CHAPTER 3

Organizational and
Managerial Issues in Logistics
Organizing Logistics within the Firm
• Two key organizational logistics topics
– Organizational structure
– Organizational design
 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
 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
 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
 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
 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
 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
 Organizational Design for Logistics
• Network organizational design is manifested in terms
of:
– Flexibility
• Is an organization’s ability to address unexpected
operational situations
• Predicated on avoiding early commitment to an
irreversible course of action
 Managerial Issues in Logistics
• Productivity
• Quality
• Risk
• Sustainability
• Complexity
 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
 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
 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)
 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
 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
 Quality
• Logistics service quality
– Relates to a firm’s ability to deliver products,
material and services without defects or errors to
both internal and external customers1

1 E.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.
 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.
 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

E.A. Morash, C. Droge, and S. Vickery, “Strategic Logistics Capabilities for Competitive Advantage and Firm Success,” Journal
1

of Business Logistics 17, no. 1 (1996): 1-22.

 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
 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
1 Paul D. Larson and Stephen G. Kerr, “ISO and ABC: Complements or Competitors?” International Journal of Logistics
Management 13, no. 2 (2002): 91–100.
 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
 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
 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
 Quality
• Malcolm Baldrige National Quality Award
– Recognizes organizations for their achievements in quality
and performance
– Established in the late 1980’s
– 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
 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
 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
 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
someone’s property with a goal of menacing the
target, often grounded in politics or ideology.”1

1Source: Terrorism, The American Heritage® Dictionary of the English Language, 4th ed. (n.d.). Retrieved
from Dictionary.com website: http://dictionary.reference.com/browse/terrorism.
 Risk
• September 11 terrorist attacks have impacted
logistics practices on a worldwide basis
• Greater attention given to:
– Processes
– Procedures
– Activities
 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
 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)
 Table 4.1: Timeline for Presenting
Electronic Advance Manifest Information
Table 4.2: Information Required for 10+2 Rule
 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

1 www.m-w.com/dictionary
 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
 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
 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
 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
 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

1 John Paul Quinn, “Are There Ever Any Happy Returns?” Logistics Management, June 2005, 63–66.
 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