organisational design of planning and control

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THE ORGANISATIONAL DESIGN OF PLANNING AND CONTROL:

THEORY AND PRACTICE

Keywords:

case studies, production system, organisational design

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Dr. Jan de Vries

Department of Operations Management

Faculty of Management and Organisation

University of Groningen

P.O. Box 800, 9700 AV Groningen

The Netherlands

Tel: +31 50 363 7020

E-mail: [email protected]

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mailto:[email protected]

mailto:[email protected]



The organisational design of planning and control: theory and practice

Abstract:

Within companies it is widely recognised nowadays that the performance of

production systems is not only determined by the way the production system is

controlled but also by its organisational design. Many organisations therefore try to

improve their performance by simultaneously implementing advanced planning and

control systems and utilising organisational measures. Notwithstanding its

importance, the field of production and operations management still lacks however, a

comprehensive body of knowledge integrating both control and organisational aspects

of production systems. One of the reasons for this shortcoming seems to be a lack of

understanding how planning and control systems interact with their organisational

embedding. In this article, this interdependence is further explored. Firstly, a

conceptual framework is presented. According to the framework, four important

groups of characteristics are of importance when trying to understand the

interrelationship between planning systems and their organisational design. These

groups of characteristics relate to the transformation system involved, the planning

and control system, the superstructure of the planning system and the structure of

positions. The framework has also been the foundation for five case studies

performed during the last years. One of the main conclusions derived from the casestudies is that organisations often try to neutralise shortcomings in the planning and

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control system by applying organisational measures. In addition to this positive

congruence, negative forms of congruence were also found. Shortcomings in the

planning and control system are then negatively re-enforced by the organisational

setting of the planning and control system. The findings of the case studies also

suggest that companies often do not apply a clear and well-defined policy regarding

the organisational setting of advanced planning and control systems. We end this

paper by arguing that objectified notions on (re)designing planning and control

systems and its organisational design often under-emphasise irrational behaviour of

the parties involved. A further elaboration of the framework presented in this article

integrating operations management concepts and organisational theory therefore

seems to be worthwhile.

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The organisational design of planning and control: theory and practice

1. Introduction

Due to increasing competition, expanding foreign markets, high-speed

technology innovations and the availability of dedicated information systems many

organisations have introduced 'new' production concepts during the last decades. One

can think for instance of manufacturing resource planning, business processreengineering, lean production, just in time production, enterprise resource planning

and more recently supply chain management. It is not surprising, therefore, that in the

late 20th century, the body of knowledge of production and operations management

has rapidly expanded. It can be concluded that the field of Operations Management

has evolved from a rather narrow defined production and industrial engineering

discipline to a discipline including a broad array of management issues like

manufacturing strategy, innovation management and service management. Notwithstanding our increasing understanding of the design and performance of

production systems some gaps and holes in the theoretical foundations of the

production and operations management field, still exist yet. As an example, we can

take a closer look at the organisational setting of production systems. Nowadays, we

often come across theories on self-regulation, decentralisation, autonomous groups

and unit management. Many of the theories regarding the organisational design of

production systems are still based however on either a behavioural way of thinking or

on a more traditional operations management school of thought. It is only recently

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that authors have stressed the necessity for a greater coherence and integration

between the different management disciplines dealing with organisational issues of

the production system (e.g. Lovejoy, 1998; Miller and Arnold, 1998).

In practice there appears to be an ongoing struggle how to organise production

systems properly as well. When trying to solve interface problems between

Production and Sales for example, the introduction of a materials manager is for

many years considered as an sufficient organisational measure. Although the

introduction of a materials manager seems to be useful in many situations, it is

indicated by research that the establishment of this function often results in new

domain-conflicts and co-ordination problems (Bowersox and Daugherty, 1987;

Sutton, 1990; Murphy and Poist, 1998). Another example of an important

organisational issue in the field of operations management illustrating the importance

of the organisational design question of the production system, is the ongoing debate

about the benefits of semi-autonomous work groups. Many critics have focused on

the negative aspects of semi-autonomous groups and have questioned the usefulness

of implementing autonomous groups in some production environments. At the same

time many organisations all over the world have adopted semi-autonomous groups

and have reported major contributions to improved efficiency and competitiveness

(Cole, 1989; Rubenowitz, 1992; Van der Meer and Gudim, 1996; Thompson and

Wallace, 1996)

The above-mentioned notions have been the starting point for an empirical

research aimed to explore the interdependence between the planning and control

structure and its organisational design. Within companies it is widely recognised

nowadays that the performance of the production system is not only determined by

the way, the production system is controlled but also by the organisational design of

the planning system. Many organisations therefore try to improve their performance

by simultaneously implementing advanced planning and control systems and taking

organisational measures with respect to the planning system. Despite its importance,

the field of production and operations management still lacks however a

comprehensive body of knowledge in which both control and organisational aspects

of the production system are integrated. One of the reasons for this shortcoming

seems to be a lack of empirical data on how the planning and control system and its

organisational design interact with each other. Planning and control systems as wellas their organisational embedding apparently seem to be closely related to each other

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in practice. The question nevertheless is how this interdependence looks like. One can

ask for instance whether the characteristics of the planning and control system need to

be reflected in its organisational design. In addition to this, the question arises if some

specific design rationale is applied in practice. In this context one can speculate on

the sequence of the succeeding steps when the planning and control system and its

organisational context are to be (re)designed. It is furthermore surprisingly that also

little is known about the underlying principles used in practice regarding the

organisational embedding of planning and control systems. There are some

indications for instance that organisational design strategies regarding planning and

control systems can only to a certain extent be explained by current theoretical

frameworks and that only some best practice exists (Draaijer and Boer, 1995).

Clearly, it is not possible to deal with all these questions in this article

extensively. Our focus therefore will be on two issues. Firstly, a conceptual

framework is developed. The framework provides a structure to describe and

systematise the interdependence between the planning and control of production

systems and the organisational setting of planning systems. Secondly, the overall

results of five (longitudinal) case studies are presented and analysed by means of the

framework. By doing this, we hope to establish a more profound understanding of the

organisational context of planning and control systems; both from a theoretical as

well as from an empirical point of view.

The article is structured as follows. In the next section, first some theoretical

backgrounds of our research are presented. Subsequently, an analytical framework is

developed leading to a set of key-dimensions related to the interdependence between

planning and control, and its organisational design. Section four goes into some

methodological details of the performed case studies. The last section of this article

elaborates some of the major findings of the case studies. One conclusion derived

from the case studies is that the interaction and interrelationship between production

control and the organisational design of production planning can vary from positive

re-enforcement to negative re-enforcement. This conclusion and its implication is

more underpinned and discussed in the last section.

2. Theoretical backgrounds

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Although the field of production and operations management and behavioural

oriented disciplines show some overlap with respect to the issue of planning and

control, a number of important dissimilarities between these two disciplines can be

distinguished. In literature it is extensively argued that social science oriented

disciplines seem to be less technique and method-oriented, more concentrated on

some key features of the production system (e.g. standardisation, uncertainty, co-

ordination) and more heavily focused on behavioural aspects of the production

system. At the same time the production and operations management discipline is

often characterised as a design and technological oriented discipline concentrating on

the unique characteristics of single production systems and dominated by planning

and control issues (e.g. Meredith et al., 1989; Schmenner and Swink, 1998; Van der

Zwaan and de Vries, 2000; Meredith, 2001). The differences between both fields are

also reflected in the competing paradigms for scientific research. The field of

operations management seems to be more a mix of quantitative and qualitative

research consisting of both positivists and interpretivists and of both theory builders

and problem solvers than behavioural disciplines (Meredith, 2001). The current status

of the operations management discipline therefore appears to be more ambiguous and

to a certain extent even more confusing than social science based disciplines.

Starting from the multiple competing paradigms it is not surprising that many

of the concepts and frameworks concerning the control of production systems do

represent to some extent a partial approach. In the field of production and operations

management the main focus is for instance often on trying to achieve a fit between

the characteristics of the production and distribution system, and the control system to

be used (Ruffini et al., 2000). Or stated in another way: in the production and

operations management paradigm production and technological characteristics are

often considered as the two dominant factors that influence the design of the control

system. In more social science based disciplines at the other hand, specific and unique

characteristics of the production and distribution system are often simplified to

aggregated and isolated variables. Issues like the influence of customer orders, the

existence of multiple product/market combinations and the complexity of trade-off

decisions in many cases are even neglected. From a scientific point of view one of the

main challenges therefore seems to be to develop a framework from which questions

regarding both the planning and control of the production and distribution system aswell as the organisational embedding of this control can be described and analysed in

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coherence. Ideally, this framework is also the basis for an integrated design

methodology with respect to controlling and organising production and distribution

systems.

In trying to achieve a better understanding of production and distribution

systems as a whole, we performed several (longitudinal) case studies during the last

decade. In these case studies, we focused on the interdependence between the control

of the production and distribution system and the organisational setting of this

control. Before studying the companies, an explorative framework was developed

based on the assumption that a close and complex interaction exists between the

planning and control of production and distribution systems and the organisational

setting of the planning system. The theoretical background for this assumption can be

found in many different managerial disciplines. From the open system approach we

know for instance that the control structure of the organisation will usually be

designed in such a way that departmental boundaries follow the lines of technological

near-decomposability (Bertrand et al., 1990). At the same time, many studies have

uncovered a set of so called contingency factors that influence the organisation design

of the technical system (e.g. Woodward, 1965; Khandwalla, 1977; Child 1972;

Rogers, 1983; Clark and Stauton, 1989). As we will see, elements of our framework

are based on this contingency way of thinking.

In the next section, an explorative framework is presented which was used to

identify the mechanisms behind the interaction and interrelationship behind the

transformation system, the planning and control system being applied, and its

organisational design. From this, the results of the case studies are discussed in the

remainder of this article.

3. Structuring production control and its organisational design

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To examine the relationship between the planning and control of production

systems and the organisational setting of this control more closely, an explorative

conceptual model was developed. Figure 1 shows the conceptualised interdependence

among the transformation system, the planning and control structure, the

superstructure, and the structure of positions. The main idea behind this model is that

by means of describing these dimensions as well as their interaction, one can gain a

better understanding of the complex and messy phenomenon of production planning

and its organisational setting. One important research proposition in our study was

that in practice different patterns exist with respect to the interdependence between

the planning and control structure, the superstructure of the transformation system

and the structure of positions. We will now first explore these dimensions in more

detail. In the succeeding sections, the model will be illustrated by means of five case

studies.

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Performance of the productionand distributionsystem

Structure of positionsSuperstructure

Planning and controlsystem

Transformation

system

Organisational setting

Situational characteristics



-relative position-concentration degree-grouping criteria

-lines of authority-allocation of responsibilities-communications mechanisms-foralisation of behaviour -specialisation-requirements and skills

-planning levels

-degree of formalisation-control rationale-degree of uncertainty-possibilities of decomposition

-technological characteristics-variety of products-resource interdependence-flexibility

Figure 1 Schematic representation of the conceptual model



The transformation system

In our conceptual model, the transformation system is related to the entire

material flow from supplier to customer including both the supply of raw material, the

manufacturing of parts and products, warehouse activities and the distribution of

products to customers. The transformation system in other words refers to the way

organisations produce goods and to the way goods and materials are distributed from

supplier to the manufacturer and from manufacturer to the customers. So, in our

terminology the term transformation system refers to both inbound as well as

outbound activities. Sometimes this broad definition of transformation system is

referred to as the logistical system. The term ‘logistics’ however, is often very

confusing. In many cases the American definition of logistics is limited to

warehousing, inventory management, and transportation activities while in Europe,

logistics also covers the area of operations.

Within the field of production and operations management, a huge amount of

characterisations and typologies exist with respect to the production and distribution

system of the organisation (e.g. Woodward, 1965; Hayes and Wheelwright, 1979;

Hill, 1991; Slack et al., 1998). Although many of these typologies differ in terms of

the goal of the typology and in the way variables are operationalised, the underlying

dimensions are often similar. In general terms, the production and distribution system

can be described by characterising the products and services, the characteristics of the

operations network, the layout and flow of materials, and the process technology

used. Each of these four dimensions in itself can be operationalised by additional

characteristics. Figure 1 gives an overview of the main characteristics used in our

empirical study to describe the transformation system of the companies examined. A

wide range of both production and operations management studies and contingency

theories of organisations were applied to operationalise these characteristics. As a

result, many of the characteristics as depicted in figure 1 can be found in literature

and are generally considered as important determinants for the performance of

production and distribution system.

The planning and control system

Within the area of production and operations management, the issue of

designing a proper planning and control framework for the production anddistribution system is strongly emphasised (Bertrand et al., 1990). A control

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framework can be considered as an overall and to some extent generic model, which

includes the trade-offs between the leading decisions regarding the production- and

distribution system of the organisation. In general, the production and logistical

control system of the organisation reflects the way customer orders are accepted, how

production and procurement orders are placed, and the way production and

distribution capacity available is used (e.g. Bowersox et al., 1986). From a

production and operations management standpoint, the control framework is a leading

factor for the methods and techniques, the planning procedures and the information

system to be used in a specific situation. It is therefore not surprising that within

production and operations management literature the necessity for an adequate

control framework is strongly emphasised and that many attempts have been made to

develop generic frameworks for production control. An example of a generic

framework for the control of production systems is presented in Bertrand et al. (1990)

which is founded on the general system-approach as well as on the MRP-II concept.

On a more abstract level, the control system also reflects how co-ordination between

all these decisions is achieved and identifies the main trade-offs with respect to the

production and distribution system.

Clearly, in many organisations the overall control of the production and

distribution system can be quite complex. A large number of variables, complex

interrelationships and the uncertain outcome of decisions make it in many cases

impossible to deal with the control problem as a whole. To avoid this complexity,

often a hierarchical control structure is used in which the overall control problem is

decomposed into several sub problems (e.g. Burbidge, 1971; Bertrand et al., 1990).

From a systems theory point of view, three control levels can be distinguished with

respect to the production and distribution system (e.g. Mesarovic et al., 1970).

Strategic control focuses on the formulation of a framework of objectives. In this

framework, trade-offs between different objectives are made explicit. Besides this, on

the strategic decision-making level the context is set in which the production and

distribution of products and material take place. The ‘output’ of the strategic control

level focuses on constraining the lower control levels, which consists of the adaptive

and operational control. At the adaptive control level, the transformation of general

objectives with respect to the production and distribution system into operational

performance criteria takes place. Finally, the operational control level contains the

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concrete (operational) control of the production and distribution system. Figure 2

summarises these control levels in general terms.

In exploring the planning and control system of the organisations, our focus

was not only on the decisions being made with respect to the production and

distribution system but even more on the fundamental concept and rationale

underlying the planning and control system. Examples of questions we have been

asking ourselves are: how is the company involved trying to reduce control

complexity, what are the key-drivers for implementing advanced information-

oriented planning systems, and what is the underlying rationale behind trade-off

decisions to be made with respect to the allocation of resources.

The superstructure of the transformation system

The issue of the organisational setting of the planning and control of the

production and distribution system can be separated into two analytical closely

related dimensions. First, there is the question of the superstructure. The

superstructure focuses on the functions and activities to be distinguished in relation to

the production and distribution system and on the way control activities are arranged

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Strategic control

Adaptive control

Operational control

Production andProduction andDistribution systemDistribution system

objectives

performancecriteria

Goods and materials flow

Planning and control system

Figure 2 Planning and Control system



in organisational units and departments. In organisational literature this issue is

described as the design of the superstructure, also called the organic structure of the

organisation (Mintzberg, 1979). In general, the superstructure can be operationalised

by means of three parameters. The concentration degree defines to what extent the

various planning and control activities are grouped into a single organisational unit or

department or to what extent they are arranged within different organisational units.

The relative position of the planning and control activities is the 'position' of these

groups of activities in the organisation structure. On the one hand, planning and

control activities can be allocated ‘high’ in the superstructure of the organisation. On

the other hand, control activities often are allocated as much as possible to the

‘bottom’ of the organisation near the work processes themselves. As will be

illustrated in the case studies, the relative position is often some mixed and hybrid

form. Finally, the grouping criterion defines the basis on which the planning and

control activities regarding the production and distribution are grouped into units or

departments. From organisational literature, we know that different grouping criteria

can exist. Planning activities for instance can be grouped based on product

characteristics, market segments, or the underlying production system. Combined, the

above-mentioned parameters characterise the superstructure.

Apparently, superstructures can differ immensely and various factors will play

a role in the choice of the superstructure. From literature we know that different

contingency variables can or will influence in some way or the other the eventual

superstructure. Some of these contingency factors distinguished in literature are the

planning and control complexity, the overall organisational structure, the degree of

production and logistic professionality, the (perceived) importance of the control, and

the size of the organisation (e.g. Pfohl and Zöllner, 1987).

From a design standpoint, the result of the superstructure is a rather extensive

list defining which organisational entities have to carry out which planning and

control tasks. We notice here that structuring the production and distribution function

as a separate organisational unit is often not necessary and even not possible. In many

cases planning and control tasks will be performed by traditional organisational func-

tions like production, marketing, sales and purchasing. As an example we can think of

the position, small companies find themselves in. Often they do not have the means to

create a materials management department. In several situations, the creation of sucha department is not necessary either. Short communication lines, a rather informal

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way of organising the production and distribution system and a strong co-ordination

from the top of the organisation make a separate planning department in these

companies often superfluous.

Structure of positions

Organising the production and distribution planning consists of grouping

planning and control activities into organisational units on the one hand

(superstructure) and the establishment of positions on the other hand (structure of

positions). The structure of positions is therefore defined as the formal and actual

relations between persons and groups of persons as far as they occupy themselves

with the planning and control of the production and distribution system. In general,

three aspects are involved with the structure of positions (Mintzberg, 1979). First of

all, position design entails the requirements for holding a position. This includes

aspects like knowledge and skills needed to perform, in our case, planning tasks.

Secondly, the structure of positions includes the formalisation of behaviour . In the

past, several studies have addressed the circumstances that determine the degree the

organisation is excluding personal discretion when performing planning tasks (e.g.

Lawrence and Lorsch, 1967; Van de Ven, 1976). Organisations formalise behaviour

for several reasons. Ensuring prediction and controllability, reducing variability of

(planning) behaviour, and fulfilling a subjective desire for order are mentioned in

several studies as ultimate reasons for a high degree of behaviour formalisation.

Finally, the structure of positions also involves the degree of specialisation of the

(planning) job. Specialisation of the planning job can differ immensely varying from

highly specialised to being engaged in a wide variety of different planning tasks.

From a design point, the structure of positions is the final step of defining the

organisational setting of planning and control. Because of the comprehensiveness and

complexity of the aspects that cohere with the structure of positions, it is probably

also the least transparent dimension.

Structuring the positions with respect to the planning and control of the

transformation system involved often focuses on the question whether there should be

one logistic or materials manager in control of all planning activities or not (e.g.

Miller and Gilmour, 1979). Traditionally, responsibilities for the entire materials flow

are rather fragmented. It will however also be clear that a unification of respon-sibilities with respect to the production and distribution system in many cases is

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neither possible nor desirable too. In practice there often seems to be a certain

ambiguity about the position and role of logistic managers and materials managers on

the one hand and production managers on the other hand. As we will conclude from

our case studies, in many cases the relation between the logistic and materials

manager and line management is somewhat problematic. In comparison with

production managers, the task domain of the logistic and materials manager for

instance is more difficult to define. Furthermore the ambiguous role and position of

logistic managers can often be explained by the fact that their contribution to the

accomplishment of organisation objectives is rather difficult to trace. When they are

trying to realise performance improvements, logistic managers for instance largely

depend on the management of functional areas (Production, Sales, Procurement, etc.).

Our empirical study suggests that in practice logistic and materials managers often

feel trapped between various conflicting role perceptions, expectations, and

organisational measures.

As mentioned above, figure 1 shows the conceptualised relationships between

the transformation system, the planning and control system, the superstructure of the

planning and control system, and the structure of positions regarding the planning and

control of the transformation system. This brings us now to the question of the

interaction and interrelationship between the characteristics of the planning and

control system being applied and the organisational structuring of the planing and

control system. Starting from the framework depicted in figure one, several research

propositions can be derived. By considering the dimensions mentioned above it can

be argued for instance that an assessment of the transformation system, as well as the

control structure, the superstructure and the structure of positions, is a necessity for

explaining the overall performance of production and distribution systems. At the

same time it seems to be of importance to take the interaction and interdependence

between these characteristics into account as well. Therefore, we also assume the

overall performance of the production and distribution system to be influenced by the

extent to which the characteristics of the above mentioned dimensions fit together.

In the remainder of this article, we will focus on the application of the

framework in terms of describing the interaction and interrelationship between the

control of the production and distribution system and its organisational design as ithas shown up in five case studies. Section five presents some of the outcomes of the

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case studies with respect to this interdependence. In the next section however, we will

first focus on the research method applied.

4. Research method

The empirical part of the research is founded on five in-depth case studies. In

one case, the organisation was examined during a period of more than fifteen years.

The remaining four organisations were examined during a continuous period of six

months. After this intensive research period, the organisations were followed during a

period of two years. During this period developments regarding the planning and

control system and the organisational design of the production and distribution

system were observed. Three companies are situated in the semi-process industry,

two companies are assembly-oriented. The size of the firms varied from small ( ± 50

employees) to medium sized companies ( ± 250 employees). Although all companies

examined were independent, two organisations formed a part of a larger

(multinational) corporation. In all companies distinctive functional areas like

production, sales, procurement and marketing exist.

Data was gathered by studying internal reports, visiting and observing

meetings, distributing questionnaires, and by means of (semi-)structured interviews.

In all cases planning, manufacturing, sales, en logistics employees were interviewed

for several times. Within each organisation the employees being interviewed

consisted of employees working at both the lower, middle and higher management

levels. Both the (semi-) structured interviews and the questionnaires were based on

the model as presented in the previous section. The questionnaires focused on an

assessment by the employees of the four aspects mentioned e.g. the transformation

system, the planning and control system, the superstructure and the structure of

positions. During the interviews, the results of the questionnaires were discussed and

further information was provided by the employees regarding the interaction between

the planning and control system and its organisational design.

In all case studies some participative research elements were included. In one

way or the other, all the companies were interested in an critical evaluation of the

organisational design of their production and distribution system. This included

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questions like: do we need a logistical or materials management department, how can

conflicts between Production, Sales and Logistics be reduced, are there any co-

ordination problems between Purchasing, Production and Sales and if, how can they

be solved, and last but not least: are interfaces within the company between functional

areas managed properly. From this evaluation in all companies an improvement and

reorganisation process was conducted. The nature and characteristics of these

reorganisation processes differed, however, from making some minor improvements

to changing the entire planning and control system. In three companies organisational

changes encompassed a redesign of the superstructure and a re-allocation of

authorities en responsibilities. During this process of change the role of the

researcher(s) was solely restricted to making observations, the structuring of on-going

discussions and providing management with analytical –theory-based- material

regarding the issues being discussed. All of this was framed by the research model as

described in the previous section. Many of the techniques and methods used in this

structuring process were based on a soft systems approach (e.g. Checkland and

Scholes, 1999; Flood and Jackson, 1993). Cognitive mapping and the drawing of so-

called rich pictures were for example used to reveal problems with respect to the

production and distribution system. By using the method of cognitive mapping tacit

knowledge with respect to the production and distribution system was made explicit

(Nonaka & Tackeuchi, 1995). From this, relationships and interactions between the

planning and control system and its organisational embedding were discussed and

proposals for redesign were evaluated.

As mentioned above the foundation of the case studies was in a tentative

model which in itself consisted of a definition of four important aspects related to the

production and distribution system as well as in a further exploration of the expected

interaction and interdependence between the planning and control system and its

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Transformationsystem

Planning andcontrol system

Superstructure

Structure of positions

ISTsituation

AnalysisSOLL

situationChange process

Figure 3 Overview of the distinctive phases in the research process



organisational setting. Based on the findings of the case-studies, the conceptual

framework was further refined and worked out in more detail. One can argue

therefore that the (empirical part of the) study shows all characteristics of a rather

classical research method (Yin, 1989).

Figure 3 summarises in a schematic way the research process that has been

applied. As depicted in figure 3 the empirical part of the research process can be

characterised by two lines of thought. First of all, a sharp distinction was made

between the specification phase (IST situation), the analysing phase, the redesign

phase (Soll situation) and the implementation phase (change process). So, in all

companies these distinctive phases were initially defined to decompose the complex

decision-making process regarding the organisational design of planning and control.

Secondly, during the whole research process our focus was concentrated on exploring

the distinctive characteristics of the production and distribution system, the planning

and control system being applied and its organisational setting. As stated above, the

main idea behind this was to reveal the underlying interrelationships between these

dimensions as they appear in practice and to sharpen our understanding of the ways in

which these dimensions frame the process of organisational design.

5. Results and analysis of the case studies

Table 1 presents an overview of some main characteristics of the organisations

examined. As stated above, three organisations are situated in the semi-process

industry. Semi-process production is characterised by batch production, usually a

large divergent product-structure and some heavily pressure on reducing batch sizes,

lowering delivery time and meeting new product specifications. As can be depicted

from table 1, these characteristics can all be addressed to the organisations examined.

The transformation process of the two remaining companies can be typified as

assembly-production. Comparatively speaking, assembly-production is characterised

by high volumes and a rather narrow variety of products being made. To a certain

degree, production activities in assembly environments are repetitive and often

largely predictable compared to engineer-to-order and job-shops situations.

One of the distinctive attributes also suitable for the companies examined, isthe decoupling of the production process and the packaging part c.q. the assembling

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part of the production process. Stated in another way: in all organisations the 'final

assembly' process or packaging process was decoupled from the production process

by means of a stock point. In addition to this, all organisations distinguish between

various product-market combinations often referred to as ‘standards’ and

‘specialities’. In all cases, standard products were planned by some forecast-driven

planning system. The planning of specialities at the other hand was often based on a

mix of customer-driven and inventory-driven systems. Due to the existence of several

product-market combinations, control complexity was experienced as rather high in

four of the companies studied. At the same time, production and distribution planning

was considered as of eminent importance in these four organisations. In one company,

control complexity was experienced as rather low. This was mainly caused by the fact

that in this company a fixed planning period of six weeks was applied. During this

period, no changes in the production plan were allowed.

With respect to the organisational design of the planning and control system

all organisations showed a mix of formal and informal co-ordination mechanisms

between functional areas like Production, Sales and Distribution. In two organisations

an integrated view on these company functions was heavily advocated. In practice,

however, these two companies solved conflicting issues between Production and

Sales by applying a functional hierarchy and not by some integrating mechanism

between the parties involved. It is noticed that this is in line with the study of Chikán

who concludes from several surveys that the degree of integration between functional

areas in companies is much lower than one would expect from literature (Chikán,

2001, p.135). From the five companies examined, two organisations included a

logistical department. In one of these organisations, the main tasks of this department

consisted of making a long-term production and distribution plan. In the other

organisation, the main task of the logistical/materials management department was

explicitly addressed as making adequate trade-offs between production and sales and

as solving conflicting issues between Procurement, Production, Sales and

Dispatching.

It is interesting to note that all the organisations examined faced a necessity

for improving the overall (logistical) performance in terms of decreasing costs,

shortening delivery times, improving delivery reliability, quality and customer

service. From this, in all cases changing the planning and control as well as the

20



organisational design of the production and distribution system was regarded as a

potential opportunity to contribute to this improvement.

In the remainder of this section, some of the main observations are

summarised, drawing on both the questionnaires and the interview data. Because it is

not possible to deal with all the results extensively our main focus will be on linking

the planning and control efforts of the companies examined with the organisational

design strategies applied.

Confronting organisation design theory with practice

One of the research questions we have been trying to answer is whether

important ‘driving forces’ can be found for the organisation design strategies applied

by the organisations, especially concerning the organisation design of the planning

and control system being used. In theories of organisations it is for instance

extensively discussed that characteristics of the environment influence the

organisation structure (Thompson, 1967; Mintzberg, 1979). Much of this work has

been underpinned by studies based on contingency theory. In this context we refer for

instance to the classical work of Lawrence and Lorsch (1967) who suggested that

differences in organisational structures can be described and explained by two

dimensions: differentiation and integration. Differentiation refers to the difference in

orientation among employees of different (functional) departments. Integration refers

to the state of collaboration among departments/employees necessary to fulfil the

demands of the environment.

In none of the case studies performed, organisations explicitly formulated

design rules for neither the planning and control system nor for the superstructure and

the structure of positions. In fact, the organisational embedding of the planning and

control system apparently was often the result of a grown situation based on

something like heuristic knowledge and 'best practice'. Whenever some implicit

design rule was formulated, it was of a rather general and common nature and not

based on existing theoretical knowledge. This finding is somewhat surprisingly when

we take the tremendous amount of design rules regarding the structuring of

organisations in general and specific parts of the organisation in particular into

consideration. It is somewhat disappointing to conclude that in none of the

organisations examined, an outspoken design policy was formulated. In three of thecase studies both the planning and control of the production and distribution system

21



and the organisational embedding of the planning and control system were from a

theoretical design oriented standpoint even based on insufficient grounds. The

classical rule for a necessity of a balance between logistical authorities and

responsibilities for instance was in three companies deliberately violated. Political

reasons combined with pragmatic arguments can be considered as the main

explanation for this, often irrational, behaviour. In all the companies examined,

power, politics, personal preferences, opportunism and coalition formation were

playing an important role in the decision making processes regarding the

organisational (re)design of the planning and control system.

The organisational design of planning and control

In trying to explore the mechanisms that influence the organisational design of

the planning and control system being applied in the companies, we made use of the

technique of cognitive mapping (Eden et al., 1983). One element of cognitive

mapping which has been very helpful in understanding the complexity of the

mechanisms going on within the companies is the concept of 'rich pictures'. Rich

pictures can be considered as schematic representations of the problem situation,

expressing the underlying determinants and interrelationships between variables.

Starting point for making the rich pictures was the conceptual model as depicted in

figure 1. Based on the variables as described in the conceptual framework, several

rich pictures were constructed and discussed with the employees and management

involved. Figure 4 gives an example of a rich picture of one of the companies

examined. Based on a description and analysis of the existing situation, three

companies started a project aimed to improve the logistical performance of the

company. In all three companies, both the planning and control system and its

organisational design were subject of discussion and no area was excluded in

advance. During these projects alternatives were also described and analysed by

means of cognitive mapping and the information provided by the rich pictures.

22



The results of the case studies indicate that it is of importance to study the

transformation system, the planning and control system, the superstructure, and the

structure of positions in coherence. The interaction between these dimensions in other

words, can be considered as a dominant factor in explaining the overall performance

of the organisations studied. The interaction and interdependence between the

planning and control system and its organisational design can however be quite

complex. One would expect for instance that the characteristics of the planning and

control systems are reflected in its organisational design. Despite the fact that many

authors have stressed the importance of a fit between the characteristics of the

transformation system, the planning and control system being used and its

organisational design it cannot be concluded from our case studies that a misfit

between these elements leads to a poor performance. Following Donaldson (1996), it

seems to be that organisations can sustain a lack of fit without serious consequences.

One of the reasons for this observation that can be derived from the case studies is the

fact that the direction of the interdependence between the elements as shown in our

conceptual model can differ. Our case studies reveal that the interaction between theabove mentioned elements can both be positive as well as negative. A positive

23

Functionalizedorganisation

No aggregatedproduction plan

No formal co-

ordinationmechanisms betweenProduction and Sales

Uncertainties in theproduction

A large number ofRush orders

Instability in theproduction planning

Absence ofpriorities in

allocating productioncapacities

No explicit overallcontrol concept

High degree of

deconcentrationwith respect toplanning activities

Fragmentedallocation of

authorities andresponsibilities with

respect toproduction and

distribution

Personal conflicts anddomain discussionsbetween Production

and Sales

Figure 4 Example of a cause-effect diagram for one of the companies examined



interaction means that shortcomings in one of the subsystems (e.g. the transformation

system, the planning and control system, the superstructure, and the structure of

positions) are countervailed by the characteristics of one or two of the other

subsystems. A negative interaction between the subsystems exists whenever

shortcomings in one or more subsystems are reinforced by the other subsystem(s).

This finding implicates that the transformation system as well as the planning and

control system ought to be studied in coherence with its organisational setting. This

because it seems that not only the subsystems apart but especially the interaction

between the subsystems might be a major ground for explaining the overall logistical

performance of the organisation.

Design hierarchy

A major design rule that can be derived from the framework presented in

section two includes the hierarchy to be applied when (re)designing the production

and distribution system, the planning and control of these systems and the

organisational embedding of this control. Under norms of rationality, a clear and well-

defined sequence in the design of these subsystems exists. In many studies it is

advocated that first of all, the design of the production and distribution system should

take place (e.g. Hoekstra and Romme, 1992). Secondly, the planning and control

system has to be designed from which the superstructure can be conceived. Finally,

an outline should be made of the structure of positions. The rationality behind this

sequence is that the system to be controlled ought to be designed first. From this, the

planning and control system can be filled in. The organisational design is than

considered as the final step and includes the creation of functional areas like

Production, Sales, Materials management and the logistical function (e.g. Hoekstra

and Romme, 1992).

Clearly, the above mentioned sequence is an analytical ranking and it is

therefore not surprising that in practice often a deviating sequence is used. Our case

studies indicate that due to pragmatic considerations and sometimes for political

reasons, organisations tend to use a partial approach instead of an integral approach

with respect to the design of the production and distribution system. It is interesting to

notice for instance, that in four of the five case studies, organisations focused strongly

on implementing planning and control concepts without taking the organisationalembedding into consideration. In three cases, the organisational setting of the

24



production planning was only changed for internal political reasons. Based on the

case studies performed, there is a clear indication that organisations appear to neglect

a necessary design hierarchy when (re)designing the production and distribution

system.

6. Conclusions

This article explored the interaction and interdependence between the

planning and control of production and distribution systems and its organisational

design. Many organisations are facing nowadays the problem of how planning and

control systems ought to be embedded in the organisation. Although some research

has been performed the focus in the field of operations management is often on

planning and control itself and not as much on the organisational setting of the

planning system. Based on empirical research we developed a tentative framework

which can be of use in explaining the driving forces behind the logistical performance

of an organisation. The main fundament of this framework is in the notion that four

subsystems can be distinguished, e.g. the production and distribution system, the

planning and control system applied, the supplementary superstructure and the

structure of positions. As we have illustrated, these four subsystems are interacting

with one other in a very complex way. It can therefore be concluded that not only the

characteristics of each separate subsystem but particularly the interaction between the

subsystems involved seems to be of importance in explaining and understanding the

'behaviour' of production and distribution systems.

Obviously, this article has considered only five cases and generalizations from

them must therefore be treated with some caution. The understanding that the above

mentioned subsystems can interact with one another considerably has shown to be

very useful and clarifying, though. It is indicated by the case studies for instance that

not merely the division of planning activities or the planning and control system

being applied is responsible for the logistical performance. The case studies provides

us with some evidence that in particular the overall configuration consisting of the

transformation system, the planning and control system, the superstructure as well as

the structure of positions is far more important for the performance achieved. Thecomplexity of the interdependence between the production and distribution system,

25



measures. Hopefully, this will lead to a more integrated body of knowledge relying on

both the field of operations management and organisation theory.

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29



Company A Company B Company C Company D

General

character of

the company

Medium sized

Manufacturer of Paint

Developer, producer and

marketeer of custom

-formulated chemical

speciality products

Large, multinational

company of

Pharmaceuticals,

Chemicals and Coatings.

Research was performed

within the chemical

division

The core

consist

developmen

production,

after sales

luxury coac

Products

Paint for industrial and

do-it-yourself

applications. Important

product groups are

varnish, wallpaint,

groundings and fillers.

The entire product

assortiment includes

more than 30.000

different products

Chemical speciality

products Eight product

lines including cleaners,

metal processing

lubricants and hydraulic

fluids.

Catalysts and additives

used in the production

of polymers as well as

for the oil refining and

petrochemical

industries. Other

products are

intermediates for

detergents, cleaning, and

personal care products.

Two p

From sixt

products, a l

of different

be produ

engine, len

Upgrading/s

secondhand

Product/Mar

ket

combination

Seven main product-

market combinations

(e.g. house decorators,

do-it-your-self stores,

industrial company's and

department stores)

Major markets served

include automotive,

glass, steel and

aerospace. Eight major

product lines/sixteen

different market-

segments

Some main markets are

oil refinery,

petrochemical industriy

and the agricultural

sector. Ethylene amines

are used in a wide

variety of industries.

European

tourist op

many cases

different co

to meet sp

requirement

Process

characteristi

Semi-process oriented.

Medium-High volumes.

Four product lines.

(Semi) process oriented.

Medium-high volumes.

Batch-oriented.

(Semi)-process oriented.

High volume oriented.

For most products, the

Line-produc

consisting

stations.

30




cs Flexibility (volume- and

product flexibility) high.

Batch-oriented

production process is

batch-oriented.

allocation o

Throughput

approximate

weeks.

Planning

and control

structure

A combination of order-

driven and inventory-

driven planning systems.

On an aggregated planning-level (yearly

planning) production

capacity is allocated to

the product-market

combinations

Control structure partly

based on a MRP-

philosophy.

Rather centralized production planning.

Detail planning

performed by logistical

department

A combination of order-

driven and forecast

driven control system.

Production is initiated

from a eight-weekly

production planning

(rolling horizon).

Strong foc

master

schedule.

structureforecast-dri

planning is

(customer-o

specification

coaches).

elements

philosophy a

Planning

and Control

complexity

Relative high due to a

high product variety,

some process

uncertainties, and

complex process-market

trade-offs (set-up and

inventory costs versus

delivery time).

Complex and uncertain

product specifications

are reinforced by a

complex interactions

and interferences

between several PMC's.

Control complexity is

relative simple due to a

fixed period of eight

weeks. Co-ordination

between production and

physical distribution in

some cases complex

Relative hi

uncertainties

and

throughput-t

Procurement

rather

(changing

material)

Characteristi

cs of the

superstructu

re (organic

structure)

Functionalized structure.

No distinctive planning

department. Strong

seperation between

Production and Sales .

Functionalized structure

Purchasing and

Logistics is a sub-

department of

Manufacturing

High degree of

Divisionilized structure.

Within divisions, a

focus on functional

area's. Materials

management department

is considered as an

Functionaliz

Trade-offs

Production,

Procurement

Logistical

Detailed

31




centralization intermediate function

between production,

sales and marketing

planning

Production.

Characteristi

cs of the

structure of

positions

Informal organisation

with a traditional focus

on the allocation of

authorities and

responsibilities betweenProduction and Sales.

No formal co-ordination

procedures between

Production and Sales.

Strong functional

seperation of logistical

control tasks. Logistical

manager is considered

as an interface function.The main logistical task

includes the

authorization of the

overall production

schedule

Highly formalized

structure. Complex

communication between

Production, Sales,

Marketing and materialsmanagement. No clearly

defined communication

structures

Informal co

lines. No

well-defined

of author

responsibiliegoods-flow-

certain amb

respect to

logistical

should be c

not.

Table 1 Overview of the organisations studied

organisational design of planning and control

Documents