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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Organizational and Managerial Issues in

Logistics Key Terms
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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Organizational and Managerial Issues in

Logistics Key Terms
Transportation Worker Unified logistics
structure
Identification
Credential (TWIC)

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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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Organizational Structure for Logistics

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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Organizational Structure for Logistics

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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Organizational Design for Logistics

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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Organizational Design for Logistics

Network organizational design is manifested in terms
of:
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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Organizational Design for Logistics

Network organizational design is manifested in terms
of:
Flexibility
Is an organizations 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

The Economic System

Inputs
Labor,
capital,
management

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%).

Feedback loop

Outputs
Goods
and
services

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:

Operations improvements have helped

Starbucks increaseSaved
yearly revenue
per
Stop requiring signatures
8 seconds
outlet by $250,000per
to $1,000,000
in seven
on credit card purchases
transaction
years.
under $25
by seconds
27%, or
Change the size Productivity
of the ice has improved
Saved 14
about 4.5% per year.
scoop
per drink
New espresso machines

Saved 12 seconds
per shot

Productivity
Productivity =

Units produced
Input used

Measure of process improvement

Represents output relative to input
Only through productivity increases can
our standard of living improve

Productivity Calculations
Labor Productivity
Units produced

Productivity =

Labor-hours used
=

1,000

250

= 4 units/labor-hour

One resource input single-factor productivity

Multi-Factor Productivity
Productivity =

Output
Labor + Material + Energy +
Capital + Miscellaneous

Also known as total factor productivity

Output and inputs are often expressed in

dollars

Multiple resource inputs multi-factor productivity

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day

Old labor
=
productivity

8 titles/day
32 labor-hrs

8 titles/day
Overhead = $400/day

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day

Old labor
=
productivity

8 titles/day
Overhead = $400/day

8 titles/day
= .25 titles/labor-hr
32 labor-hrs

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
Old labor
=
productivity

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
= .25 titles/labor-hr
32 labor-hrs

14 titles/day
New labor
=
productivity
32 labor-hrs

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
Old labor
=
productivity

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
= .25 titles/labor-hr
32 labor-hrs

14 titles/day
New labor
=
= .4375 titles/labor-hr
productivity
32 labor-hrs

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
Old multifactor
=
productivity

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
$640 + 400

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
Old multifactor
=
productivity

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
= .0077 titles/dollar
$640 + 400

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
Old multifactor
=
productivity

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
= .0077 titles/dollar
$640 + 400

14 titles/day
New multifactor
=
productivity
$640 + 800

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
Old multifactor
=
productivity

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
= .0077 titles/dollar
$640 + 400

14 titles/day
New multifactor
=
= .0097 titles/dollar
productivity
$640 + 800

Question
The 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:
Output
Labor Hours
Utilities
Capital

Last Year
10,500 units
12,000
$7,600
$83,000

This Year
12,100 units
13,200
$8,250
$88,000

Has Martin Manufacturing improved its productivity

during the past year?

Answer
Resource Last Year

This Year

Labor

10500 / 12000

= 0.88

12100 / 13200

Capital

10500 / 7600

= 1.38

12100 / 8250

Energy

10500 / 83000

= 0.13

12100 / 88000

= 0.9
2
= 1.4
7
= 0.1
4

Change Pct.
Change
0.04
4.8%

0.09

6.2%

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 firms 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.

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Morash, C. Droge, and S. Vickery, Strategic Logistics Capabilities for Competitive Advantage and Firm

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): 91100.
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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 1980s
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
someones property with a goal of menacing the
target, often grounded in politics or ideology.1

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

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Risk
September 11 terrorist attacks have impacted
logistics practices on a worldwide basis
Greater attention given to:
Processes
Procedures
Activities

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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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Table 4.1: Timeline for Presenting

Electronic Advance Manifest Information

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Table 4.2: Information Required for 10+2 Rule

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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
logistics
Source: 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, 6366.

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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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