Logistics organization

Logistics Management TYBMS

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Organizing Integrated Logistics
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IMPORTANCE OF AN EFFECTIVE LOGISTICS ORGANISATION
Logistics Management TYBMS
While quality and customer service became the focus of top management in the 1990s, speed,
and supply chain management are becoming key competitive issues in the recent years (i.e.,
000 on!ards". #o be competitive in the global market, a firm must be able to implement the
strategies, plans and programs to deliver ade$uate levels of $uality and service that are
acceptable to the customers. Logistics play a vital role in that process.
% study in &'% highlighted the importance of $uality programs in the area of logistics. (t
identified several barriers to instituting high $uality program in logistics management. #he top.
si) barriers identified !ere related to employees or organisational issues.
#hese barriers are as follo!s*
(i) +hanging the corporate culture,
(ii) -stablishing a common vision throughout the organisation,
(iii) -stablishing employee o!nership in the $uality process,
(iv) .aining top management commitment,
(v) +hanging management process,
(vi) #raining and educating employees.
#he role of individual employees and logistics departments are especially crucial in
strategic logistics management.
ENVIRONMENTAL FACTORS AFFECTING LOGISTICS MANAGEMENT
#he factors affecting the logistics e)ecutives are* (j) economic uncertainty, (ii) inflation, (iii)
product and energy shortages, (iv) environmentalism, (v) green marketing, (vi) regulatory
restrictions, and (vii) increasing customer demands and expectations.
/ecause of the increasing difficulty in managing the logistics activities it is necessary to
organise logistics !ithin the firm and to measure its effectiveness. -ffective integrated logistics
organisation is very important to the firm. Many types of organisational structures have been
developed but no single 0ideal0 structure is appropriate for all firms. %lternative organisational
structures have to be evaluated and an effective organisation structure has to be developed.

% firm1s strategic management process includes an effective and efficient logistics

organisation. #he problem and challenges that organisations face primarily lie in systems, structure.
mission. people. corporate-culture and reward structure rather than in strategic decision making.
#he manner in !hich these strategic resources interact to create a synergetic system is critical to the
success of the organisation.
(n traditional organisations, logistics functions !ere scattered throughout the firm !ith no
single e)ecutive, department or division responsible for managing the entire distribution process.
(ntegrated logistics management concept re$uires an organisational structure that combines the
activities of logistics under a single, high-level e)ecutive.
#he present trend is to integrate many logistics functions under one top-ranking corporate
e)ecutive. #he logistics e)ecutives e)ercise control over logistics activities such as* (i)
transportation, (ii) !arehousing (iii) inventory control, (iv) order processing and (v) purchasing and
procurement.
(n general, logistics e)ecutive1s span of control has been e)panded to include transportation,
!arehousing, inventories, order processing, packaging, materials handling, forecasting and
planning and purchasing. +oordination of the various logistics activities is crucial to the efficient
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functioning and effectiveness of the organisation.
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'tage * #his stage recognises the physical distribution function in the firm and the
need to manage the same under a single entity (i.e., person, department or function". %
separate distribution department is enacted to carry out functions such as* (a) warehouse
operations, (b) outbound traffic. (c) international traffic, (d) carrier selection, (e) private
carriers, (j) warehouse site selection, (g) packaging and (t) distribution planning
(n stage integrated logistics organisation, the management tends to be transaction -
driven. #he focus is on reducing the number of transport carriers, eliminating obsolete
inventory, improving utilisation of transport vehicles and levelling out !orkloads
'tage 2* % stage 2 integrated logistics organisation takes over functions of order
processing, customer service, inventory control and in bound traffic in addition to its
functions in stage organisational structure. #he distribution manager is given a ne!
title as !logistics manager!. #he distribution manager, in addition to focusing on
transactions 4in stage ", pursues budgets in stage 2. #he distribution manager is
responsible for developing the change process, re!arding good performance,
consolidating the integrated logistics organisation and implementing integrated
logistics measures. % stage 2 integrated logistics organisation can result in savings upto
15 per cent of integrated logistics costs over a stage organisation.
'tage 3* %t this stage, the integrated logistics becomes a separate functional area
headed by an integrated logistics manager, contributing to high-level strategic
Logistics Management TYBMS
STAGES OF DEVELOPMENT OF ORGANISATIONAL STRUCTURE IN INTEGRATED
LOGISTICS
'tage 1* #here is no integrated logistics department. #he activities are fragmented into functional
areas such as* (a) marketing, (b) finance6accounting, (c) manufacturing and (d) management services.
(n such organisational structures, integrated activities cannot reach their full potential in providing a
competent edge.
"or example, transportation is divided bet!een marketing and manufacturing 4responsible
for purchasing and material handling". #hese departments may independently contract transport
carriers to their respective needs of inbound shipment of materials and for outbound shipment of
finished goods to !arehouses, retail outlets or final consumers. (f one entity controls transportation,
then inbound movements can be matched !ith outbound movements, thereby balancing traffic flo!s
and increasing transport carriers utilisation and productivity.
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decisions. #he additional functions added to the functions of logistics manager of stage
2 structure are* (i) demand forecasting, (ii) salvage#scrap disposal, (iii) purchasing,
(iv) materials handling, (v) parts# service support and (vi) logistics planning.
%t this stage the integrated logistics manager balances cost and service, develops
better information, improves cooperation !ith the functional areas of the firm and begins
to roll over plans and budgets. % 10 to 15 per cent cost improvement over stage 2 can be
achieved.
'tage 5* %t this stage, integrated logistics organisational structure becomes the
integrated logistics matri) environment. (n the matri) structure, integrated logistics
becomes part of the 0management seryices0. (t helps to coordinate the flo!s of products
into, through and out of the firm. #he integrated logistics manager links integrated
logistics to marketing, finance6accounting
and manufacturing.
Exhibit 9 ! i""#strates t$e Integrated Logistics Matri% Organisationa" Str#ct#re
(ntegrated Logistics Matri) 8rganisational 'tructure
ntegrated Marketing "inance# Manufacturing-
Logistics %ccounting
%ctivities
0
#ransportation (nternational and domestic /udgets (nternational and domestic
outbound, carrier selection, inbound, inplant, carrier
private carriage selection, private carriage
9acility 9ield !arehouse operations /udgets :a! material, !ork-in-
'tructure and location process and finished goods,
!arehouse operations, plant
and !arehouse location
(nventory 9inished goods, parts and /udgets :a! material, !ork-in-
service support
process and finished goods,
parts and service support,
purchasing
Material 9ield !arehouse systems, /udgets (nplant and !arehouse
;andling <ackaging systems, packaging
Logistics Management TYBMS =
+ommunications $rder processing, demand /udgets <roduction scheduling
> (nformation 9orecasting
GENERIC LOGISTICS STRATEGIES
#he organisational strategies used by manufacturers are* (i) process-based
strategy,
(ii) market-based strategy and (iii) channel-based strategy !hich are briefly described
belo!*
Process&'ased Strateg( is concerned !ith managing a broad group of logistics
activities
as a value-added chain. (t emphasi?es achievement of efficiency from managing
purchasing, manufacturing scheduling and physical distribution as an integrated system.
Mar)et&'ased strateg( is concerned !ith managing a limited group of logistics
activities across a multi division business or across multiple business units. #he
logistics organi?ation !hich follo!s this strategy seeks to (a) to make @oint product
shipments to customers on behalf
of different business units or product groups and 4 b) to facilitate sales and logistical
coordination by a single order-invoice.
C$anne"&'ased strateg( focuses on managing logistics activities performed
@ointly in combination !ith dealers and distributors. #he channel orientation places a
great deal of attention on e)ternal control.
Logistics co&ordination* +o-ordination of the various logistics activities can be
achieved in several !ays. #he basic systems are usually structured through a
combination of* (i) strategic versus operational structure, (ii) centralised versus
Logistics Management TYBMS
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A
decentralised structure, 4iii" Line versus staff structure.
Strategic +ers#s o,erationa" str#ct#re* refers to the level at !hich logistics
activities arc positioned !ithin the firm. 'trategically it is important to determine the
position of logistics in the corporate hierarchy relative to other activities such as
marketing, manufacturing and finance6 accounting. 8perational structure of the various
logistics activities such as !arehousing, inventory control, order processing,
transportation is also e$ually important.
Centra"ised Vers#s Decentra"ised* #he term centrali%ed distribution can reflect a
system
in !hich logistics activities are administered at a central location 4a corporate head
$uarters", centrally programming activities such as order processing, traffic, or
inventory control can result in substantial cost savings due to economics of scale.
Becentrali?ation of logistics activities can be effective for some firms.
Becentrali?ation
can lead to higher levels of customer service.
Line and Sta--* Logistics activities can be line, staff or some combination of both.
Logistics as a line activity is comparable to sales or production in that employees are
0doing things0 that is, performing various tasks. When this is done, one individual is
made responsible for doing the distribution @ob.
(n this staff organisation, the line activities such as order processing, traffic and
!arehousing are assigned to a logistics vice president or to production, marketing, or
finance6accounting. #he various staff activities assist and coordinate the line functions.
#he combination of line and staff activities @oins these t!o organi?ational types, thus
eliminating the shortcomings inherent in the system !here line and staff activities arc not
coordinated.
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Co.,onents o- an O,ti.a" Logistics Organisation
9actors contributing to organisational effectiveness can be summarised as* (i)
organisational characteristics, (ii) environmental characteristics, (iii) employee
characteristics and (iv) managerial policies and practices.
Organisationa" C$aracteristics* 'tructure and technology are ma@or components
of a firm1s organisational characteristics. &tructure refers to the relationships that e)ist
bet!een various functional areas* interfunctional 4marketing, finance, operations,
manufacturing, logistics" or intrafunctional 4!arehousing, traffic, purchasing, customer
service". -)amples of structural variables are decentralisation, specialisation,
formalisation, span of control, organisation si?e and !ork unit si?e.
En+iron.enta" c$aracteristics* #he effectiveness of the organisation is
influenced by factors internal and e)ternal to the firm. (nternal factors !hich are
controllable are kno!n as organisational climate 4referred to as corporate culture
sometimes". -)ternal factors, sometimes referred to as uncontrollable elements include
the political and legal, economic, cultural and social and competitive environments.
E.,"o(ee c$aracteristics* -mployers are the keys to effective organisations. #he
ability of individuals to carryout their respective @ob responsibilities ultimately
determines the overall effectiveness of any organisation.
Manageria" Po"icies and Practices* <olicies at the macro level 4entire firm"
determine the overall goal structure of the firm. <olicies at the micro 4departmental"
level influence the individual goals of the various corporate functions such as
!arehousing, traffic, order processing and customer service. Macro and micro policies
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in turn.affect the procedures and practices of the organisation.
#he planning, coordinating and facilitating of goal-directed activities - !hich
determine organisational effectiveness - depend on the policies and practices by the
firm at the macro and micro levels. #he factors !hich can aid the logistics e)ecutive in
improving the effectiveness of the organisation are* (i) strategic* goal setting, (i)
resource ac$uisition and utili?ation, (iii) performance environment, (iv) communication
process, (v) leadership and decision making, and (vi) organisational adaptation and
innovation.
#hese factors are briefly discussed in the follo!ing paragraphs.
(i) 'trategic goal setting* 'trategic goal setting involves the establishment of t!o
clearly
defined goals* (i) the overall goal or goals of firm and 4ii" goals of the individual
employee, /oth sets of goals must be compatible and aimed at ma)imising firm -
employee effectiveness.
(ii) :esource acquisition and utili%ation' :esource ac$uisition and utilisation includes
the
. use of human and financial resources as !ell as technology to ma)imise the
achievement of corporate goals and ob@ectives. 9or e)ample, this re$uires properly
trained and e)perienced persons operating the firm1s private truck fleet using
proper storage and retrieval systems for the company1s !are houses, using proper
storage and retrieval systems in the !arehouses, keeping inventories and having
capital to take advantage of for!ard buying opportunities.
(iii) (erformance environment' #his is concerned !ith having the proper
organisational climate to motivate employees to ma)imise their effectiveness and
subse$uently, the effectiveness of the overall logistics function. #he strategies
!hich can develop a goaloriented performance include* (a) proper employee
selection and placement, (b) training and development programs, (c) task design
and 4d" performance evaluation combined !ith a re!ard structure that promotes
goal oriented behaviour.
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(iv) )ommunication process* +ommunication is one of the most important factors that
influence logistic effectiveness in any organisation. .ood communication
facilitates effective transmission of logistics policies and procedures throughout
the firm. (t also provides feed back of information concerning the success or
failures of the logistics policies and procedures. #he communication flo!s can be
do!n!ard, up!ard or hori?ontal !ithin the logistics area.
(v) Leadership and decision making* #he $uality of leadership and decision-making
e)pertise of the senior logistics e)ecutives are as important as effective
communication. #he effectiveness of the logistics organisation !ill be high if the
top logistics e)ecutive is a highly capable individual !ho makes thoughtful,
logical and consistent decisions.
4vi" $rganisational adaptation and innovation' #his is an important attribute of
effective organi?ations. #he environment surrounding the logistics activity must be
constantly monitored. Logistics must adapt to changing conditions and innovate to
continue to provide an optimal 0cost-service mi)0 to the firm and its markets. 9or
e)ample, the changes in environmental conditions include changes in transport
regulations, service re$uirement of customers, degree of competition in the firm1s
target markets, economic or financial shifts in the market place and technological
advancements in distribution area. 'tability and continuity are essential to an
effective organisation. (t must have a uni$ue offering !hich it can deliver to the
market and provide value to customers.
DEVELOPMENT OF AN OPTIMAL LOGISTICS ORGANISATION
#here are a variety of good organisational designs for a firm and over time, a firm
may have to modify its designs to reflect environmental and corporate changes. #he
development of a ne! logistics organi?ational unit or restructuring an e)isting one
re$uires the follo!ing tools or stages*
(i) Betermine corporate strategy and ob@ectives
(ii) 8rganise functions in a manner compatible !ith the corporate structure
(iii) Befine the functions for !hich the logistics e)ecutive is accountable
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(iv) Dno! his or her (i.e.. logistics manager1s" management style
(v) 8rganise for fle)ibility
(vi) Dno! the available support systems
vii) &nderstand the plan for allocation of human resource so that it complements
the ob@ectives of both the individual and the organisation.
#hese steps are discussed briefly in the follo!ing paragraphs.
(i) )orporate objectives' 8verall corporate ob@ectives and strategy provide a long-
term
direction to logistics activities. -ach functional component of the firm such as
finance, marketing, production and logistics are guided by the corporate ob@ectives
and strategies.
Logistics e)ecutives need to understand their role in carrying out corporate
strategy.
ii) )orporate structure' #he overall corporate structure affects the specific
organisational structure of the logistics activity. /ut logistics is increasingly being
centrali?ed. (n consumer goods companies, logistics !ill typically report to
marketing group. (n industrial goods producing firms logistics !ill report to
manufacturing6operations administration. 8ften, logistics is a separate
organi?ational activity reporting directly to the +-8 in firms manufacturing both
consumer and industrial goods.
(iii) "unctional responsibilities' #he ma@or functional responsibilities of logistics are*
(i) transportation, (ii) !arehousing, (iii) inventory control, (iv) order processing,
(v) packaging and (vi) purchasing and procurement.
(t is important that most of the logistics functions are placed under a single
department or division. #his !ill allo! the firm to implement the concepts of
integrated logistics management and total cost trade-offs. #he typical
responsibilities of logistics in most
organisations include outbound transportation, intra-firm transportation,
warehousing, inbound transportation materials handling and inventory
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management. 'ince these are
basic logistics functions, they must be administered by a senior logistics
e)ecutive. #!o functions !hich are important for carrying out the logistics
mission but for !hich logistics often does not have responsibility are* (i) sales
forecasting and ii) international distribution.
(iv) *anagement style' #he management style of the senior logistics e)ecutive may
bring significant changes in personnel, employee morale, and productivity. #he
style or personality of the senior logistics e)ecutive and to some e)tent of his or
her lo!er level managers influence the attitudes, motivation, !ork ethic and
productivity of employees at all levels of the organisation.
#he performance of t!o identical organi?ational structures can be at significantly
different levels of efficiency, productivity and profitability. #he success of a
firm1s
logistics mission depends on the management style and this is the reason for e$ual
effectiveness of different organisational structures.
(v) "lexibility' (t is necessary for any logistics organisation to be able to adapt to changes.
&nadaptable and unresponsive organi?ations become ineffective over a period of
time. #he logistics organisation must accept the changes and respond to them in !ays
that are beneficial to the firm.
(vi) &upport systems' 'upport systems are essential for logistics systems. #he logistics ..
organisation (i.e.. the logistics department or division" is supported by a good
management information system 4M('". 8ther support systems include legal services,
computer systems, administrative services and financial6accounting services.
(vii) +uman resource considerations' #he most vital component of an effective logistics
organisation is !people! because it is the people !ho ultimately determine ho! !ell
the firm operates. -mployees1 skills and abilities, !age scales, training programs,
selection and retention procedures and other employee related policies are crucial to
the structuring or restructuring of a logistics organisation.
%n organisation to be successful, it is necessary to have a logistics manager !ho !ill
lead productive and efficient employees. 'uccessful organi?ations are those that blend
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the optimal combination of organi?ational structure, planning process, people and
management style.
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