SUPPLY CHAIN MANAGEMENT

ORGANISATION AND CONTROL IN SUPPLY CHAIN

Learning Objectives After reading this chapter, you should be able to: Understand the need for logistics/supply chain organisational structure and its importance. Describe the various types of organisational structures in integrated logistics which have been evolved over time. Discuss the meaning of organisational design. Discuss the selection of appropriate organisational structure for logistics/supply chain management function. Discuss the kinds of alliances and partnerships in logistics/supply chain management.

Organisation is the structure which facilitates the creation, the implementation and the evaluation of the plans. It is the formal mechanism for the purpose of allocating the human resources of the firm to achieve the goals planned by the firm. The most difficult task involved in the organising function in the establishment of human relationships most optimally.
The logistics and supply chain managers need to focus on the organisational structure required for managing the business logistics/supply chain management function.

11.1 Need for logistics/supply chain organizational structure

In a traditional form of organisation, activities are grouped around the three primary functions of finance, operations and marketing. But from the logistics/supply chain management point of view this arrangement has fragmented the logistics/supply chain activities among these three primary functions, whose primary purposes are different from those of logistics/supply chain management. Because of conflicts of purpose among the three major functional areas, the logistics/supply chain management system becomes sub-optimal affecting the efficiency of the firm as a whole. Therefore, some form of organisational structure for coordinating decisions making of separate logistics/supply chain activities is needed.

Organisational Structure : Because of the geographically dispersed nature of logistics work and the fact that operations typically span more than one business, there is no absolutely right or wrong organisational structure for logistics. Therefore, one of the most difficult question to be answered is where does integrated logistics belong in the organisational structure?.
Organisation Structures in Integrated Logistics

Organisational structure depends on factors such as (i) size, (ii) product offerings, (iii) number of plants, (iv) sales volume, (v) customer locations and (vi) corporate philosophy.

(i) Stage 1 Organisational Structure

In stage 1 organisational structure, logistics activities were assigned to functional departments such as marketing, manufacturing, finance/accounting etc.

Exhibit 11.1 shows stage 1 logistical organisational structure.

(ii) Stage 2 Organisational Structure

In stage 2 organisational structure, logistics was given an independent status as a core competency, for example, physical distribution function was separated from marketing function.

Exhibit 11.2 illustrates the stage 2 organisational structure.

(iii) Stage 3 Organisational Structure

In stage 3 organisational structure logistics function was treated in par with other major. Exhibit 11.3 illustrates the stage 3 integrated logistics organisational structure.

(iv) Stage 4 Organisational Structure

In stage 4 organisational structure integrated logistics function became a separate functional area with its own senior executive heading the department.

Exhibit 11.4 illustrates stage 4 integrated organisational structure.

(v) Stage 5 Organisational Structure

In stage 5 organisational structure, integrated logistics became a integrated logistics matrix organisational structure. part of management services and the organisational structure became an

Exhibit 11.5 illustrates the stage 5 integrated logistics matrix organisational structure and Exhibit 11.6 shows the stage 5 integrated logistics matrix organisational interfaces.

11.4 Structure for supply chain performance

The logistics and supply chain organisation involves three major aspects.

1. Organisational design including (a) organizational choice and (b) organizational positioning
2. Organisation scope including (a) inter functional (b) intrafunctional and (c) inter-organizational management and

3. Partnerships and collaboration including (a) information sharing (b) alliances and (c) contracting
1. Organisational Design Two aspects of organizational design are: (a) Organisational choice and (b) organisational positioning

(a) Organisational choice : When a firm has to establish some form of organizational structure, it may select from some basic choices. These can be categorized as (i) informal (ii) semiformal and (iii) formal. The informal organisation : The major objective for logistics/supply chain organisation is to achieve coordination among various logistics activities for their planning and control. This coordination can be achieved in a number of informal ways. With-out having any change in the existing organizational structure, coordination is achieved by persuasion among activities and cooperation among those who are responsible for those activities. In firms having separate areas of responsibility such as transportation, inventory control and order processing, an incentive system may be created to coordinate them. In some firms, the budget may provide a mechanism for effective coordination.

The Semi Formal Organisation : This type of organisation form recognises that logistics planning and operation cut across the various functions within a firms organizational structure. The logistics manager or the supply chain manager coordinates the projects which involve the supply chain and cover many functional areas such as marketing, production, inventory, warehousing, purchasing etc. This type of structure is also known as matrix organisation. In a matrix organisation, the logistics/supply chain manager is responsible for the entire logistics system. The Formal Organisation : This type of organisational form or structure establishes clear lines of authority and responsibility for logistics/supply chain manager. This involves (i) placing the logistics/supply chain manager in a superior position relative to logistics/supply chain activities and (ii) placing the logistics/supply chain managers authority in a level on par with other functional area managers such as operations, marketing, finance etc.

11.5 Selection of appropriate organizational structure for logistics/supply chain management function
The types of organisational structure to be selected is dependent on the particular corporate strategy selected by the firm, viz., process strategy, market strategy and information strategy. A process strategy has the objective of achieving the maximum efficiency in the movement of goods from the raw material state through work-in-process and on to the finished goods state. Market strategy helps the firm to have a strong customer service orientation. Co ordination of both sales and logistics is sought in this strategy.

Information strategy is used by the firms that have significant downstream network of dealers and distribution firms with substantial inventories.

Organisational positioning : After organizational choice and organizational orientations are considered in the organisation design, the next factor to be considered is organizational positioning or positioning of logistics/supply chain activities for their most effective management. Organisational positioning is concerned with where to place these activities in the organizational structure. Three issues which determine this are (a) decentralization versus centralization (b) staff versus line and (c) large versus small firm 2. Organisation Scope (a) Inter-functional management Since all activities of a firm are economically interrelated, departmentalizing them along functional lines to create a reasonable span of control promotes conflicts.

Autonomy of responsibility, authority, accountability and reward discourage trade-offs among inter-functional activities and can result in sub-optimal performance by the firm as a whole. Therefore, logistics/supply chain managers face the problem of inter-functional management. 3. Alliances and Partnerships Logistics alliances and partnerships provide some strategic and operating advantages which are given below: Reduce cost and lower capital investment in logistical assets Access to technology and management skills Improved customer service Competitive advantage (through increased market penetration) Increased access to information for planning Reduced risk and uncertainty.

Strategic alliance is a planned ongoing relationship where each party has needs that can be fulfilled by other and both firms share common values, goals and corporate strategies for mutual benefit. Contract logistics is a specially defined relationship that is contractually oriented and dependent on the supplier meeting the shipping firms defined performance goals.
Of late, many logistics firms have emerged to provide a full-service logistics capability to their clients. These logistics providers (known as 3 PL firms and 4 PL) can handle the entire logistics operations of a client firm for a contract price.

Partnering through Collaboration In formal and informal organisational design, relationships are defined between people within an organisation. With the evolution of information technology, a new dimension to organisation has emerged. This is known as partnering through collaboration. Collaborative Planning, Forecasting And Replenishment (CPFR) is a program of information sharing that involves forecast, production schedules, order replenishment quantities and their timing and lead times.

Four most common areas for implementation of CPFR between a retailer and a manufacturer are: (i) retail event collaboration, (ii) DC replenishment collaboration, (iii) store replenishment collaboration and (iv) collaborative assortment planning. DC replenishment collaboration occurs when two trading partners collaborate on forecasting distribution center withdrawals or anticipated demand from the distribution center to the manufacturer. In store replenishment collaboration, trading partners collaborate on store-level point-of-sale forecasts, which are then converted to a series of store-level orders committed over a specified time horizon. In collaborative assortment planning, the trading partners develop an assortment plan jointly. Retail event collaboration is collaboration between retailers and suppliers to plan forecast and replenish promotions.