chapter 4 - organizational and managerial issues in logistics.pdf

Organizational and Managerial Issues in Logistics

Learning Objectives

• To examine organizational structure for logistics

• To explain about traditional and contemporary organizational design for logistics

• To elaborate productivity issues in logistics

• To define quality issues in logistics

• To discuss issues associated with reverse logistics

• To describe programs designed to lessen the impact of terrorism on logistics systems

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Organizational and Managerial Issues in Logistics Key Terms

• “C-level” position

• Centralized logistics organization

• Container Security Initiative (CSI)

• Customs Trade Partnership Against Terrorism (C-TPAT)

• Decentralized logistics organization

• Excess capacity

• Fragmented logistics structure

• Importer Security Filing (ISF) rule

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• ISO 9000

• Lean Six Sigma

• Logistics service quality

• Logistics social responsibility

• Logistics uncertainty pyramid model

• Malcolm Baldrige National Quality Award

• Pilferage

• Productivity

• Reverse Logistics

• Tachograph

• Theft

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• Transportation Worker Identification Credential (TWIC)

• Unified logistics structure

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Organizing Logistics within the Firm

• Two key organizational logistics topics

– Organizational structure

– Organizational design

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Organizational Structure for Logistics

• Two basic organizational structures are:

– Fragmented logistics structure

• Logistics activities are managed in multiple departments throughout an organization

– Unified logistics structure

• Multiple logistics activities are combined into and managed as a single department

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• Two basic organizational structures for logistics departments are:

– Centralized logistics organization

• Company maintains a single logistics department that administers the related activities for the entire company from the home office

– Decentralized logistics organization

• Logistics-related decisions are made separately at the divisional or product group level and often in different geographic regions

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• Job title or corporate rank

– Leading edge organizations tend to head the logistics department by senior-level personnel

– Generally excluded from holding a “C-level” position

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Organizational Design for Logistics

• Three primary types of organizational design include:

– Hierarchical (functional)

• Top-down flow

– Matrix

• Cross-functional responsibilities

– Network

• Process philosophy focused on combining tasks into value-creating products and activities

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• Network organizational design is manifested in terms of:

– Relevancy

• Refers to satisfying current and emerging customer needs

• Facilitated by developing mutually beneficial relationships with key customers

• At a minimum, these relationships should provide an understanding of customer needs and wants

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– Responsiveness

• Reflects the degree to which an organization can accommodate unique or unplanned customer requests

• Achieved when the appropriate decision markers are provided with both relevant information and the authority to address unique or unplanned requests

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– Flexibility

• Is an organization’s ability to address unexpected operational situations

• Predicated on avoiding early commitment to an irreversible course of action

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Managerial Issues in Logistics

• Productivity

• Quality

• Risk

• Sustainability

• Complexity

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Measurement Problems

1. Quality may change while the quantity of inputs and outputs remains constant

2. External elements may cause an increase or decrease in productivity

3. Precise units of measure may be lacking

Productivity Challenge

Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as

labor and capital)

The objective is to improve productivity!

Important Note!Production is a measure of output only and

not a measure of efficiency

Feedback loop

Outputs

Goods

and

services

Transformation

The U.S. economic system

transforms inputs to outputs at

about an annual 2.5% increase in

productivity per year. The

productivity increase is the result

of a mix of capital (38% of 2.5%),

labor (10% of 2.5%), and

management (52% of 2.5%).

The Economic System

Inputs

Labor,

capital,

management

Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years.

Productivity has improved by 27%, or about 4.5% per year.

▶ Measure of process improvement

▶ Represents output relative to input

▶ Only through productivity increases can our standard of living improve

Productivity

Productivity =Units produced

Input used

Productivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000

250

Labor Productivity

One resource input single-factor productivity

Multi-Factor Productivity

Output

Labor + Material + Energy + Capital + Miscellaneous

Productivity =

► Also known as total factor productivity

► Output and inputs are often expressed in dollars

Multiple resource inputs multi-factor productivity

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

=Old labor

productivity

8 titles/day

32 labor-hrs




Old System:

8 titles/day

32 labor-hrs=

Old labor productivity

= .25 titles/labor-hr




Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs=


=New labor

productivity


14 titles/day

32 labor-hrs




Old System:


New System:

8 titles/day

32 labor-hrs=



14 titles/day

32 labor-hrs=

New labor productivity





Old System:


New System:

=Old multifactor

productivity

8 titles/day

$640 + 400




Old System:


New System:

8 titles/day

$640 + 400=

Old multifactor productivity

= .0077 titles/dollar




Old System:


New System:

8 titles/day

$640 + 400=

Old multifactor productivity

=New multifactor

productivity


14 titles/day

$640 + 800




Old System:


New System:

8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity



QuestionThe Dulac Box plant produces wooden packing

boxes to be used in the local seafood industry.

Current operations allow the company to make 500

boxes per day, in two 8-hour shifts (250 boxes per

shift). The company has introduced some small

changes in equipment, and conducted appropriate job

training, so that production levels have risen to 300

boxes per shift. These changes did not require any

change in the amount of capital spending or energy

use. What is the firm's new labor productivity?

Answer

600 boxes per day / 16 hours = 37.5

boxes per hour

Question

Felicien grows mirlitons (that's Cajun for

Chayote squash) in his 100 by 100 foot garden.

He then sells the crop at the local farmers'

market. Two summers ago, he was able to

produce and sell 1200 pounds of mirlitons. Last

summer, he tried a new fertilizer that promised

a 50% increase in yield. He harvested 1900

pounds. Did the fertilizer live up to its promise?

Answer

Two summers ago Last summer Change

1200 ÷ 10,000 =.12lbs/sq. ft

1900 ÷ 10,000 = .19 lbs/sq. ft

(.19 - .12) ÷ .12 =58.3%

Since the productivity gain was 58.3%, not 50%, the

fertilizer was at least as good as advertised.

Question

Martin Manufacturing has implemented several

programs to improve its productivity. They have

asked you to evaluate the firm's productivity by

comparing this year's performance with last

year's. The following data are available:Last Year This Year

Output 10,500 units 12,100 units

Labor Hours 12,000 13,200

Utilities $7,600 $8,250

Capital $83,000 $88,000

Has Martin Manufacturing improved its productivity

during the past year?

Answer

Resource Last Year This Year Change Pct. Change

Labor 10500 / 12000 = 0.88 12100 / 13200 = 0.92 0.04 4.8%

Capital 10500 / 7600 = 1.38 12100 / 8250 = 1.47 0.09 6.2%

Energy 10500 / 83000 = 0.13 12100 / 88000 = 0.14 0.01 8.7%

Productivity improved in all three categories this year;

utilities showed the greatest increase, and labor the

least.

Productivity

• Can be defined as the amount of output divided by the amount of input

• Provides insight into the efficiency with which corporate resources are being utilized

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Three Ways to Improve Productivity

• Reduce the amount of input while holding output constant

• Increase the amount of output while holding input constant

• Increase output while decreasing input

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Worker Productivity

• Warehousing and transportation are heavily dependent on human labor

• Human labor is an input (i.e. workers receive wages or salaries)

• Productivity improvement efforts in logistics are often directed toward increasing the amount of output while holding input constant (workers resistant to suggestions regarding reduced wages or salaries)

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Worker Productivity

• Logistics-operating employees are unionized in some areas

• Warehousing facilities have specific work rules

• Warehouse employees can be monitored by direct supervision

• Transportation employees (truck drivers) can be monitored through technology, i.e. tachograph

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Asset Productivity

• Asset-related productivity concerns include:

– Space utilization

• Excess capacity– Unused available space

– Can be unproductive as it may result in the purchase of additional equipment or facilities which adds costs (input), but may not yield additional output resulting in a productivity decline

– Improving the output from existing assets

• Increases productivity as inputs remain constant, but output is increased

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Quality

• Logistics service quality

– Relates to a firm’s ability to deliver products, material and services without defects or errors to both internal and external customers1

1E.A. Morash, C. Droge, and S. Vickery, “Strategic Logistics Capabilities for Competitive Advantage and Firm Success,” Journal of Business Logistics 17, no. 1 (1996): 1-22.

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Quality

• Quality in logistics involves trade-offs

– If inferior logistic service quality, customers may perceive lower value

– If superior logistic service quality than expected or required, organization may be adding unnecessary cost

• Organizations must try to match the quality levels of the logistic services they provide with the expectations of their customers and the landscape in which they operate.

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Quality

• Vendors are expected to have quality programs

• Vendors can demonstrate commitment to quality to potential buyers through achieving and maintaining quality program certification

• ISO (International Standards Organization) 9000 certification is an example of a quality program certification

1E.A. Morash, C. Droge, and S. Vickery, “Strategic Logistics Capabilities for Competitive Advantage and Firm Success,” Journal of Business Logistics 17, no. 1 (1996): 1-22.

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Quality

• ISO 9000

– Is a set of generic standards used to document, implement, and demonstrate quality management and assurance systems

– Is applicable to both manufacturing and service firms

– Standards are intended to help companies build quality into every core process in each department

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Quality

• ISO 9000

– Firms demonstrating commitment to quality through training, reviews, and continuous improvement achieve initial ISO 9000 certification

– Once certification is obtained, audits are conducted annually and organizations can be recertified every 3 years

– Certification is credited with

• an increase in customer service

• improved order accuracy

• enabling enhanced costs analysis1

1Paul D. Larson and Stephen G. Kerr, “ISO and ABC: Complements or Competitors?” International Journal of Logistics Management 13, no. 2 (2002): 91–100.

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Quality

• Six Sigma (or six standard deviations)

– Is a quality focused methodology that emphasizes the virtual elimination of business errors

– Area covered under a normal curve is by six standard deviations is 99.999%

– Approach suggests that there will be 3.4 defects, deficiencies, or errors per one million opportunities

– Can be applied to various logistics activities such as order picking

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Quality

• Six Sigma (or six standard deviations)

– Benefits

• Reduced costs

• Reduced errors and waste

• Reduced cycle time

– Drawbacks

• Overcoming business cultural barriers

• Investing required resources (both human and money)

• Gaining top management commitment

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Quality

• Lean Six Sigma

– Is a quality focused methodology that integrates Six Sigma with the Lean approach

– Integrates the goals and methods of these two approaches in pursuit of quality

– Unique because it recognizes that organizations cannot focus only on quality or speed

– Emphasizes an organizational focus on improving quality as it relates to responsiveness

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Quality

• Malcolm Baldrige National Quality Award

– Recognizes organizations for their achievements in quality and performance

– Established in the late 1980’s

– Restricted to firms headquartered in the United States

– Eligibility initially limited to:

• Manufactures, services, and small businesses

– Eligibility expanded to include:

• Health care and educational institutions

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Risk

• Can be viewed as susceptibility to disruptions that could lead to a loss for a firm

• Can take a variety of forms as it relates to logistics management activities

– Regularly occurring (or operational) risks, i.e. variability in demand or potential for a damaged shipment

– Catastrophic risks, i.e. earthquakes or terrorist attacks

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Risk

• Logistics Uncertainty Pyramid Model

– Established to identify uncertainty sources that can affect the risk exposure for logistics activities

– Identifies several types of uncertainty including shipper, customer, carrier, control systems, and external

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Risk

• Terrorism is an example of catastrophic risk• Terrorism can be defined as “an illegal use of or

threat of force or violence made by a group or individual against a person, a company, or someone’s property with a goal of menacing the target, often grounded in politics or ideology.”1

1Source: Terrorism, The American Heritage® Dictionary of the English Language, 4th ed. (n.d.). Retrieved from Dictionary.com website: http://dictionary.reference.com/browse/terrorism.

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Risk

• Creation of the Department of Homeland Security (DHS)

– Federal agency

– Goals are

• To prevent terrorist attacks in the U.S.

• To reduce the vulnerability of the U.S. to terrorism

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Risk

• 22 separate government entities were incorporated into DHS

– Transportation Security Administration (TSA)

• Transportation Worker Identification Credential (TWIC)

– Customs and Border Protection (CBP)

• Container Security Initiative (CSI)

• Customs Trade Partnership Against Terrorism (C-TPAT)

• Importer Security Filing (ISF) rule also known as “10+2” (example in Table 4.2)

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Risk

• Theft is an example of an operational risk

• Theft (stealing) can be defined as the taking and removing of personal property with the intent to deprive the rightful owner of it.1

1www.m-w.com/dictionary

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Risk

• Thoughts regarding theft

– Insurance companies may reimburse for loss, but time and costs tend not to be covered

– Theft results in the planned flow of goods being interrupted which can lead to stockouts

– Theft can factor into facility location decisions

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Risk

• Thoughts regarding pilferage (employee theft)

– Transportation and warehousing operations are particularly vulnerable to pilferage

– Managing pilferage begins with the hiring process

– Zero tolerance pilferage policy

– Keep goods moving through the system

– Recent increase in pirate attacks

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Sustainability

• Logistics Social Responsibility– Corporate social responsibility issues that relate directly to

logisticsSource: Craig R. Carter and Marianne M. Jennings, “Logistics Social Responsibility: An Integrative Framework,” Journal of Business Logistics 23, no. 2 (2002): 145-180.

• Potential dimensions include:– Environment– Ethics– Diversity– Safety – Philanthropy– Human rights– Others

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Sustainability

• Reverse logistics

– Is the process of managing return goods

– Exceeds $100 billion in U.S. alone

– Can be 4-5 times more expensive than forward logistics

– Process can take 12 times as many steps as forward logistics

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Sustainability

• Reverse logistics process focuses on:

– Why products are returned

– How to optimize reverse logistics

– Whether reverse logistics should be managed internally or outsourced to a third party1

1John Paul Quinn, “Are There Ever Any Happy Returns?” Logistics Management, June 2005, 63–66.

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Complexity

• Network complexity– Is the growing number of nodes and the associated changes

to the links in logistics systems

• Process complexity– Centers on the haphazard development of processes,

additions and modifications to processes over time, and/or changing process requirements

• Range complexity– Centers on the implications associated with the increasing

number of products that most companies continue to face in an effort to differentiate themselves with their customers

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chapter 4 - organizational and managerial issues in logistics.pdf

Documents

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organizing logistics

logistics systemscopyright

single logistics department

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managerial issues

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