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Logistics Organization: Bridging Aspirations Through Implementation

After reading the chapter, the students should be able to understand:

• Characteristics of a successful logistical organization
• Evolution of logistics and organization
• Approaches to logistical organization
• Drivers of logistical organization

With the growing nature, scope and importance of logistics in the overall performance of an enterprise, it is essential to have a well-defined organizational structure that supports the corporate mission and improves logistics system performance. In order to achieve its goals and objectives, the work of an organization has been divided among its members. Some structure is necessary to make possible the effective performance of key activities and to support the efforts of staff. Structure provides the framework of an organization to perform the assigned tasks so as to achieve organizational goals. It is with the help of a proper structure that the purpose and work of the organization is carried out effectively and efficiently.

There is no permanent organization chart for the world. … It is of supreme importance to be ready at all times to take advantage of new opportunities.¹

—Robert C. Goizueta

22.1 INTRODUCTION

The organization model is the bridge between the business model and the supply chain model of the organization. It is a chart of functional relationships to transform organization vision into reality. Organization structure is a mechanism for allocating the firm’s human resources to meet organizational objectives. Logistics is an important activity that needs to be carried out by virtually every type of business firm. Hence, some organizational arrangements, whether formal or informal, have objectives to handle product and service movement separately.

In the traditional functional type of organization, the activities are grouped around three primary functions of finance, operations and marketing. From the logistics point of view, this arrangement has resulted in a fragmentation of the logistics activities among these three functions. As the primary purposes of the above three functions are different from those of logistics, there is no integration in carrying out logistics activity across the organization. Traditionally, responsibility for transportation is placed under operations; inventory responsibility is spread over the three functions; and order processing is placed either under marketing or finance. The logistics function priority takes a back seat, as primary marketing responsibility may be to maximize revenue, operations’ responsibility may be to produce at the lowest per-unit cost, and finance’s responsibility may be to minimize the capital costs or maximize return on investment for the firm.

The performance of the logistics system is critical to achieve cost-efficient high levels of customer satisfaction and competitive advantage for continued growth and success. Organization structure with a logistics orientation is a vital part of an enterprise’s strategic management process. The organization structure facilitates the acquisition, addition and delivery of value to the final consumer. There is no single best organizational structure. There is every possibility that two firms in the same industry will have two entirely different organizational structures for logistics and the supply chain, and both are equally successful. Logistics and supply chain management ensure real-time customer responsiveness capability, which needs a cross-functional approach that tends to collide head on with traditional business organization structures because of their resistance to change. Hence, a firm needs to be organized to best achieve effective and efficient logistics and supply chain management.

If allowed, a sales manager would promise his customer impossible delivery service from a plant or distribution centre. On the other hand, the production manager wishes all orders be accumulated for long periods to reduce the cost of set-ups and allow more time to plan economic materials procurement quantities. Such conflict of purpose will undermine the logistics operating system and result in reduction of the firm’s efficiency as a whole. For example, marketing may desire faster delivery to support sales, whereas manufacturing, if it has the responsibility for traffic, may desire the lowest cost routing. Unless steps are taken to integrate the functional areas, the most advantageous logistics cost-service balance is not likely to be realized. Hence, a separate organizational structure for the coordination of decision making of logistics activities is needed.

For keeping the balance between customer service and the costs to produce the service, someone should be placed in charge of monitoring the product movement. Areas such as order processing, traffic and warehousing may be individually supervised for movement of inventory. Hence, a manager is often required to integrate the operations.

22.2 NEED FOR ORGANIZATION OF LOGISTICS

The traditional approach to managing a company was to take each functional area in isolation. So, the production manager managed his function to achieve his objective, which was probably achieving the lowest unit cost of production. This was done by producing long runs of the same product. It invariably meant building up stocks of each product with the resulting inventory-carrying costs and loss of customer service. Similarly, the transport manager would optimize his function by achieving the lowest transport cost. It might mean using the cheapest mode of transport and inevitably this would be at the cost of service levels. The procurement manager would buy the cheapest, which would usually mean buying large quantities that would impact investment in inventory and the potential risk of damage or obsolete materials.

The principle of supply chain management is that the flow of materials needs to be managed as a whole. This means making the right trade-offs and avoiding the problems described above. The management of the entire flow of materials as a single unit is not possible without the proper organization structure to facilitate the same. This involves having all logistics-related functions under the same management control.

Every firm or institution has recourse to logistics operations; at least to some degree. However, logistics matters are not equally important to all. Hence, the attention that can be given to logistics organization and to the organizational arrangement depends on the nature of logistics in a particular firm. A firm spending a large fraction of its total operating costs on logistics, or one wherein logistics customer service levels are of great importance to customers, is likely to give logistics special organizational attention. The reverse is also true. The need for a given type of organization depends on how logistics costs are incurred and where service needs are the greatest. The organizational form may centre on materials management, physical distribution, or the supply chain. In each case, the need for organization varies among various industry types.

According to the need, there are basic choices in organization types such as informal, semi-formal and formal. No type is dominant. Organizational choice for any particular firm is the result of evolutionary forces operating within the firm. However, the logistics organizational form is often sensitive to the particular functional heads within the firm, the traditions regarding organization and the importance of logistics activities.

The major objective of logistics/SC organization is to achieve coordination among logistics activities for their planning and control. Given a supporting climate within a firm, this coordination may be achieved in a number of informal ways. These typically do not require any change in the existing organizational structure, but rely on coordination among activities and cooperation among those who are responsible for them.

For firms that have designated separate areas of responsibility for such key activities as transportation, inventory control and order processing, an incentive system can be created to coordinate them. The budget, which is a major control device for many firms, is often a disincentive to coordination. The budget can sometimes be turned into a mechanism for effective coordination. However, the budget may be a disincentive for a manager of transportation who may, for example, find it unreasonable to incur higher than necessary transportation costs in order to achieve lower inventory costs. Inventory costs do not fall within the transportation manager’s responsibility. The performance of the transportation manager is measured by how transportation costs compare with the budget. Hence, to encourage cross-activity cooperation in the organization, a number of cross charges or transfer costs need to be established among the various logistics activities.

As logistics planning and operation usually cut across the various functions within a firm’s organization, the semi-formal organization structure may be considered. The logistics manager is then assigned the task to coordinate projects that involve the supply chain and that cover several functional areas. This type of structure is often called a matrix organization. It exits in the industry where the work is executed as a project.

In a matrix organization, the logistics/SC manager is responsible for the entire logistics system, but he does not have direct authority over the component activities. The traditional organizational structure of the firm remains intact, yet the logistics/SC manager shares the decision authority and accountability with the activity area manager. Expenses for the activities must be justified by each functional department as well as by the logistics programme, which is the basis for cooperation and coordination. The logistics/SC coordinator may even assist in coordinating logistics activities among member firms of the supply channel beyond the boundaries of his firm.

The disadvantages of the matrix organization are that the lines of authority and responsibility become blurred. Conflicts may arise that cannot be easily resolved. However, for some firms this choice is a good compromise between an informal form and a highly structured one.

The formal organization establishes clear lines of authority and responsibility for logistics function/SC. It places logistics in a superior position relative to logistics activities and places the manager’s authority in the organization’s structure on a level that allows effective compromise with the other major functional areas of the firm. This elevates and structures logistics personnel in a form that promotes activity coordination. Firms seek the formal organizational form when greater attention is to be given to logistics activities. Structures of organizations are customized to circumstances within a firm. However a generalized formal organization makes good sense in terms of logistics management principles and its objectives.

Formal structure accomplishes several important ends such as:

• Logistics is elevated to a position in the organization where it is managed with the same authority as the other major functions
  

  Fig. 22.5 Logistics as an integrated function in the structure

• Logistics activities receive the same attention as marketing, operations and finance
• The logistics manager has an equal voice in resolving economic conflicts
• Logistics if put on par with other functional areas creates a balance of power for the economic good of the firm as a whole
• Sub-functions can be created under logistics, as the technical skills required in each sub-area are substantially different

Therefore, the formal organization structure is a balance between minimizing the number of activity groups to encourage coordination, while separating them to gain effectiveness in the management of their technical aspects.

The popular organizational form is the most formalized and centralized that is generally found in the industry today. It is a structure integrating both materials management and physical distribution under a single banner. However, the basic model is useful, whether a firm organizes its logistics operations around supply side activities, as in the case of many service firms, or around physical distribution activities, as in the case of many manufacturing firms.

22.3 DRIVERS OF ORGANIZATIONAL STRUCTURE

The organizational structure depends on the business strategy the firm pursues to achieve the desired organizational goals.

Process

This type of organization tries to achieve the maximum efficiency in the movement of goods from a raw materials state through work in process to a finished-goods state. Here, the organization is likely to focus on the activities that give rise to cost. These may be procurement, manufacturing inventory, transportation and order processing. In these organizations, the functional and hierarchical structure is prevalent.

Market

For the market-oriented organization with a strong requirement for customer service fulfilment, the organizational structures are rather lean and flat. The reason is the speed in decision making.

Information

For seeking information from markets, the organizational structure is apt to span functions, divisions and business units. Business organizations that pursue an information strategy are those that have a significant downstream network of dealers and distribution agencies with substantial inventories spread across the network. Coordination of logistics activities throughout this dispersed network is a primary objective, and information is the key ingredient for good management. Hence, the organizational structure must span the traditional legal boundaries of the firm itself.

No single firm is likely to display a single organization design. Because mixed strategies often exist within the same firm, a variety of designs will appear for essentially similar firms. In addition, the similar firms may be in different stages of organizational development.

22.4 FACTORS INFLUENCING ORGANIZATIONAL STRUCTURE

The following factors influence the formation of an organization structure. These factors can be classified into two categories: internal and external. Internal factors cover size of the organization, strategy evolved, management philosophy and the degree of control.

Size

Logistics and supply chain activities and complexities have a direct relationship with the size of the organization. The larger firms prefer to have a decentralized structure for ensuring a higher degree of responsiveness and customer service. Having a number of decision levels may be suitable for cost controls, but decreasing the number of layers will speed up the decision process and ensure flexibility. However, in the smaller organizations wherein the logistics network is small, the activity base is limited due to the lower transaction base; hence, the preference is for a centralized logistics control.

Corporate Structure

In large organizations, authority and responsibility generally are clearly defined for each and every position. Hence, the logistics organization and functions reflect the same characteristics of autonomy and flexibility. A well-defined structure will promote coordination among the various functions of the organization, thus enabling it to operate as an integrated system.

Strategy

The structure of logistics organization depends on how the enterprise wants to use the logistics function. Is the structure being used for cost-effectiveness, system efficiency or extending superior customer service? For cost-effectiveness a well-defined hierarchical structure is a must. In case the objective is superior customer service, a well-defined flexible structure is essential.

IT Enabling

The success of the organization depends on the degree of accuracy of timely decisions at various levels. Timely information is the vital element in organization success. The speed of information processing and formatting depends on the availability of IT infrastructural facilities in the organization and its interface with other supply chain members like vendors, resellers, customers, transporters, and so on. This enables a firm to improve its customer responsiveness capability with minimum cost. IT has not only empowered firms to enhance their service capabilities, but also ensures a high degree of coordination between the various functions by speedier cross-functional communication of information. The structure of the IT-enabled logistics organization vastly differs from its traditional format.

Environmental Factors

Many organizations adopt the structure of their competitors or the structure generally prevailing in the same industry. However, the success of any organizational function depends not only on how well an enterprise has coordinated its various functions, but also on how well it has integrated its logistical functions with the logistics partners.

22.5 LOGISTICS—PARTNERS AND ORGANIZATION

Where logistics is critical to strategy but logistics management competency is low, finding a firm with which to partner may provide significant benefits. A strong partner may provide facilities located in new and existing markets, a transportation capability and administrative expertise not available within the company.

Business firms have been using the services of other companies to support their own logistics activities. Transport companies provide trucking and rail services, public warehouses provide storage services, and specialty firms provide freight bill auditing and accounting services. After 1991, because of the opening up of the Indian economy and deregulation of transportation, many logistics companies that provide a full-service logistics capability have emerged. They can handle the entire logistics operation for a client company for a contract price. They are called third-party logistics providers. Some of the general benefits of outsourcing to 3PLs are:

• Reduced cost and lower capital requirements
• Access to technology and management skills
• Improved customer service
• Competitive advantage such as through increased market penetration
• Increased access to information for planning
• Reduced risk and uncertainty

Of these benefits, a potential reduction in transportation/distribution costs and freed up capital from non-core areas rank at the top, with reduced personnel also being a noted advantage. The primary risk to the firm is the loss of control over critical logistics activities, which may result in the potential advantages (cost effectiveness and efficiency) never being realized.

Logistics companies (3PLs) are selling services rather than forming partnerships that benefit from the synergism between the members of the alliance. However, because there can be information sharing and close working relationships, the relationship between a company and its outside logistics provider is frequently referred to as a partnership. 3PL logistics companies provide high-level solutions to logistics problems and excellent performance in the execution of logistics operations. A primary motivation for a company to outsource some or all of its logistics activities is that the third-party provider is more efficient because logistics is its primary business, while logistics is not the core competency of the buying firm.

Failures in 3PL relationships have sometimes been spectacular. They have resulted in lawsuits because of high expectations of benefits. For the outsourcer to reap benefits from a 3PL partnership, the following suggestions can lead to a company’s successful long-term relationship:

• Find out your baseline performance in logistics and keep it as the base to compare with the 3PL’s performance for evaluation
• Develop proper metrics for performance evaluation (relating to waste reduction and damage control)
• Invest the time to make sure that you and the 3PL are in strategic alignment
• Establish trust by sharing responsibilities by developing a dispute resolution mechanism
• Develop relationship management capabilities
• Measure the performance of the 3PL in terms of costs, but also attempt to measure the 3PL’s contribution to increased sales
• Treat the 3PL as a partner rather than as a vendor
• Ensure open and honest communication
• Share both risk and reward
• Develop a common contact person in both the organizations
• Recognize the 3PL’s team that is working on your behalf
• Work through the difficult situations rather than quickly changing providers
• Explore the frontiers for performance improvement as the relationship matures

A new dimension to organization has emerged with the evolution of IT. It is called a partnership or collaboration. There are firms that are experts in carrying out logistics activities. As the manufacturing firm does not have a core competency in logistics, it makes sense to outsource it to the logistics expert and create a partnership. The partnership achieves the organization’s objectives of lowering the logistics costs, reducing the inventories and improving customer service.

Partnering with members in the supply channel has seen success when retail point-of-sale information was shared with suppliers, who were better able to plan inventory levels at the retail level (vendor-managed inventory control or VMIC); and when requirement plans were shared with suppliers in the just-in-time (JIT) systems. Collaboration among channel members has the potential for improving supply chain performance by reducing the uncertainty associated with demand and lead times. The uncertainty in demand creates bullwhip, when each channel member forecasts demand based on information derived from the order patterns of an immediate downstream member. Sharing information about end customer demand is known to improve forecasting accuracy for all members and minimizes the bullwhip effect.

Although sharing information among partners reduces demand-estimating variability, decisions also need to be made about order quantities, shipment sizes, delivery methods and production or supplier response times. In a partnering environment, information about these issues will be shared and the outcomes negotiated. This needs a different organization design to ensure coordination, joint decision making and responsiveness from both the sides to service the end customer in a better way. The impediment to adoption of partnership is the lack of trust. Companies remain reluctant to share vital data with firms outside their control; and who may have business relationships with competitors. Formal agreements between partners may reduce distrust, but it is likely to remain a hurdle to overcome for some time. Yet, the potential for collaborative partnerships remains high.

22.6 EVOLUTION IN LOGISTICS CONCEPTS

Prior to 1950, the logistical function was part of the physical distribution system in marketing. It was regarded as one of the supportive functions with cross-functional linkages and reporting, resulting in repetition and duplication of work and resource wastages. This was a production-focused approach born out of the prevailing economic abundance. The movement of goods had been given very limited consideration because of limited and geographically concentrated markets. The only two important functions under physical distribution were storage and transportation.

It was during the 1980s, after the need of cost control in the physical distribution function was realized, that the logistics function was found to be a source of competitive advantage through its scope in cost controls and reduction. Firms started experiencing difficulties in the marketplace mainly due to the considerable increase in competition. This situation compelled firms to control costs for their survival. In the mid-1980s, it was realized that cost controls and customer satisfaction together could be achieved through a fully integrated logistical system. It was further felt that physical distribution and logistics were activities whose costs had neither been carefully studied nor coordinated. Therefore, the firms began to ensure coordination between the materials and physical distribution functions for smooth flow of inventory. Thus, logistics became part of the material management function, which resulted in a change in the organizational structure.

In the early 1990s in India, the competitive scenario had become more intricate with the beginning of liberalization of the Indian and the world’s other economies. This resulted in a multiplicity of distribution and operating cost demands and innovation of new tools and techniques to reduce costs, instead of cost control as was the case earlier. Consequently, the need was felt for integration of materials management, physical distribution and manufacturing functions to keep the bottom line intact and simultaneously delight the customer. A new organization structure to meet the need was devised by the firms.

Also in the 1990s, the concept of the supply chain was accepted and logistics assumed a wider role to span the entire supply chain, right from the suppliers to end customers via the company’s manufacturing. Logistics had gone further for functional integration of business functions with the firm’s supply chain members. This led to the need for organizational structure with the emphasis now on process rather than the functions.

Again, in the late 1990s and beyond, owing to the advancement of information and communication, there has been a revolutionary transformation in the organizational structure for logistics and supply chain management. The organizational structure now goes beyond the structure in the form of a virtual organization. The new management tools and techniques for inventory management are JIT, MRP, DRP, CRM and SCM. With the emergence of global competition, business firms began to look for the competitive advantage, which drove them to reorient their organization structure on the supply chain concept. The new organizational structure for logistics and supply chain had brought about a paradigm shift from the functional to the process structure. The latter was introduced to meet the requirement for market responsiveness with a cross-functional approach to other functional areas and other partners in the supply chain.

22.7 ORGANIZATION DESIGN PRINCIPLES

For logistics and supply chain management, a suitable organization structure needs to be developed so as to achieve the desired performance level. The organizational structure should be consistent with the firm’s logistics strategy so that the desired performance can be achieved to fulfil the corporate vision and mission. The following commonly used organization principles should be kept in the mind:

Division of Work

Specialization allows the individual firms to build experience, improve their skills and enhance their productivity. Hence, the division of work in logistics in job functions such as transportation, warehousing, material handling, inventory control, packaging and customs clearance was thought of and put into practice.

Authority

It pertains to the right to issue commands to get the work done. The empowerment of the employee helps to carry out the responsibility assigned successfully.

Scalar Chain

Hierarchy is necessary for unity of direction. However, lateral communication is fundamental to all forms of communication in the organization.

Unity of Command

The principle of unity of command implies that an employee should receive orders only from one superior or boss. This will help avoid any conflicting orders.

Span of Control

This refers to the control of the number of subordinates a manager can effectively manage or supervise. It requires the management to decide the degree to which logistics activities are grouped together in the same organization. In some organizations, the scope may be broad enough, as in a company that has grouped all logistical activities into a single function headed by the chief of logistics.

Authority and Responsibility

Allocation of authority and responsibility depends on the objectives set for the logistics functions. Authority is power derived from the rights that come with a position and which can be exercised to get a certain work done. Responsibility is accountability for the attainment of objectives, the use of resources and the adherence to organizational policy. Hence, this principle determines the hierarchy of organizational structure, specifying the accountability and power associated with each position in the logistical organization for the attainment of pre-determined results.

Line and Staff Relationships

Business firms do not create organizations that have line responsibility over goods movement and storage. The responsibilities are advisory in nature. This is called a staff function for the organization for logistics. In this case, the logistics manager is placed in a consulting role to the other line functions such as marketing and operations. Staff function is a good alternative when:

• Line function (logistics) would cause unnecessary conflicts among the existing personnel
• Logistics activities are less important than selling and producing
• A lot of planning is involved rather than administration
• Logistics is a shared service among the product divisions

The staff type of organization may be attached to any of the functional areas at a centralized or decentralized level. Normally, the logistics staff is located near the top management in terms of geographical location and also on the organization chart. Because the logistics staff has in an advisory role, authority that is more indirect can be given to logistics through this type of organizational positioning. Logistics and supply chain management is a multidisciplinary activity whose performance largely depends on the efficient coordination of other organizational functions. Hence, while designing a logistical organization structure, it is essential to define the mode of its interaction and coordination with other functions of the enterprise.

Centralization vs. Decentralization

In many organizations the activities are grouped close to the top management or dispersed throughout the divisions of the larger firms. For example, purchases of all manufacturing divisions of the company are done centrally at the company’s HO, while in some companies the marketing is decentralized across the strategic business units (SBUs) for different product groups. A centralized organization groups logistics activities at the corporate level for serving all product groups. On the other hand, the decentralized logistics organization puts the responsibility for logistics at the product group or division level. A separate decentralized logistics organization is established to serve each division.

In the centralized form there is close control over logistics activities, which is achieved by concentrating all logistics activities for the entire corporation under a single director, so that the organization can benefit from the efficiencies associated with the scale of activities that can occur. For example, Hindustan Lever has a centralized transportation division to supervise the entire goods movement of the company. Many firms, such as Coca Cola, have their own truck fleet. In such cases maximum utilization of equipment assets is the key to system efficiency. Through the centralized control of traffic activities of all divisions, a firm is in a position to maximize its fleet utilization and earn savings on transportation cost. Similarly, efficiencies can be gained through shared warehousing, shared purchasing and shared data processing.

In a decentralized set-up, the organization is more responsive. It allows for a quicker and more customized logistics response to customer needs than the centralized organization. The decentralized structure is more effective when product lines are distinctly different in their marketing, logistics and manufacturing characteristics, and when few economies of scale can be found.

In practice, organizations use a structure with a mixture of centralized and decentralized decision making processes. For example, although there is managerial interest in divisional and even regional autonomy among the operating units of a firm, technical advances such as computerized data processing have made it more efficient to have centralized order processing and inventory control. Thus, there is a diversity of organizational forms in practice to achieve each organizational goal.

In a nutshell, in centralization little authority is delegated to the lower level of management, whereas in decentralization a great deal of authority is delegated to the lower levels. If customer service is a priority of the organization, then it is essential to permit decentralization for quick customer responsiveness and satisfaction. For cost control, the centralization of authority is the best option.

Organizational Structure

Due to emergence of e-commerce and the Internet, virtual supply chain has become the extension of the information system beyond the conventional dimensions. The structure of the organizations has received a paradigm shift from hierarchical controls to electronic information network controls to achieve speed in decision making in competitive environment. Logistical organizations that have made the above shift are referred to as e-logistics companies. In these companies all logistics operations are carried out using e-commerce, except the physical movement of goods ordered. Such companies link the customers directly to the supplier and even to the supplier’s bankers and logistics partner. In the e-logistics organization, the supplier can respond on a real-time basis to the changes in the market and a vendor-managed inventory (VMI) system can be developed. This organizational structure enables firms to capture the benefits of an integrated logistics system without the command and control of the formal hierarchical organizational structure.

22.8 LOGISTICS IS A TEAMWORK

Logistics effectiveness is an ongoing process. It requires teamwork that is effective. There may be many problems cropping up now and then. However, with a team perspective, the root causes and bigger issues can be recognized and addressed.

Teamwork presents opportunities to look at how best to serve your customers or how to best conduct business. Look around at sports teams or at other companies. Not all teams are successful. Some are downright terrible, both at playing and at organization. They don’t work together. Yet others are highly successful. They win. And they continue to win, year in and year out. They do this because they work together. Teamwork means everyone working together, because it is good for the company. It means sales, growth, profitability, jobs and a sense of feeling good.

The team is necessarily a cross-functional approach. It cannot just be members of the logistics organization. This will not be effective. It must include sales, manufacturing, purchasing, management information system (MIS), accounting, logistics and whoever else is needed to achieve results. They must work together to analyze the needs, issues and concerns, whether they are meeting the needs of customers and/or taking a blank sheet of paper to reengineer their entire process.

The team may tackle broad issues involving changing customer and market demands, service, cost, quality, the company network of suppliers, plants, warehouses and territories. These are significant issues, vital to the future of the company. The team may, in reality, be agents of change.

Sometimes the organization chart is a problem with achieving teamwork. Organization charts show who reports to whom. This can become a barrier to teamwork. They can operate as functional silos. Silos are vertical; teamwork is horizontal. Silos create turf wars.

To avoid failures due to cultural mismatch in the global organization reflecting the global scope of the logistics, the team issues must also include cultural issues. They must also recognize the goals of the outside companies, which may be different from their company.

With the external organizations, we are talking about partnerships, not of buyer-seller relationships. The external elements must be made a part, an integral part, of the team. They are a very vital part of the team. They must provide the parts and services necessary for the supply chain to properly function.

Everyone must share company information and plans. They must understand each other’s operations and requirements. They must be active participants in the team. All the internal work may fail without the participation of all the key players, including those outside the company.

22.9 ORGANIZATIONAL ISSUES

Information Sharing

Information is power. Hence the information base is needed for an organization to adjust its controllable variables so that optimum profits are achieved. Information is also required for risk minimization. Hence, it is crucial for the organization to share the information among the organization functions. In the logistics organization where the 3PL service provider is a partner, the guidelines for information need to be set so that trade secrets are properly guarded.

Distribution of Benefits

Equitable redistribution of the benefits across the organization is important. However, establishing a method for passing the benefits between logistics partners and the channel members will keep them acting in concert.

Conflict Resolution

The causes of conflicts are inequitably in the benefits, overlapping of responsibilities, duel reporting system and faulty performance evaluation system. The conflicts may also crop up due to vested interests. The policy formulations and procedural guidelines help in reducing the conflicts. Two major and distinct informal mechanisms, power and trust, can be used to generate cooperation in a logistics chain. These mechanisms are usually regarded as alternatives to each other. Power is a central concept, because its mere existence is thought to condition others. Power is also seen as a central tenet in achieving cooperation. In contrast, it is theorized that central to relationship marketing is the presence of trust, not power, and its ability to condition others. Through proper training, conflict mitigation in the logistics organization is possible to a greater extent. Another informal mechanism is trust, which is found to be central to the process of achieving cooperative problem solving and constructive dialogue. A major precursor of trust is communication, which can be defined broadly as the formal as well as the informal sharing of meaningful and timely information between organizational members. Information sharing is one of the five building blocks that characterize solid supply chain relationships. Another precursor of trust is shared values. Shared values are the beliefs in common that partners have about what behaviours, goals and policies are important or unimportant, appropriate or inappropriate and right or wrong. Thus, shared values lead to trust and commitment and, in turn, cooperation. In a supply channel, channel members are likely to share common economic goals.

SUMMARY

Organization is the bridge between the business model and the supply chain model of the organization. It is a means to achieve the aspirations of the management. The organization’s internal structure contributes to explaining the behaviour of the employee. The organization may have a structure that is formal, informal, matrix or a combination of these. The organization operates through three levels, viz. strategic, tactical and operational. The basic issues in logistics organization are how to achieve coordination and cooperation among activities, functions and firms so that logistics plans can be implemented effectively. Grouping relevant activities together and managing them collectively as a logistics function has received the greatest attention.

A well-defined organization is a must to achieve the objectives of logistics and supply chain management. Organizational structure will support the corporate mission and help in translating the organization’s vision into reality. In the dynamic business environment, the organization structure needs to be evolved continuously to suit the operational needs. Today, logistics has become a core function like marketing, operations or finance. It is rather a very critical function to achieve the competitive advantage. For designing a logistics organization structure, such basic principles as unity of command; span of control; authority and responsibility; line and staff relationships; and centralization and decentralization of power need to be considered. The other factors influencing the structure are the size of the organization, corporate structure and strategy, IT backup and environmental changes. Today, invariably all the organizations are going in for an alternative to performing all logistics tasks in-house. The buzzword is outsourcing. In such cases, the organization needs to be restructured to suit the need of partnership relationship and share the logistics systems with other firms. Organization structure can reduce the costs burden through risk sharing and improve the quality and speed of customer service while allowing the firm to focus on its core competencies. No man is an island, and certainly no department is, especially logistics. To have logistics effectiveness requires internal and external teamwork. Crossfunctional teams must work together to handle the ever dynamic and complex requirements of doing business today.

REVIEW QUESTIONS

1. Discuss the role of the organization structure in attaining the organizational goals.
2. Differentiate between the following with regard to organization structure.
   1. Line and staff organizations
   2. Centralized and decentralized organizations
3. Discuss an organization structure for a 3PL service provider in context with the basic principles of organization.
4. What responsibilities, skills and experiences would you want to include in a job description for the position of manager of logistics for a consumer products manufacturer?
5. Does the organization structure differ in the organization having logistics operations within and outside national boundaries?
6. Discuss the various factors that influence a logistics organizational structure.
7. Does the Internet have any influence on the structure of logistical organization?

INTERNET EXERCISES

1. For understanding the concept of organization design and structure visit, www.centerod.com, www.organizational.com and www.findarticle.com
2. Go to www.ergonomiayhdistys.fi/nes2001/nes2001p6.pdf and study “Learning organization concept.” Can the methods therein described be applied to the organization with a logistics orientation?

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