Supply Chain Management Journal Organizing and Coordination of Logistics Activities Mihai Adrian FELEA ASE Bucharest Abstract The complexity of today’s supply chains and the advent of highly sophisticated technologies have fundamentally changed the skills needed within the supply chain organization. As a result, companies face three primary challenges: determining how to structure the organization, defining roles and responsibilities and finding the right people with the right skills. The concept of Supply Chain Management (SCM) has been developing for many years as companies and industries have come to realize that focusing on the value-creation process in isolation from suppliers and customers is not sufficient. Once firms began to integrate internally, it became evident that the greatest opportunity for cost and service improvements lay in the coordination of activities and processes between supply chain firms. The demand for professionals who can think in terms of integrated activities and processes has grown as implementation of SCM has validated its ability to reduce total costs, minimize supply risks, and enhance service levels to customers. A fundamental premise of supply chain management is to view the network of facilities, processes, and people that procure raw materials, transform them into products, and ultimately distribute them to the customer as an integrated chain, rather than a group of separate, but somewhat interrelated, tasks. The importance of this integration cannot be overstated because the links of the chain are the key to achieving the goal. Every company has a supply chain, but not every company manages their supply chain for strategic advantage. In this paper, we describe the importance of an effective logistics organization to a firm. Any company consists of activities that link together to develop the value of the business, and together these activities form the organization’s value chain. Such activities may include purchasing activities, manufacturing the products, distribution and marketing of the company’s products and brands. Michael Porter, the author of value chain concept, suggested that the organization is split into “primary activities” and “support activities”. Both Inbound Logistics and Outbound Logistics are included in the category of primary activities. Many companies have shown significant improvements in their logistics cost-service mix as a result of organizational changes the most important ingredient in successful management is the integration of all the logistics activities under a single individual, department or division. Today, there are different types of organizational structures and a company should choose the one that best suits their needs. This paper describe the traditional structures, the divisional structure, the matrix structure and the new types of organizations that include Interorganizational or Interfunctional teams, Virtual Corporation and Hollow Corporation. Organizational structures and functional areas within organizations have transformed significantly over the past four to five decades. The evolution of the supply chain organization passed from the traditional organization, functionally oriented, to the integrated supply chain organization, in which the supply chain organization is a separate function or entity. Logistics organizations are generally structured along the following lines: strategic versus operational, centralized versus decentralized and line versus staff, in various combinations. There is no single-ideal organizational structure.-but there are important elements that comprise an effective organization. In general, the factors contributing to organizational effectiveness can be categorized as organizational characteristics, environmental characteristics, employee characteristics, and managerial policies and practices. Key Words: hollow corporations, interorganizational or interfunctional teams, value chain, supply chain, matrix organizations, functional silos Introduction Successful organizations must ensure that they have the proper type of organizational structure. Furthermore, they must ensure that their firms incorporate the necessary integrating mechanisms and processes so that the internal and external boundaries of the firm are flexible and

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permeable. Such a need is increasingly important, as the environments of firms become more complex, rapidly changing, and unpredictable. The dominant pattern of growth is first from a simple structure to a functional structure as sales and volume increase. A functional structure enhances efficiency and effectiveness by structuring according to

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Supply Chain Management Journal specialized functions. When firms grow beyond existing markets or regions, the decisionmaking burden is too great and a divisional structure is needed to organize around products, projects, or markets. As firms grow into international markets and/or enjoy expanding sales revenues, international structures are needed. To understand how various departments within a firm interact with one another, it is helpful to understand how business organizations have developed over the past 100 years. This will provide a background for understanding major types of interaction pattern, including functional silos, teams and committees (Ellram and Birou, 1995). Over 150 years ago companies tended to be one-person operation. Only a few people at most were needed to run entire operation. The companies were generally small and specialized, and serve the local area. Simple structures are usually highly centralized because the founder or a top executive makes nearly all of the decisions. The simple structure is the oldest and most common. It also tends to be the most informal with little specialization. This may enhance creativity since employees are often not bound by many rules, but may lead to management problems if employees do not understand their responsibilities. In addition, simple organizations often offer few chances for career advancement. Towards the middle of nineteenth century, as companies began to grow, it was no longer possible for one person or a few people to manage all of an organization’s operations. Companies began hiring people to specialize in working or managing various functions, such as manufacturing, sales, distribution and accounting. Thus, a functional structure often develops in which functions are managed by specialists. Then, the chief executive’s job shifts to coordinating and managing the departments. Functional structures are generally found in organizations in which there are single or closely related products or services, high production volume, and some vertical integration. In these areas, which correspond to the dominant pattern of growth (i.e., into new markets, new product lines, or via vertical integration), centralized decision-making is still needed to coordinate activities. Functional organizations have advantages and disadvantages. One advantage is enhanced coordination and control. Also, managerial and technical talent is used more efficiently. In a functional structure, there are more opportunities for professional development and career advancement. A

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disadvantage of functional organizations is that the beliefs, assumptions, and goals associated with different functional activities may vary across functions. Other disadvantages of a functional structure include short-term thinking due to excessive concern for the function rather than the whole organization, a heavier burden for top management who must resolve conflicts between functions, and difficulty establishing policies that apply uniformly to all functional areas. By the beginning of the twentieth century, as companies continued to grow and diversify their product or service offerings, functional specialization by itself was no longer sufficient for effective management. Large organizations began to set up divisions organized vertically around similar product or service offerings. Employees became specialized in terms of function and product. In some organizations, functions that did not directly affect the organization's product or service offering, and that cut across divisional boundaries, were left at a corporate' level, supporting various divisions. This was common for human resources, accounts payable, purchasing and treasury. There was no reporting relationship between “line” divisional employees and “staff” or corporate employees. Advantages of a divisional structure include separation of strategic and operational control. That is, the divisions focus on managing operations and the corporate office addresses strategic issues. Also, a divisional structure makes it easier to respond quickly to changes in the business environment. Multiple management levels means that rewards and career paths are linked to the development of general management talent. Disadvantages include a tendency to duplicate activities such as personnel management which makes overall costs higher, dysfunctional competition between divisions, conflicting goals, and uneven performance comparisons that inhibit resource sharing. Another potential disadvantage is that with many divisions providing different products and services, there is the chance that differences in image and quality may occur across divisions. Finally, since financial success is valued so highly, there may be too much focus on short-term performance. By the 1950s, some large organizations realized that the divisionalized structure was not working well. It did not provide linkages between line people in various divisional and corporate positions, so the synergies of being part of a large corporation were lost. To combat this problem, many organizations began to implement matrix organizations.

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Supply Chain Management Journal Instead of replacing the divisional structure, a matrix structure overlays the divisional structure. In addition to divisional reporting relationships, managers in matrix organizations have reporting responsibility to another person in their function outside of the division, often at a corporate level. This structure may also be used to create reporting relationships for special projects that straddle two or more divisions. An advantage of the matrix structure is that it facilitates the use of specialized personnel, equipment, and facilities. This reduces duplication and allows individuals with a high level of expertise to divide their efforts among multiple projects at one time. Such sharing and collaboration leads to more efficient use of resources. It also provides professionals with greater responsibilities and enhances the use of their skills. Disadvantages of a matrix structure are related to dual reporting requirements. This can lead to power struggles and conflict. Further, matrix structures are often used in situations that are complex which may lead to excessive reliance on group processes and teamwork, and erode timely decision making. As we enter the twenty-first century, there has been much speculation about the prevailing form of organizations. As organizations have increased their outsourcing, contracting for many activities that had been done internally, some speculate that a hollow corporation will develop. This hollow corporation, also called a network, will exist as a small organization of managers and “ideas” people who hire or outsource external companies to perform all types of activity, including manufacturing. logistics, distribution, billing and even sales and marketing. There are just as many experts who say that this will not happen because of loss of control, coordination issues and a host of other concerns. The rationale for the hollow organization is that organizations should specialize in and focus on what they do best, and hire specialists to perform other activities. A variation on this concept is the virtual corporation, where a number of companies come together to develop, produce and distribute or sell a product or service of limited scope. These organizations establish a very close working relationship, which exists only as long as the product or service is viable. An organization may be engaged simultaneously in a number of such relationships across a variety of products and services. These organizations focus on the product or service to be delivered to the customer, relying heavily on interorganizational and interfunctional teams.

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This type of organization is apparent in strategic alliances, such as the relationship between Apple Computer, IBM and Motorola to develop a comprehensive microprocessor and operating system for future generations of computers. With the evolution of various organizational forms in mind, the discussion now turns to how this affects relationships within the firm. The term functional silos signifies the type of organization in which each individual functional area, such as purchasing, finance, marketing and accounting, focuses primarily on its internal operations, rather than on its obligations to the success of the corporation as a whole. While the function may have defined its goals with the overall corporate perspective in mind, it may not be sensitive to how its activities interact with the efforts of other functions within the firm in supporting overall corporate objectives. Logistics is the management function responsible for all movements of materials. Moving materials into an organization from suppliers is called inbound or inward logistics; moving materials out of an organization and on to customers is called outbound or outwards logistics; moving materials within the organization is generally described as a materials management (Waters, 2007). Logistics operations are correlated with the value chain, a tool to identify new ways to create increased value for customers. Most organizations engage in hundreds, even thousands, of activities in the process of converting inputs to outputs. These activities can be classified generally as either primary or support activities that all businesses must undertake in some form (Porter 1985). The primary activities of the company include the following: Inbound Logistics (involve relationships with suppliers and include all the activities required to receive, store, and disseminate inputs); Operations (all the activities required to transform inputs into outputs (products and services), Outbound Logistics (include all the activities required to collect, store, and distribute the output); Marketing and Sales (activities inform buyers about products and services, induce buyers to purchase them, and facilitate their purchase); Service (includes all the activities required to keep the product or service working effectively for the buyer after it is sold and delivered). Secondary activities are: Procurement (the acquisition of inputs, or resources, for the firm); Human Resource management (consists of all activities involved in recruiting, hiring, training, developing, compensating and (if necessary) dismissing or laying off personnel); Technological Development (pertains to the equipment, hardware, software, procedures

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Supply Chain Management Journal and technical knowledge brought to bear in the firm's transformation of inputs into outputs); Infrastructure (serves the company's needs and ties its various parts together, it consists of functions or departments such as accounting, legal, finance, planning, public affairs, government relations, quality assurance and general management). The value chain encompasses the whole organization and looks at how primary and support activities can work together effectively and efficiently to help gain the organization a superior competitive advantage. 1. EVOLUTION ORGANIZATION

OF

THE

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organizational design for a company and it may have to modify its design to reflect environmental or corporate changes (Cohen and Roussel, 2005). The traditional operations organization is functionally oriented. That is, key supply chain activities and associated groups report directly to their relevant functional managers. Logistics (receiving, shipping, and traffic management) and manufacturing, for example, may report to the vice president of operations, and typically there would be separate procurement and customer-order management groups (Figure 1). This type of organizational structure was typical in the 1970s and 1980s, and it is still quite common today.

Logistics organization evolve and change; there is probably a variety of good Figure 1. Functional supply chain organization General

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Marketing

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Source: Cohen, Shoshanah; Roussel, Joseph (2005)

In the 1980s and 1990s, companies began to transition to organizational structures that grouped many, but not necessarily all, core supply chain functions in one department. Many of these companies still had a vice president of operations, but the associated responsibilities expanded beyond functional areas such as manufacturing and logistics to include managing suppliers and filling customer orders. We call this the transitional supply chain organization. In most transitional organizations, order management reports to the sales or sales operations function, not to the vice president of operations (Figure 2).

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Supply Chain Management Journal Figure 2. Transitional supply chain organization. General

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Order

Logistics Supply Management Purchasing Manufacturing Order Fulfillment

Source: Cohen, Shoshanah; Roussel, Joseph (2005) transparency and information sharing, particularly through integrated information systems (ERP) and Internet (Pimor, 2001). At that time, we began to see the emergence of positions such as supply chain manager or vice president of supply chain Figure 3).

The term supply chain didn’t come into vogue until the middle to late 1990s. This is recognition that performance of actors in a supply chain is interdependent. Instead of seeking a local optimum (in the same company), we need to find a global optimum (over the whole supply chain, from the supplier to the last customer). This requires full

Figure 3. Partially integrated supply chain organization General

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Order Fulfillment Source: Cohen, Shoshanah; Roussel, Joseph (2005)

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Supply Chain Management Journal In the integrated model, the supply chain organization is a separate function or entity. In this model, a supply chain management group is responsible for crossfunctional operational objectives, such as inventory days of supply, orderfulfillment lead time, or customer on-time delivery. In the integrated model, the supply chain manager has full control over the resources needed to execute the supply chain strategy (Figure 4).

The actual titles used within an organization are far less important than the associated roles, responsibilities, and span of control. Although we’re using titles such as operations vice president and vice president of supply chain, your company may choose any title you deem appropriate—depending on the size of the organization, the existing hierarchy, and any policies related to the assignment of job titles.

Figure 4. Integrated supply chain organization. General

Finance &

Marketing

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Supply Chain Manager Supply Management Purchasing Order Management Order Fulfillment Manufacturing

Source: Cohen, Shoshanah; Roussel, Joseph (2005) At first glance, the transitional and integrated models may look very similar, but the difference is in much more than rearranging a few boxes on the organization chart or renaming functions. The concept of a “holistic”supply chain organization as depicted in the integrated model is relatively new. The decision to set up an integrated supply chain organization is only the first step of many, but it is a strategically important one with profound consequences. As you plan, design, develop, and implement your new organization, keep in mind these four guiding principles: • Form should follow function—that is, organization should mirror • process. • For every process, assign an accountable function or individual. • Know, grow, and keep your core capabilities. • Organize around the skills you need, not the skills you have.

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There are many ways to structure an integrated organization, and hundreds of publications on organizational behavior, human resources management, and organizational change management try to offer guidance. But there is no off-the-shelf blueprint for designing an effective supply chain organization. The integrated logistics organizational model (Frazelle, 2003) is really focused on the processes of customer satisfaction, supply development, and logistics cost/capital management (Figure 4). The model requires a chief logistics officer (CLO) or vice president of logistics who is responsible for the four key total logistics performance indicators: total logistics cost, perfect order percentage, total logistics cycle time, and logistics productivity. The CLO has four direct reports, one each in charge of customer response (customer service and order processing), supply (inventory planning and procurement), distribution (transportation and warehousing), and logistics planning/optimization. The model requires that

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Supply Chain Management Journal logistics productivity. Sears Logistics, Caterpillar Logistics, Walt Disney World, and Keebler are structured in much this same way.

each direct report deliver superior results in his/her elements of the cross-functional measures of total logistics cost, perfect order percentage, total logistics cycle time, and total

Figure 5. Integrated logistics organization model with Chief Logistics Officer

Chief Logistics Officer Vice President

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Distribution

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Director

Director

Customer Service

Inventory

Transportation

Director

Director

Director

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Source: Frazelle, Edward (2003) There are two reasons I believe this model works particularly well. First, the organization structure is cleanly aligned with well defined, reliable, and benchmarkable logistics performance indicators. Any time the metrics are vaguely presented and/or the organizational structure is at odds with the metrics that are in use, the total organizational performance will suffer. Second, individual personalities in logistics tend to fall into the three suborganizations: customer response, supply, and distribution. The customer response team is typically and necessarily comprised of the happiest, most joyful, and most optimistic professionals in logistics. These are the individuals who are most adept at customer recovery and can patiently leave a complaining customer smiling at the end of a difficult conversation or series of e-mails. The supply team is typically and necessarily made up of the nerdy analysts with impressive academic credentials, expert spreadsheet skills, and thick glasses. These are the individuals that are the checks and balances between the high-minded objectives of the sales and marketing organization and the conservative concerns of the finance organization. The distribution team is typically and necessarily made up of the rolled-up shirtsleeves crowd that is not afraid to get their hands dirty driving a lift truck or fixing a tractor. These are the individuals who will get the job done,

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period. Any organizational model that works counter to human nature will fail. The integrated logistics organizational model tends to work in consideration of our God-given gifts and inclinations. The global logistics organizational model is an extension of the integrated logistics model. In essence, the global logistics model includes an integrated logistics organization for global logistics planning and policy making, regional (that is, North America/NAFTA, Europe/E.U., Asia-Pacific, and Latin America) logistics planning and policy making, and in-country/local (that is, Canada, Spain, Korea, Peru) logistics planning and policy making. Each level has an individual responsible for total logistics, customer response, supply, and distribution. In a typical global logistics organization model, the global logistics management team makes global policy/plans (that is, communication standards, metrics definition, system selections, bestpractice templates, vision setting, and so on), and the regional/local management teams adopt those global standards to the unique regional/local conditions. The global logistics organization model has been adopted successfully by CocaCola, Nestle, and a variety of pharmaceutical firms. An example of global logistics organization structure is provided in Figure 6.

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Supply Chain Management Journal

Figure 6. Global logistics organization model. Gobal Logistics Officer

Global Logistics Planning

Regional Logistics Manager NAFTA

Regional Logistics Manager E.U.

Domestic Logistics Manager U.S.

Regional Logistics Manager Asia-Pacific

Domestic Logistics Manager Netherlands

Regional Logistics Manager Latin America

Domestic Logistics Manager Japan

Domestic Logistics Manager Canada

Domestic Logistics Manager Guatemala

Domestic Logistics Manager Taiwan …

…

Domestic Logistics Manager Mexico

Domestic Logistics Manager Hong Kong Domestic Logistics Manager Australia & New Zealand

Source: Frazelle, Edward (2003) The distributed logistics organizational model (Figure 7) eliminates any formal logistics organization other than a Chief Logistics Officer (CLO). Instead, logisticians are recruited and developed by the CLO and placed in the other areas of the corporation with the

responsibility to incorporate sound logistics practices into the traditional corporate activities of marketing, research and development, sales, manufacturing, information systems, finance, and so on.

Figure 7. Distributed logistics organization model Chief ff Sales

Marketing

R&D

Production

Quality

Finance

Logistics Analyst

Logistics Analyst

Logistics Analyst

Logistics Analyst

Logistics Analyst

Logistics Analyst

Chief

Source: Frazelle, Edward (2003) The model works similar to the concept of total quality management adopted by Motorola and Applied Signal where TQM experts (blackbelts) are placed in each area of the corporation to introduce quality management disciplines. Dell Computer is one

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of the most successful distributed logistics organizational models. One of the most difficult questions to answer in logistics organization design and development is if and when a business unit should have its own logistics organization. The classic tradeoff is between the leveraging of

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Supply Chain Management Journal assets that is available when multiple business units utilize the same logistics assets (distribution centers, transportation fleets, inventory, logistics information systems, and logistics personnel) and the control that may be lost to a particular business unit when a designated logistics infrastructure is not dedicated to those particular needs. The evaluation usually comes down to an analysis of the logistics synergies that are available across business units. Those synergies are created when different business units are logistically similar in key areas, including order profiles, response time requirements, customer base, supplier base, carrier base, and inventory profiles. If those similarities are not evident, it most often is advisable to dedicate a logistics organization to a business unit. Otherwise, the logistics similarities can be leveraged to create high efficiencies in the leveraging of logistics assets across business units. Most business unit managers will go along if the benefits of the leveraging are passed along to the business unit, if the logistics manager is competent and politically astute, and if there is no major barrier to customer satisfaction in the cross business unit model. In some situations, customer satisfaction may be improved due to the multiple business unit economies of scale that may permit the justification of advanced logistics information systems and material handling automation. 2. Logistics Coordination The traditional approach to managing a business was to view the firm as a collection of functional silos. The silos being the typical functional areas such as marketing, operations, logistics, procurement, distribution, finance, accounting, etc. These functional silos were managed independently without much crossfunctional coordination. The lack of coordination often resulted in sub-optimal decisions that were caused by the lack of visibility of the organization and it’s environment as a whole system. Progressive companies have for some time recognized the need for coordination between functional areas in order to facilitate higher efficiency, quicker response times, increased operational flexibility, and better customer service. The advances in computational and communication technology coupled with the systems view of the firm have created a paradigm shift in the philosophy of managing a business. The management landscape, both in academics and practice, is strewn with success stories of utilizing new approaches such as mass customization, lean production, customer relation management,

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vendor management, and global sourcing. Each of these new approaches is made possible primarily by the precise coordination of the firm’s functional areas and it’s environment. The new thinking is to consider the firm’s functional areas and it’s environment as a supply chain and to coordinate and manage this supply chain for best results. A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request (Chopra and Meindl, 2001). The supply chain not only includes the all the functional areas of the manufacturer, but also the suppliers, transporters, warehouses, retailers, and the customers themselves. In a broad sense a supply chain consists of two or more legally separated organizations, being linked by materials, information and financial flows. These organizations may be firms producing parts, components and end products, logistics service providers, and even the customer (Stadtler, 2000). The philosophy behind supply chain management is to focus on managing the whole supply chain where the independent participants are considered as partners. This philosophy is very different from the traditional methods where each participant is managed independently. The traditional method optimized results at the participant level (the micro level) resulting in sub-optimal solutions at the supply chain level (the macro level). The approach in supply chain management is to optimize at the macro level and then to optimize at the micro level based on the macro level decisions. Logistics activities are complex and their coordination is difficult and requires evaluation of several issues. According to the SCOR model, (Supply-Chain Operations Reference), supply chain management covers five broad areas: (Bozarth and Handfield, 2008): planning activities, sourcing activities, make or production activities, delivery activities and return activities). Coordination of the various logistics activities can be achieved in several ways. The basic systems are generally structured through a combination of the following (Grant, 2006): • strategic versus operational structure • centralized versus decentralized structure • line versus staff structure. Strategic versus operational refers to the level at which logistics activities are positioned within the firm. Strategically, it is important to determine the position of logistics in the corporate hierarchy relative to other activities, such as marketing, manufacturing and finance/accounting. Equally important is the operational structure of the various logistics activities - warehousing, inventory

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Supply Chain Management Journal control, order processing, transportation and others - under the senior logistics executive. The term centralized distribution can reflect a system in which logistics activities are administered at a central location, typically a corporate headquarters, or a system in which operating authority is controlled under a single department or individual. Central programming of activities, such as order processing, traffic, or inventory control, can result in significant cost savings due to economies of scale. On the other hand, decentralization of logistics activities can be effective for some firms. Some argue, with justification, that decentralizing logistics activities can lead to higher levels of customer service. Developments in computer technology and information systems, however, make it possible to deliver high levels of customer service with a centralized logistics activity. Within the three basic types of organizational structure, logistics activities can be line, staff, or some combination of both. Logistics as a line activity is comparable to sales or production, in that employees are doing things" - that is, performing various tasks. When this is done, one individual is made responsible for doing the distribution job.

In the staff organization, the line activities, such as order processing, traffic and warehousing, may be housed under a logistics vice president, or under production, marketing or finance/accounting. The various staff activities assist and coordinate the line functions. The combination of line and staff activities joins these two organizational types, thus eliminating the shortcomings inherent in systems where line and staff activities are not coordinated. In the typical staff approach to organization, logistics finds itself primarily in an advisory role. In line organizations, logistics responsibilities are operational - that is, they deal with the management of day-to-day activities. Combinations of line and staff organizations are possible, and most companies are structured in this fashion. Other organizational approaches are possible. Examples include logistics as a function, logistics as a programme, logistics as a process and the matrix organization approach. Figure 8 shows the organizational design for logistics as a function.

Figure 8. Organization design for logistics as a function

General

Finance and

Marketing

R&D

Hman

Logistics

Manufacturing

Source: Grant, David (2006) It has been argued by some logistics experts that if a firm treats logistics as a functional area, without regard to other activities, the results will be less than optimal. Logistics is cross-functional and therefore requires a different organizational structure, not the 'functional silo' approach.

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When logistics is organized as a programme (see Figure 9), the distribution activity assumes the role of a programme in which the total company participates, individual functional areas are subordinate to the programme.

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Supply Chain Management Journal Figure 9. Organization design for logistics as a programme

General Logistics

Manufacturing

R&D

Marketing

Hman

Finance and

Source: Grant, David (2006) It can be argued that the optimal logistics organization lies between the two extremes represented by the functional and programme approaches. One approach has been termed the matrix organization and was explained earlier in the chapter (Figure 10). Many firms utilize a matrix management

approach, including the ABS Group (power and automation technologies), Caterpillar, Inc. (earthmoving and construction equipment), and Royal Dutch/Shell Group (petroleum, gas end chemicals).

Figure 10. Logistics in a matrix organization

General

Transportation

Finance and

Manufacturing

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Product

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Traffic

Information processing

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Protective packaging

Financial Management

Logistics Purchasing Other programmes Source: Grant, David (2006)

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Supply Chain Management Journal The matrix management approach requires the coordination of activities across unit lines in the organization. Therefore, it is essential that top-level management wholeheartedly support the logistics executive. Even with high-level support, the complexities of coordination are difficult to master. For example, any time there are multiple reporting responsibilities - common in matrix organizations - problems may arise from reporting to multiple managers who may have different goals. As a result, many organizations have adopted a team structure. For some industries, team organizations can be very effective. Hightechnology firms are especially suited to organizing in a team structure because of the high incidence of task or project-orientated activities that overlap several functional areas. A team structure also supports the flattening' of organizational layers many firms are experiencing today. A team structure involves a small group of people with complementary skills, a common goal, mutual accountability, and the resources and empowerment to achieve that goal. This differ from a work group, which is more like the traditional matrix organization, because people on the team hold themselves mutually accountable for results, rather than only individually accountable. Because of the number of people involved, it is often difficult to make decisions in matrix organizations. For this reason, team structures are becoming increasingly popular. New organizational forms are becoming more common as managers attempt to cope with increased levels of environmental uncertainty. These new forms are often referred to as “boundaryless” organizations. Organizations that become boundaryless become more open and permeable, not “chaotic.” Boundaryless approaches should be considered a complement to, not a replacement for, traditional forms of organizing. Several types of structure can be used to make organizations more boundaryless. Barrier-free approaches involve removing internal boundaries to encourage teamwork and widespread sharing of information. Virtual and modular organizational forms are used to make external relations more permeable and create seamless knowledge systems across organizations Traditional organizations had boundaries intended to maintain order by making the role of managers and employees clearly defined. But these boundaries also stifled communication and created a “not my job” mindset. A barrier free organization enables a firm to bridge differences in culture, function, and goals to find common ground

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that facilitates information sharing and cooperation. Teams are an important part of barrier-free structures because they substitute peer-based for hierarchical control, often develop more creative solutions via brainstorming and other group problem solving techniques; and absorb administrative tasks previously handled by specialists. Barrier-free relationships must also extend to other divisions of a corporation and to external stakeholders. To promote interdivisional coordination and resource sharing, firms often use interdivisional task forces and common training programs, and create reward and incentive systems that foster cooperation. Boundaries between organizations and external constituencies such as customers also need to be more flexible and porous. The modular organization type is actually a central hub surrounded by networks of outside suppliers and specialists that perform non-vital functions. Such outsourcing allows the firm to tap into the knowledge and expertise of “best in class” suppliers but retain full strategic control. For modular companies, outsourcing the non-core functions offers three advantages: • It can decrease overall costs, quicken new product development by hiring suppliers whose talent may be superior to that of in-house personnel, avoid idle capacity, realize inventory savings, and avoid becoming locked into a particular technology. • It enables a company to focus scarce resources on the areas where they hold a competitive advantage. These benefits can translate into more funding for research and development, hiring the best engineers, and providing continuous training for sales and service staff. • By enabling an organization to tap into the knowledge and expertise of its specialized supply chain partners, it adds critical skills and accelerates organization learning. The modular type of organization allows a company to leverage relatively small amounts of capital and a small management team. By minimizing the need to make big investments, it can promote rapid growth. Firms taking this approach, however, must 1) identify the best suppliers and establish mutually beneficial working relationships; and 2) avoid outsourcing critical components of its business in ways that compromise it long-term competitive advantage. Potential disadvantages of the modular form include: loss of critical skills or developing the wrong skills; loss of cross-functional skills; and loss of control over a supplier.

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Supply Chain Management Journal The virtual organization is an evolving network of independent companies -- suppliers, customers, even competitors -- linked together to share skills, costs, and access to one another’s markets. By pooling and sharing resources and working together in a cooperative effort, each gains in the long run. Virtual organizations are a type of strategic alliance in which complementary skills are used to pursue common objectives. Virtual organizations may not be permanent. And, participating firms may be involved in multiple alliances at once. Unlike the modular type, virtual organization firms give up part of their control and participate in a collective strategy that enhances their own capacity, makes them better able to cope with uncertainty, and enhances their competitive advantages. Despite their many advantages, alliances often fail to meet expectations. One reason is that unique managerial skills are required -- managers who can find good partners, build win-win relationships, and achieve the right balance of freedom and control. Some alliances are short-term only and may be dissolved once the objective is fulfilled. Others may have long-term objectives. The key to managing both is to be clear about the overall strategic objectives at the time the alliance is being formed. The virtual organization is the culmination of joint venture strategies of the past. To form effective virtual organizations, strategic planning is needed to determine what synergies exist and how to capitalize on them by combining core competencies. As such, the virtual form may work better for some types of organizations than others. Many times, the most effective way to design an organization is by using a combination of organizational types. Often, when firms face external pressures, resource scarcity, and declining performance, they tend to become more internally focused. This may actually be the best time to reexamine value chain activities and determine how to better manage relationships both internally and externally. By so doing, organizations may find that they can solve some of their problems by turning to boundary less forms of organizing. There are many factors that can influence the effectiveness of a logistics organization (Grant, 2006). In general, the factors contributing to organizational effectiveness can be summarized as organizational characteristics, environment characteristics, employee characteristics, and managerial policies and practices. Organizational Characteristics. Structure and technology are the major components of a firm's organizational characteristics. Structure refers to the

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relationships that exist between various functional areas: interfunctional (marketing, finance, operations, manufacturing, logistics) or intrafunctional (warehousing, traffic, purchasing, customer service]. The relationships are frequently represented by a company's organization chart. Examples of structural variables are decentralization, specialization, formalization, span of control, organization size and work-unit size. Technology 'refers to the mechanisms used by an organization to transform raw inputs into finished outputs. Technology can take several forms, including variations in the materials used, and variations in the technical knowledge brougnt to bear on goal-directed activities. Environmental Characteristics. The effectiveness of the organization is influenced by factors internal and external to the firm. Internal factors, which are more or less controllable by the logistics executive, are known as organizational climate. Sometimes, this is referred to as corporate culture. External factors, sometimes referred to as uncontrollable elements, include the political and legal, economic, cultural and social, and competitive environments. Employee Characteristics. The keys to effective organizations are the employees who "tick the boxes' on the organization .chart. The ability of individuals to carry out their respective job responsibilities ultimately determines the overall effectiveness of any organization. All employees possess different outlooks, goals, needs and abilities. These human variations often cause people to behave differently, even when placed in the same work environment. Moreover, individual differences can have a direct bearing on two important organizational processes that can have a marked impact on effectiveness. These are organizational attachment, or the extent to which employees identify with their employer, and individual job performance. Without attachment and performance, organizational effectiveness becomes all but impossible. Managerial Policies and Practices. Policies at the macro (entire company) level determine the overall goal structure of the firm. Policies at the micro (departmental) level influence the individual goals of the various corporate functions, such as warehousing, traffic, order processing and customer service. Macro and micro policies in turn affect the procedures and practices of the organization. The planning, coordinating and facilitating of goal-directed activities - which determine organizational effectiveness -depend on the policies and practices adopted by the firm at the macro and micro levels.

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Supply Chain Management Journal A number of factors can aid the logistics executive in improving the effectiveness of the organization. Six of the most important factors that have been identified are: strategic goal setting, resource acquisition and utilization, performance environment, communication process, leadership and decision-making and organizational adaptation and innovation. Conclusions Many companies still think of their supply chain organization as a set of functions that complements manufacturing or as a set of “operations” departments such as receiving, production, and logistics. To provide effective end-to-end supply chain management, however, the organization should include all the core supply chain processes - plan, source, make, deliver, and return - as well as the supporting infrastructure. That means grouping these processes under one senior manager and, more important, giving that manager a set of cross-functional performance objectives and the resources needed to meet those objectives. This is the key characteristic of the integrated model of supply chain organization. An integrated organization requires new skills and a new way of thinking about organizational structure. Moving to an integrated model doesn’t necessarily mean overhauling your existing operations, creating a new department, or “inventing” a new vice president. It does mean ensuring that your supply chain organization is a collection of departments and people clearly responsible for executing and continuously improving each of the core processes. Thus, even if you don’t plan to group these departments and people together through a large-scale reorganization, you most likely will need to consider some level of change to your existing organization to ensure that it is able to support integrated, cross-functional process management. This may mean consolidating two departments to eliminate a functional boundary or process handoff, rescoping the responsibilities within a particular group, or realigning existing groups to focus on specific channels or customers. You also may need to revaluate the skills within your current organization. Certainly, a high degree of fluency with state-

Issue 2/2010

of-the-art information systems is a must for virtually any key supply chain position. Technical skills aren’t enough, though. Only focused management skills will set your organization apart from the competition. Today’s supply chain requires people who can assimilate and interpret vast quantities of data and then make effective decisions. It requires people who have breadth of operational experience and depth of process knowledge, people who have a passion for satisfying customers. It requires people who can embrace new measures as tools to help improve overall performance. And, as if this were not enough, the cross-functional nature of the end-to-end supply chain also demands conflict-resolution skills. References Bozarth, Cecil and Handfield, Robert (2008) Introduction to Operations and Supply Chain Management, Pearson Prentice Hall, New Jersey. Cohen, Shoshanah; Roussel, Joseph (2005) Strategic Supply Chain Management: The Five Disciplines For Top Performance, McGraw-Hill, New York. Chopra, S. and Meindl, P. (2001) Supply Chain Management: Strategy, Planning and Operation, Prentice-Hall Inc., New Jersey. Ellram, Lisa and Birou, Laura (1995), Purchasing for Bottom Line Impact: Improving the Organization Through Strategic Procurement, McGraw-Hill Professional, New York. Frazelle, Edward (2003). SUPPLY CHAIN STRATEGY. The Logistics of Supply Chain Management, McGraw-Hill, New York. Grant, David (2006) Fundamentals of Logistics Management, McGraw-Hill, London. Pimor, Yves (2001) Logistique: Techniques et mise en œvre, Dunod, Paris. Porter, Michael (1985) Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York . Stadtler, H.(2000) Supply Chain Management and Advanced Planning: Concepts, Models, software and Case Studies, Springr-Verlag Berlin Heidelberg New York. Waters, Donald (2007) Supply Chain Risk Management: Vulnerability and Resilience in Logistics, Kogan Page, London.

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