EFFECT OF GREEN SUPPLY CHAIN MANAGEMENT PRACTICES ON PERFORMANCE OF MANUFACTURING FIRMS IN NAIROBI COUNTY, KENYA

ABSTRACT 
In today‟s global turbulences and increasing competition, organisations cannot do well in isolation as collaborations between different organisations have become the major input in achieving organisational goals and objectives. Green Supply Chain Management (GSCM) refers to management of activities that attempts to improve the environmental performance of purchased inputs, or of the suppliers who provide them. The purpose of the study was to determine the effect of GSCM practices on the performance of manufacturing firms in Nairobi Kenya. The specific objectives included; to establish the effect of green purchasing, green reverse logistics, green marketing, and green risk management on the performance of manufacturing firms in Nairobi Kenya. This study was carried out through a cross sectional descriptive survey. The target population of this study constituted 453 manufacturing firms in Nairobi Kenya. The study sought information from 208 procurement officers whose roles fall on the supply chain. This study made use of questionnaires which contained both structured and non-structured questions. On the other hand, the study used descriptive and inferential statistics to analyse the quantitative data. This study utilized the SPSS software to perform regression analysis on the collected data. The study revealed that adoption of GSCM practices led to improved overall quality, there is more strategic focus on reverse logistics and that efficiency, accuracy and timeliness in reverse supply chains activities are a priority. The study findings also show that manufacturing firms are able to meet customer expectations which led to new relations across the supply chain. It was clear from the study findings that the primary driving force to green risk management is an urge to meeting regulations. In conclusion, there is increased percentage of environmental innovations and green purchasing can improve a firm's economic position. On the other hand, there is a reduction in the waste of resources and promotion of environmental innovation is achieved. As a result of green marketing, manufacturing firms are able to meet customer expectations which lead to new relations across the supply chain. It is recommended that managers should embrace GSCM practices because they are designed to help organizations analyze and improve each element in their operations, from the selection of suppliers through to sales and distribution. The government needs to ensure that there is continuing coordination between the different administrative levels to implement the green supply chain.

CHAPTER ONE 
INTRODUCTION 
1.1 Background to the Study 
In today‟s global turbulences and increasing competition organisations cannot do well in isolation as collaborations between different organisations have become the major input in achieving organisational goals and objectives. Supply Chain Management (SCM) was born in the manufacturing industry in the 1990‟s with the Just In Time (JIT) delivery system implemented in Toyota (Vrijhoef & Koskela, 2009). The main aim of SCM was reducing inventories and regulating suppliers‟ interaction with the production lines. Nevertheless, since its inception SCM has evolved into a full range of disciplines that involves closer customer- supplier relationships. The supply chain encompasses all activities associated with the flow and transformation of goods from raw materials (including extraction), through the end user, as well as information flows (Handfield & Nichols, 2009). Materials and information flows both up and down the supply chain. In other words, SCM can be defined as the integration of suppliers and customers into the decision-making processes, focusing on the planning, implementation and control of the logistics operations to pull materials through the supply chain (Kannan & Tan, 2005). 

Green supply chain entails the use of recycled content products, energy efficient products and standby power devices, alternative fuel efficient vehicles, bio based products, non-ozone depleting substances and environmental protection, priority chemical and reduction of carbon dioxide emissions (source). Efficient production may be enhanced through suppliers‟ use of cleaner technologies, process innovation and waste reduction (Zhu & Sarkis, 2007). 

Green Supply Chain Management (GSCM) refers to management of activities that attempts to improve the environmental performance of purchased inputs, or of the suppliers who provide them (Bowen et al., 2011). This is what gives rise to greening of product chains which in turn led to an emphasis on managing supply chains, an idea which was first postulated by Taylor (2005) in his argument that solutions to waste (environmental problem) would be found in the development of a new skill for purchasing. 

Green et al., (2006) defines GSCM as the way in which innovation in supply chain management and industrial purchasing may be considered in the context of the environment. GSCM is a broader term than sustainable procurement (Bowen et al., 2001). However, this concept is also related with GSCM practices and can be defined as the process whereby organizations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole-life basis in terms of generating benefits not only to the organization, but also to society and the economy, whilst minimizing damage to the environment (Purchasing & Supply Agency, 2006). 

The supply chain processes influence the quantities and types of resources acquired and select the source of key products and suppliers. These activities are directly connected to the degree of negative impacts on the environment and indirectly connected with economic and social growth within a community (Morton et al., 2012). Conversely, GSCM is related with any attempt of improving the environmental performance of the purchased products/services or the suppliers that provide them (Bowen et al., 2001). The main aims of GSCM are to identify benefits, costs and risks associated with environmental performance (Hanfield et al., 2005). A typical starting point in considering the inclusion of the supply chain is by implementing ISO 14001, which recommends the inclusion of policies to ensure that the suppliers are aware of their environmental practices and liabilities (Rao, 2005). GSCM helps organizations look critically into the role played by each channel member in the effort to meet customer needs and at the same time meet desired environmental standards. Thus, it is not enough for a firm to be ISO14000 certified or to have NEMA certificate for the Kenyan situations, but there should be another practice for environmental sustainability (Environmental Management & Health, 2012). 

The desired results of environmental performance according to Roberts (2008) is the process of minimizing the environmental impacts of ones‟ organization by controlling the aspects of the firms‟ operations that cause, or could cause, impacts to that environment. Thus, in order to meet the demand for environmental conscious products, the need for GSCM which incorporates green purchasing, green manufacturing and green marketing should be embraced as a corporate strategy (Burgess, 2007). 

Environmental design has implications for industrial design of products, for example, solar- electric equipment, wind electricity generators or even innovative automobiles which would serve as alternatives for energy. A firm that employs GSCM will include in its decisions; screening of suppliers for environmental performance, working collaboratively with them on green design initiatives and providing training and information to build suppliers environmental management capacity (Amemba, 2013). 

Firm performance can be evaluated both environmentally and economically. In terms of environmental performance, Theyel (2011) identifies cleaner production, innovative approaches in design phase as well as environmental management and waste minimization as the possible benefits. In terms of economic performance, Zhu and Sarkis (2004) distinguish between positive and negative economic impacts. Positive economic impacts such as decreased costs of purchasing materials decrease in costs of energy consumption, decrease of waste treatment or decrease in fines for environmental accidents. 

Finally, negative economic impacts such as investment in technology or training, increase of operational cost or increase of costs for purchasing environmentally friendly products, given the availability and relatively cheap costs of virgin materials in the construction industry. However, GSCM can be considered as a relatively new topic, so with current data sources and experiences it is difficult to assess if in practice GSCM is delivering better results to the companies involved (Zhu & Sarkis, 2004). The extent in which SMEs will respond to these requirements will depend on a case-by-case basis and the commercial benefit identified for these companies (Lamming & Hampson, 2006). This research study aims at determining the factors that influence the implementation of GSCM in manufacturing industries in Kenya. 

Increasingly organizations in Africa in general and Kenya in particular have realized that environmental management is an important strategic issue to comply with mounting environmental regulations, to address the environmental concerns of their customers, and to enhance their competitiveness (Awino, 2007). In supply chain management, one of the most important corporate strategies related to environmental improvement is the adoption of green supply chain (GSC). The GSC strategy has become one of the most important initiatives for many organizations to achieve competitive advantages and corporate sustainable development. Much of the literature assumed that the GSC strategy adoption is only driven by rationalistic and deterministic orientation guided by economic and political goals. However, because supply chain management involves the cooperation and interaction among multiple stakeholders, the decision to adopt the GSC strategy may have more to do with the institutional environment in which a firm is situated (Burgess, 2007). 

1.1.1 The Manufacturing Sector in Kenya 
UNIDO (2012) and Awino (2007) point out that Kenya has the biggest formal manufacturing sector in East Africa and that this sector has grown over time both in terms of its contribution to the country‟s Gross Domestic Product (GDP) and employment. In terms of employment generation, the sector is estimated to employ an average of 13 per cent of the labour force in the Kenyan formal sector. Manufacturing is one of the key activities of the economy that accounts for about 10 per cent of the GDP. It is evident from this trend that the sector makes an important contribution to Kenya‟s economy (KAM, 2012). The average size of this sector for tropical Africa is 8 percent. Despite the importance and size of this sector in Kenya, it is still very small when compared to that of the industrialized nations (UNIDO, 2012; KIRDI, 2011). KAM (2012) statistics for Kenya‟s economic performance according to sector (Appendix III) show that the sector contributes to a lesser extent to the GDP as opposed to the other sectors, hence confirming UNIDO (2012) and KIRDI (2011). 

The manufacturing sector contributes about 10 percent of the gross domestic product (GDP) (Economic Survey, 2013; UNIDO, 2012; Munyoki, 2007; KIRDI, 2009). During the year 2012, the manufacturing sector registered a growth rate of 3.1 percent which was a slower growth of 3.5 percent registered in 2011. The sector continued experiencing challenges that included high production costs, high costs of credit competition from imported goods and also uncertainties related to the 2013 general elections (Economic Survey, 2013). The total formal employment in the manufacturing sector increased by 2.3 per cent from 271.5 thousand persons in 2011 to stand at 277.9 thousand persons in 2012. The value of the output increased by 2.6 per cent to Kshs. 1,042.2 billion during the review period. Total value added on the other hand increased by 8.3 per cent from Kshs. 292.4 billion in 2011 to Kshs. 316.7 billion in 2012. Industrial credit to the sector increased from Kshs. 270.8 million to Kshs. 

473.3 million (Economic Survey, 2013; UNIDO, 2012). 
Further, Economic Survey (2012) shows that the overall sector posted mixed performance with majority of the sub-sectors showing positive growths. Key sub-sectors that registered positive growths included production of tobacco products; motor vehicles, trailers and semi- trailers, paper and paper products; basic pharmaceutical products; textiles; leather and related products; electrical equipment and machinery and equipment. The food industry which forms a major component of the sector registered a marginal decline. This was a result of reduced production of a number of products like processed milk and tea. Sales from Export Processing Zones (EPZ) on the other hand rose by 12.0 per cent to Kshs. 47.5 billion in 2012 while capital investment in EPZ rose by 28.7 per cent to stand at 34.1 billion in 2012 (Economic Survey, 2013). 

Kenya Association of Manufacturers (2012) and the Economic Survey, (2013), point out that the removal of price controls, foreign exchange controls and introduction of investment incentives have, however, not resulted in major changes in the overall economy. In particular, they have not improved the manufacturing performance. Therefore, it has been suggested that to build a self-sustaining industrial sector, it is necessary to establish strategic linkages within the domestic economy (Munyoki, 2007). Some efforts have to be made to promote strategic options among supply chains so as to enhance spread effects of industrial growth and to facilitate transfer of technology, skills and growth of small and medium scale sub-contractors (Awino, 2007; Kandie, 2009). Growth in the sector was, however, impeded by depressed domestic demand, increased oil prices and transport costs. Rising operating costs mainly as a result of higher power costs coupled with deteriorating road and rail networks further dampened growth in the sector. The growth in manufacturing sector was mainly attributed to the rise in output of the agro-processing industries. These included sugar, milk, grain milling, fish, tea, oils and fats processing sub-sectors. Other key sub-sectors of manufacturing that performed well in the 2009/2010 financial year were: manufacture of cigarette, cement production, battery (both motor vehicle and dry cells), motor vehicle assembly and production of galvanized sheets (KAM, 2009). 

Awino (2007) and Kandie (2009) argue that, in 2005 the sector showed signs of recovery and that a growth of 2.7 percent in 2004 was recorded compared to 1.4 percent in 2003 (Economic Survey, 2005). The recovery is attributed to government imposing legislation to curb restructuring practices that disadvantaged local manufacturers and zero rating excise duty and related taxes. In addition, the African Growth Opportunity Act (AGOA) initiative and the Common Market for Eastern and Southern Africa (COMESA) trading arrangements continue to impact positively on the manufacturing sector (Economic Intelligent Unit, 2007). The sector grew by 6.9 percent in 2006 against 5.5 percent in 2005 and grew by 10 percent in 2007 (Economic Survey, 2010). The main components of this sector include food processing such as cereal milling, meat, dairy, sugar, fruits and vegetables; chemicals, beverages, tobacco, textile, paper, metal and electronic. The Manufacturing activities in Kenya are mainly concentrated in the main urban centres of Nairobi, Thika, Mombasa, Nakuru, Eldoret and Kisumu due to good infrastructure and markets (Kandie, 2009; Economic Survey, 2008; KAM, 2009). 

The manufacturing industry in Kenya can be classified under three main sectors, namely, the agro-based industrial sector, engineering and construction industrial sector and the chemical and mineral industrial sector (KAM, 2012; Awino, 2007; GOK Vision 2030). However, K‟Obonyo and Odera, (1995) and K‟Obonyo, (1999) categorize the three major classifications into two: agro-based and non-agro-based. The agro-based industrial sector had 45% of the firms in the industry while agro-based industrial sector contribute 55%. This study found that the agro-based industrial sector in Kenya consists of seven sub-sectors and provides the bulk (68 per cent) of value added from the manufacturing industry while the 32% was from the non-agro based industry. K‟Obonyo (1999) argue that the agro-based industrial sector has developed on the basis of traditional domestic resource activities. The major challenges faced by this sector are related to the quantity, quality and price of raw materials mostly produced by small scale farmers (K‟Obonyo & Odera, 1995; K‟Obonyo, 1999). The seven sub-sectors that form the agro-based industrial sector are food processing, animal feeds, beverages and tobacco, miscellaneous food products, tanneries and leather products, woods and wood products and pulp and paper (Economic Survey, 2010; K‟Obonyo and Odera, 1995; KAM, 2012; Awino, 2007; Kandie, 2009).

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