Contents:

Logistics and Control
Introduction
What is Logistics?
What world-class producers do:
Control Systems.
The Role of Planning in Logistics:
A Systems Perspective.
Logistics and The Value Chain.
Logistics Competency
Managing Strategic Lead Times
Cycle Capability
JIT Logistics Strategy
Supply Chain Relationships
Supply Chain Management & Competitive Success
Material Logistics Management
Logistics in a Global Economy
Logistics and a Global Competitive Strategy
International Supply Chain Management
Logistics in a European Context
Logistics Administration & the Dimensions of Change
Benchmarking the Supply Chain
Managing the Supply Chain of the Future
The Role of Information in the Supply Chain

Introduction:

Welcome to this course in logistics management. This workbook is intended to assist you develop an appreciation of the subject and will outline all the material required for this module. The workbook will include a number of case studies as well as various exercises to help develop your understanding of the subject in a practical context.

Aim of the Module

This module will give an outline of logisitcs in an international context. On completing the module you will have developed an integrated knowledge of the subject and have an understanding of the various theoretical approaches to the subject. In addition you will have had some experience of applying the theory in practical situations through the medium of case study analysis.

Objectives:

To provide students with an appreciation of the role of logistics and supply chain management in the international commercial world.

To evaluate and discuss the role of logistics in global competition and the importance of effective supply chain management in developing and sustaining competitive advantage.

On completion of this module students will be able to:

  • Appreciate the principles of control and complexity and their relationship to effective supply management.
  • Apply the principles of control and a systems perspective to assist the evaluation of logistical problems.
  • Explain the work of logistics in an international context and understand the forces driving an increasingly borderless world as well as barriers to global logistics.

Contents:

Logistics and Control.

Understanding the basic principles of control and the problems associated with the control of human systems. Developing approaches to the design and evaluation of control systems. The law of requisite variety.

Logistics Competency.

The logistical mission; service, total cost. The logistical renaissance; regulatory change, the information revolution, quality initiatives.

Supply Chain Relationships.

Channel Structure, the Value Chain and channel relationships, supply chain competitiveness. Logistical service alliances and factors affecting service based alliances. Integrated logistics service providers.

Logistics in a Global Economy.

Forces driving the borderless world, barriers to global logistics, importing and exporting. The interlinked global economy; the stages of regional integration.

Logistics Administration and the Dimensions of Change:

Performance measurement; benchmarking; balanced scorecard. A view towards the next decade in international logistics and challenges to effective logistics in a global economy. The state of the global logistics infrastructure.

Indicative Reading:

Bowersox, D. J. & Closs, D. J., (1998), “Logistical Management; The Integrated Supply Chain Process”, McGraw-Hill, New York.

Christopher, M., (1995), “Logistics. The Strategic Issues”, Chapman Hall, London.

Christopher, M., (1998), “Logistics and Supply Chain Management. Strategies for Reducing Cost and Improving Service”, Financial Times Pitman Publishing, London.

Taylor, D. (1997),“Global Cases in Logistics and Supply Chain Management”, Thomson International Business Press, London.

Assessment Requirements:

Class Test (30 % of total grade)

Investigative management Report (70 % of total grade)

Teaching & Learning Modes:

The delivery philosophy will be to maximise opportunities for interaction and participation, through the use of case studies simulations, participation and discussion. These will be used as a vehicle to give students the opportunity to demonstrate understanding of key issues through mini presentations and informal group discussions.

Students will be given assignments and will be expected to research and report back on findings and understanding of issues raised. This work will be carried out on both an individual and group basis.

What is Logistics?

"Having the right thing, at the right place, at the right time."

“Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finishing inventory (and the related flows of information) through the organisation and its marketing channel in such a way that current & future profitability are maximised through the cost-effective fulfilment of orders.”. (Christopher, M. 1998).

Logistics and Supply Chain Management are inextricably linked and broadly speaking logistics applies inside the organisation and supply chain management outside the organisation

Supply Chain Management:

“The management of upstream and downstream relationships with suppliers & customers to deliver superior customer value at less cost to the supply chain as a whole.” (Christopher, M. 1998).

“A network of connected & interdependent organisations mutually & cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users.” (Aitken, J., 1998)

Logistics has been recognised throughout history as being of critical importance.

You will not find it difficult to prove that battles, campaigns, and even wars have been won or lost primarily because of logistics. - General Dwight D. Eisenhower.

“The supreme excellence is not to win a hundred victories. The supreme excellence is to subdue the armies of your enemies without even having to fight them.” - Sun Tzu, The Art of War.

“Logistics comprises the means and arrangements which work out the plans of strategy and tactics. Strategy decides where to act; logistics brings the troops to this point.” - General Antoine Henri Jomini, Precis de l'Art de la Guerre (The Art of War), 1838

What world-class producers do:

World-class producers see supply chain management as a key element in capturing increased shares of world markets. They have given the executives in charge expanded and new responsibilities. These supply chain managers plan and control all the activities related to materials that move from suppliers, through the production processes, and to customers. The authority for the materials system residing in a single organizational function provides focus and avoids the former situation in which everyone blamed everyone else when difficulties related to materials developed. Whether or not world-class producers centralize materials management, the way that materials are managed has changed.

World-class producers are forming partnerships with suppliers to quickly produce products of near-perfect quality precisely when needed and with little inventory. Providing suppliers with information about when customer orders are needed and training them in quality control and manufacturing techniques are becoming more common. Suppliers are selected and developed with a long-term view toward improving product quality, fast deliveries, and responsiveness to customers' needs. Although price is important, being able to deliver enough materials when needed, producing materials of exceptional quality, and being trustworthy and cooperative are even more important. Long-term, multiyear contracts are used to guarantee suppliers security and to provide incentives for developing trust and cooperation.

Nearby suppliers are preferred. Even if suppliers are located at great distances, they are often clustered together for combined shipments or are able to devise other innovative ways to deliver materials on a just-in-time (JIT) basis. This may take some imagination because of great geographic distances, but the payoff is found in shorter and more dependable lead times and in reduced inventories. All the materials in the system are geared to be produced and arrive just when needed by production so that products can be delivered just when needed by customers. Company-owned shipping equipment tends to be preferred because of greater dependability, which leads to more certain lead times. Suppliers are even encouraged to extend JIT methods to their suppliers.

World-class producers use computers extensively to determine the most efficient routes for trucks, to find the best way to load and unload trucks, and to provide closecommunications between drivers and central offices. This use of computers not only holds down costs, but, of at least equal importance, it enables management to know where each order in the entire system is and when it is expected to arrive at its destination. World-class companies use computer models to develop shipping plans for manufacturing and service operations. Of particular value is linear programming. With this technique, developing shipping plans that require the least amount of travel can minimize shipping costs between many sources and many destinations.

Increasingly, some world-class producers are starting to rely on third-party logistics management firms as they outsource some of their business functions to become more focused on their core competencies.

The main theme of this workbook and the lectures will be to discuss and evaluate the role of logistics in developing and sustaining competitive advantage. Finding and developing competitive advantage is a matter of survival for every competitive organisation. Increasingly, public sector organisations are subject to competitive pressures and have to demonstrate how they add value for their stakeholders and for this reason the study of logistics is likely to continue to grow in importance.

Control Systems.

In order to develop a solid understanding of Logistics Management in an organisational context, it is important that we investigate the concept of control, which is one of the important underlying principles on which the subject is based.

Definitions:

Control:

There are numerous different definitions, many with emotional connotations; e.g. dominate, command, exert control over, etc.

Cybernetics:

The science of systems of control and communications in animals and machines.

Law of Requisite Variety:

The complexity and speed of responses from the control system must match the complexity and speed of the changes to which it must respond.

A simple Control System:

Figure 1

Study the above diagram and consider the requirements for effective control. In a temperature control system we might expect to produce a system that will regulate the temperature in a room with a high degree of success, and reasonably result in a situation of near perfect control as illustrated in Figure 2.

Figure 2

Organisational control.

Preoccupation with management control sets organisations apart from other forms of social arrangements.

Economically necessary:

Control: / No control:
Efficiency, effectiveness, best use of resources. / Wasted resources & inefficiency.

Psychologically necessary:

  • Stable & predictable conditions.
  • Psychological well being of individuals.
  • Maximum work performance.

Control can also be a political process:

  • Powerful individuals dominate others.
  • Decisions are taken by managers, no interference, particularly from subordinates.
  • A means of perpetuating inequalities of power & other resources within an organisation.

Techniques for Organisational Control.

Use of Job Descriptions:

  • Establish & prescribe communication flows, who reports to whom.
  • Location of decision-making responsibility.
  • Position in the organisational hierarchy.

Control through recruitment & training:

  • What criteria are used in selection?
  • Attitudes & values taken into consideration as well as skills.

Control through expert power:

  • Appeal to people's professional commitment.
  • People achieve performance level because it is the right thing.

Control through reward & punishment:

Extrinsic rewards:

  • Pay, company car, free meals.

Intrinsic rewards:

  • Satisfying work, responsibility, and autonomy.
  • Employee’s behaviour controlled by offers to provide or withdraw these rewards.
  • Psychology suggests punishment or threat of punishment is not an effective means of controlling behaviour.

Control through policies & rules:

  • Rules for behaviour & levels of performance.

Control through budgets:

  • Individuals & sections given financial targets.

Effective control:

  • Controls must be set according to the nature of the job.
  • Deviations should be reported immediately.
  • Controls must conform to the pattern of the organisation.
  • If the organisational structure is clear & responsibility well defined it is simpler to isolate responsibility.
  • Controls should highlight exceptions.
  • Highlighting exceptions to the standard is often more effective.
  • Great care must be taken in setting the standard.
  • Controls should be flexible & economical in operation.
  • Controls should be simple to understand & where possible indicate corrective action.

From an organisational performance perspective it is important to recognise the possibility of both too much and too little control:

Over Control:

  • Limiting individual autonomy so that it seriously inhibits effective performance.

Under Control:

  • Too much autonomy to such an extent the organisation loses direction.

Activity 1:

1.Complete the blank control flow chart so that it outlines the basic steps required for the control of a business's inventory level. (You might like to refer to the earlier diagram for a simple control system to refresh your memory.)

Feedback: Activity 1:

You might have come up with a variety of actions to do with control of business profit. An example is shown to the left. You can see that control in a business process uses exactly the same logic as the control of an engineering process.

Activity 2:

Think about the steps of the control process you have outlined. What could go wrong?

Feedback: Activity 2:

There are plenty of things that can and do go wrong with control systems. Many businesses have failed because of over trading, in other words sales exceed the business's ability to fund them and the firm runs out of cash. This could occur because of problems in the control system itself, for example because of failure to measure accurately or often enough, or because the corrective action in terms of increased sales effort is too great. Obviously the opposite could occur with too little effort put into sales.

In reality the system will often oscillate from one side to the other. So long as the oscillations are not too great the business can continue to be successful. The trick is to make sure that the control system is sensitive enough to achieve the desired result for the least effort. Much of day-to-day management is concerned with getting this balance right.

Having completed the last exercise you should have a good idea of how managers might use the basic principles of control. When it comes to applying control to human beings there may be some devastating side effects from misapplication of control. Consider the case of Henry Ford's attempt to maintain control of decision making during the early years of the Ford Motor Company.

Activity 3:

Read the information below with regard to Henry Ford’s approach to management control. In terms of the basic principles of control outlined in this section what went wrong?

Henry Ford’s Attempt To Do Without Managers:

The Ford Motor Company is well known for its early moves towards mass production. What is less well known is that it went from unparalleled success to virtual collapse. In a period of 15 years Ford’s market share had gone from 66% to 20%. The US government seriously considered nationalising the company to avoid serious damage to the US’s economy and strategic position.

Henry Ford had a “secret police” (headed by Harry Burnett) whose main function was to report back to him if any of his executives tried to make a decision. Any executive found guilty was immediately fired. Harry Burnett rose to a position of almost supreme power, but was widely recognised to be incapable of making any decisions and to be totally under the influence of Henry Ford.

Henry Ford's character, even in the early days, showed through. He would, for example, insist that first line supervisors were demoted every few years to prevent them from “becoming uppity”.

Henry Ford wanted technicians and he sought after and paid them well. However he saw management as the personal prerogative of the owner.

He wanted executives to be his personal assistants and to only do what he directed. Ford’s fear of conspiracy was one of his main driving forces.

Just as in his early career he decided not to share ownership with anyone, later he decided not to share management with any one.

The early Bolshevik’s were fervent admirers of Ford, as his ideas seem to make possible the idea of industrialisation without management.

Feedback:

In order to be able to control any process, measurability is an absolute necessity. Consider the question of managers making decisions outside the remit of their authority. How easily might this idea be measured? It is often very difficult to quantify factors such as this, which tend to be very subjective in nature.

Imposing control or attempting to impose control on factors, which are difficult to measure, is unlikely to be successful. The process of control requires a logical process of measurement followed by comparison, which is in turn followed by corrective action. If you can't measure both the standard and the performance, the control process is futile and any corrective action taken can only be arbitrary and just as likely to make performance move further away from the standard as towards it.

Henry Ford's managers must have been very frightened and confused people, never knowing when Burnett might target them.

The other major factor that Ford failed to consider was human nature. When people are unfairly treated they tend to seek retribution. This retribution can take many forms from direct sabotage to simply minimising the effort they put into their job, whilst still attending work and collecting a wage. When you consider all the ways in which people in an organisation can take revenge on the organisation there are plenty of opportunities, all difficult to measure and control. Perhaps this was a significant contributory factor in Ford's decline during this period.

The Role of Planning in Logistics:

Having developed an understanding of the basic principles of control and some of the problems associated with controlling things in a management situation we will now turn our attention to another control process, namely planning. Many of the issues raised by a study of Logistics and Supply Chain management will require a sound understanding of the planning process.