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
teams
inter-organizational
and
inter-functional
 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 multidivision 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
combination with dealers and distributors
jointly
in
 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 vicepresident. 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
corporate functions
affect
individual
goals
of
 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
corporate structure
in
a
manner
compatible
with
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
techniques to measure effectiveness:
 Cost-to-Sales Ratios
 Standards : internal & external
measurement
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
Topic 7
Summary
and
Conclusion
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.