Logistics managers: who needs them?
Logistics performance is important…
Every manufacturing company has a physical goods flow. This gets moving if company staff, customers, suppliers or logistics service providers take logistics decisions about the development of the goods flow. The way in which a company organises the flow of goods, the logistics, can contribute to the realisation of the company’s objectives. Logistics influences customer satisfaction, the company’s costs and operating capital associated with stocks and capacities. It even influences the speed with which the company can respond to new wishes from customers: new products, new services and new distribution channels.
The demands that individual customers make on the product and the delivery time, as well as on the service during and after delivery, are becoming stricter. At the same time, the company must pay close attention to costs and operating capital from the point of view of shareholder value. Quality and cost objectives must be simultaneously realised. Logistics is therefore under pressure in many companies.
Logistics is no longer confined to the four walls of the company. Collaboration in market and product development and outsourcing require intensive collaboration between companies: supply chain management. A successful supply chain demands a perfect internal logistics chain within each of the participating companies.
Companies therefore develop an integrated logistics concept. A well-chosen balance between the logistics structures, the logistics control model, the logistics ICT and the logistics organisation.
Good logistics performance demands logistics control
It nevertheless appears time and time again that the logistics coordination in companies is difficult to achieve. The logistics performance is influenced by the decisions taken by people. These logistics decisions are taken in several, often functionally oriented departments. Such departments have their objectives. The taking of these individual logistics decisions therefore does not automatically lead to products ultimately arriving at the customer with the right specifications. The division of tasks between people and departments means that coordination is continually required between the interconnected steps in the goods flow.
Logistics control focuses on realising this desired interconnection
Logistics control is: the organisation, the planning and the control of the goods flow, from the development, the purchasing, via manufacturing and distribution to the end customer, with the aim of satisfying the needs of customers at low cost and with controlled use of capital
If a company has long delivery times or can afford large stocks, the company can control the steps in the goods flow more or less independently from one another. The necessity for integrated coordination is then limited. If the requirements from the environment increase, the need for coordination also increases. If mutual coordination, for instance by means of direct contact or by telephone or email, is inadequate to realise this coordination, additional coordination mechanisms are required. There are companies that then decide to centrally organise the logistics control in one department that must monitor the goods flow from a control tower. Other companies, however, choose to keep the logistics control decentralised at functional departments such as manufacturing, purchasing and sales.
The organisation is a key factor for logistics control
The logistics organisation determines the level of integration with which people who take logistics decisions approach the logistics. The logistics organisation also determines the emphases and priorities in the action of the people.
The logistics organisation involves:
- The introduction of several levels in the logistics control.
- Distinguishing the organisational units to be controlled (for example, manufacturing and distribution units) as logistics organisational units that independently perform part of the logistics processes.
- Combining decisions for logistics control at organisational units.
- Making connections between the organisational units.
- Subdividing and connecting of task areas: the activities for the logistics control are ultimately assigned to people and groups of people and the tasks and responsibilities are determined.
Knowledge about the logistics organisation is still inadequate…
A lot has been achieved in the field of logistics management. Nevertheless, knowledge about the logistics organisation is still inadequate. This study therefore aims to produce scientific knowledge about the organisation of logistics control by approaching the subject from the point of view of organisational theory and by comparing it with day-to-day practice. The challenge for this study is to develop design models that assist logistics designers at manufacturing companies in the evaluation and design of the logistics organisation.
The objective will be achieved in four steps:
1. The definition of logistics control and the decisions that involve this logistics control.
2. The identification of organisational theories about organising in general and integration/coordination in particular.
3. The development of design models for the logistics organisation based on organisational theories.
4. The evaluation of the design models in practice by performing single and cross-case analysis.
The logistics organisation is an organisational theory question and must therefore be answered on the basis of organisational theory principles. Organisational theory has several perspectives for examining organisations. For this study, the contingency approach has been chosen. The way in which an organisation should be designed and equipped depends upon the situation. It is precisely the limitation of employing this one approach that offers possibilities for observing and evaluating the functioning of the design models in practice.
Division of labour and coordination are the centralised organisational theory subjects for logistics control …
Organisational units arise from the division of labour: jobs, departments, offices and divisions. The division of labour facilitates the specialisation of people and resources on a particular homogenous task, so that higher effectiveness, quality and efficiency of performance can generally be achieved. By means of further differentiation, differences are also created in goals, time perspectives, style of interaction and the level of formalisation of structures.
Every form of the division of labour represents a break in the coherence in a wider context. By means of the division of labour, boundaries are created: between several levels in the organisation and the hierarchical position of people, between jobs, departments and disciplines, between the company and suppliers, customers and service providers and between countries, cultures and markets. The realisation of the right logistics performance is not easy therefore. The division of labour can lead to fairly autonomous and uncoordinated plans by and between departments and ultimately even to sub-optimal situations and poor logistics performance.
Coordination aims to restore the broken connection; how can the organisational units be forged into a single unit in a wider context.
As far as possible, the logistics control takes place in separate units of the logistics structures by means of well-designed tasks, adequately trained people and regulations and procedures. To clarify the position in the organisation, task and job descriptions are made, where necessary, and tasks and instructions are published for the performance of activities. The mutual coordination can then take place in advance by means of planning.
Increasing coherence, more severe market demands and greater complexity require the incorporation of more and more radical coordination mechanisms that are designed to process exceptions as much as possible: permitting forms of logistics leeway, creating autonomous logistics organisational units, investing in logistics ICT and the realisation of horizontal and lateral relationships.
Permitting leeway is undesirable from the point of view of logistics costs and benefits. Carrying the implementation of autonomous organisational units too far can reduce economies of scale, synergetic effects can be wasted and the coherence between the organisational units can even be lost entirely. It is doubtful whether logistics ICT is adequate to achieve logistics control.
In the case of horizontal and lateral relationships, coordination and/or decision-making relationships are incorporated throughout the hierarchy. In order to realise rapid and especially improved coordination between organisational units, the emphasis shifts from a hierarchical connection to a horizontal connection between organisational units. Horizontal and lateral relationships can be created by means of informal communication, formal communication, formal teams, coordinators and the matrix organisation. The implementation of these relationships places a heavier burden on the organisation. Non-essential, but excessive, built-in mechanisms are regarded as annoying. A conscious choice is essential, therefore.
Horizontal and lateral relationships for logistics control
The question is then which contribution the realisation of horizontal and lateral relationships, for instance the appointment of a logistics manager, can make to the improvement of the logistics performance.
If the organisational theory insights into the additional coordination mechanisms are applied to the organisation of the logistics control, two design models can be distinguished: a decentralised and a centralised logistics organisation.
Decentralised logistics organisation…
In the decentralised logistics organisation, the logistics decisions are decentralised with the functional departments. Logistics coordination is realised by means of informal or formal coordination within the hierarchical structure.
In the case of informal coordination, the coordination is primarily facilitated by means of guidelines, regulations, simplified rules, tasks, procedures and objectives. Direct, informal mutual coordination only takes place between people when exceptions occur. Also in the case of formal coordination, the coordination is primarily facilitated by means of guidelines, regulations, simplified rules, tasks, procedures and objectives. Additional coordination is realised by regularly bringing together people from the functional departments in particular formal structures.
Centralised logistics organisation…
In the case of a centralised logistics organisation, additional logistics coordination is organised within the organisation structure in a logistics department. For an autonomous organisational unit, the logistics structures are coherently controlled at goods flow level.
Two emphases are possible: coordinator-integrator or integrator-manager
The logistics department as coordinator-integrator fulfils a role that is directed towards stimulating the coordination between several departments, but without the formal authority to take decisions. As coordinating department, the logistics department as integrator-manager fulfils an integrating role with particular binding powers. The logistics department is given powers to overcome differences between departments in the decision-making. The logistics department follows the implementation of the logistics planning, draws attention to abnormalities and makes actual adjustments.
Logistics complexity and logistics predictability define the logistics organisation
In the case of low logistics complexity, it is relatively easy to make the logistics plan. The coordination can be formally or informally realised within the existing hierarchical structure: with direct mutual coordination between the functional departments or between people.
If the logistics complexity increases, considerable effort is required to (re)make the logistics plan. This demands greater effort from the departments. A logistics (staff) department can fulfil a coordinating role in the preparation of the logistics plan. The decision-making is the responsibility of the functional departments.
If the logistics predictability decreases, evaluation and adjustment is increasingly required to keep the goods flow on the right track. This means that information about the logistics execution must be compiled time and again and a new logistics plan must be drawn up. In a situation in which the logistics complexity is low, this causes few problems. Because the logistics complexity is low, the information is often on hand and the consequences of decisions for the different departments are easy to keep track of. Coordination can be realised in direct, informal contact between people, and ad hoc in the case of problems.
If the logistics complexity increases and the logistics predictability decreases, it becomes increasingly complex to provide insight into the consequences of decisions. Achieving an ‘optimum’ solution for the entire organisation requires a greater effort. In a situation with a high logistics complexity and a low logistics predictability, coordination cannot only be realised via the existing hierarchical structure and formal consultation. The logistics department not only has a coordinating role in the preparation of the plan, but also especially in the logistics control of the decision-making with respect to deviations. The logistics department must be able to influence the decision-making or even have the powers to take decisions.
Confrontation with reality shows that ….
The design model for a decentralised logistics organisation is suitable for situations with a low logistics complexity and a high logistics predictability. Structurally sound logistics performance can be achieved.
If there is a decentralised logistics organisation in a company with a high logistics complexity and a high logistics predictability, poor logistics performance is achieved. The design model is therefore not suitable in this case.
The question then is whether the design model is suitable for a centralised logistics organisation with a high logistics complexity and a low logistics predictability. The cases show that this is not automatically the case. Three companies that decided to centrally organise their logistics control initially improved their logistics performance. Later on, the performance deteriorated again. However, one company decided to gradually develop towards a centralised logistics organisation and was able to structurally improve the logistics performance. Therefore, the question whether the design model is suitable for a centralised logistics organisation with a high logistics complexity and a low logistics predictability, cannot be answered affirmatively just like that.
Explanations for the lack of success of a centralised logistics organisation can be found in:
- The question is whether structurally sound logistics performance can be achieved in situations with a high logistics complexity and a low logistics predictability.
- The inability to maintain the attention and priority for logistics.
- The one-off centralised organisation of the logistics control instead of a step-by-step approach.
- The laborious implementation of ICT.
- Not allowing logistics managers enough time to structurally improve the logistics performance.
- Not showing a structural result quickly enough or making visible the positive influence of logistics on the company’s objectives.
- Being unable to overcome resistance.
- Lack of support from the management.
- Being unable to make sufficient distinction in the distribution of logistics decisions at the goods flow and departmental level.
- Other explanations that do not form part of this study.
Further investigation is required into
The questions for further investigation stem from five points of view:
1. The coherence within the integrated logistics concept.
2. The functioning of the logistics organisation.
3. Improving the empirical basis.
4. The analysis of the issue based on other points of view from the organisational theory kaleidoscope.
5. The logistics organisation in the case of supply chain management.
Walther Ploos van Amstel.