral part of a production process and the substance or object fulfils all relevant product requirements and requirements for the protection of the environment and human health for the specific use thereof and, when assessed overall, its use would pose no hazard or harm to human health or the environment’ (the Finnish Waste Act, 2011).
2.3.4.Industrial Waste
In his book, Christensen (2010) defines ‘industrial waste’ as ‘waste from industrial production and manufacturing’ (p. 100). The term ‘industry’ includes various industrial sectors and subsectors which highly differ in what type of raw materials and manufacturing technology they use and what they manufacture from these particular raw materials (Christensen, 2010).
2.4.The Finnish Waste Act
Due to both Finnish and EU legislation, there are some legal restrictions regarding waste production and waste management procedures.
According to the Waste Act 2011, product manufacturers should strive to ensure that
raw materials are used sparingly in production, and that waste, raw materials produced from waste, or recycled products or components thereof, are used in production;
in manufacturing, the production method which is chosen generates as little waste as possible, and the waste which is generated is as harmless as possible to human health and the environment; the product is durable, reparable and re-usable and recoverable as waste, and that the product and the use thereof generates as little waste as possible. (the Finnish Waste Act, 2011)
Therefore, the Waste Act in itself forces organizations to pay attention to their manufacturing processes in order to minimize created waste. Although, as there are no quantities or percentages mentioned and the laws are relatively vague and ad hoc, there are possibilities for organizations to get around the laws.
When applying section 8 (general obligation to comply with order of priority) in the Finnish Waste Act 2011 to organizations, all performed activities should primarily be considered to produce the minimum amount and harmfulness of waste. However, in a situation where waste is being generated (which is the case for majority of organizations), they should concentrate on producing first of all re-usable waste and secondly recyclable waste. If neither of these is possible, the next best alternative is to use the waste to produce energy. Finally, if none of these can be applied and the created waste isn’t recoverable, it will be disposed of. (The Finnish Waste Act 2011)
Some of the benefits that organizations can gain through efficient and environmental waste management is a head start regarding future laws and legislations. It is likely that laws and legislations regarding sustainability as a whole will become stricter, forcing organizations to innovate new ways of becoming greener and reducing waste. An organization that is already a forerunner regarding the subject and has already implemented greener strategies in the organization, will better avoid the effects of such new restrictions. In extreme cases, these organizations may gain a competitive advantage against other organizations in the same field.
2.5.Waste Management Methods
Although waste isn’t desirable in the first place due to its feature of not bringing any additional value to its owner (in this case an organization), it also has other features that make it unwanted. First of all, storing waste is impractical, as it takes space from other potentially storable products/items. Secondly, depending on the type of the waste, it may cause problems, such as undesired odours and insects. (Christensen, 2010) Therefore, some of the most common waste management methods will be explored.
2.5.1.Inverse Manufacturing
Some universal strategies have been distinguished in order to make product manufacturing more efficient and greener. One of these is inverse manufacturing, where the life of a product is being extended as far as possible by dismantling it into several re-usable, recyclable, maintainable or up-gradable items. This reduces the amount of waste produced, as existing parts from products can be re-used and exploited for new products. (Madu, 2007)
A good example is separating different metals from old computers which are no longer updatable, and making use of them on new computers. The idea behind inverse manufacturing is to extend the life of a product, minimize the amount of waste created by not fully exploiting the original materials of a product and minimizing the amount of waste delivered to landfills. (Madu, 2007)
In order to make inverse manufacturing profitable, to avoid time consuming processes and make it as easy as possible, the manufactured product (and the whole process) needs to be designed well (Matsuda et al. 2002).
Also, the quality of the parts of the manufactured products might vary (Matsuda et al. 2002). Some parts have likely been used more than others and may require different type of processing to be able to reuse/recycle them. Therefore, the used parts also require a special quality checking process (Matsuda et al. 2002).
Some potential problems related with inverse manufacturing include the collection of specific raw materials vital for an organization in order to manufacture their products. Without resources from e.g. a local waste management facility, which has already implemented a well working procedure of separating different materials from each other, it will require a lot of resources from the organization itself to carry out such technology.
2.5.2.Product Stewardship
The idea in product stewardship, which works as reverse logistics, is that instead of the consumer, the manufacturer is the one responsible for the product from the very beginning of its manufacturing to the point where it needs to be responsibly disposed of (Madu, 2007)
Some of the focuses of product stewardship are in recycling, safe disposal of hazardous wastes and unusable components, and environmental impact assessment of all manufacturing processes. The gained benefits of the reverse logistics business strategy can be substantial; the amount of industrial waste from beginning to end of the manufacturing process could be reduced by even 30%. In order to succeed in attaining the benefits, the products should be designed so that they are easily renewable, that the proper functioning of the product can be trusted and that they have a high residual value. (Madu, 2007)
2.5.3.Remanufacturing
Madu (2007) also talks about re-manufacturing as a way to minimize environmental damage and save both in costs of labour and materials. It differs from inverse manufacturing only in that remanufacturing uses the original product to manufacture a new one, whereas inverse manufacturing uses parts of random used products to manufacture a new, different one.
The process involves collecting used items via a recycling program in which the first step is to collect the original products back to the manufacturer. The second step is to evaluate their condition and decide whether they are worth recycling. Finally, the original, used product is dismantled either fully or partly, depending on its condition after which it is repaired to be able to recover it as a new usable product. (Madu, 2007)
One of the defects concerning remanufacturing is the possible consumer’s supposition that products which are remanufactured have a poorer quality in comparison to the original product (Jonsson et al., 2011). This also applies to inverse manufacturing.
In addition, charges related to transportation of the returned product has an effect on the viability of the whole remanufacturing process (de Brito et al., 2005). Hence, an organization should carefully examine the costs related to used product collection. Just as for inverse manufacturing, remanufacturing may require extensive collection networks, which might become very time, money and resource consuming if implemented by the organization itself. In such case, the technology required for the process, potential need of new workforce to carry it out and some warehouse space are potential costs (Jonsson et al., 2011). Also, the whole activity of implementing a remanufacturing process into the organization requires some investments.
Furthermore, the clients, whether individual consumers or companies, need to be engaged in the network in order to make it function. This might be difficult, especially when it comes to individual consumers as they might be more difficult to reach with the subject than organizations.
What is also noteworthy is that the remanufacturing process faces difficulties when the products are sold abroad. First of all, the whole process gets a lot more complicated when trying to get the products back to the manufacturer from a foreign country. Secondly, there might be laws and legislations which might hamper or even forbid this type of action. (Jonsson et al., 2011)
2.5.4.Recycling
Maybe the most recognized environmentally friendly way of dealing with organizational waste is recycling. Madu (2007) defines it as ‘a process of converting materials that could have been treated as wastes into valuable resources’ (p. 49). Recycling is based on separating recyclable material from other produced waste and then getting rid of the non-recyclable material and finding new purposes for the recyclable material.
Not only does it decrease the amount of waste brought to landfills and incineration, it is also profitable for organizations. By recycling already existing, used material, organizations can save on costs of new material. In addition, it enables them to reduce the cycle time of introducing new products and processing time and they are more aware and in control of their supply chain. (Madu, 2007)
It should be noted that the amount of materials used on a product and the way the product has been built from these materials affects its recyclability and the technology needed for it, separation of parts and the quality of the recycled materials (Sas et al., 2015). It must also be taken into consideration that some materials are very difficult to separate from each other, making the recycling process a lot more difficult, if not even impossible. Such materials include different kinds of plastics. In such cases, the benefits of recycling and/or separating the product materials from each other might result in low quality products, which in turn diminish the economic benefits in such measures that the product might not be worth recycling anymore. The only option to get any benefits of the product is to use it as a resource of energy by burning it (Jonsson et al., 2011). Therefore, it is wise for an organization to design their products so that they are easily recyclable in the first place, as it will decrease the cost of the overall process (Sas et al., 2015).
What is contradictory, and highly dependent on the manufacturing field and the advancement of the used technology, in recycling is whether the process enables cost savings, or whether it increases the price of the product. What should also be considered is that the customers willingness to pay more for a recycled product than for a normal product is limited. (Jonsson et al., 2011)
2.6.Ecolabels
Madu (2007), claims that the primary purpose of ecolabels is to help consumers identify health and environmental impacts on their product buying habits. Therefore, it is expected that consumers would base their purchasing decisions to such values that make them choose the less environmental and health-risk including options. On the other hand, for manufacturers, eco-labels work as an encouragement to develop more environmentally conscious production systems. In order to make the idea of
ecolabeling function, consumers should be aware of their meaning and the labels should be trustworthy. (Madu, 2007)
Below, two common ecolabels used in Finland. According to research, 94% of consumers in the Nordic markets are able to recognize The Nordic Ecolabel (www.nordic-ecolabel.org).
2.7. ISO 14001
The ISO 14000 is an Environmental Management System (EMS) standard developed by International Organization for Standardization (ISO) Technical Committee ISO/TC 207 and its various subcommittees (www.iso.org). In this thesis and literature review, the concentration will be specifically on the ISO 14001 part of the ISO 14000 family. As two of the three companies interviewed for this thesis have implemented the ISO 14001 system to their organization, the concentration will mainly be on its benefits instead of other environmental management systems.
The idea behind the ISO 14001 standard is to improve an organization’s environmental performance as a whole (Romvall et al., 2011). According to iso.org ‘it helps organizations improve their environmental performance through more efficient use of resources and reduction of waste, gaining a competitive advantage and the trust of stakeholders’ (www.iso.org).
Previous research seems to suggest that organizations that have implemented certified systems, such as ISO 14000, tend to perform better than those with only formalized systems. In addition, organizations that have certified systems give an impression of acting socially responsibly. This, in the consumers’ eyes, tends to give a better impression of the company’s image. (Cronin et al., 2011)
According to some findings, presumably, organizations which had implemented the ISO 14001 had succeeded in decreasing the amount of produced waste (Sroufe, 2003). When it comes to environmental programs in general, they usually affect resource, energy and water usage by decreasing their consumption and also by reducing the amount of produced waste. These, on the other hand, tend to diminish costs compared to their previous consumption or production. (Penttilä, 2016)
The results regarding stock value and shareholder value are rather contradictory. Some studies argue that Corporate Environmental Initiatives (CEIs) mostly decrease shareholder value (Walley and Whitehead, 1994), whereas some other studies indicate that there are at least some positive market reactions with certain CEIs (Jacobs et al., 2010). Jacobs et al. (2010) also find that most of the CEIs are value- neutral. The same study discovers that Environmental Awards and Certificates (EACs), especially ISO 14001, are related to positive market reaction (Jacobs et al., 2010).
All in all, ISO 14001 has received some criticism based on its lack of performance- based standardizing (Corbett and Klassen 2006). Hence, organizations can still have poor waste management processes which lead to inefficient waste streams (de Jong, 2014). In addition, as an organization’s primary task is to be economically beneficial, according to numerous studies, such as Albuquerque et al. (2007); Bansal and Hunter (2003); Florida (1996); Krut and Gleckman (1998); Rothenberg et al. (2001) cited in de Jong et al., (2014: 133), the ISO 14001 may be misused in order to create a better image instead of genuinely trying to make the organization as a whole more environmental friendly and financially beneficial.
Empirical Review
Several empirical studies have found a link between environmental degradation and hotel operations. However, the studies have failed to link the effects of waste management practices on manufacturing firms effective production specifically inKenyanMombasa County. Most studies have tackled the whole concept of waste management in a wide area of sustainable environment and the need for hotels to practice “green hotels”.
Cumming (1997) developed a hierarchy model of hotel waste management practices that examine five levels for waste minimization to include commitment to wasteminimization, purchase with eco-intelligence, use efficiency to generate less waste, reuse waste materials and segregate and recycle waste. Findings showed that,Cummings model application failed to hoteliers who have negative attitudes towards the implementation of more sustainable waste management practices as the model does not have any system of motivation and/or pressure to influence hoteliers’ behavioral intentions in relationto waste management practices.The study of Kirk (1998) investigated the perceived benefit of hotel management on environment. The findings of the study showed that some of the managers were of the view that perceived benefits on the environment include increased profitability, enhanced customer and employee satisfaction, improved relationships with local communities help with public relations and a marketing advantage overcompetitors.
Karimi (2014)investigated therelationship between green operations practices and operational performance of hotels in the coastal region. The finding of the study indicated that green hotel operations have a positive effect on manufacturing firms effective production. Sample population of the study did not represent fairly all hotels inMombasa County because it only concentrated on hotels in the Mombasa Island and north coast. This study will narrow down to effect waste management practices on operational performance of all hotels in Mombasa County. Musau andPrideaux (2010) investigation on the role of Kenya’s hotels on sustainable tourism Kenya’s hotel sector has a scope to prepare, develop and market sustainable products and service that promoteenvironment awareness thus increasing both yield and visitors numbers. The findings of Irungu and Mungai(2013) on management commitment and its application on green practice in 4-5 star hotels in Mombasarevealed that 88.9 percent of the managers were not satisfied with the current issues while 81.5 percent were focusing on improving the green concepts.
2.8.Conclusions
Cronin et al., (2011) claims that the idea behind getting economic benefits through waste management procedures is by decreasing the amount of inputs, in this case different types of materials needed for product manufacturing, organizations should gain cost savings. In addition to saving manufacturing costs, organizations may be able to price their products more competitively and gain competitive advantage (Cronin et al., 2011).
As can be seen from this literature review, there are multiple ways of executing an efficient waste management program into an organization. However, what is problematic in the subject of waste management is the fact that technology regarding it develops quickly and makes it difficult to compare efficiency between studies from different years (Christensen, 2010).
Also, the academic literature available regarding waste management and its efficiency gains is quite contradictory. Depending on from which perspective the results from waste management are looked at, there are very different findings.
First of all, due to the high variety in types of waste created by organizations, it is very difficult to straightforwardly claim a certain way of how to efficiently deal with waste or predict the outcome of different types of waste management techniques. For some organizations, it might be more beneficial to burn their waste to get energy out of it whereas for another organization recycling brings the biggest cost savings. Moreover, depending on the waste produced, recycling technology can be very expensive and it can take several years for it to actually start generating any kinds of profits for the organization.
In addition, some organizations are incapable of recycling or burning their waste. In such cases, the only way to get rid of the waste might be to take it to a landfill etc. which does not benefit the organization at all. Therefore, organizations profit in different ways depending on what they manufacture and which type of raw materials they use.