Organizing for Logistics Effectiveness Chapter #15 Organizing for Logistics Effectiveness

The Logistics System 7/30/2019

Overview We will do an overview of logistics organizational structures/solutions We will briefly discuss the issue of building an effective logistics organization We will discuss some of the variables affecting the logistics organization's structure We will examine the reconciliation of intra- and inter-organizational issues We will talk about how to achieve the best organizational structure 7/30/2019

Overview of Organizations Three basic choices Non-integrated, essentially the historical model of logistics in an organization Each logistics manager, order entry, inventory, etc. in a different department reporting to a different manager Characterized by little management focus on logistics as a system 7/30/2019

Overview of Organizations Functionally integrated results in close coordination within a operating functions, e.g. a single production facility All functions under a single manager, but lack of coordination across divisions, product lines, markets, etc. 7/30/2019

Overview of Organizations Divisional Integration implies coordination across divisions/markets Still no integration with other corporate functions Competes for resources Fully integrated organizations have logistics as a primary corporate focus 7/30/2019

Overview of Organizations Different structures for different firms/needs Depends on Leadership Product/services mix with respect to customization & homogeneity 7/30/2019

Overview of Organizations Four basic organizational properties to consider Centralization/decentralization Span of control/scope of responsibility Formalization Integration 7/30/2019

Overview of Organizations Centralization/decentralization Two primary issues Extent to which power is concentrated in the organization Hierarchical distance between logistics decision makers and strategic decision makers Customer service issues were discussed earlier 7/30/2019

Overview of Organizations Scope of responsibility/span of control What activities will be included How many direct reports Formalization refers to the degree to which goals, rules, policies, and procedures for logistics activities will be delineated Greater logistics focus implies more formalization 7/30/2019

Overview of Organizations Integration is a central concept of logistics Several levels of integration within logistics activities, with other functional areas of the firm itself and/or across the distribution channel 7/30/2019

Role of Logistics in the Firm With respect to Logistics, organizations go through four different stages. Logistics as an area of cost minimization Logistics as a profit center Logistics as a profit center and market segmentation vehicle Logistics as a central strategic activity of the firm 7/30/2019

Role of Logistics in the Firm Developing a logistics organization requires that we meet the needs of the firm today while maintaining the flexibility to assume a more strategic role in the future 7/30/2019

Role of Logistics in the Firm Recent studies indicate that the logistically excellent firms Organize with a centralized HQ group…to be near the strategic decision makers Integrated within the firm Are beginning to integrate across the distribution channel 7/30/2019

Role of Logistics in the Firm Recent studies indicate that the logistically excellent firms Are run as profit centers, billing functional areas for services provided Are integrated into the business units mission statements and goals…and often rewards Are increasingly outsourcing parts of the logistics function 7/30/2019

Role of Logistics in the Firm While addressing the role of logistics within the firm, management must consider a number of issues regarding relationships with channel members Formalization, the degree to which explicit SLA agreements are made Intensity, level of organizational resources invested in the relationship 7/30/2019

Role of Logistics in the Firm While addressing the role of logistics within the firm, management must consider a number of issues regarding relationships with channel members (continued) Frequency, the amount of contact/interaction Standardization, the degree to which agreement is made to use “standard” systems, e.g. EDI Reciprocity, the degree of symmetry with respect to contribution and reward 7/30/2019

Variables Influencing Structure A number of variables can have an impact on the firm’s logistics organization’s effectiveness Organization size Corporate structures Corporate strategy Corporate emphasis on logistics Corporate information technology Environmental uncertainty Environment heterogeneity 7/30/2019

Towards the “Best” Structure Several overriding and guiding issues Corporate objectives and strategies Corporate size and structure Functional responsibilities Flexibility 7/30/2019

Towards the “Best” Structure Remember, there is no single structure that is best Similar companies may require different structures because of management or workforce issues Any structure will work if the stakeholders want it to work 7/30/2019