VRIO framework is a business analysis framework which was developed in 1991 by Jay Barney in his work “Firm Resources and Sustainable Competitive Advantage”.  VRIO is acronym of Value, Rarity, Inimitable, and Organization. This framework explains organization’s competitive advantage.  When a firm is in a position to differentiate its product/service from its competitors it is said to be a competitive advantage. To gain and maintain a competitive advantage, an organization must be able to demonstrate differential value than its competitors and convey that information to its desired target market. J. B. Barney’s original framework was called VRIN; he called it VRIO by improvising the original VRIN.

VRIO falls into the internal analysis step of the strategic procedures, and is used as a framework in evaluating just about all resources and capabilities of a firm, not considering what phase of the life cycle the firm is passing through.

Value (V): The definition of value is whether or not the resource or capability of the firm is able to exploit opportunities? is the firm in a position to mitigate threats in the marketplace? If it does do one of those two things, it can be considered strength of the company. However, if it does not work to exploit an opportunity or mitigate a threat, it is said to be a weakness. Occasionally, some resources or capabilities could be considered strengths in one industry and weaknesses in a different one. The concept of value must clarify whether the firm attempts to exploit technological change, demographic change, cultural change, economic climate, and specific international events, legal and political conditions. Further, five threats that a resource or capability could mitigate are: the threat of buyers, threat of suppliers, threat of new entrants, threat of rivalry and threat of substitutes. These are explained by Prof. Michel Porter in his five forces model.

Rarity (R): Having an exceptional or uncommon capability in a firm can lead to competitive advantage. Rarity is when a firm has a valuable resource or capability that is absolutely unique among a set of current and potential competitors. A firm’s resources and capabilities must have both short supply and persistence over time which means the product must have good circulation cycle and must be persistently in demand. Dark Matter’s Katim phone is the world’s most secure smartphone. It runs a heavily customized version of Android. At every boot instance, the device checks the complete software stack to detect modifications. It aborts the boot up if the validation fails. It constantly monitors the phone and data. If it detects a malware or security attack trying to bypass its security mechanisms, it cleans up the entire phone. This is rarity.

Inimitability (I):  The primary object of “imitability” in the VRIO framework is whether a firm with valuable and rare resources makes it difficult to imitate its product and services by other firms. It also helps a firm to be leader in the market and helps to gain the first-mover advantages in the market and can hence gain competitive advantage. For example, no competitors of Starbucks have been able to gain a large global presence; Starbucks has presence in 75 countries and has over 24,000 coffee shops. It would take significant time and resources to accomplish this.

A competitive advantage is gained when the imitability becomes difficult to copy. Sometimes it is hard for other firms to get access to the resources and imitate the innovative company’s strategy. As a result, it is difficult to imitate and implement products and services which are costly-to-imitate; the cost of imitation, time for imitation, forms of imitation all matter.

Organization (O): Resource management is called efficient and effective when they are available in time and are economical. Such resources may include financial resources, inventory, human skills, production resources, or information technology (IT) and natural resources. When an organization acquires value, rarity and imitability, the next step is to systematize utilization of its resources. If done successfully, the company can enjoy a period of sustained competitive advantage.

Few components such as the company’s formal reporting structure, management control systems and compensation policies matter in sustaining competitive advantage. Formal reporting structures are simply a description of who in the firm reports to whom. Management control systems include both formal and informal means to make sure that managers’ decisions align with a firm’s strategies. It involves budgeting, timing and reporting activities that keep top management informed of decisions made by employee’s lower down in the firm. Informal controls can include a company’s culture and encouraging employees to monitor each other.

A good VRIO example: Google is one of the most powerful companies in the world, and its success stems from a sustained competitive advantage in human capital management. If we were to do Google’s VRIO framework it might look something like this:

Value – Google uses human capital management data to hire and retain innovative, productive employees. These employees consistently create some of the most popular consumer products and services in the world.

Rarity – no other companies are using data-based employee management broadly; data-based human capital management is both costly and difficult to imitate, at least in the near future.

Imitability – The HR software of Google relies on techniques of usage of the software which requires in-depth training which is unfeasible for competitors to copy.  Imitability therefore is out of question.

Organization – Google’s ever-changing approach and its style of doing business is unique. Its rich culture provides employees with a sense of contributing to the worldwide population. Google employees positively impact society with the applications and technology on which they are working.

In today’s business scenario, efficient supply chain is the key element of the company’s success.  Corporate have realized that when they spend more time and money in fine-tuning their forward supply chains they can no longer ignore their backward (reverse) supply chains. Efficient reverse supply chains bring many benefits to the organization. However, reverse supply chains are different from forward supply chains and the fact remains that quite a few of the existing forward supply chains are not designed to handle reverse supply chains.

Reverse supply chain stands for all operations related to the reuse of products and materials. It is the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials – in-process, in inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and restoring or renovating activities also may be included in the definition of reverse logistics. The reverse logistics process includes the management and the sale of surplus as well as returned goods. In the case of reverse logistics, the resource goes at least one step back in the supply chain management; often a move from the customer to the distributor or to the manufacturer.

When a manufacturer’s product normally moves through the supply chain network, it is to reach the distributor or customer. Any process or management after the sale of the product involves reverse logistics. If the product is defective, faulty, dangerous, or when goods are not described properly, or in price disputes, or when goods are lost in transit and found later in any such circumstances the goods are returned. The manufacturing firm would then have to organize shipping of the defective product, testing the product, dismantling, repairing, recycling or disposing off the products. It is understood here, that the product would travel in reverse cycle through the supply chain network in order to retain any use from the flawed product. The logistics for such theme calls for entire reversing process.  Reverse logistics is more than reusing containers and recycling packaging materials, or redesigning packaging to use less material, or reducing the energy and pollution from transportation.

It is important because it also includes processing of returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. It also includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery etc.

The elements of Reverse Logistics are as follows:

Physical Movement of Goods: Differentbusinesseshavedifferent methods of handling reverse supply chain management. Usually customers return the goods from the place of purchase. It is the retail outlet most of the times where they go and return the goods. In the era of ecommerce a customer could be mailing the goods, or drop them off at designated locations. Some merchants will organize for a pickup of the goods from the customer’s location.

Warehousing: The physical goods that are collected need to be tagged, tracked, and stored. This is the purpose of the warehousing process. A warehouse is typically a large storage space usually set up on the outskirts of towns or cities. In addition to storage space, these days the warehouses are well equipped with many devices and automated processes to tag and track the stored goods. An emerging technology, radio-frequency identification (RFID) holds substantial promise in the area of warehouse layout, receiving, order selection, and shipping. Because of the large number of different products processed and handled in a typical distribution center, RFID technology has great potential to improve operational efficiency.

Triage: Triage means sorting of goods based on their condition or quality. Some of the goods need to be repaired and sent back. Others have to be sold off as used defective goods. Some need to be sold as scrap. For making these vital decisions as to what can be done with returned goods, triage is the important step in reverse logistics.

Repair: Repairs are an important process as well in the reverse logistics supply chain. By repairing the goods, they can either be returned to the customer or they can be of use for reselling. Cost effective repairs can enable the reverse logistics centre to actually become a profit center. In fact, the business model of several third party reverse logistics providers depends upon selling refurbished products at high markups. Some even go ahead to actually provide warranties on the revamped goods.

After Sales Support: suppose customer ‘A’ returned goods; and these goods are repaired, repacked and sold to customer a new customer ‘B’, here the reverse logistics provider has become the new seller. In case the refurbished products are sold by the original manufacturer, all aspects of after sales support, such as: servicing the product and supporting it with an annual maintenance contract (AMC) are required even in the case of goods sold second-hand.

Using a Third Party Reverse Logistics Provider: Just like the logistics of an ecommerce merchant can be outsourced to a third party logistics provider, there are specialist third party providers of reverse logistics too. These are organizations that specialize in receiving goods from customers, refurbishing them, and selling them at steep discounts.

The key reverse logistics activities are as follows:

Gate keeping: It is the process of screening unwarranted and defective commodities at the entry point. In the current economic climate, while it is not easy to manage the forward flow of products to customers, reverse flow becomes all the more difficult to handle. But not thinking about the reverse flow of products could mean missing imperative opportunities for guiding a company through tough times. Effective returns management can provide additional means of positively impacting a firm’s financial performance as well as building stronger relationships with key customers. When the returned product is re-entered into the inventory ledger, it starts incurring inventory carrying costs, and takes up warehouse space. Each of this logistical activity is expensive and must be considered part of the total cost of returns, beyond the negative adjustment to sales. Therefore efficient gate keeping is a must.

Compacting the recycling time is essential: When returned products come back to the distribution centers, the disposition methods should be kept as simple as possible so as to save time and cost both. The returned items must be tracked and stored at a central repository, by the use of an information system in place. Centralized return centers system are better to put in order all the products of reverse logistics from sorting, processing, storing, and resending to the next destination level under strict scrutiny in documented time.

Making best use of reverse supply chain: Many firms use reverse supply chain in effective way to get the benefit out of it. It reduces their operating costs by reusing products or components. Instead of destroying the products entirely organizations are setting up reverse supply chain modules to reduce the volume of destroyed products by half. Companies have started realizing the importance of reusing products or components; as a result, reverse supply chains are becoming essential part of business models. By cleaning up or clearing the distribution channel more often, bringing back outmoded and outdated or clearance items becomes easy. For example, Xerox replaces or upgrades hundreds of office printing machines every month. In India, Wipro is also using reverse supply chain to best use.

At IBM reverse supply chain process is explored systematically. The company conducts a lot of research for upgrading and refurbishing at this stage. In addition, when products are at the end of their useful life, it makes business sense to recover them for disassembly and component reuse. It also makes sense from an environmental perspective because electronics products, in many cases, include toxic materials that must be disposed of properly. Planning for these events upfront can help eliminate or reduce unacceptably high energy costs and environmental impact. How products are designed, assembled, labeled and packaged can have a profound effect on the efficiency of any reverse supply chain. Reverse logistics is an area where IBM’s history and legacy stands out. For most of this vital work, IBM leased out mainframe computers to companies instead of selling them; this because eventually, all equipment came back to IBM. As a result of its leading-edge experience in this area, IBM has a deep understanding of how to effectively design products for reuse and recycling.

In some part of world like EU, companies are setting up reverse supply chains because of environmental regulations. For example, from 2003, European Union has brought in a legislation that will require tire manufacturers operating in Europe to arrange for the recycling of one used tire for every new tire they sell. Some companies are using reverse supply chains as an integral part of new businesses.

For many large manufacturing and technology companies, after sales services forms a significant portion of their reverse logistics revenue. Also, providing timely and efficient service has become a key competitive differentiator in many industries. Many automobile (2 wheelers and 4 wheelers) dealers have designed attractive revenue models in after sales servicing. Better management of the reverse supply chain transforms into higher customer service and consequently, higher customer satisfaction; and industries and the enterprises within them are realizing that management of the reverse supply chain is a revenue opportunity. For example, GE Aircraft engines makes more in servicing its aircraft engines than it did in initially selling them.

Some firms have also set up reverse supply chain capabilities for philanthropic reasons. Nike encourages consumers to bring their used shoes back to the store from where they were purchased. These shoes are shipped back to Nike, where they are shredded, which are then donated to make basketball courts and running tracks. The company also donates funds to help build and maintain those courts. By doing this, Nike has augmented the value of their brand and also promoted people to purchase their products.

An efficient reverse supply chain focuses on processing product returns generally at lower cost:

The computer and electronics industry is known for short product lifecycles. A big market has emerged for used PCs both in developing and developed countries. According to a research approximately 70 million secondhand PCs are refurbished and exported to emerging markets. Nearly 30 million second hand PCs are discarded worldwide.  The need and opportunities for reuse of obsolete products does not need to be over emphasized.

The automobile industry is one of the biggest industries in the world and deals with the most expensive product. Therefore, it is not surprising that reverse logistics is an important subject for this industry. The three primary areas in which reverse logistics plays a significant role are: 1. Salvage of parts and materials from end-of-life vehicles, 2. Remanufacturing of used parts, and 3. Stock-balancing returns of new parts from dealers. The big three automakers in the U.S. have joined together to form the Vehicle Recycling Dive.

 The estimated cost of reverse logistics in the Indian auto and auto components industry is around 0.5% to 1% of total sales. The reverse logistics segment has been growing at the same rate for both the auto and auto components industries during the same period.

In the pharmaceutical business its pressing problem of what do you do with the expired medication. About 3% of over-the-counter medications are not used before it expires people always have some or the other expired medication in their household. It ends up in drain and eventually the water supply; or it can make its way to landfills if thrown in the trash, essentially posing a health risk to people and wildlife. Reverse logistics in this industry is considered a pellet in company’s profits and an expensive process most times. Yet, it is an imperative process in modern times due to various reasons such as government regulations, growing environmental concerns, growing consumerism, and competitive advantage. An important consideration for companies is to perform the operations in reverse logistics effectively so that it reduces the cost involved.

The expired or unused pharma products need to be disposed off; they need to be reclaimed so that it can be incinerated or otherwise disposed of safely. Collection is also being established at pharmacies, where people can bring in their old medication so that it can then be sent to a disposal center. Pharmaceutical companies and retailers who sell the medications can do some useful work in this area.

Some important considerations for the reverse logistics of returned medications include security of the medications, keeping costs down through technology and automation, and tracing the returns from the initial interception down to their final disposition. Supply chain visibility is also essential for any pharmaceutical supply chain including reverse logistics, as counterfeiting and lost or stolen products continue to be a major concern for this industry.

Reverse logistics in pharma business should involve the use of barcode tracking and identification, as well as easy product identification. The reverse logistics of medicines need to be addressed on war footing to avoid any environmental issues and concerns of medication disposal.

 Conclusion: Reverse supply chain is the last step in the supply chain, which needs to be addressed with accurate strategies; when companies give more attention to reverse supply chain, the product life cycle gets more and better. Cost reduction is not the only benefit that can be gained from reverse supply chain. It helps in understanding why products are returned. Was it returned due to quality problem? Were the stores improperly stocked? Was there a labeling problem? Was the service of distributer or retailer not up to the mark? Are the price points ignored? Is the competitor playing foul game? Is the packaging aesthetics not working? Was there a problem in batch processing? These and many more dilemmas can be sorted out by going to the root cause. It helps the organization in return by resulting in better engineering, packaging, pricing, manufacturing or distribution. It assists to get slow-moving products off the shelf. Companies have realized that they need to modify their forward supply chain by successfully coordinating it with reverse supply chain. How efficient is your reverse supply chain? Give it a thought right away.

]]> https://drvidyahattangadi.com/how-efficient-is-your-reverse-supply-chain/feed/ 0 https://drvidyahattangadi.com/diversity-drives-better-business/ https://drvidyahattangadi.com/diversity-drives-better-business/#respond Mon, 23 Jun 2014 03:33:50 +0000 http://drvidyahattangadi.com/?p=674 Diversity Drives Better Business

Since the 60s the idea of single monoculture is on a slow extinction.  It has given way to pluralistic society that continues to evolve through cultural integration and influence.  These changes are evident in fashions, dietary habit, entertainment, music, literature and sports.  Diversity adds spice to life.

Distinguished management experts have asserted that diversity in organization is a good thing because it forces teamwork, because people know that they must cooperate with each-other to get results, and for a cohesive work culture. Designing and maintaining a consistent workforce with diverse features is a tough managerial task.  Diversity in organization occurs when the organization hires people who have a broad range of background, when the demographics vary on a large scale with difference in age sex, culture and physical challenges.  Cultural ethnicity is one major issue, which needs to be handled with care.  When the pool of resource is large and diverse in nature maintaining equality is a hurricane task.  The reality of globalization is that the boundaries of nations have shrunk, communication speed has increased and the entire world has become a global village.  It is important therefore we respect, accept and celebrate diversity.

Chester Bernard, author of the management classic ‘The functions of the executive’ has described informal organization as any joint personal activity without conscious joint purpose, even though contributing to joint result.  Thus the informal relationships established in-group of people during various celebrations like a dance party, a birthday celebration or a wedding anniversary may aid in achievement of the organizational goals. Globalization, migration and communication challenge organizations to develop broad perspectives of management.  Organizations have to mix and merge people from different parts of world for various operations.  People accept change in cultural diversity if it is a non-issue.  Organizations should constantly but subtly   coach its people to accept change in and around them.

Progressive companies all over the world recognize the advantages of integrating worker from culturally diverse backgrounds. These companies view diversity as a business plan as in today’s global marketplace companies interact with different clients with cultures and different code of conduct.  In the early stages, International business was conducted with an ethnocentric outlook that means the orientation and type of operation was based on the parent company.  The modern multinational corporations have geocentric orientation. The total organization is viewed as an independent system operating in many courtiers.  The relationships between headquarters and subsidiaries are collaborative.  Communication flowing from both directions encourages viewpoints of workers at all levels.  Furthermore, managers of different nationals occupy key positions.

In short, the orientation of multi-national corporations is truly international and goes beyond a narrow nationalistic viewpoint. MNCs have recognized the business opportunities in many different countries.  It can raise money for its operations throughout the world.  Moreover, multinationals firms benefit by being able to establish production facilities in countries where their products can be manufactured more effectively and efficiently.  Companies with worldwide operations sometimes have access to natural resources and materials that may be available to domestic firms only.  Also a large MNC can recruit management and other professionals from a worldwide labor pool.   Companies have recognized the various pros of diversity.

 Increase in Creativity: When different people are put together towards a common solution there is no one best answer to any question because the organization can obtain more and more ideas.  Different cultures of the employees can offer insightful alternatives to a problem.

 Increase in Productivity: When people of variety of culture and variety of backgrounds are made to work together it increases their productivity exponentially. This happens because it kills monotony of work culture, brings freshness in work atmosphere.  Different people have different styles of performing work.  Every employee motivates the other with his difference of style.

Negotiation skills: Negotiating is a part and parcel of life.  Everyone is busy negotiating on some or the other matter.  Every culture has it own philosophy on negotiation.  Americans hate negotiating, they rarely negotiate; you will find them negotiating except for buying a car or a home.  But when Americans have to work with different cultural backgrounds of co-workers they realize the art of negotiation.  Negotiation should always be a win-win situation.  There should be a common ground for negotiation; it should not leave a feeling of hurt on any party.  Germans are called tactful negotiators.  So this can be learnt when diverse people come together to work.

New Business Processes:  Diverse people have diverse attitudes to business.  Companies need to adapt newer business skills and newer processes.  The cross-cultural workforce can bring in better and newer work processes.

New language skills: People can learn new languages while working in organization from their co-workers.  By learning each other’s language the barriers can be reduced.  The companies pay a high sum to language interpreters.  By motivating people who love to learn new languages, companies can curtail expenses.  By learning new languages people can get insight of other countries.  They can improve their communication skills.  After all multi linguistics are always preferred by an organization.

But, Prof.Stephen Bainbridge of University of Illinois Law School argues that homogeneity should be maintained at the workplace as it increases productivity and profitability.  He further states that people feel at home while working with people like them therefore they work more effectively.   He recognizes that people have problem communicating their idea and emotions to people from diverse cultures and backgrounds.   It is a waste of time and energy to work on diverse workforce he comments.

 Prof.Ron Burn a Professor of Sociology and Strategy at the Chicago Graduate School of Business has published several papers on diversity.  He is of the opinion that diverse workgroups are more innovative as they not only have more variety in experience but they are also connected to different source of information in their environment.

Kent State University located in the heartland of America allows students, faculties and staff to learn about variety of cultures from around the world.  Dr.Sheryl Smith – an Associate Dean of students and Director of Campus Life says that the university environment encourages students to explore and understand and appreciate the difference and similarities among cultures especially with diverse student organizations   through events sponsored by these groups.  Students, faculties and staff can experience food, music, dance and sports from wide variety of culture.  The philosophy is simple: students will have to work some day with people of different culture and they will encounter differences.  They should feel at ease and poise when they enter their professions.

Managing cultural diversity is simple.  We all need to address the myths, stereotypes and cultural differences that interfere with our daily chores.  The age-old gender fact that only male and females exist in organizational workforce has lost ground; today we have gay and transgender individuals making vital contributions to our economy. Nations and workforce are both becoming more diverse. The share of people of different color, cast, creed, religion, tradition, language, diction, practice, and ethnicity is part of organizational workforce.

 We are witnessing more women entering the labor force; while taking increasingly the forefront. They are occupying vital roles and are the decision makers in more organizations. It is an open fact that businesses that embrace diversity have a more solid footing in the marketplace than others. Whatever color, black or brown or white.  That is it.   The word “global village” may appropriately describe the world we live in today.  The fiber optics, aerospace and computers link all that exists is a part of our lives. The geographical boundaries are shrinking day by day.   Let’s give up obsolescence and move on to improve productivity.