LOGISTICAL ORGANIZATION DEVELOPMENT

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Logistical functions were not receiving any importance prior to 1950. They were treated as support functions and dispersed in the organization. Post war business woke up to the fact that logistics played very important role in war. As so many concepts came from warfare to business, logistics also began to receive importance gradually. Organization underwent series of changes as new concepts took hold in business. As these dispersed functions reported to separate functional heads no cross-functional links existed between them. At that time it was thought that commercial, manufacturing and marketing were the only functions important to business.

Later on, it was thought that logistics could be used to bring about functional integration. The idea was that functional proximity would facilitate improved understanding of how decisions and procedures in one area affect performance in other areas.

Today, the emphasis is to examine the role of logistical competency in the overall process of creating customer value. The thinking now is how best to achieve integrated logistical performance. Today, the question with the logistical managers is not how to organize individual functions, but to manage the overall logistical process.

The present day logistical organization came into being in three evolutionary stages. It is a fact that improvements in the logistical system are taking place everyday. However, while elaborating the evolutionary stages what is described is how the present-day logistical set up was evolved and what deficiencies were overcome.

 

STAGE 1 ORGANIZATION

 

 

The initial attempt at grouping logistical activities emerged during the late 1950s and early 1960s. The typical evolutionary pattern was for two or more logistics functions to be operationally grouped without significant change in the overall organization hierarchy. Such initial aggregation Occurred at both the staff and line levels of organization. The physical distribution and material management units were completely separate.

Figure illustrates a typical stage 1 organization. One or two clusters of unified operations emerged. In the marketing area, the cluster typically centered on customer service. In the manufacturing area, concentration was usually on inbound materials or parts procurement.

Most traditional departments were not changed. The organizational hierarchy was not altered significantly.

Basically the organizational change involved grouping functions within the traditional domains of marketing and manufacturing. For example, initial physical distribution organizations typically controlled warehousing, transportation and order processing. Few stage 1 organizations had direct responsibility to manage trade-offs between transportation and finished inventory deployment.

 

STAGE 2 ORGANIZATION

 

As the overall enterprise gained operational experience with unified logistics and cost benefits, a second stage of organization began to evolve. Figure illustrates stage 2, which began to emerge in the late 1960s and early 1970s. The significant feature of stage 2 was that logistics was singled out and elevated to a position of higher organizational authority and responsibility. The motivation was simple: Positioning logistics at a higher organization level increased the likelihood of strategic impact. Independent status allowed logistics to be managed as a core competency. A likely candidate for elevated status was physical distribution in firms where customer service performance was critical to overall success. The grocery manufacturing business was an example where materials management often increased in operational authority and responsibility because inbound materials and production were major portions of product costs. Thus the focal group that was elevated to higher organizational prominence in the stage 2 organizations typically depended on the nature of the enterprise’s primary business. The example in the figure illustrates a situation wherein physical distribution was restructured and elevated.

In the stage 2 organization, the concept of a fully integrated logistics unit was not achieved. Rather, integration was focused on either physical distribution or materials management. A significant point about the stage 2 organization is that integrated physical distribution and/or materials management began to gain acceptance among financial, manufacturing, and marketing counterparts. The other corporate officers viewed these integrated organization as something more than purely reactive efforts aimed at cost reduction or containment. In the stage 2 organizations, it was common for the integrated unit to become a primary contributor to business strategy. The stage 2 organization is readily observable in industry today and may well remain the most adopted approach to logistical facilitation.

 

STAGE 3 ORGANISATION

 

 

 

Stage 3 organizations emerged in the 1980s, the logistical renaissance began. This organizational structure sought to unify all logistical functions and operations under a single senior manager. Stage 3 organizations, having the comprehensive nature, were and continue to be rare. However, the trend at the stage 3 level of organization structuring is clearly to group as many logistical planning and operational functions as practical under single authority and responsibility. The goal is the strategic management of all materials and finished product movement and storage to the maximum benefit the enterprise.

The rapid development of logistical information systems provided an impetus for stage 3 organizations. Information Technology became available to plan and operate systems that fully integrated logistical operations. Several aspects of the stage 3 organizations justify further discussion.

  • Each area of logistics – purchasing, manufacturing support and physical distribution is structured as a separate line organization. The lines of authority and responsibility directly enabled each bundle of supportive services to be performed within the overall integrated logistical effort.
  • Areas of operational authority and responsibility are well defined. Each of the areas of operation such as purchasing, manufacturing, physical distribution become self-sufficient. Hence, flexibility is possible.
  • There is better coordination and integration between departments, which helps in providing great benefit to the company.
  • In stage-3, the overall planning and controllership exists at the higher level. This facilitates integration.

 

There is long range strategic planning, measurement of cost and customer service performance, availability of required information for managerial decision making. Thus, there is efficient operation of financial and human resources from material sourcing to customer delivery.

 

 

 

Stage 4: A Shift in Emphasis from Function to process

 

The concept of the twenty-first-century organization is envisioned a the result

Of 3 factors: first. the development of a highly involved work environment with self-directed work teams (SDWT) as a vehicle to empower employees to generate maximum performance, second, improved productivity that results from managing processes rather than functions (this notion has always rested at the core of integrated logistics) and third, the rapid sharing of accurate information that allows all facets of the organization to be integrated  Information technology is viewed as the load-bearing structure of the new enterprise, replacing organizational hierarchy. The challenges of managing logistics as a process are threefold’ First, all effort must be focused on value added to the customer. An activity exists and is justified only to the extent that it contributes to customer value. Therefore, a logistical commitment must be motivated by a belief that customers desire a specific activity to be performed logistical managers must develop the capacity to think externally. Second, organizing logistics as part of a process requires that all skills necessary to complete the work be available regardless of their functional organization. When horizontal structures are put in place critical skills need to be positioned to ensure that required work is accomplished. Finally, work performed in a process context should stimulate synergism. with systems integration, the design of work as a process means that overall organizational trade-offs are structured to achieve maximum output for minimum input investment. The concept of matrix organization has emerged as the most acceptable structure to facilitate horizontal management. The availability of superior information to operationalize a matrix approach relaxes dependence on a rigid formal organization structure.

 

Stage 5: Beyond Structure: Virtuality And Organizational Transparency:

 

It is highly unlikely that the attention being given to process will end management’s quest for the ideal logistical organization. While several different scenarios concerning the organization of the future are technologically feasible, one of the most intriguing is speculation that formal hierarchical command and control organization structure will be replaced with an informal electronic network often referred to as a virtual organization. The word virtual implies an underlying existence without formal recognition. In other words, a virtual organization, whether it is a total enterprise or a specific core competency, would exist as a provider of integrated performance but not as an identifiable unit of formal organization structure. In the case of logistics, key work teams may be electronically linked to perform critical activities in an integrated fashion. These work teams could be transparent in terms of the formal organization structure of their membership. In other words, formal organization charts may not be related to actual work flow. In fact, logistics organizations of the future could be characterized by functional disaggregation throughout the organization in an attempt to focus on work flow rather than structure.

To customer requirements for speed and response, authority will be pushed down the organization. Strategic direction can be expected to originate at headquarters. Operational adaptations will increasingly be made on the front lines. Frontline managers will be expected to define strategy and apply it directly to operations. Centralization and decentralization will increasingly become meaningless terms. Organizations of the future will seek to capture the best of centralization and decentralization without commitment to either concept.

The idea behind disaggregation is that the power of information, theology will allow integrated management and performance of logistics work without grouping or aggregating functions into a formal organization unit. The responsibility for performing logistics work will be organizationally positioned by users. The user, in this sense, is the organization that requires transportation, warehousing, inventory, or any other logistics service to complete its mission.

All logistics work, regardless of when and where it is performed, can be captured as part of the informal logistics network. Sharing, common information regarding requirements and performance metrics while retaining local control offers potential to facilitate a logistical core competency that far exceeds today’s best practice model

The transparent logistical network organization is properly viewed as a composite affiliated business functions that are motivated and directed by common interest and goals. The informal network is facilitated by information sharing.

The information tech nAgy4exists today to make electronic imaging for organization structure and coordinated behavior a reality. Research on best practice indicates that some firms are at the initial stages of linking disparate work electronically lather than physically or organizationally. The idea of a virtual organization is broader than simply creating structural transparency. The notion that entities can join forces to achieve common goals and then disband has significance for the challenges of managing alliance. The aspect of vitality that deal with a fluid and flexible group of firms working together to combine their individual core competencies will have a major or impact on the future of logistical service suppliers. It gives substance to the idea of a disposable logistics competency that users can acquire when needed and then abandon when no longer required. The idea of disposable logistics has application in such areas as special promotion, seasonality, & new product development and introduction. The fact that firms today constantly form and then dismantle alliances gives credibility to the notions of both transparency and virtuality.

 

 

 

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