EMNR WORKING PAPER N. 4

ISSN 2385-068X SEPTEMBER, 2014 EMNR WORKING PAPER N. 4

THE ROLE OF KNOWLEDGE IN SUSTAINABLE SUPPLY CHAIN Graziano Altieri*, Angelo Russo** *Post-Doc in Management, **Associate Professor of Management LUM Jean Monnet University *altieri@lum.it, **russo@lum.it chain because it is considered a fundamental key ABSTRACT The purpose of this paper is to investigate the context of knowledge management as an important pillar for many business companies to reach sustainable outcomes. Particularly, we explore the field of knowledge management and supply chain management linked to the achievement of sustainable performance. As a sustainable variable, knowledge may positively affect the relationship between supply chain structure and performance. Knowledge Management has become increasingly important among researchers because of its importance as a variable of strategic performance. Its implementation within a strategic perspective may drive firms to successful goals. On the other hand, Supply Chain Management has reached a peak as a research topic and researchers have focused their studies on linking it to the concept of sustainability. Knowledge Management may be seen as a factor to ensure sustainability in supply point for the achievement of social, environmental and financial goals. Starting from a broad literature review, we build a conceptual framework that links the concept of Knowledge Management, Supply Chain Management and Sustainability, and underlines the implementation of knowledge resources within a supply chain structure (i.e. a supply chain strategy oriented to efficient or responsive goals) as a driver to improve performance in sustainable terms. We propose an empirical approach based on a set of 220 worldwide firms operating as retailers and consumer packaged goods companies. By a regression linear model, we explain this positive relationship between knowledge management and social, environmental and economic performance. The outcomes of the application explain knowledge management as a supply chain key factor to create a competitive sustainable advantage. In so doing, we aim at guiding supply 1

chains towards social, environmental and economic performance through the integration of Knowledge Management within their strategic decisions. KEYWORDS: Sustainability, Supply Chain, Knowledge Management, Performance JEL Codes: M11, M14 Introduction Supply Chain Management has been a considerable topic among researchers and practitioners for the last few decades. Actually, this new approach, both in academia and practice, comes from an evolutionary business perspective, where companies try to extend their activities through collaboration with other firms, in order to successfully compete in the global market economy (Lambert, 2008; Seuring et al., 2008). A deep market change has brought companies to review their strategies and operations. Janvier-James (2011) claims global competitiveness in physical exchange is now crucial for economic growth and development. Therefore, globalization of international trade, aggressive competition and technological change represent the main reasons that affect business entities (Sharifi et al., 2013). Consequently, these factors are also driving the development of supply chains where different business units work together (Seuring, 2008). As important phenomena, they have brought firms to compete in a world market, no longer individually (Christopher, 2006). In fact, Hwang et al. (2010) underline how competition has changed recently from being between individual companies to increasingly being between supply chains. All stages within a supply chain have become internationally interdependent. Globalization has forced companies to look for more effective ways to coordinate the flow of materials into and out of the company. Therefore, organizations now understand how SCM can be successfully applied (Halldorsson et al., 2008), in order to reach as many customers as possible all over the world. Nevertheless, globalization, market competition and technology are not the only understandable reasons. In 2009, Stock & Boyer focused on the effects of managing supply chain and they verified companies operating within it as a whole entity could achieve better economic performance. They confirm the goal of SCM is to reach greater profitability by adding value and creating efficiency, thereby increasing customer satisfaction. This latter aspect has been analysed by Mentzer et al., (2001) which claim the importance of coordination driven by 2

customer needs. Because of customers are demanding goods delivered on time and in a good shape, all stages necessitate closer coordination with suppliers and distributors. This research firstly shows a broad literature review of three main topics: Supply Chain Management, Sustainability and Knowledge Management. All these topics are linked to one another. Then, a theoretical framework is mentioned in order to explain the purpose of this study. A case study based on worldwide consumer service and goods companies is provided. Based on it, a regression model using a pooled OLS for panel data is then provided. important roles. Mentzer, J., Witt, W. D., Keebler, J., Min, S., Nix, N., Smith, D. & Zacharia, Z.(2001) classify a supply chain following three degrees of complexity: a direct supply chain, comprising a company, a supplier, and a customer, an extended supply chain, including suppliers of the immediate supplier and customers of the immediate customer and an ultimate supply chain, referring to all the organizations from the ultimate supplier to the ultimate customer. Through different functions such as new product development, marketing, operations, distribution, finance, and customer service, they collaborate to fulfil the customer needs (Chopra, S. & Meindl, P., 2007). Pienaar W. Literature review Supply Chain A Supply Chain is generally viewed as a set of collaborative firms. According to this common idea, Lambert et al (2005) define a Supply Chain as a network of companies, or independent business units, from original suppliers to endcustomers. It is a network because it has to be composed of three different entities at least. Otherwise it would be a partnership. In fact, a supply chain does not only include suppliers and customers, but also manufacturers, transporters, distributors, retailers (Chopra, S. & Meindl, P., 2007). These figures play (2009) defines Supply Chain as a process integration involving organizations to transform raw materials into finished goods and to fulfil the end-user through an efficient transportation system. Supply Chains start with resources (raw materials), combine a number of value adding activities across different business stages and terminate with the transfer of goods or services to consumers (Janvier-James, A.M., 2011). Across these business functions, all single members within a supply chain manage an upstream and/or downstream flow of various nature and content. This exchanging flow 3

consists of goods, services, data and information sharing, knowledge, capabilities and finance. In, fact, Mentzer, J., Witt, W. D., Keebler, J., Min, S., Nix, N., Smith, D. & Zacharia, Z., (2001) define Supply Chain as a set of three or more entities (e.g. organizations or individuals) directly involved in the supply and distribution flows of goods, services, finances, and information from a source to a destination (customer). As well as Chopra and Meindl (2007) describe a supply chain as a dynamic entity that involves the constant flow of information, product, and funds between different stages (supplier, manufacturer, wholesaler/distributor, retailer, customer). A supply chain must be managed to meet customer needs (Fawcett et al., 2007). The customer assumes an important value. It is not only considered as an end user whereby weaving trade relations. He is an active member of the network where he behaves as a connector. Management of supply chain is a broad and challenging task (Lambert et al., 2005). SCM is not a concept without problems (Burgess et al., 2006; Stock et al. 2009). These problems include the lack of a universally accepted definition of SCM, the existence of several different and competing frameworks for SCM, issues with terminology and the relative lack of empirical evidence supporting the benefits attributed to SCM (Naslund, D. & Williamson, S., 2010). Mentzer, J., Witt, W. D., Keebler, J., Min, S., Nix, N., Smith, D. & Zacharia, Z. (2001) confirm there is confusion to as SCM s meanings, both in academia and practice. A. M. Janvier-James (2011) claims the field of SCM is a comparatively new one, it is lacking on the definition of the terms and, besides, researchers have different perception of the discipline. Stock and Boyer (2009, p.691) declared it is impossible to develop sound SCM theory until valid constructs and generally accepted definitions of terms are developed. Researchers, practitioners and organizations have been working to find an accepted definition in the last twenty years. Previously, SCM was used as a synonym for inbound and outbound transportation, operations management or purchasing or a combination of them. The field has been developed including the consumer fulfilment. The most significant definitions are mentioned below: Harland (1996) terms SCM as the management of a network of business involved in the ultimate provision of product and service packages required by end customers. 4

The supply chain encompasses all activities associated with the flow and transformation of goods from raw materials (extraction), through the end user, as well as associated information flows. Material and information flow both up and down the supply chain. (Handfield and Nichols, 1999) Kitsolutions (2003) defines Supply Chain management (SCM) as providing the right goods or services, to the right location, in the right quantity, at the right time and at the right cost; According to Grant, D., Lambert, D., Stock, J. and Ellram, L. (2006), Supply Chain management refers to corporate business processes integration from end users through suppliers that provides information, goods, and services that add value for customers; The Supply Chain management (SCM) is defined by the Supply Chain Forum (SCF) as the integration of key business processes from end user through suppliers that provide goods, services and information that add value for customers; The Supply Chain Management Professionals Council (2009) asserts that Supply Chain management (SCM) includes the designing and management of all activities involved in sourcing and purchasing, transformation, and all logistics management activities. Principally, it also includes coordination and partnership with network partners, which can be suppliers, mediators, third party service providers and customers. Fundamentally, Supply Chain management (SCM) coordinates supply and demand management within and across corporate; Chopra and Meindl (2007) define SCM as the control of all operations, resources, information and funds in order to maximize the supply chain surplus, given by the difference between the revenue generated from a customer s order and the costs incurred by the supply chain while satisfying that customer s order. Sustainbility The concept of sustainability has been explored for the last decades. It has become a hot topic since the global community have realized the world where we live in is seriously damaged by human activities. The approach to sustainability and its increase in popularity among researchers and practitioners is due to the awareness of making the present world more respectful to the future generations. In 1987, the World Commission on Environment and Development 5

(WCED) defined sustainability as the development that meets the needs of the present without compromising the ability of future generations to meet their needs. This principle, as indicated by WCED has been recognized as the starting point on which all business companies and organizations have to focus on. Over these decades, researchers and practitioners have been approaching to the concept of sustainability giving their own interpretations. Starik and Rands (1995), for example, define sustainability as the ability of one or more entities, either individually or collectively, to exist and flourish for lengthy timeframes, in such a manner that the existence and flourishing of other collectivities of entities is permitted at related levels and in related systems. They focus on the ability of a person, a group or an organization to work to improve their activities in a long term, without losing sight of the next generation. Konrad (1995) follows the same perspective, pointing out that the present and future people have the same right to find, on the average equal opportunities for realizing their concepts of a good human life. The term of sustainability has been linked to the numerous facets of economics and management. At the base there are factors that have influenced companies to approach to the principle of sustainability. Firstly, it is explained in response to pressures from various external groups such as customers, regulatory bodies, non-governmental organizations, and even their own employees (Linton, J.D., Klassen, R. & Jayaraman, V., 2007; Carter & Rogers, 2008; Teuteberg, 2010; Gupta & Palsule-Desai, 2011; Rehman & Shrivastava, 2011; Aboelmaged, 2012; Kumar, Teichman & Timpernagel, 2012). Stakeholders are increasingly demanding that organizations address and manage the sustainable issues that are impacted by their operations (Carter, C.R. & Easton, P.L., 2011; Kumar, Teichman & Timpernagel, 2012). Secondly, legislation has changed worldwide over the last decades, becoming stricter to issues of environmental protection (Theyel, 2001; Zhu, Q. & Sarkis, J., 2004; Kumar, Teichman & Timpernagel, 2012). Consequently, countries have adopted new rules governing human and business activities (Linton, J.D., Klassen, R. & Jayaraman, V., 2007). Thirdly, companies and organizations recognize the global warming as a societal issue and they are aware that the change must start from their work (Srivastava, 2007; Linton, J.D., Klassen, R. & Jayaraman, V., 2007). 6

Maintaining the WCED definition, Shrivastava (1995) defines sustainability as the potential for reducing long term risks associated with resource depletion, fluctuations in energy costs, product liabilities, and pollution and waste management. The author notes five key elements that may drive business companies to become more sustainable such as resources, energy, product, pollution and waste. The interpretation of Shrivastava is connected to the environmental sphere. Sustainable development is often reduced to environmental improvements (Carter, C.R. & Rogers, D.S., 2008; Seuring, S. & Müller, M., 2008). Literature has similarly often considered sustainability from this ecological perspective without explicit incorporation of the social aspects of sustainability (Sarkis, 2001; Hill, 2001; Daily and Huang, 2001). Carter & Rogers (2008) claim the definitions of sustainability in the engineering literature have been more encompassing, and have explicitly incorporated the social, environmental, and economic dimensions of the macro-viewpoint by defining organizational sustainability as, a wise balance among economic development, environmental stewardship, and social equity, (Sikdar, 2003) and as including... equal weightings for economic stability, ecological compatibility and social equilibrium, (Goncz et al., 2007). Sustainability is also considered as a driver for profitability. Kumar, Teichman & Timpernagel (2012) believe that making sustainability a priority in managerial decisions is more than dealing with risk and uncertainty. Companies have to view sustainability as an integral part of decision-making, rather than a constraint (Gupta et al., 2011). It drives companies to save costs, increase efficiency and gain new customers and suppliers. Besides, it incorporates the potential to achieve a competitive advantage and to make profits (Porter & Van der Linde 1995; Seuring, S. et al., 2008; Kumar, Teichman & Timpernagel, 2012). Sustainability has been referred to the topic of Supply Chain Management. The attention is moved from local optimization of environmental factors to consideration of the entire supply chain during the production, consumption, customer service and postdisposal disposition of products (Linton, Klassen, & Jayaraman, 2007). In particular, many researchers and practitioners have focused on environmental problems arising from business operations. Greening the supply chain has emerged as an important issue in the process of industrial development (Srivastava, 7

2007; Minhaj, Rehman & Shrivastava, 2011). Gupta & Palsule-Desai (2011) believe supply chains must pay attention to environmental impact across the entire value chain, including those of suppliers, distributors, partners and customers: Firms view of sustainability must transcend a narrow functional perspective and encompass a broader view that integrates issues, problems and solutions across functional boundaries. As mentioned in the previous paragraph, most studies have considered sustainability from the ecological point of view. Therefore, focusing on the environmental factor, many researchers have linked the word green to the topic of supply chain management, defining it as Green Supply Chain Management (GSCM) (Hassini, 2012). In a recent literature review, Zhu & Sarkis (2004) explore the concept of Green Supply Chain Management, gathering definitions that consider the purchasing function s involvement in activities that include reduction, recycling, reuse and the substitution of materials (Narasimhan and Carter, 1998); the environmental effects of the researching developing, manufacturing, storing, transporting, and using a product, as well as disposing of the product waste (Messelbeck and Whaley, 1999); the practice of monitoring and improving environmental performance (Godfrey, 1998) innovations in the context of the environment (Green et al., 1996). GSCM can be seen as the sum of green purchasing, manufacturing/materials management, distribution/marketing and reverse logistics when addressing all these functions into a more environmental and thus sustainable green context, (Hervani et al. 2005; Kumar, Teichman & Timpernagel, 2012). According to this, Srivastava (2007) defines GSCM as the integration of environmental thinking into supply chain management, including product design, material sourcing and selection, manufacturing processes, delivery of the final product to the consumers as well as end-of-life management of the product after its useful life. However, considering supply chain management from an ecological perspective may be limiting (Carter & Rogers, 2008; Seuring & Müller, 2008). It is necessary to consider society and economic performance as factors 8

that influence the achievement of sustainability. In fact, the concept of sustainability, as depicted by Elkington (1998) in his triple bottom line figure, must refer to an integration of social, environmental, and economic responsibilities. As GSCM, researchers and practitioners use Sustainable Supply Chain Management (SSCM) as a comparable definition but, this time, it incorporates a deeper perspective of sustainability, consisting of the intersection of those three aspects previously mentioned. Therefore, a supply chain is considered sustainable when all its activities and operations find a right balance between environmental, social and economic factors (Carter & Rogers, 2008; Seuring et al., 2008 (a) Seuring & Müller, 2008 (b); Carter, C.R. & Easton, P.L., 2011; Rogers, 2011; Gupta et al., 2011; Blackhurst et al., 2012). Carter and Rogers (2008) integrate the triple bottom line with four supporting facets such as Strategy: it incorporates actions and initiatives aimed at achieving sustainability within the supply chain; Risk management: a plan to identify social, environmental and economic risks along the supply chain; Transparency: the information movement up and down the supply chain may increase the coordination of all supply chain operations, improve the relationship among each member and drive the whole supply chain to better performance without wrongdoings; Organizational culture: a sharing system of social, environmental and economic values built within a supply chain may stimulate people to work better and to achieve important goals. Following Elkington s triple bottom line, Carter & Rogers (2008) define SSCM as the strategic, transparent integration and achievement of an organization s social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains. The adoption of sustainable responsabilities can drive supply chain to achieve better economic outcomes in short and log term. Firms which attempt to simultaneously maximize performance of all three dimensions of the triple bottom line will outperform organizations that attempt to only maximize economic performance, or companies that attempt to achieve high levels of social and environmental performance 9

without explicit consideration of economic performance (Carter and Rogers, 2008). Making a supply chain green and sustainable can save resources, eliminate waste and improve productivity (Porter and Van Der Linde 1995; Srivastava, 2007; Kumar, S., Teichman, S. & Timpernagel, T., 2012). In fact, the adoption of the triple bottom line drives firms to cost savings from packaging reduction, green design, reuse and recycling; health and safety goals due to green transportation, clean warehousing, working improvements; labor cost reduction as the effect of the increase in employment motivation and productivity; operating cost decrease, lead times shortness, and product quality improvement associated with the implementation of ISO 14000 standards; and corporate image growth as the result of ethical business purposes recognized by suppliers and customers (Carter & Rogers, 2008; Carter & Easton, 2011; Kumar, S., Teichman, S. & Timpernagel, T., 2012 ). What s more, it can potentially increase efficiency and flexibility (Wilkerson 2005). Furthermore, firms that adopt the triple bottom line may develop new sustainable goods and services cooperating with their supply chain partners and involve their stakeholders in making supply chain decisions (Kummer et al. 2006). According to this, Seuring, S. et al. (2008) give their SSCM definition, highlighting the importance of relations with supply chain partners: cooperation along the supply chain is a key element in fulfilling environmental and social criteria as well as meeting customer needs is determinant to maintain competitiveness and economic performance. Another SSCM definition, provided by Hassini, Surti & Searcy (2012), takes profitability into consideration. They define sustainable supply chain management as the management of supply chain operations, resources, information, and funds in order to maximize the supply chain profitability while at the same time minimizing the environmental impacts and maximizing the social well-being. Milton Friedman said that the primary social responsibility of business is to increase its profits (Rogers, 2011). Knowledge Management Knowledge has long been viewed as a vital intangible tool for the development of firms. It is a key element to understand firms behaviour (Eisenhardt and Martin, 2000; Grandori and Kogut, 2002). Knowledge management (KM) guides business companies to better develop skills and capabilities and achieve a competitive advantage (Robinson et al., 2006). Drucker 10

(1999) claims the main purpose of KM is to manage the amount of firm s competencies and skills and align it to business objectives and targets: it is a crucial driver to create value and it is defined as a process of creating, acquiring, capturing, sharing and using knowledge to enhance learning and performance in organizations (Scarbrough et al., 1999; Davenport & Prusak, 2000). Over the last decades, with the increase of studies in SCM, Knowledge Management has been juxtaposing with it. After all, only supply chains compete nowadays, not single companies (Christopher et al., 2006). Researchers and practitioners have explored both topics assessing the possible common links. Knowledge Management is a strategic supply chain tool. Its implementation may bring benefit across each stage of a chain (Hansen et al., 2002). The common sharing of skills and capabilities among each supply chain member may support a better use of business resource, increase productivity and decrease disruptions. A supply chain based on a shared system of values and competencies can only improve cooperation and bring motivation to each unit. In a study case conducted by Dyer and Nobeoka (2000), it is demonstrated that Toyota, allowing its employees to participate and share knowledge within the whole supply chain, achieves motivation and cooperation, and limits opportunism. In his work, Robinson et al. (2006) demonstrates sustainability is strictly linked to knowledge management. Achieving sustainability in a supply chain requires a good KM strategy (Peterson, 2009). He provides a framework named STEPS Maturity roadmap in which defines all stages and activities to perform KM and enhance sustainable goals. Despite the idea that KM can drive firms to successful performance (Hult et al., 2007; Fugate et al., 2009; Blackhurst et al., 2012), sharing knowledge, either in a business entity or in a supply chain (where more business entities are involved), is difficult. The main barrier is organisational culture considered as one of the most crucial factors (Robinson et al., 2006). Coordinating people and/or units with different cultural background require efforts. More academic contributions from researchers and practitioners are necessary to assess the impact of KM on SCM. Particularly, further research is needed to explore the alignment of KM strategies with SC performance (Corso et al., 2010; Marra et al., 2012) and the concept of sustainability (Robinson et al., 2006). 11

Theoretical Framework Starting from what is missing, this paper explores the topics of KM and SC within the principles of Sustainability. It provides a theoretical framework (Figure 1) in which it is highlighted how a sustainable knowledge management, in moderating a supply chain strategy, asset and inventory, can achieve successful performance in terms of revenues and costs. Having a strong knowledge management within a supply chain strategy and business operations is a successful pattern. Generally speaking, a supply chain may improve if it shares all information and knowledge within each stage. This framework shows that a KM oriented to sustainability, if implemented within a supply chain strategy, either responsive or efficient, and a supply chain Asset and Inventory Management, may drive firms to successful outcomes in terms of revenue and costs. Inventory is what is being passed along a supply chain (Chopra & Meindl, 2007), Asset is what is being used along a supply chain production system and Supply Chain Strategy is how is being planned. These supply chain elements are strictly connected one to another. A Supply Chain Strategy is critical in making decisions for growth and developing SC should be approached with regards to the firm s market strategies and priorities (Christopher et al., 2006; Sharifi, 2013). It should be tailored to match the required order winning criteria in the market place (Ambe, 2010; Sharifi2013). These order winning criteria represent the key point to be better than competitors in a marketplace. Nowadays, facing competition does not mean being as good as competitors anymore. A supply chain has to achieve distinctive competencies, which are recognized as winning skills by customers and competitors. The fundamental changes in the environment require companies to develop supply chain strategies that are aligned to appropriate value propositions and customer markets (Ambe, 2010). Today, making a supply chain green and sustainable can save resources, eliminate waste and improve productivity and performance (Porter and Van Der Linde 1995a, 1995b; Srivastava, 2007; Kumar, S., Teichman, S. & Timpernagel, T., 2012). Furthermore, sustainability is recognized among customers as a synonymous of success. Combining sustainability with a good SC strategy is worthy. In order to enhance this combination, all business units within a supply chain may share 12

information oriented to sustainability. Therefore, training supplier with principles of sustainability, sharing a green and technology know-how among stakeholders and collaborating with environmental partners represent the pillar on which to base such combination. Asset Management refers to a process of monitoring of tangible and intangible goods to a business unit or group. Managing assets effectively may achieve better return in terms of operating performance. It is strongly related to the facility system because it includes the monitoring of plant and equipment. Inventory Management is the process of monitoring inputs, stored or used in a production system and outputs, stored and sold to customers. Inventory impacts all activities along a supply chain. A good Inventory Management may improve supply chain performance and avoid disruptions and risks. In doing this, a perfect knowledge management is necessary; and if KM is oriented to sustainability, the occurring outcomes are socially, economically and environmentally sustainable. information are shared within each business unit or entity. Sustainable information are about making a firm aware of disseminating a culture oriented to achieve social, economic and environmental goals. A sustainable KM, as a moderating effect of supply chain components driven to successful outcomes, should include: Supplier ESG Training: it represents a company provision in training on environmental, social or governance factors for its suppliers; Environmental Partnerships: it reports on partnerships or initiatives with specialized NGOs, industry organizations, governmental or non-governmental organizations that focus on improving environmental issues Technology Know-How Sharing: it measures a company voluntary sharing of licenses, patents, intellectual property or useful technology within a supply chain A Sustainable Knowledge Management is meant as the process by which sustainable 13

Figure 1 Theoretical Framework Methodology Research Objectives This research attempts to assess how KM oriented to sustainability may effectively moderated on the relation between Asset Management, Inventory Management, Supply chain Strategy and Operating Outcomes (i.e. revenues and costs). Before evaluating these hypothesis, this analysis firstly assesses how Asset Turnover Ratio, Days of Inventory Ratio and Supply Chain Strategy may relate to revenues and costs in a supply chain and, consequently, if they improve operating performance. This section discuss the data collection and the statistical testing of the H1: Asset Turnover Ratio improves operating performance H2: Days of Inventory Ratio improves operating Performance H3: Supply Chain Strategy (oriented to efficiency or responsiveness) improves operating performance H4: Sustainable Knowledge Performance as moderating effects of Supply Chain Strategy improves operating outcomes H5: Sustainable Knowledge Performance as moderating effects of Inventory Management improves operating outcomes H6: Sustainable Knowledge Performance as moderating effects of Asset Management improves operating outcomes following hypothesis: 14

Research Methodology This paper is based on a study of global business companies operating in different sectors such as beverages, food and drug retailers, food producers, general retailers, household goods and home construction, leisure goods, personal goods and tobacco (ICB source). All these sectors belong to main industry categories, Consumer Goods and Consumer Services. In order to make this research easier, it is only considered the ICB industry classification as a dummy variable named dindustry ; therefore, the ICB indicator classified by sectors is excluded. Using as a criterion Forbes List 2013 of Global 2000 Biggest Public Companies screened in four metrics (i.e. sales, profit, assets and market value), the sample frame has been restricted to 215 firms. The data for company performance were extracted from Thompson Reuters Datastream Software over a period of ten years, from 2003 to 2012: specifically, Asset 4 ESG Data for social, environmental and economic data points and Worldscope for financial indicators. The sample frame comprises 2150 discrete datasets. Social, environmental and economic data points collected from Asset 4 ESG Database do not cover all analysed period of time, due to the recent global companies awareness in performing sustainability reports. Therefore, the panel data results unbalanced. In order to simplify data analysis and minimize errors, we calculated a standard score for Supplier ESG Training, Environmental Partnerships and Technology Know-How Sharing Performance basing on the mean of the sample. Supply Chain Strategy (SC Strategy) binary variables have been built considering three financial indicators such as Ebitda Margin, Asset Turnover and Inventory Turnover and their deviation from their own mean value. Each financial indicator has been calculated for each company included in the sample frame, extracting data from Worldscope over a period of ten years (from 2003 to 2012); subsequently, a mean value for each indicator has been provided, considering the industry classification factor. A value of 1 has been assigned to companies that had a more efficient strategic orientation. Specifically, a value of 1 has been given when: 15

All variables have been transformed in logarithm in order to minimize the range of data (except for Supply Chain Strategy Indicator, either efficient and responsive, and dummy industry). Statistical Method In order to test our hypothesis, we conducted the analysis using a pooled OLS regression for linear panel data on Stata Statistical Software. This model generates a Driscoll & Kraay standard error that is robust to general forms of cross-sectional and temporal dependence when the time dimension is large (De Hoyos & Sarafidis, 2006). This approach eliminates the inaccuracies arising from the use of the Parks- Kmenta and Becks-Kats methods, which are unsuitable for microeconometric panel with a large cross-sectional dimension N. This statistical method works for panel data both balanced and unbalanced. Pooled OLS regression was performed in order to describe a link between economic outcomes and financial and operational indicators, moderated by sustainable knowledge variables. Regression Analysis And Results The regression analysis assesses two different dependent variables: firstly, net sales and revenues and, secondly, cost of good sold. As independent variables, this study includes some financial ratios (i.e. Asset Turnover and Days of Inventory), a supply chain strategy indicator (i.e. a measurement of Efficient and Responsive Supply Chain) and some sustainable metrics related to training, partnerships and information technology (i.e. Supplier ESG Training, Environmental Partnerships and Technology Know-How Sharing). All these data have been combined in order to evaluate the hypothesis. For all models, Market Value and Financial Leverage are mentioned as regressands, as well as a dummy variable related to industry classification. Table 1 shows a Pooled OLS regression with a Driscoll and Kraay standard error using Net Sales variable as a regressor. For each independent variable, four regression models are provided in four columns. This study separately analyses the regression models of Asset Turnover Ratio, Days of Inventory and Supply Chain Strategy oriented to efficiency or responsiveness. Financial Leverage and Market value are mentioned as control variables, as well 16

as a dummy variables classified by industry are mentioned per each model. Table 1 Regression Table All four models are statistically significant (p<0.001) and high reliable (R-square between 0.88 and 0.89). All four independent variables affect net sales (p<0.001), as well as Financial Leverage and Market Value (p<0.001). Particularly, on one hand there is a positive relation between the dependent variable and Asset Turnover and Supply Chain Responsiveness; on the other hand there is a negative relation between Net Sales and Days of Inventory and Supply Chain Efficiency. The dummy variable (dindustry) is significant for all models and negatively affect the variable Net Sales; referring only to the first regression model, the dummy variable is weakly significant. Table 2 is as structured as Table 1. It shows a Pooled OLS regression with a Driscoll and Kraay standard error using Cost of Goods Sold (COGS) as a dependent variable, instead of Net Sales. For each independent variable, four regression models are provided in four columns. The regression models of Asset Turnover Ratio, Days of Inventory and Supply Chain Strategy oriented to efficiency or responsiveness are separately evaluated. Financial Leverage and Market value are mentioned as control variables, as well as a dummy variables 17

classified by industry are mentioned per each model. Table 2 Regression Table All four models are statistically significant (p<0.001) and high reliable (R-square between 0.81 and 0.85). All four independent variables affect COGS (p<0.001), as well as Financial Leverage and Market Value (p<0.001). Particularly, on one hand there is a positive relation between the dependent variable and Asset Turnover and Supply Chain Responsiveness; on the other hand there is a negative relation between Cost of Goods Sold and Days of Inventory and Supply Chain Efficiency. The dummy variable (dindustry) is strongly significant for all models and affect negatively the dependent variable. Table 3 shows a Driscoll and Kraay standard error regression method with two dependent variables (i.e. Net sales and Cost of Goods sold) and a main independent variable (Asset Turnover). Three models are provided for each regressor. These display the interactions between Asset Turnover Ratio and three different metrics related to sustainable knowledge performance (Supplier ESG Training, Environmental Partnerships and Technology Know-how Sharing). Each model includes two financial indicators (Market Value, Financial Leverage) as control variables, and a 18

dummy variable based on ICB Industry classification. Table 3 Regression Table Referring to Net Sales as regressor, all three models are statistically significant (pvalue<0.001) and reliable (R-square 0,89). Four companies have been cancelled due to the lack of data. Each interaction strongly affects business revenues (p-value<0.001), as well as Financial Leverage and Market Value. All other variables are statistically important, except for Supplier ESG Training (SESGT) in the first model. All interaction positively affect Net sales, except in the third model, where an increase of ASST#TKHS determines an increment of the dependent variable. Implementing Technology Know-How Sharing within a supply chain asset management seems not to be helpful in improving economic performance. Similarly, where the dependent variable is Cost of Goods Sold, all three models show high significance (p-value<0.001) and reliability (R-square 0,84 approximately). Four companies have been cancelled due to the lack of data. The interaction effects are statistically important in affecting costs (p-value<0.001). The same consideration in terms of interactions results may be also applied for this case. All moderations positively affect COGS, except for ASST#TKHS where the relation is negative; however, the latter result is not pessimistic: in 19

fact, its increase determines a decrease in COGS that is very good in terms of operating outcomes. And, comparing the effect of this interaction with Net Sales firstly and COGS then, the emerging negative relation is not unfavourable. Financial Leverage and Market Value are also significant variables (pvalue<0.001) and positively affect the dependent variables. The dummy variable has a negative relation, instead. Table 4 displays the same regression using the same dependent variables (Net Sales and Cost of Goods Sold). It diverges from Table 3 because a different independent variable (Days of Inventory Ratio) is mentioned. The structure is similar: it covers the interaction between Days of Inventory ratio with three sustainable knowledge metrics previously mentioned, through three models per each regressor. As control variables, Financial Leverage and Market Value have been incorporated. The analysis includes a dummy variable related to industry. Table 4 Regression Table Where Net Sales is a regressor, all three models are strongly significant (p-value<0.001) and reliable (R-square equals to 0,89). Six companies have been cancelled from the regression, due to the lack of sustainable knowledge management data. The variable Days of Inventory is statistically important (p<0.001) and negatively affect the dependent variable. Focusing on all interactions of each model, only the interaction between Days of 20

Inventory and Supplier ESG Training has a weak significance (p<0,05) and negatively affects the relation. Financial Leverage, Market Value and Dummy Industry are statistically effective (pvalue<0.001). Similarly, where the dependent variable is Cost of Goods Sold, all three models show high significance (p-value<0.001) and reliability (Rsquare around 0,85). Stata software eliminated six companies from the sample frame, due to the lack of data. The variable Days of Inventory is statistically important (p<0.001). Equally to the previous analysis, the interaction between Days of Inventory (DOI) and Supplier ESG Training (SESGT) is the only one to be statistically significant and affects COGS in a negative way. This result explains how Inventory management if moderated by Suppliers training in sustainability, improves a supply chain operating performance. An eventual increase of this interaction induces a decrease in costs more than a reduction in revenues. Financial Leverage, Market Value and Dummy Industry are strongly important in each model (p<0.001). Table 5 follows the same structure of Tables 3 and 4. Supply Chain Efficiency is here analysed. Three moderating effects are provided, using the indicator of Supply Chain Strategy with three sustainable KM metrics. Furthermore, the analysis includes the same control variables and a dummy variable of Tables 3 and 4. Table 5 Regression Table 21

Regarding to Net Sales as dependent variable, all three models are strongly significant (pvalue<0.001) and reliable (R-square 0,87 approximately). Four companies have been deleted from the regression analysis, due to the lack of data. The interaction between Supply Chain Efficiency and Technology Know-How Sharing (SCEFF#TKHS) and Supplier ESG Training (SCEFF#SESGT) are lightly significant (p<0.1) and positively affect the dependent variable. SCEFF affects the relation in all the models (p<0.001), as well as Financial Leverage, Market Value and dummy Industry. Similarly, where the dependent variable is Cost of Goods Sold, all three models show high significance (pvalue<0.001) and reliability (R-square 0,80). The same four companies have been cancelled from the pooled OLS regression, due to the same reason explained previously. The same interactions positively affect the relation, except for the second model where SCEFF#EP is not significant. All control variables are determinant (p<0.001); Financial Leverage and Market Value have a positive relation, while the dummy variable negative affect the dependent variables. In table 6, the regression focuses on the other side of a supply chain strategy, that is when it is oriented to responsiveness. The selected variables are similar: Net Sales and COGS as dependent variables and SCEFF and its interaction with three sustainable KM metrics as independent variables and Financial Leverage, Market Value and Dummy Industry as control variables. Table 6 Regression Table 22

All regression models with the regressors Net Sales and COGS are statistically significant (p<0.001) and reliable (R-square 0,87 and 0,80 approximately). Four companies have been cancelled from all regressions, due to the lack of data. The interactions between Supply Chain Responsiveness and Environmental Partnerships are not statistically significant, either where the dependent variable is Net Sales or where it is COGS. All other interactions are significant and positively related to the dependent variables. Financial Leverage, Market Value are strongly important (p<0.001) and directly affect the relation, instead of dummy industry, which is determinant (p<0.001) but negatively correlated. Conclusions, limitations and future research This research shows how supply chain strategy, asset and inventory management are important to achieve successful goals. All these components of a supply chain are strongly related to revenues and costs. Their increases or decreases affect the relation with the dependent variables. Referring to Asset Turnover, its coefficient positively affects both relations, either when the regressor is Net Sales or when it is COGS. Its increase determines an equal increment of both dependent variables. Therefore, as Asset Turnover increases, revenues and costs raise at the same level. Referring to Days of Inventory, the regression model displays a negative effect: when DOI increases, both regressors decrease. However COGS grows more than revenues. Companies may control their Inventory Management trying to store all stock materials as less days as possible. Considering a supply chain strategy, consumer service and goods companies, if they are oriented to efficiency, can decrease operating costs more than net sales; on the other hand, firms oriented to be responsive raise their costs more than their revenues. This analysis proves previous studies conducted by several researchers in the past (Fisher, 1997; Lee, 2002; Chopra & Meindl, 2007; Christopher, 2007). When these indicators are moderated by three different metrics that define a KM oriented to sustainability, operating performance improve in a better. Despite the fact some interactions do not have a statistical significance, it is important to claim that training suppliers to sustainability principles, collaborating with environmental partners and sharing a technology Knoh-How, if implemented within strategy, asset and inventory management, let 23

a supply chain grow sustainably. Specifically, this positive result can be viewed when all sustainable KM metrics moderate Asset Turnover and Supply Chain Strategy oriented to Responsiveness. When moderated by Supplier ESG Training, Days of Inventory indicator reveals a different trend. Its increase determines a higher decrease in terms of costs. Therefore, consumer service and goods companies may control their stock expenditures if they train their supplier to be sustainable. The limitation to this paper is that needs to better define a supply chain strategy. Supply Chain Strategy has been calculated from Worldscope Datastream, using financial data. Interviews are needed in order to collect such qualitative data that better define an adopted strategy. A supply Chain Strategy is also based on indicators related to time and order (i.e. order fulfilment lead time, order cycle time, order flexibility, time delivery, customer response time). These additional data help to distinguish a strategy oriented to efficiency from a strategy oriented to responsiveness. The next stage of this research is to analyse how a sustainable KM metrics may affect transportation and delivery. Transportation is a crucial driver that strongly impact on supply chain performance. 24

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