15-1 logistics/supply chain organization chapter 15 cr (2004) prentice hall, inc. a good...

15-1

Logistics/Supply Chain Organization

Chapter 15CR (2004) Prentice Hall, Inc.

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

15-2

Organizing for Logistics/Supply Chain Management

CR (2004) Prentice Hall, Inc.

OR

GA

NIZ

ING

CO

NT

RO

LL

ING

PL

AN

NIN

G

Organization scope• Intrafunctional• Interfunctional• Interorganizational

Structure forSupply ChainPerformance

Organization design• Choices• Positioning

Partnerships & Collaboration• Information sharing• Alliances• Contracting

OR

GA

NIZ

ING

CO

NT

RO

LL

ING

PL

AN

NIN

G

Organization scope• Intrafunctional• Interfunctional• Interorganizational

Structure forSupply ChainPerformance

Organization design• Choices• Positioning

Partnerships & Collaboration• Information sharing• Alliances• Contracting

15-3CR (2004) Prentice Hall, Inc.

Objectives for Organization

•Definitively defines responsibility, accountability, and authority–essentials for good management

•Collects people together in a meaningful way to achieve the goals of supply management

•Sets initial conditions so that proper cost tradeoffs can be realized

•Facilitates the implementation of plans as well as the planning process

•Aids administration


Activity Fragmentation in the Supply Chain

PresidentPresident

MarketingMarketing FinanceFinance OperationsOperations

•Distribution channels

•Customer service

•Field inventories

•Revenue

•Cost of capital

•ROI

•Inventory carrying costs

•Supply alternatives and supply costs

•Warehousing

•Purchasing

•Transportation

Responsibilities

15-4


Activity Fragmentation in the Supply Chain (Cont’d)

PresidentPresident

MarketingMarketing FinanceFinance OperationsOperations

•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

Objectives

15-5

15-6

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 placeCR (2004) Prentice Hall, Inc.


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

Tra ffic& w areh ou s in g

C u s tom erservice

S a lesfo recas itn g

M a rke tin g

In ven to rym an ag em en t

A ccou n tin g& in fo rm ation

p rocess in g

F in a n ce

P rod u c tionsch ed u lin g

Q u a lityassu ran ce

P u rch as in g& m ate ria ls

m an ag em en t

P ro d u c tio n

P re s id e n t

Fun

ctio

nal a

utho

rity

Project authorityLogistics\SC coordinator

Tra ffic& w areh ou s in g

C u s tom erservice

S a lesfo recas itn g

M a rke tin g

In ven to rym an ag em en t

A ccou n tin g& in fo rm ation

p rocess in g

F in a n ce

P rod u c tionsch ed u lin g

Q u a lityassu ran ce

P u rch as in g& m ate ria ls

m an ag em en t

P ro d u c tio n

P re s id e n t

Fun

ctio

nal a

utho

rity

Project authorityLogistics\SC coordinator

15-8


Formalized, Centralized Organization

Vice-presidentFinance

Vice-presidentOperations

ManagerProcurement

ManagerWarehousing andmaterials handling

ManagerOrder processing

and customerservice

ManagerTransportationand packaging

ManagerInventory and

productionscheduling

Vice-presidentLogistics

Vice-presidentMarketing

Chiefexecutive

officer


Organizational Positioning

•Line vs. staff

Line is a “clean” organizational form, but staff may be preferred when:

-A line organization may cause unnecessary conflicts among existing personnel

-Logistics activities are considered less critical than selling, producing, or other activities

-Planning is relatively more important than administration

-Logistics is treated as a shared service among the product divisions


Organizational Positioning (Cont’d)•Decentralization vs. centralization

Decentralize for quicker and more customized response to customer needs. Centralize to achieve economies of scale.

•Large vs. small company

Small firms are likely to have a centralized form, but logistics activities are less clearly defined.

•Manufacturing vs. service

Organization is likely to be directed toward the physical supply side of the business. Distribution has been a relatively neglected activity in service firms.

•Administrative titles15-11


Centralized Organization

Staff &counsel

Analysis

Accounting

Finance DivisionA

Sales &marketing

Transportation

Order entry& processing

Inv. mgmt & prod. scheduling.

Warehousing &materials management

Logistics\SC Operations

DivisionB

Research &engineering

Purchasing

Generalmanagement

Staff &counsel

Analysis

Accounting

Finance DivisionA

Sales &marketing

Transportation





DivisionB


Purchasing

Generalmanagement

15-12


Decentralized Organization

Staff &counsel

Analysis

Accounting

Finance DivisionA

Sales &marketing

Transportation





DivisionB


Purchasing

Generalmanagement

Staff &counsel

Analysis

Accounting

Finance DivisionA

Sales &marketing

Transportation





DivisionB


Purchasing

Generalmanagement

15-13


Interorganizational Management

•Managing physical supply of vertically related, but legally separate firms.

•An untapped opportunity because members work at cross purposes.

•Cooperation and trust are the keys to benefits.

•But, benefits may “pool” with one or a few channel members.

•Redistributing the benefits requires:

-Metrics to identify and measure potential benefits

-Information shared among members to build trust

-Methods for fair redistribution of the benefits15-14


Interorganizational Mgmt (Cont’d)

Typical interorganizational channel

SellerSeller

BuyerBuyer

CarrierCarrier


Interorganizational Mgmt (Cont’d)

Example

Suppose a supply channel is composed of two members—a buyer and a seller. The buyer annually produces D = 10,000 units of a product. The buyer incurs an ordering cost of Sb = $100 when buying from an upstream supplier. The buyer’s holding cost for one item is Hb = $10 per year. Based on the EOQ formula, the buyer prefers to place orders of the size:

units 44710

)100)(000,10(22*

b

b

b H

DSQ


Example (Cont’d)

On the other hand, the seller produces to order whenever one is received from the buyer. The setup cost for producing a batch is Ss = $300 and the total annual setup cost (Cs) depends on the buyer’s quantity: Cs = $300D/Qb. Obviously, the more frequently the buyer places orders, the more setup costs are incurred by the seller.

If the channel is managed as a single entity, the order quantity to minimize channel cost is:

units 89410

)300100)(000,10(2)(2*

b

sb

c H

SSDQ

15-17

15-18

Example (Cont’d)Total costs in the supply channel

2,000

4,000

6,000

8,000

10,000

12,000

14,000

300 500 700 900 1,100 1,300 1,500

Order quantity, units

Cos

t, $

bQcQ

Supply Chain cost

Seller’s cost

Buyer’s cost



Example (Cont’d)

Buyer’soptimalQ = 447

Supply Chain’soptimalQ = 894

Sellera

$6,711 $3,356Buyer

b4,472 5,589

Supply Chainc

11,183 8,945aTCs = SsD/Qs

bTCb = SbD/Qb + HbQ/2

cTCc = (Ss + Sb)D/Q + HcQ/2Potential benefit

of $2,238

Costs in tabled form


Example (Cont’d)Conflict resolution

•Formal transfer mechanisms-Price adjustments-Order-size minimums

•Informal transfer mechanisms-Power

›Coercive power›Reward power

Training›Referent power

Use of buyer’s or seller’s good name-Trust

›Communication›Sharing information


Alliances and PartnershipsBenefits

•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


Wh

ere

to P

erfo

rm

Lo

gis

tics

Act

ivit

ies

Low High

Low

Hig

h

Company’s logistics management competency

Impo

rtan

ce o

f lo

gist

ics

to c

ompa

ny’s

suc

cess

OutsourceBe a partnership

leader

Seek a competent partner

Perform logistics activities in-house

15-22


Alliance Choices

•Logistics system sharing

•3PLs

•Partnering through collaboration

15-1 logistics/supply chain organization chapter 15 cr (2004) prentice hall, inc. a good...

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