Impact of lean manufacturing and environmental management on business

Impact ofleanmanufacturingandenvironmentalmanagementonbusiness
performance:Anempiricalstudyofmanufacturingfirms
Ma Ga(Mark)Yang 1, PaulHong n, SachinB.Modi 2
Department ofInformation,OperationsandTechnologyManagement,CollegeofBusinessAdministration,TheUniversityofToledo,2801W.BancroftSt., Toledo,OH43606,USA
a r t i c l e info
Article history:
Received 19April2010
Accepted 19October2010
Available online26October2010
Keywords:
International study
Lean manufacturing
Environmental managementpractices
Environmental performance
Empirical study
a b s t r a c t
This paperexploresrelationshipsbetweenleanmanufacturingpractices,environmentalmanagement
(e.g., environmentalmanagementpracticesandenvironmentalperformance)andbusinessperformance
outcomes(e.g.,marketandfinancialperformance).Thehypothesizedrelationshipsofthismodelare
tested withdatacollectedfrom309internationalmanufacturingfirms(IMSSIV)byusingAMOS.The
findingssuggestthatpriorleanmanufacturingexperiencesarepositivelyrelatedtoenvironmental
managementpractices.Environmentalmanagementpracticesalonearenegativelyrelatedtomarket
and financialperformance.However,improvedenvironmentalperformancesubstantiallyreducesthe
negativeimpactofenvironmentalmanagementpracticesonmarketandfinancialperformance.Thepaper
providesempiricalevidenceswithlargesamplesizethatenvironmentalmanagementpracticesbecome
an importantmediatingvariabletoresolvetheconflictsbetweenleanmanufacturingandenvironmental
performance.Additionalcontextualanalysessuggestthatdifferencesexistintermsofthestrengthsand
statisticalsignificanceofsomeoftheproposedrelationships.Thus,foreffectiveimplementationof
environmentalmanagement,firmsneedtomeasureenvironmentalperformancethroughwhichthe
impactofenvironmentalmanagementonotherbusinessperformanceoutcomesisexamined.
PublishedbyElsevierB.V.
1. Introduction
With anincreasingsocialdemandofenvironmentalsustain-
ability, firmsembracethestrategicimportanceofenvironmental
management practicesforcompetitiveadvantage(Porter andvan
der Linde,1995;Sroufe,2003;Kleindorferetal.,2005;Pagelland
Gobeli, 2009;Yangetal.,2010). Inspiteoftheongoingdebateon
the relationshipsbetweenenvironmentalmanagementandfinan-
cial performance,thepreviousresearchisofteninconsistentand
ambiguous (Russo andFouts,1997;Jime´nez andLorente,2001;Rao
and Holt,2005). Thebusinesspressalsoreflectsthisdebateamong
practitioners regardingthecompatibilityofenvironmentalobjec-
tives witheconomicviability(Hayward, 2009;Stavins,2009;Totty,
2009). Inlightofthesedivergentviews,whileorganizations
recognize thatenvironmentalsustainabilityhasimplications
for theircompetitivepositions,firmsareunclearaboutthe
implementation detailsofenvironmentalmanagementpractices
(Montabon etal.,2007).
Good researchrequiresrigor,relevanceandclarity(Palmer
et al.,2009;Suddaby,2010). Buildingsoundtheorymaystartwith
the obviousandthenmoveintomoreunclear,controversialand
fuzzy areas(Handfield andMelnyk,1998). Inthispaper,westart
with therelationshipbetweenleanmanufacturingandenviron-
ment managementpractices.Wethenpresentanintegrated
framework thatincludesleanmanufacturing,environmentalman-
agement practices,andenvironmentalandbusinessperformance.
In thenextsectionweprovidearesearchmodelconceptual
framework thatpresentskeyvariablesbasedonrelevantliterature
review. Inthehypothesesdevelopmentsectiontheinter-relation-
ships betweenvariablesaredefinedandexplained.Inthesub-
sequent sectionwediscusstheresearchdesign,analysisand
results. Thefinalsectionpresentsthetheoreticalandmanagerial
implications, andconcludeswithasummaryoflimitationsand
future researchdirections.
2. Literaturereview
An importanttaskofempiricalvalidationistotesttheinternal
and externalvalidity.Forthisreason,constructclarityistomeasure
what needstomeasure(Suddaby, 2010). Inthispaper,wehave
carefully definedeachconstructintermsofessentialcharacter-
istics withthesupportofrelevantliteraturebase.Thedetail
measures ensureadequateconstructvalidity.Wethenexamine
Contents listsavailableat ScienceDirect
journalhomepage: www.elsevier.com/locate/ijpe
Int. J.ProductionEconomics
0925-5273/$ -seefrontmatterPublishedbyElsevierB.V.
doi:10.1016/j.ijpe.2010.10.017
n Corresponding author.Tel.:+14195302258.
E-mail addresses: myang5@rockets.utoledo.edu (M.G.Yang),
Paul.Hong@Utoledo.edu, PaulHong1200@Gmail.Com(P.Hong),
Sachin.Modi@Utoledo.edu (S.B.Modi).
1 Tel.: +14197873453.
2 Tel.: +14195302258.
Int. J.ProductionEconomics129(2011)251–261

how theseconstructsarerelated. Table 1 is asummaryofeach
construct (definitionsandsupportingliterature).AppendixA
shows theitemsofeachconstruct,mean,standarddeviation,
factor loadingsand t-value
2.1. Leanmanufacturing(LM)
Since theconceptionoftheassemblylineandthefollowing
development oftheToyotaProductionSystem(TPS),efficiencyhas
been acentralobjectiveofmanufacturing(Holweg, 2007). Lean
manufacturing focusesonthesystematiceliminationofwastes
from anorganization’soperationsthroughasetofsynergisticwork
practices toproduceproductsandservicesattherateofdemand
(Womack etal.,1990;Fullertonetal.,2003;SimpsonandPower,
2005; ShahandWard,2007). Leanmanufacturingrepresentsa
multifaceted conceptthatmaybegroupedtogetherasdistinct
bundles oforganizationalpractices(McLachlin, 1997;MacDuffie,
1995). AlistofbundlesofleanpracticesincludesJIT,totalquality
management, totalpreventativemaintenance,andhuman
resource management,pull,flow,lowsetup,controlledprocesses,
productive maintenanceandinvolvedemployees(McKone etal.,
1999; Swinketal.,2005;Lindermanetal.,2006;ShahandWard,
2007). Forthepurposeofthisstudywedefine lean manufacturing as
a setofpracticesfocusedonreductionofwastesandnon-value
added activitiesfromafirm’smanufacturingoperations(Womack
et al.,1990;McLachlin,1997;ShahandWard,2003,2007;Lietal.,
2005; BrowningandHeath,2009).
2.2. Environmentalmanagementpractices(EMPs)
Firms thathavesuccessfullyreducedtheirinternalwaste
through leanproductionmethodsalsoimplementpracticesfor
better environmentmanagement(Melnyk etal.,2003;Sroufe,
2003; Montabonetal.,2007). Suchpracticesexpandthescopeof
waste reductioneffortsbeyondefficiencywithintheorganization
(Zhu andSarkis,2004;Kleindorferetal.,2005). Adiversesetof
stakeholders (e.g.,customers,shareholders,localcommunitiesand
government regulators)influencefirms’decisionmakingprocesses
and theircorporatestrategicpractices(Henriques andSadorsky,
1999; BuysseandVerbeke,2003). Environmentalmanagement
covers fromproductdevelopmenttofinaldeliveryandultimate
disposal oftheproduct(Klassen andWhybark,1999;Sroufe,2003).
ISO 14000standards,anessentialelementofEnvironmental
Management System(EMS)helpfirmsinassessing,managing,
coordinating andmonitoringcorporateenvironmentalactivities
(Melnyk etal.,2003;Sroufe,2003). Inthispaper, environmental
management practices refer toprogramstoimproveenvironmental
performance ofprocessesandproductsintheformsofeco-design
(e.g., designforenvironment),recycling,wastemanagementand
life-cycle analysis(Miettinen andHamalainen,1997;Sroufe,2003;
Matos andHall,2007;Montabonetal.,2007).
2.3. Performanceoutcomes
Organizational performanceismultifacetedandofinterestforour
researcharethetwoaspectsofenvironmentalperformanceand
businessperformance. Environmentalperformance refers totheorga-
nization’sperformancewithrespecttotheirenvironmentalresponsi-
bilities(Kleindorferetal.,2005). Business performance takesinto
account theorganizationsresponsibilitiestowardstheirshareholders
and hasaprofitmaximizationobjective(Rappaport, 1987). Inlinewith
earlierresearchbusinessperformancemaybeconceptualizedwiththe
twodimensionsof market performance and financialperformance
(Narasimhan andKim,2002;Linetal.,2005;Menoretal.,2007).
3. Hypothesesdevelopment
Fig. 1 is aresearchframeworkthatrepresentshowlean
manufacturing,environmentalmanagementpractices,environ-
mental performance,marketperformanceandfinancialperfor-
mance arerelated.Specifichypothesesarediscussednext.
3.1. Leanmanufacturing,environmentalmanagementpracticesand
environmentalperformance
Lean manufacturingfocusesoneliminationofwastefrom
within thefirm’sproductionsystemsthroughcontinuousimprove-
ment andprocesschangesforreducingnon-valueaddedactivities
Table 1
Variables definitionandsupportingliterature.
Variables DefinitionSupportingliterature
Lean manufacturingAsetofpracticesfocusedonreductionofwastesand
non-value addedactivitiesfromafirm’smanufacturing
operations.
Womack etal.(1990), McLachlin (1997), Shah and
Ward (2003,2007), Li etal.(2005), Browning and
Heath (2009)
Just-in-time flowAsetofinterrelatedpracticesformanagingproduction
flow.
McLachlin (1997), Shah andWard(2003), Swink etal.
(2005)
Quality managementAsetofinterrelatedinitiativestoassurethequalityof
the productsandtheequipmentusedtomanufacture
them.
McKone etal.,(1999), Fullerton etal.(2003), Shah and
Ward (2003,2007), Linderman etal.(2006)
Employee involvementThehumanelementofleanmanufacturingsuchas
formal trainingprograms,problemsolvinggroups,self-
directed workteamsandautonomousproblemsolving.
MacDuffie (1995), McLachlin (1997), Shah andWard
(2003, 2007), Tu etal.(2006)
Environmental managementpracticesAsetofprogramstoimproveenvironmental
performance ofprocessesandproductsintheformsof
environmental managementsystem,Life-Cycle
Analysis, DesignforEnvironment,Environmental
certification.
Miettinen andHamalainen(1997), Melnyk etal.
(2003), Sroufe (2003), Matos andHall(2007),
Montabon etal.(2007)
Environmental performanceThedegreetowhichanorganizationimprovesits
performance inrespecttoitsenvironmental
responsibilities.
Sroufe (2003), Kleindorfer etal.(2005), Matos andHall
(2007), Montabonetal.(2007)
Market performanceThedegreetowhichanorganizationachievesmarket-
valued outcomes(e.g.,salesandmarketgrowth).
Narasimhan andKim(2002), Lin etal.(2005), Menor
et al.(2007)
Financial performanceThedegreetowhichanorganizationachievesprofit-
oriented outcomes(e.g.,ROSandROI).
Narasimhan andKim(2002), Lin etal.(2005), Menor
et al.(2007)
M.G. Yangetal./Int.J.ProductionEconomics129(2011)251–261 252

or eliminationofwastes(Womack etal.,1990;Florida,1996). Prior
knowledge capacityrelatedtoJITflowactivities(e.g.,valuestream
mapping, differentiationofvalue-addedandnon-valueadded
tasks, useofmetricstotrackandreducein-processwasteand
team problemsolving)andISOqualitycertificationexperiences
might berelevanttotheorganizationaleffortsofenvironmental
wastes (Cohen andLevinthal,1990;KingandLenox,2001). The
importance ofemployeeinvolvementinadoptingenvironmental
practices hasbeenhighlightedinexistingresearch(Kornbluh etal.,
1989; Florida,1996). Leanmanufacturingcreates,withinan
organization, theorientationtoincreaseemployeeresponsibility
and involveemployeesinwastereductionefforts(Shah andWard,
2003; Tuetal.,2006). Suchleanorientationmayalsohelpfirmsto
adopt environmentalmanagementpracticeswhichaimatreducing
wastes andpollutantsreduction(Yang etal.,2010). Thus,experi-
ences withleanmanufacturingmayenableorganizationstoadopt
environmental managementpractices.Therefore,wehypothesize,
H1. Lean manufacturingwillbepositivelyassociatedwithenvir-
onmental managementpractices.
Environmental managementpracticeshelpanorganization
implement processandprocedureswhichtakeintoaccount
environmental considerationacrossallfunctions(Sroufe, 2003).
Such processandproceduresareexpectedtoreduceanorganiza-
tion’s negativeimpactonitsenvironmentalperformance,espe-
cially inconjunctionwithISO14001Certification(Melnyk etal.,
2003). Similarly,designforenvironmentallowsanorganizationto
design eco-friendlyproductsreducingtheirimpactontheenvir-
onment andimprovingenvironmentalperformance(Sroufe, 2003).
Life-cycle analysisprovidesanorganizationwithaprocessto
analyze andunderstandtheinfluenceofitsproductsandprocesses
on theenvironmentthroughtheirlifecycleandhelpsimprove
environmental performance(Matos andHall,2007). Inbrief,
environmental managementpractices(e.g.,EnvironmentalMan-
agement Systems,DesignforEnvironment,Life-CycleAnalysisand
ISO 14001Certification)alloworganizationstoimproveenviron-
mental performance.Thus,wehypothesize,
H2. Environmental managementpracticeswillbepositivelyasso-
ciated withenvironmentalperformance.
3.2. Leanmanufacturingandbusinessperformance
Lean manufacturingpracticesenhancemanufacturingproduc-
tivity byreducingsetuptimesandworkinprocessinventory
improving throughputtimes,andthusimprovemarketperfor-
mance (Tu etal.,2006). Leanmanufacturing,withtheuseofSix
Sigma, achievesinnovativeproblemsolvinginbusinessprocesses
(e.g., newproductdevelopment,orderfulfillment,customerser-
vices) andachievescustomersatisfactionbyincreasingcustomer
responsiveness andreducingcustomerleadtime(Shah andWard,
2003; WardandZhou,2006). Leanmanufacturingisalsoexpected
to enhancethefirm’sabilitytoimprovecustomervalueintermsof
lower pricesandqualityproductswhichwillenhancemarket
performance offirms.Thus,wehypothesize,
H3a. Lean manufacturingwillbepositivelyassociatedwithmar-
ket performance.
Lean manufacturinginfluencesfinancialperformancethrough
improving organizationalprocesses,costefficiencies(Fullerton
et al.,2003;ChristopherandTowill,2000;FullertonandWempe,
2009) andlaborandassetproductivityincrease(Blackburn, 1991;
Golhar andStamm,1991;KinneyandWempe,2002). Thus,we
hypothesize,
H3b. Lean manufacturingwillbepositivelyassociatedwithfinan-
cial performance.
3.3. Environmentalmanagementpractices,environmental
performance andbusinessperformance
Implementation ofenvironmentalmanagementpracticesmay
require resourcereconfigurationswhichstarveotherimportant
projects forresources,especiallyoncetheeasyopportunitieshave
been harvested(Walley andWhitehead,1994). Thismayadversely
influence otheraspectsoforganizationalperformance.Specifically,
for marketperformance,increasingresourcerequirementsfor
implementationofenvironmentalmanagementpracticesmaylead
to reducedresourcesformarketingeffortswhichcannegatively
affect marketperformance(Keller, 1993;Krasnikovetal.,2010).
Further, withincreasingconsumerawarenessofenvironmental
issues, firmswithrelativelyshorthistoryofimplementingenvir-
onmental managementpracticesmaynotyetbenotedfortheir
‘green’ reputation.Thisisespeciallytrueincasewheredemand
may behighlyelasticandenvironmentalimprovementsleadto
increase inproductcost.Thus,wehypothesize,
H4a. Environmental managementpracticeswillbenegatively
associated withmarketperformance.
* Firm size is used as a control variable.
H4b
H4a
H3b
H3a
H2
H5b
H5a
H1
Market
Performance
Financial
Performance
Just-in-time
Flow
Quality
Management
Employee
Involvement
Lean
Manufacturing
Environmental
Management
Practices
Environmental
Performance
Fig. 1. Research Modeln.

Environmental managementpracticesrequireorganizationsto
make investmentsinhuman,structuralandsocialcapitalfortheir
implementation. Forexample,implementationofrecyclingand
product reusepracticesrequiresadditionalstructuralandinfra-
structural investmentsinthereversesupplychainforproduct
recovery (Kocabasoglu etal.,2007). Suchinvestmentsincreasethe
cost burdensoffirms.Environmentalconsiderationsintheproduct
design mayalsodemandadditionaltimecommitmentsfordesign
work andtrainingforemployeeswhoshouldtrackdataand
environment regulatoryrequirements.Theseinvestmentrequire-
ments wouldchangethecoststructuresoffirmspotentiallyleading
to reduceprofitability,especiallyintheshortterm.Thus,we
hypothesize,
H4b. Environment managementpracticeswillbenegativelyasso-
ciated withfinancialperformance.
The improvedenvironmentalperformanceisexpectedto
attenuate thenegativedirectinfluenceofenvironmentalmanage-
ment practicesonbusinessperformance.Improvedenvironmental
performance indicatestheorganizationscommitmenttominimize
its ecologicalimpact(Starik andRands,1995). Commitmentto
minimize ecologicalharmmayimprovethefirm’sbrandimage,
positively influencingmarketperformance(King andLenox,2002).
In fact,improvedenvironmentalperformanceisseenasacompo-
nent ofanorganization’scorporatesocialperformance(Pagell and
Gobeli, 2009;Orlitzkyetal.,2003). Improvedenvironmental
performance maybenefitfirmswithrespecttotheirconsumers
such ascustomer–firmidentification,customersatisfactionand
loyalty leadingtoimprovedfirmimagewhichisexpectedto
positively influencemarketperformance(Brown andDacin,
1997; LuoandBhattacharya,2009). Thus,wehypothesize,
H5a. Environmental performancewillbepositivelyassociated
with marketperformance.
Environment performanceintermsofreducedemissions,waste
prevention andlesswastetreatmenton-siteareassociatedwith
higher financialperformance(Hart andAhuja,1996;Kingand
Lenox, 2002). Thepositivecorporatesocialperformancedueto
improvements inenvironmentalperformancemayalsoleadto
higher marketvaluationoffirms(Klassen andMcLaughlin,1996;
Russo andFouts,1997;LuoandBhattacharya,2009). Thus,we
hypothesize,
H5b. Environmental performancewillbepositivelyassociated
with financialperformance.
4. Researchmethodology
4.1. Researchdatabase
In ordertotesttheproposedhypotheses,weusetheInterna-
tional ManufacturingStrategySurvey(IMSS-IV)datacollectedin
2005. IMSSisaworldwideresearchprojectandhasbeencarried
out since1992byaninternationalnetworkofoperationsstrategy
researchers forthepurposeofidentifyingthestrategies,practices
and performanceofmanufacturingfirms’worldwide.IMSSdata
collection isconductedbytheinternationalcoordinatoralongwith
national coordinators.ThesurveyispreparedinEnglish.National
coordinators handlethetranslationofthesurveyasneeded.The
rigorous processensuresthatthetwo-stagesoftranslationare
conducted. OtherdetailsaboutIMSSsurveyareavailableinIMSS-
related publications(Voss andBlackmon,1998;Frohlichand
Dixon, 2001;daSilveira,2005,2006;Caglianoetal.,2006;Hong
and Roh,2009;Hongetal.,2009).
Given thelargescalescopeofthesurveyforIMSS,thedataare
useful forexploringcontemporarystrategicoperationsmanage-
ment issues.Oneoftheco-authorsofthispaperparticipatedinthe
design processoftheIMSSIV.Basedonthepriorexperiencesof
IMSS I,IIandIII,thegeneralresearchthemesandobjectivesof
survey wereconceivedatthetimeofdesignofIMSSIVfortesting
what well-groundedtheoriessuggestabouttheplausiblerelation-
ships (i.e.,confirmatory).WiththenewsetofIMSSIVdataisalso
useful toexploretherelationshipsthathavenotbeentestedbefore
(i.e., exploratory).Thus,aspecificmodelthatispresentedinthis
paper isbothexploratoryandconfirmatory.
4.2. Measures
We useacombinationofsingle-andmulti-itemscalestotest
our hypotheses.Theresearchteamselectedmeasurementitems
from theIMSSdatabasebasedonexistingliteraturetoensureface
and contentvalidity.AppendixAprovidessurveyitemsusedinour
study. PerceptualmeasureswithafivepointLikertscaleareusedto
measure responses.Leanmanufacturing(LM)isconceptualizedas
a second-orderconstructwiththreesub-dimensions:just-in-time
flow (JITF),qualitymanagement(QM)andemployeeinvolvement
(EI). Twoitemseachareusedtomeasurethesub-dimensions.
Environmental managementpractices(EMP)aremeasured
through asingleitem3 aimed tocapturemultipleaspectsof
environmental programssuchasEnvironmentalManagement
System, Life-CycleAnalysis,DesignforEnvironment,andEnviron-
mental Certification(i.e.,ISO14001).
Market performanceisoperationalizedusingmeasuresforsales
and marketshare,financialperformanceisoperationalizedusing
perceptions regardingreturnonassets(ROA)andreturnonsales
(ROS) andenvironmentalperformanceisoperationalizedbycap-
turing respondentperceptionsregardingtheirenvironmental
performance improvementsoverthelast3yearsandcompared
to theircompetitors.Finally,largerfirmsaremorelikelyto
implement leanmanufacturingpractices(Shah andWard,2003)
and implementenvironmentaltrainingprograms(Aragon-Correa,
1996). Therefore,wealsoincludefirmsize(numberofemployees)
as acontrolvariableinouranalysis.
4.3. Sample,respondentprofileandbiases
This studyuses309samplesofthediversemanufacturingfirms.
The samplecoveredfirmsunderthetwo-digitISICcodesbetween
28 and35.ThedistributionaccordingtotheISICcodeisasfollows:
ISIC 28(fabricatedmetalproducts,exceptmachineryandequip-
ment) 31.7%,ISIC29(machineryandequipmentnotelsewhere
classified) 20.7%,ISIC30(office,accountingandcomputing
machinery) 1.6%,ISIC31(electricalmachineryandapparatusnot
elsewhere classified)12.9%,ISIC32(radio,televisionandcommu-
nication equipmentandapparatus)4.2%,ISIC33(medical,preci-
sion andopticalinstruments,watchesandclocks)2.3%,ISIC34
(motor vehicles,trailersandsemi-trailers)10.0%,ISIC35(other
transport equipment)8.1%,andISIC36(othermiscellaneous
products notlisted)8.4%.Thedemographicinformation(region/
country) isprovidedin Table 2. Thedatadonothaveanindicatorfor
early versuslateresponseslimitingourabilitytoconductthe
3 It isimportanttonotethatsingleitemshavebeendemonstratedtobevalidfor
capturing complexconstructs(Wanous etal.,1997;BergkvistandRossiter,2007)
and havebeenusedinoperationsandsupplychainmanagementresearch
(Rosenzweig andRoth,2004;Ellisetal.,2010). Further,singleitemsassumethat
the itemcompletelymeasurestheconstructandhaszeromeasurementerror.We
conducted sensitivityanalysisbyrelaxingthisassumption.Ourresultsarerobust
and hencemitigateconcernsforusingsingleitems.

commonly usedtestfornon-responsebias(Armstrong and
Overton, 1977).
Given thatsinglerespondentswereusedforcollectingdatathe
potential forcommonmethodbiastoinfluenceresultsneedstobe
evaluated. WeconductHarman’ssinglefactortestusingconfirma-
tory factoranalysis.Themodelfitindicatesthatasinglefactor
model doesnotrepresentthedatawell(w2¼986.818, df¼104,
GFI¼0.673, CFI¼0.403, IFI¼ 0.409, NFI¼0.383, RMSEA¼0.166,
SRMR¼0.141). Further,theaveragevarianceextractedbyasingle
factor is19.6%indicatingthataverysmallproportionofthe
variance inthedataisaccountedforbyasinglefactor.Whilethis
test doesnothelpprecludethepossibilityofmethodbiasithelps
mitigate concernsthatcommonmethodbiasmaybedrivingour
results.
5. Dataanalysisandresults
Structural equationmodeling(SEM)isusedtoanalyzethedata
and itsrelationships(Hair etal.,1998). Wefollow Anderson and
Gerbing’s (1988) recommended two-stepapproachtotestour
hypotheses. Instep1wetestthemeasurementmodeltoestablish
validity andreliabilityofthescalesusedinouranalysisand
followed bythetestofstructuralrelationshipsinstep2.These
are discussednext.
5.1. Measurementmodel,validityandreliability
We assesstheoverallfitofthefirst-ordermeasurementmodel.
In linewith Shah andGoldstein’s(2006) and Hu andBentler’s
(1999) recommendation, multiplefitindices–thegoodnessoffit
index (GFI),comparativefitindex(CFI),incrementalfitindex(IFI),
normed fitindex(NFI),rootmeansquareerrorofapproximation
(RMSEA), andstandardizedrootmeansquareresidual(SRMR)–are
above therangeforacceptablefitandwithmultiplevalues
indicating agoodfit(w2¼180.144, df¼93, GFI¼0.932, CFI¼0.941,
IFI¼0.943, NFI¼0.889, RMSEA¼0.055, SRMR¼0.045).
Convergent validitymaybeassessedbycheckingthesignifi-
cance oftheloadingforanitemonitspositedunderlyingconstruct
(Anderson andGerbing,1988). Theloadingsforthefirst-order
measurement modelindicatethatallitemsloadsignificantlyon
their positedconstructsinAppendixAindicatingconvergent
validity. Further,theitemloadingsaresimilarbetweenthefirst-
and second-ordermeasurementmodelsindicatingthatthemea-
surement isrobustwhenspecifyingthesecond-orderconstructof
lean manufacturing.
Table 3 shows anadequatelevelofdiscriminantvaliditywith
the averagevarianceextractedbytheitemsoftheconstructis
greater thantheaveragesharedvariance(squareofthecorrelations
in theoff-diagonals)betweentwoconstructs(Fornell andLarcker,
1981). Table 3 also showsanadequatereliabilityvaluesover0.6for
all constructsindicatingacceptablereliabilityofthemeasurement
items (Cronbach, 1951;Nunnally,1978;ChenandPaulraj,2004).
5.2. Structuralmodelresults
Fig. 2 shows thestructuralmodelwithparameterestimatesand
t-values ofthepaths. Table 3 shows thestructuralpathsandfit
indices ofthetwostructuralmodels(model1:proposed
model—full mediationandmodel2:directmodel).Theproposed
model fitindicesshowthatthemodelrepresentsthedatafairly
well (w2¼242.801, df¼105, GFI¼0.915, CFI¼0.907, IFI¼0.909,
NFI¼0.850, RMSEA¼0.065, SRMR¼0.081). Usingstatistical
significance ofthepathsassessedat po0.05, hypothesisH1,H2,
H3a, H3b,H4a,H5aandH5baresupportedandhypothesisH4bis
marginally supportedwitha po0.10.
This studyinvestigatesthemediating(asopposedtoamoder-
ating) effectofenvironmentalmanagementpracticesonthe
relationship betweenleanmanufacturingandenvironmental
performance fortworeasons.First,existingresearchindicatesa
mediating roleofenvironmentalmanagementpracticesonthe
relationship betweenleanmanufacturingand(environmental)
performance (King andLenox,2001;Yangetal.,2010). Our
hypotheses andresultsareinlinewiththisviewinliterature.
Second, themoderatingeffectofqualitymanagementandlean
practices ontherelationshipbetweengreenpracticesandperfor-
mance hasbeentestedinpreviousstudysuchas Zhu andSarkis
(2004) with inconclusiveevidence.Collectivelytheliterature
indicates thatenvironmentalmanagementpracticeswillmediate
the relationshipbetweenleanmanufacturingand(environmental)
performance providingtheoreticalsupportforourresults.
Thus, wehypothesizefull(orcomplete)mediationoftheeffect
of leanmanufacturingonenvironmentalperformancebyenviron-
mental managementpractices(EMP).Mediationmaybetestedby
two methodologicalrigors:(1)specifyingthedirectpathsbetween
the independentanddependentvariableandtheindirectpaths
from independenttomediatingvariabletodependentvariable
simultaneously (Judd andKenny,1981;Jamesetal.,2006), and
(2) Sobeltestisusedtoexaminethemediatingeffect(Baron and
Kenny, 1986;ShahandShin,2007).
Table 4 presents theresultsofdirectmodel(Model2)withan
additional directpathbetweenleanmanufacturingandenviron-
mental performance.Theestimateof b¼0.033 (t¼0.283) isnot
significant (p40.1) indicatingsupportforfullmediationofthe
effect ofleanmanufacturingonenvironmentalperformanceby
environmental managementpractices.Sobeltestconsistsofthe
following components:(1)unstandardizedbetacoefficient;
(2) standarderrorofbetacoefficient;(3) p-value. Sobeltest
statistics (p-value): t¼5.113 (po0.01) indicatesthefullmediation
effect ofEMP.
Lean manufacturingenhancesenvironmentalmanagementprac-
tices (H1). Theestimatedcoefficientof b¼0.708 (t¼6.630, po0.01)
between leanmanufacturingandenvironmentalmanagement
practices stronglysupportsH1.Thisfindingisconsistentwith
Table 2
Sample byregionandcountry(n¼309) (n, %).
Source: IMF,2009.
Europe Non-Europe(North/SouthAmerica,
Asia/Pacific, Turkey)
Developed countries a Developing
countries b
Developed
countries a
Developing
countries b
Belgium (15/12.4)Estonia(10/25.6)Australia(4/8.9)Argentina
(32/30.8)
Denmark (8/6.6)Hungary
(29/74.4)
Canada (13/28.9)Brazil(5/4.8)
Greece (5/4.1)NewZealand
(7/15.6)
China
(23/22.1)
Ireland (4/3.3)USA(21/46.7)Turkey
(29/27.9)
Israel (8/6.6)Venezuela
(15/14.4)
Italy (12/9.9)
Netherlands (26/21.5)
Norway (3/2.5)
Portugal (7/5.8)
Sweden (25/20.7)
United Kingdom
(8/6.6)
121 (100.0)39(100.0)45(100.0)104(100.0)
a 420,000 (Int’l$).
b o20,000 (Int’l$)(GDPpurchasingperparity).

earlier literature(King andLenox,2001;Yangetal.,2010). Asan
organization usesleanmanufacturingpractices,itisexpectedto
reduce wastesfromitsproductionactivitiesthroughenvironmen-
tal managementpractices(Womack etal.,1990). Theknowledge
utilized forinternalwastereductionthroughleanmanufacturingis
useful inmanagingenvironmentalwastes.Ourempiricalresults
suggest thatknowledgeandexperiencesacquiredthroughlean
manufacturing aresubstantiallyrelevantandthusadoptablein
environmental managementpractices.
Environmental managementpracticesimpactenvironmentalper-
formance (H2). Theproposedrelationship(H2)betweenenviron-
mental managementpracticesandenvironmentalperformanceis
supported withanestimatedcoefficientof b¼0.494 (t¼7.942,
po0.01). Existingresearchindicatesthatwhileleanmanufactur-
ing enhancesenvironmentalperformancebyreducingenviron-
mental wasteinprocess,firmsthatimplementenvironmental
management practices(e.g.,life-cycleassessment,environmental
certifications andenvironmentalmanagementsystems)also
improve theirenvironmentalperformance.Ontheotherhand,
lean manufacturingalonedoesnotsignificantlyimpactenviron-
mental performance(b¼0.033, t¼0.283). Theindirecteffectof
lean manufacturingonenvironmentalperformanceis0.350.As
such, ourmodelandempiricalresultsshowthatleanmanufactur-
ing affectsenvironmentalperformancethroughenvironmental
management practices(Rothenberg etal.,2001;KingandLenox,
2001).
Lean manufacturingonmarketperformance (H3a). Theestimated
coefficient of b¼0.394 (t¼2.738, po0.01) fortherelationship
between leanmanufacturingandmarketperformanceissignifi-
cant indicatingsupportforhypothesisH3a.
Lean manufacturingonfinancialperformance (H3b). Similarlythe
estimated coefficientfortherelationshipbetweenleanmanufac-
turing andfinancialperformanceis b¼0.283 (t¼2.359, po0.05)
which issignificantlysupportingH3b.Thisresultisinlinewith
earlier findingsinliterature(Fullerton etal.,2003;Fullerton
and Wempe,2009). Leanmanufacturingimprovesproductivity
Table 3
First-order inter-constructcorrelations,reliabilityanddiscriminantvalidity(n¼309).
Construct 12345678Reliability
Cronbach’s a Composite
reliability a
1. JITF[0.445]b 0.635 0.632
2. QM0.559nnn [0.550] 0.615 0.664
3. EI0.525nnn 0.679nnn [0.480] 0.707 0.678
4. MP0.308nnn 0.192nn 0.060 [0.417]0.7250.740
5. FP0.206nn 0.117 0.173nn 0.515nnn [0.620] 0.8010.823
6. EP0.162n 0.379nnn 0.265nnn 0.190nn 0.198nnn [0.548] 0.6740.702
7. EMP0.334nnn 0.682nnn 0.532nnn 0.104 0.122n 0.502nnn – – –
8. FirmSize0.0580.142nn 0.090 0.013 0.045 0.178nnn 0.147nn – – –
a Calculated accordingto Fornell andLarcker(1981).
b Average variancesextracted(AVE)areonthediagonalinbrackets.
n po0.1.
nn po0.05.
nnn po0.01.
*p 0.1, **p 0.05, ***p 0.01.
Control variable. The effects of firm size are represented by the dotted lines.
H4b
H5a
H5b
H4a
H2
H3b
H3a
H1
Quality
Management
η
Employee
Involvement
η
β = 0.919***
(t=6.574)
γ = -0.097
(t=-1.609)
β = -0.279**
(t=-2.218)
β = -0.184*
(t=-1.681) β = 0.223**
(t=2.527)
β = 0.226**
(t=2.279)
γ = 0.048
γ = 0.140** (t=0.993)
(t=2.005)
β = 0.494***
(t=7.942)
β = 0.283**
(t=2.359)
β = 0.598***
(t=5.098)
β = 0.394***
(t=2.738)
β = 0.708***
(t=6.630)
β = 0.737***
(t=7.340)
Market
Performance
η
Financial
Performance
η
Just-in-time
Flow
η
Lean
Manufacturing
η
Environmental
Management
Practices
η
Environmental
Performance
η
Firm Size
ξ γ = -0.055
(t=-0.828)
γ = 0.109*
(t=1.813)
Fig. 2. Structural modelresults.

and reducestheassetbaseofafirmresultinginimprovedfinancial
performance andthustheoverallimpactofleanmanufacturingon
financial performanceispositive.
Environmental managementpracticesonmarketperformance
(H4a). Theestimatedcoefficientof b¼0.279 (t¼2.218,
po0.05) supportsH4athatenvironmentalmanagementpractices
have anegativeinfluenceonmarketperformance(Walley and
Whitehead, 1994). Animprovedenvironmentalperformanceis
significant inreducingthenegativeimpactofenvironmental
management practicesonmarketperformance.
Environmental managementpracticesonfinancialperformance
(H4b).Theestimatedcoefficientof b¼0.184 (t¼1.681, po0.1)
marginallysupportsH4b(Montabonetal.,2007). Atotaleffectof
environmentalmanagementpracticesonfinancialperformanceis
0.079 outofwhichthedirecteffectofenvironmentalmanagement
practicesonfinancialperformanceis 0.184andindirecteffectof
environmentalmanagementpractices (viaimprovedenvironmental
performance)onfinancialperformanceis0.110.Thus,theindirect
positiveeffect(0.110)reducesthedirectnegativeeffect(0.184)by
59.78%(¼0.110/0.184).Thisalsosuggeststhatimprovedenviron-
mental performanceissignificantinreducingthenegativeimpactof
environmentalmanagementpracticesonfinancialperformance.
Environmental performanceonmarketperformance (H5a). The
estimated coefficientof b¼0.226 (t¼2.279, po0.5) supportsH5a
that environmentalperformancehasapositiveinfluenceonmarket
performance. Improvedenvironmentalperformancemayincrease
an organization’sbrandequitytotheextentofimprovingits
market performance.
Environmental performanceonfinancialperformance (H5b).
Finally, insupportofhypothesisH5b,theestimatedcoefficient
of b¼0.223 (t¼2.527, po0.5) issignificantindicatingthat
improved environmentalperformancepositivelyinfluences
financial performance.Thisresultisinlinewithpriorstudies
(e.g., Klassen andMcLaughlin,1996;KingandLenox,2002), which
report thatfirmswithbetterenvironmentalperformanceexperi-
ence improvedfinancialperformance.
5.3. Additionalcontextualanalysis
While allhypothesesaresupportedthroughoutthisempirical
study, italsoholdstruethatthereexistregionalandnational
differences (Voss andBlackmon,1998;FrohlichandDixon,2001;
Hong andRoh,2009;Hongetal.,2009). Table 5 shows contextual
analysis (smallvs.medium/largefirm,Europevs.non-Europeand
developed vs.developingcountries).
These resultsindicatethatcontextualfactors(firmsize,regional
differences andGDPpercapitastatus)affecttheimplementation
level ofleanmanufacturing(LM)andenvironmentalmanagement
practices (EMP)andaccordingly,performanceoutcomes(environ-
mental andbusinessperformance).Fortheaggregatedsamples
(n¼309), allhypothesesaresupported.However,differencesare
noticeable betweensmall(employees o250) andmedium/large
firms (employees 4250) intermsofthestrengthsofrelationship
between LMandmarketperformance(MP)andEMPandMP.The
relationships betweenenvironmentalperformance(EP)andMP
Table 4
Results ofthestructuralmodels(n¼309).
Proposed
model
(full
mediation)
Model 1
Direct model
Model 2
Structural
paths
Hypothesis
LM-EMP H10.708nnn 0.708nnn
EMP-EP H20.494nnn 0.471nnn
LM-EP 0.033
LM-MP H3a0.394nnn 0.389nnn
LM-FP H3b0.283nn 0.278nn
EMP-MP H4a 0.279nn 0.279nn
EMP-FP H4b 0.184n 0.184n
EP-MP H5a0.226nn 0.222nn
EP-FP H5b0.223nn 0.220nn
Model fit
statistics
Recommended
values
w2 242.801242.723
df 105104
RMSEA r0.08 marginalfit a; r0.05
good fitb,c
0.065 0.066
GFI 40.8 marginalfit;40.9 good
fitb
0.915 0.915
CFI 0.9070.906
NFI 0.8500.850
IFI 0.9090.909
SRMR o0.09b 0.081 0.081
a Handley andBenton(2009).
b Hu andBentler(1998,1999).
c Browne andCudek(1993).
n po0.1.
nn po0.05.
nnn po0.01.
Table 5
Contextual analysis(n¼309) (coefficientand p-value).
Firm sizeRegions
Path HypothesesAggregated
sample a(n¼309)
Small (o250)
(n¼175)
Medium/large
(4250)(n¼134)
Europe (n¼160) Non-Europe b (n¼149) Developed
countries (n¼166)
Developing
countries (n¼143)
LM-EMP H10.715nnn 0.711nnn 0.629nnn 0.644nnn 0.747nnn 0.780nnn 0.781nnn
EMP-EP H20.508nnn 0.383nnn 0.513nnn 0.476nnn 0.516nnn 0.572nnn 0.451nnn
LM-MP H3a0.390nnn 0.516nnn 0.259 0.451nn 0.185 1.151nnn 0.203
LM-FP H3b0.276nn 0.274n 0.260n 0.384nnn 0.140 0.922nnn 0.159
EMP-MP H4a 0.185nn 0.328n 0.136 0.245 0.158 0.989nnn 0.054
EMP-FP H4b 0.061n 0.143 0.161 0.184 0.133 0.819nnn 0.041
EP-MP H5a0.211nn 0.193 0.265n 0.309nn 0.117 0.340nn 0.041
EP-FP H5b0.206nn 0.156 0.268nn 0.329nnn 0.126 0.459nnn -0.041
a This aggregatedmodelwastestedwithoutfirmsizeasacontrolvariable.
b Non-Europe includesNorth/SouthAmerica,Asia/Pacific,andTurkey.
n po0.1.
nn po0.05.
nnn po0.01.

and EPandfinancialperformance(FP)arenotstatisticallysig-
nificant forsmallfirmswhilesignificantformediumandlarge
firms. FirmsfromEurope(n¼160) showabiggerandstatistically
significant impactofLMonFPwhilenon-Europeancountriesdo
not. DatafromdevelopedcountrieswithhigherGDPpercapita
(4$20,000) (IMF, 2009) showallstatisticallysignificantrelation-
ships inalltherelationshipswhilethosefromdevelopingcountries
show somewhatinconclusiveresultstotheproposedrelationships.
Future studymayexplorefurtheraboutthesecontextualfactors
and theunderlyingcausesofthesedifferences.
6. Concludingremarks
Thisresearchmodelpresentsleanmanufacturingasanimportant
antecedentofenvironmentalmanagementpractices.Organizations
mayrespondtoregulations,policyandpublicpressurebymaking
efforts toimproveenvironmentalperformanceormaychooseto
proactivelyengageinsuchpractices.However,theresultsofour
researchmustbeinterpretedwithcaution.Aswithallresearch
endeavorsthispaperhascertainlimitationswhichprovideavenues
for futureresearch.First,thisresearchusesasingleitemtomeasure
environmentalmanagementpractices. Asresearchonenvironmental
managementevolveseffortstoidentifyanddevelopscalesfor
multipledimensionsofenvironmental managementmaybefruitful.
Second,onemayconjecturethatthenegativeimplicationsof
environmentalmanagementpracticesaremoreshortterminnature
and theindirectpositiveimplicationsarerealizedoveralonger
period.Longitudinalassessment withsecondarydatamayhelp
distinguishtheseeffectsandaddto ourbodyofknowledgeregarding
environmentalsustainability.Finally,whileourresearchuseslarge
scalesurveytoprovideempiricalevidencefortheproposedmodel,in-
depth casestudiesmayalsohelpvalidateandextendthisresearch,
especiallyinregardtoadditionalaspectssuchasregulationsand
carbon permittradingpractices.Case studieswhichinvestigatethe
processofimplementingenvironmentalmanagementpracticesmay
also befruitful.Inspiteoftheselimitations,theempiricalresultsof
thisstudyprovidesomevaluablemanagerialinsights.
First, leanmanufacturingandenvironmentalmanagement
practices aredistinctandtheybothimpactdifferentlyonbusiness
performance outcomes(Kleindorfer etal.,2005). Fromamanage-
rial perspective,leanmanufacturingandenvironmentalmanage-
ment practicesaresynergisticintermsoftheirfocusonreducing
waste andinefficiency.However,leanmanufacturingbyitselfwill
not improveenvironmentalperformancebecausethereisa
potential forconflictsbetweenenvironmentalperformanceobjec-
tives andleanmanufacturingprinciples(Rothenberg etal.,2001).
The focusofleanmanufacturingoninternalandprocesswaste
reduction toincreaseefficiencyshouldbeextendedtoafocuson
environmental wastereductionincreasingenvironmentaleffi-
ciency byimplementingenvironmentalmanagementpractices.
Environmental managementpracticesdorequireadditional
resources investments.Itisimportantformanufacturingfirms
to implementbothleanmanufacturingandenvironmentalman-
agement practicesinwaystoenjoyeco-advantagethrough
improvements inenvironmentalperformance.Thiswillalsoenable
firms tomeettheirbusinessperformanceobjectivesbetter.
Second, understandingtheperformanceconsequencesofenvir-
onmental managementiscriticalinlightoftheongoingdebateon
the conflictbetweenenvironmentalandeconomicobjectives
(Russo andFouts,1997;Derwalletal.,2005;Montabonetal.,
2007). Ourfindingssuggestbothnegativeandpositiveimpactof
environmental managementpracticesintwoways:(1)thedirect
impact ofenvironmentalmanagementpracticesonmarketand
financial performanceisnegative;(2)however,environment
management practicespositivelyaffectenvironmentalperfor-
mance whichinturnpositivelyimpactsmarketperformanceand
financial performance.Theshort-termimplementationfocusof
environment managementpracticesistoenhanceenvironmental
performance byclarifyingspecificenvironment-relatedgoalsand
objectives (e.g.,reductionofpollutantmaterials,increasingusage
of eco-friendlycomponentparts,environmentalsafetyrecords,
and costeffectivenessofeco-friendlycomponentparts).Firmlevel
strategic commitmentforenvironmentalmanagementmightbe
well-communicatedandunderstoodthroughissuingcomprehen-
sive sustainabilityreports.
Third, environmentalperformancearerelatedtobusiness
performance asanintermediateperformance(Jime´nez and
Lorente, 2001;DelmasandToffel,2004). Foreffectiveimplementa-
tion ofenvironmentalmanagementpracticesitisessentialto
recognize thevalueofenvironmentperformance.Inourpaperwe
operationalizedenvironmentalperformancewithtwomeasuresof
environmental improvement.Futureresearchmayneedtodevelop
multi-dimensionalenvironmentperformancemeasureswhich
predict themarketandfinancialperformancebetter.
Appendix
See Table A1 for moredetails.
Table A1
List ofsurveyitems(n¼309).
Constructs/items Mean SDLoading a t-Value b
Indicate degreeofthefollowingactionprogramsundertakenoverthelast3years(1:Noneto5:High).
Lean manufacturing(LM)
just-in-time flow (JITF)
JITF1 Restructuringmanufacturingprocessesandlayouttoobtain process focus
and streamlining(e.g.,reorganizeplantwithin-a-plant;cellularlayout,etc.)
3.28 1.1200.658–
JITF2 Undertakingactionstoimplement pull production (e.g., reducingbatches,
setup time,usingkanbansystems,etc.)
2.92 1.1560.6756.331
Quality management (QM)
QM1 Undertakingprogramsfor quality improvement and control(e.g.,TQM
programs, 6s projects, qualitycircles,etc.)
3.18 1.0820.703–
QM2 Undertakingprogramsfortheimprovementofyour equipment productivity
(e.g., totalproductivemaintenanceprograms)
2.95 1.0950.77810.473
Employee involvement (EI)
EI1 Implementingactionstoincreasethelevelof delegation andknowledgeofyour
workforce (e.g., empowerment,training,autonomousteams,etc.)
2.87 0.9190.754–
2.83 1.0970.626

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Ma Ga(Mark)Yang is aPh.D.candidateofManufacturingandTechnology
Management attheUniversityofToledo,USA.HeholdsanMBAfromUniversity
of ToledoandaBAfromHankukUniversityofForeignStudiesinSeoul,Korea.His
article hasbeenacceptedin International JournalofServiceOperationsManagement.
His researchinterestisinsustainablesupplychainsfocusingonsustainable
environmental andsocialpractices,environmentalmanagement,leanmanufactur-
ing andgreensupplychainmanagement.
Dr.PaulHong is ProfessorofOperationsManagementattheUniversityofToledo,
USA.Dr.HongholdsadoctoraldegreeinManufacturingManagementandEngineer-
ingfromtheUniversityofToledo.HealsoholdsanMBAandanMAinEconomics
degreefromBowlingGreenStateUniversity,USA,andaBAfromYonseiUniversityin
Seoul,Korea.Hisarticleshavebeenpublishedinjournalsincluding Journalof
OperationsManagement, InternationalJournalofProductionEconomics, Journalof
SupplyChainManagement, EuropeanJournalofInnovationManagement, International
JournalofOperationsandProductionManagement, JournalofEnterpriseInformation
Management, JournalofKnowledgeandInformationManagement, InternationalJournal
of QualityandReliabilityManagement, Benchmarking: An InternationalJournal, Strategic
Outsourcing:AnInternationalJournal, ResearchinInternationalBusinessandFinance,
InternationalJournalofLogisticsandSystemsManagement, KoreanJournalofTourism
Research, andTourismCultureandScience. Hisresearchinterestsareintechnology
management,operationalstrategyandglobalsupplychainmanagement.
Dr. SachinModi is AssistantProfessorofOperationsManagementattheUniversity
of Toledo,USA.Dr.ModiholdsadoctoraldegreeinOperationsManagementand
Decision SciencesfromIndianaUniversity—Bloomington. HealsoholdsanMSin
Industrial EngineeringdegreefromtheUniversityofCincinnati,USA.Hisarticlehas
been publishedinthe Journal ofOperationsManagement. His researchinterestsarein
technology management,innovation,operationsmanagementandsupplychain
management.

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