Topic 7 – Organizing for Effective Logistics

Outline

1.1 Logistics Organizational Structures

1.2 Decision-Making Strategies in Organizing for Logistics

1.3 An Approach to Developing an Optimal Logistics Organization

1.4 Measuring Logistics Effectiveness

1.1 Logistics Organizational Structures

Development of Business Structures

a. Functional Specialization

b. Divisions or business units organized around specific product or

service groups

c. “Hollow Corporation”

Developed in response to trend towards outsourcing

Essentially a group of managers and “ideas people” who hire

external companies to perform activities needed to produce

the product or service sold by the corporation.

1.1 Logistics Organizational Structures

Development of Business Structures

d. “Virtual Corporation”

More advanced variation of the “Hollow Corporation”

concept

Formed when a group of companies come together to

develop, produce, sell and distribute a specific product or

service.

1.1 Logistics Organizational Structures

Development of Business Structures

d. “Virtual Corporation”

Relies on inter-organizational and inter-functional teams

Advances in information communication technology such as

the Internet, facilitates development of Virtual Corporation

concept.

Virtual corporation exists for as long as the product or

service is viable.

1.1 Logistics Organizational Structures

Development of Business Structures

e. Organizations in the e-Commerce era

Hollow and virtual corporations are possible scenarios

Customers are mainly concerned with the outputs they see,

in terms of product quality and service reliability.

1.1 Logistics Organizational Structures

Organizational Strategies

Coordination of logistics activities is necessary, whichever

organizational structure is used.

a. Process-based strategy

Managing a broad group of logistics activities as a

value-added chain

Emphasis is to achieve efficiency from an integrated

system

1.1 Logistics Organizational Structures

Organizational Strategies

b. Market-based strategy

Managing a limited group of logistics activities across a multi-division business or across multiple business units

Seeks to:

Make joint product shipments to customers on behalf of different business units or product groups

Facilitate sales and logistical coordination by a single order-invoice

1.1 Logistics Organizational Structures

Organizational Strategies

c. Channel-based strategy

Managing logistics activities performed jointly in

combination with dealers and distributors

Emphasis on external control

Typically heavy on finished goods inventory downstream in

the distribution channel

1.1 Logistics Organizational Structures

Coordination of Activities

Must take into account the following dimensions:

a. Strategic versus Operational Coordination

Refers to the level at which logistics activities are

positioned within the firm’s organizational hierarchy

1.1 Logistics Organizational Structures

Coordination of Activities

b. Centralized versus Decentralized Coordination

Centralized distribution refers to a system in which logistics activities are administered, controlled and managed from a central location, e.g. corporate headquarters.

Centralization produces economies of scale for such activities like order processing, traffic and inventory control.

Decentralization is suitable for firms with diverse products or markets.

1.1 Logistics Organizational Structures

Coordination of Activities

c. Line versus Staff Coordination

Logistics activities can be line, staff or a combination of both.

A line activity performs a task. Examples: order processing, traffic and warehousing

Staff activities coordinate and facilitate line activities.

Example: Order processing, traffic and warehousing may be housed within a staff organization under a logistics vice-president. Managers within the staff organization provide assistance to the order processing, traffic or warehousing (line) manager.

1.1 Logistics Organizational Structures

Logistics as a Function

Similar activities are grouped together and come under a functional manager.

Logistics as a Program

Distribution of an organization’s products and services are recognized as a program and all functional areas are subordinate to the program.

Logistics in a Matrix Organization

Requires logistics to coordinate activities across unit lines in the organization

Characterized by multiple reporting responsibilities

1.1 Logistics Organizational Structures

Team Organizations

Two types of teams exist

a. Task teams – organized for a specific, identifiable purpose or project with a clear end once the purpose or project has been accomplished

b. Work teams – are ongoing teams with specific continuing goals

1.2 Decision-Making Strategies in Organizing for Logistics

The Logistics Mission Statement

a. Defines the basic purpose of an organization and identifies the parameters under which it will operate

b. Provide the foundation or basis from which an organization develops strategies, plans and tactics

c. Used in combination with specific performance goals and measurement systems

d. Helps eliminate organizational conflict and provide direction to logistics personnel

1.2 Decision-Making Strategies in Organizing for Logistics

The Logistics Mission Statement

e. Eight Key Components

Targeted customers and markets

Principal products/services

Geographic domain

Core technologies

Survival, growth and profitability

Company philosophy

Company self-concept

Firm’s desired public image

1.2 Decision-Making Strategies in Organizing for Logistics

Components of an Optimal Logistics Organization

a. Organizational Characteristics

Structure and Technology are major components

Structure refers to the relationships between various functional areas – inter-functional and intra-functional – as represented by a company’s organization chart

Structural variables include organization size, work unit size, decentralization, specialization, formalization & span of control.

Technology refers to the systems and mechanisms used by an organization to convert raw inputs into finished outputs.

1.2 Decision-Making Strategies in Organizing for Logistics

Components of an Optimal Logistics Organization

b. Environmental Characteristics

Effectiveness of an organization is influenced by factors internal and external to the firm.

Internal factors are:

Controllable

Known as organizational climate or corporate culture

1.2 Decision-Making Strategies in Organizing for Logistics

b. Environmental Characteristics (con’t)

External factors are:

Uncontrollable

Include political & legal, economic, cultural & social and competitive

environment

1.2 Decision-Making Strategies in Organizing for Logistics

Components of an Optimal Logistics Organization

c. Employee Characteristics

Organizational attachment

Job performance

1.2 Decision-Making Strategies in Organizing for Logistics

Components of an Optimal Logistics Organization

d. Managerial Policies & Practices

Macro level policies apply to the entire company & determines overall goal structure of organization

Micro level policies affect individual goals of corporate functions

Policies affect procedure and practices of the company

1.2 Decision-Making Strategies in Organizing for Logistics

Factors that facilitate improvement in organizational effectiveness:

a. Strategic goal setting

b. Resource acquisition & utilization

c. Performance environment

d. Communication process

e. Leadership & decision-making expertise

f. Organizational adaptation & innovation

1.3 An Approach to Developing an Optimal Logistics Organization

Research Corporate Strategy & Objectives

a. Corporate strategy & objectives give logistics long-term direction and focus

b. Logistics must fully understand the role they play in carrying out the corporate strategy

1.3 An Approach to Developing an Optimal Logistics Organization

Corporate Structure

Successful logistics structures share common characteristics:

a. Formal logistics or logistics channel management organization

b. Centralized approach to policy formulation and direction setting

c. Inclusion of activities and processes beyond those typically considered to be logistics activities

d. Organization structure follow logistics strategy

1.3 An Approach to Developing an Optimal Logistics Organization

Corporate Structure

e. Seamless, integrated logistics processes

f. Elimination of functional silos both within logistics processes and between logistics and other

functions/processes

g. Ability to accommodate and facilitate change

1.3 An Approach to Developing an Optimal Logistics Organization

Functional Responsibilities

a. Organize functions in a manner compatible with corporate structure

b. All logistics sub-functions should be housed under a single division or department in order to implement the concepts of integrated logistics management and cost trade-off analysis.

1.3 An Approach to Developing an Optimal Logistics Organization

Management Style

a. Management style and personality of senior logistics executives and lower-level managers influence attitudes, motivation, work ethic and productivity of all employees at all levels.

b. Intangible factor that can make a difference in performance between two companies with identical organization structures

1.3 An Approach to Developing an Optimal Logistics Organization

Flexibility

a. Organize for flexibility.

b. Be receptive to changes and respond appropriately.

1.3 An Approach to Developing an Optimal Logistics Organization

Support Systems

a. Support services and support specialists are required.

b. Examples:

Computer systems : decision support system, logistics modeling tools, warehouse management system & management information system

Legal services

Administrative services

Financial & accounting services

1.3 An Approach to Developing an Optimal Logistics Organization

Human Resource Considerations

a. Includes the following

Employees’ skills & abilities

Salary & benefits

Training & development programs

Selection & retention procedures

1.3 An Approach to Developing an Optimal Logistics Organization

Human Resource Considerations

b. Logistics managers must possess the following:

Self-motivation

Effective oral communication

Self-confidence

Personality integrity & awareness of business ethics

Ability to motivate

Ability to plan

Ability to organize

Ability to supervise

Problem-solving ability

1.4 Measuring Logistics Effectiveness

Key Performance Indicators

a. Examples of performance indicators:

Outbound freight cost

Inventory count accuracy

Order fill

Inventory turns

On-time delivery

Customer complaints

Over/short/damaged

Stockouts

Returns & allowances

Line item fill

1.4 Measuring Logistics Effectiveness

Key Performance Indicators

Inbound freight cost

Back orders

Inventory obsolescence

Order cycle time

Incoming material quality

Overall customer satisfaction

Inventory carrying costs

Logistics cost per unit versus budget

Invoice accuracy

1.4 Measuring Logistics Effectiveness

Key Performance Indicators

b. Need to select, prioritize and develop measurement techniques & procedures

c. Common methods of developing measurement techniques to measure effectiveness:

Cost-to-Sales Ratios

Standards : internal & external

1.4 Measuring Logistics Effectiveness

Evaluation of Logistics Executives

a. Three main attributes:

Line management ability

Problem solving ability

Project management ability

b. 360-Degree Evaluation

Considers input from boss, peers, workers and subordinates

Topic 7

Summary

and

Conclusion

1. Logistics organizations must have clear statements of purpose, specific and measurable objectives, strategies and plans, and a committed workforce.

2. Factors that contribute to logistics organizational effectiveness include organizational, environmental and employee characteristics, and managerial policies and practices.

3. Any approach to developing an optimal logistics organization must consider the following: corporate objectives & structure, functional responsibilities, management style, flexibility, support systems, and human resource issues.

4. Measurement of logistics effectiveness requires the identification of the elements that impact effectiveness, evaluation of their relative importance, and developing measurement techniques to assess performance.