Topic 7 – Organizing for Effective Logistics Outline 1.1 Logistics Organizational Structures

1. 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

2. 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.

3. 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.

4. 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.

5. 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.

6. 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

7. 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

8. 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

9. 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

10. 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.

11. 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.

12. 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

13. 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

14. 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

15. 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

16. 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.

17. 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

18. 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

19. 1.2 Decision-Making Strategies in Organizing for Logistics • Components of an Optimal Logistics Organization c. Employee Characteristics  Organizational attachment  Job performance

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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.

26. 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

27. 1.3 An Approach to Developing an Optimal Logistics Organization • Flexibility a. Organize for flexibility. b. Be receptive to changes and respond appropriately.

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. Topic 7 Summary and Conclusion

36. Logistics organizations must have clear statements of purpose, specific and measurable objectives, strategies and plans, and a committed workforce. • Factors that contribute to logistics organizational effectiveness include organizational, environmental and employee characteristics, and managerial policies and practices. • 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. • 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.