Logistics 7

Organizing for Effective Logistics CHAPTER 15 Organizing for Effective Logistics

Traditional Logistics Management Sales service Channels of distribution Product returns and warranties Manufacturing Purchasing/ procurement Traffic Warehousing Information systems Budgeting Inventory Data processing Responsibilities Objectives Large inventories Low inventories Small and frequent production runs Larger and infrequent production runs Decentralized warehousing Plant warehousing Centralized warehousing Large product assortment Fewer products

Traditional Logistics Management cont. Sales service Channels of distribution Product returns and warranties Manufacturing Purchasing/ procurement Traffic Warehousing Information systems Budgeting Inventory Data processing Responsibilities Objectives Rapid order processing Inexpensive order processing Generous returned goods policies Fast transportation Expedited shipments More rigid returned goods policies Low cost transportation

Percent of Reporting Companies Control Exercised By Logistics Executives Over Selected Logistics Functions Transportation Warehousing Inventory control Order processing Packaging Purchasing and procurement 89% 94% 97% 98% 90% 70 93 95 97 88 55 83 81 79 74 43 76 67 61 55 8 70 37 48 39 15 58 44 51 41 Activities 1966 1976 1985 1990 1999 Percent of Reporting Companies

Organization Design for Logistics as a Function Human Resources Logistics

Organization Design for Logistics as a Program President Logistics Manufacturing Engineering Human Resources Marketing/ Sales Finance/ Accounting

Components of Corporate and Logistics Mission Statements Targeted customers and markets Principal products/services Geographic domain Core technologies

Components of Corporate and Logistics Mission Statements (cont.) Survival, growth, and profitability Company philosophy Company self-concept Firm’s desired public image

Ways of Improving Logistics Organizational Effectiveness Strategic goal setting Resource acquisition and utilization Performance environment Communication process Leadership and decision making Organizational adaptation and innovation

Logistics/Supply Chain Organization A good organization structure does not by itself produce good performance--just as a good constitution does not guarantee great presidents, or good laws, or a moral society. But a poor organization structure makes good performance impossible, no matter how good the individual managers may be. To improve organization structure…will therefore always improve performance. Peter F. Drucker

Activity Fragmentation in the Supply Chain Responsibilities President Marketing Finance Operations Distribution channels Customer service Field inventories Revenue Cost of capital ROI Inventory carrying costs Supply alternatives and supply costs Warehousing Purchasing Transportation CR (2004) Prentice Hall, Inc. 15-4

Activity Fragmentation in the Supply Chain (Cont’d) Objectives President Marketing Finance Operations More inventory Frequent & short production runs Fast order processing Fast delivery Field warehousing Less inventory Cheap order processing Less warehousing Long production runs Lowest cost routing Plant warehousing 15-5 CR (2004) Prentice Hall, Inc.

Activity Fragmentation in the Supply Chain (Cont’d) Reasons for fragmentation Lack of understanding of key cost tradeoffs Traditions and conventions Other areas considered to be more important to the firm than logistics Organization structure can be in an evolutionary state Benefits of fragmentation elimination Encourages important cost tradeoffs to be effected Focuses on an important, defined area by top management Sets the structure within which control can take place

Organizational Choices Informal structure Persuasion of top management Coordinating committees Incentive arrangements Profit sharing Cross charges Semi-formal structure Matrix organization Formal structure Line--creates value in products, therefore it has operating status Staff--provides assistance to the line organization

Logistics Matrix Organization 15-8 CR (2004) Prentice Hall, Inc.

What is Systems Analysis? Systems analysis refers to the orderly and planned observation of one or more segments in the logistics network or supply chain to determine how well each segment functions.

General Questions Why do we perform each task? What value is added by it? Why are the tasks performed in the order they are? Can we alter the sequence of the processing steps to increase efficiency? Why are the tasks performed by a particular group or individual? Could others perform this task? Is there a better way for the system to operate?

Problems in Systems Analysis Multiple business functions are impacted. There are trade-offs among conflicting objectives. Logistics system impacts are difficult to precisely evaluate. There are business issues unique to each logistics system.

Systems Integration: Logistics Activities Outside the Firm Third-party, or contract, logistics Integrated service providers Monitoring third-party performance

Supply Chain Security A Global Perspective

Top 5 European Ports Rotterdam – 9.287 million TEUs in 2005 Hamburg – 9.088 million TEUs Antwerp – 6.488 million TEUs Bremen – 3.735 million TEUs Giora Tauro – 3.161 million TEUs LA/Long Beach – 7.485 mil TEUs Source: Logistics Today, Feb 07, p.1, 20

Other Key Ports Singapore – 23.2 million TEUs Hong Kong – 22.602 million Shanghai – 18.080 million Shenzhen – 16.2 million Pusan – 11.94 million

Rotterdam > 900 intermodal barge moves daily to 72 locations > 200 rail moves 220 million people within 600 miles of Rotterdam

Rail > 15% of cargo to Germany via rail ~ 13% of Belgium cargo ~ 14 of French cargo

Other issues 9000 distribution centers in the Netherlands 2000 - $64.4 billion USD in logistics and distribution in The Netherlands

Containers Cost to X-Ray containers Manpower Delays Radiation

Why should you care about SC Security? Is it a US problem? Global Problem Heathrow Airport delays Superbowl weekend 2005 RFID – is this the solution? ISO Guidelines for SC Security Terrorism Insurance

Transportation Worker Identification Credentials Port Employees Long Shoremen Unescorted access personnel

HR 1 Air Cargo Bill – phase in inspection of all air cargo Sea Cargo – safe seal – shippers of >75K TEUs to US have 3 years to comply

C-TPAT Security Freight Initiative Inspection of high risk containers @ >50 ports

Other issues theTruecosts.com – costs of piracy and fakes Rotterdam – 19% of all European Volume Amsterdam – 440 million metric tonnes www.HIDC.com – Holland International Distribution Council

Orlando International Airport No staffing of doors for employee entrance to baggage claim areas Guns smuggled into planes by employees “no requirement for us to staff those doors” OIA Spokesperson; TSA – “not my job!” Identified as security issues in 2004 2006 – ½ of TSA Screeners failed test that measured how well employees could identify explosives, guns and other weapons on the scanner – but can identify bottles of mouthwash and toothpaste Source: Mike Thomas, Orlando Sentinel, Mar 15, 2007, p. B-1

Air Cargo World 2/07 Bans on Russian Flights to Georgia Unfit Antonovs – on list published by the International Civil Aviation Organization – 462 aircraft considered not air worthy Not a terror threat but still a SC Threat Mostly used throughout Africa

International BioTerrorism Peter Pan Peanut Butter – e coli – 2007 E-coli from fresh Spinach – 2006 Chi Chi’s e-coli – from green onions – 2003 Taco Bell – e coli 2005 None were terrorist attacks but impacted supply chains

Supply Chain Security And Homeland Defense

Supply Chain Security “We have proved to our management that good security is good business.” — Ann Lister of Texas Instruments

Agenda What is Supply Chain Security How does it tie to Homeland Security? Is it Important? Is it a Problem? Risk Assessment Risk Management Conclusions/Questions

Important? September 11, 2001 - $2 billion per day lost Longshoremen Strike – 300-500 ships backed up Potential loss of attack to major port - $20 billion estimate 2008 estimate ~ 12 million containers into US; up to 200 million containers world wide

Problem? Terrorism Obsolescence Pilferage Information Breach Proprietary Data – Camera Phones; Thumb Drives Cyberspace Security RFID Data Security 66% of Sealift Containers arrive at 20 Major Ports >58 % of all inbound containers come through New York/New Jersey, Los Angeles, Long Beach ~44% through Los Angeles/Long Beach in 2003 Lengthening of Supply Chains – coupled with Globalization

Recent Headlines “New Budget includes $10.2 Billion for Border Security.” “Battling the Bad Guys: 2005 Was a Tough Year” Dec 2005 Baseline Magazine “Major Data Theft Leads to Major Legal Problems” Baseline Magazine “Polo Ralph Lauren – Lost Point of Sale Data” “No One Stop Shopping to Stop Database Pilferages” E-Week, Dec 21, 2005

Recent Headlines GAO Report: “Container Security – Expansion of Key Customs Programs Will Require Greater Attention to Critical Success Factors” “Security and Risk Strategy Become Integrated” – Top Trends for 2006, CIO Magazine, January 2006 “Computer Security Becomes More Critical” CIO Magazine, January 2006 “Supply Chain and Security Remain in the Forefront” “ISO Publishes Supply Chain Security Guidelines” Plant Engineering Magazine, Sep 06 New Budget Includes $10.2 Billion Increase for Border Protection

Recent Headlines “Supply Chain Security Poses Opportunities, Obstacles” E-Week, Sep 23, 2005 “Supply Chain Risks Threaten the World’s Biggest Companies” Logistics Today – “Financial executives at some of the world’s biggest companies believe supply chain risks post the top threat to companies revenues.”

Risk Assessment “If you do things the way you’ve always done them, you’ll get the same things you’ve always got.” -Darrell Waltrip This is not your Dad’s Supply Chain! Security is an integral part of the Supply Chain and Homeland Defense

Purpose of Risk Assessment Identify those areas of the supply chain that are vulnerable to interruptions of support flow. People Processes Technologies External events The identification and of hazards assessment of hazards to determine risk to include the probability and the resulting severity.

Risk Assessment Supply Chains are inherently complex, dynamic, and fluid, characterized by uncertainty, ambiguity, and friction. These characteristics cloud the operating environment: they create risks

Risk Assessment Terrorism Port Security – over 200 million containers annually Port Security – 300 US Ports Longshoremen Strike – 2002 Potential Airport Attack – LAX; MPS; LGA

Risk Assessment/Management Steps Identify the hazards. Assess hazards to determine risks. Develop controls and make risk decisions. Implement controls. Supervise and evaluate.

How do you identify your Supply Chain Risks? You have to know your processes Process maps Understanding processes Understanding where risks are Internal Risks External Risks

What are your Hazards? Theft Pilferage Competition Information Systems Cell Phones Thumb Drives Camera Phones Disgruntled Employees Lack of Training

What is Risk Management? “ The process of identifying, assessing, and controlling risks from operational factors and making decisions that balance the risk cost with the operational benefits.” US Army Field Manual 100-14

Risk Management “Risk management takes a new shape in extended supply chain. Risk management and the security of supply chains took on a new emphasis after the attacks of September 11, 2001 and the reactions of the world to security. Included in this heightened security awareness are initiatives such as C-TPAT and Homeland Security initiatives.” - Logistics Today

Risk Management Identify the hazards. Assess hazards to determine risks. Develop controls and make risk decisions. Implement controls. Supervise and evaluate.

Risk Management Conserving resources while avoiding unnecessary risk Deciding on the approval of an alternative Identifying feasible and effective control measures where specific standards do not exist

Risk Management Does Not: Does not take away the leader’s/manager’s initiative or decision making ability Eliminate risk or establish a climate of zero defects Allow the leader/manager to violate any laws

What is a Catastrophic Risk? Inaccurate receipts? Customer Satisfaction? Sloppy Warehousing? National Emergency? Hurricane? Or, Only when it makes it to CNN?

Risk Management Programs Mitigate Risk Eliminate Risk Consequences of Risk or Mitigation – probability and severity Courses of Action Analysis – Feasible, Suitable, Acceptable? Manage Risk not react to Risk!

New Problem? “There were no ‘secure’ rear areas.” General Joseph Heiser on Vietnam Logistics Sun Tzu – Chapter 1, The Art of War

Supply Chain Security Supply Chain Security must protect the path from the supplier to the customer. End to End Security End to End Visibility – RFID Information Security Personal Daily Obligation Operational Security Security and Velocity

Supply Chain Security “If master small things, Anything becomes possible” - Mr. Miyagi “The Next Karate Kid”

Conclusion Risk Assessment Risk Management Operational Security Supply Chain Success

Final Thought With an estimated 12 million cargo containers coming into the United States, coupled with an increase in the amount of jobs taken off shore; The resultant increase in imports and an ever changing terrorist enemy: Supply chain security is extremely important to Homeland Defense!

Questions??