topic 7 – organizing for effective logistics outline 1.1logistics organizational structures...
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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
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.