Prior to the 1950s,functions now accepted as logistics were generally viewed as facilitating or support work. Organizational responsibility for logistics was dispersed throughout the firm. This fragmentation often meant that aspects of logistical work were performed without cross-functional coordination, often resulting in duplication and waste information was frequently distorted or delayed and lines of authority and responsibility were typically blurred. Managers recognizing the need for total cost control began to reorganize and combine logistics functions into a single managerial group. Structuring logistics as an integrated organization first appeared in the 1950s.
The motivation behind functional aggregation was the belief that grouping logistics functions into a single organization would increase the likelihood of integration. The paradigm (model) was that functional proximity would facilitate improved understanding of how decisions and procedures in one area affect performance in other areas. The belief was that eventually all functions would begin to work as a single group focused on total system performance. This integration paradigm, based on organizational proximity, prevailed throughout a thirty-five year period. However, by the mid 1980s, it was becoming increasingly clear that the paradigm of functional aggregation might not, in final analysis, offer the best approach to achieve integrated logistics. For many firms, the ink had barely dried on what appeared to be the perfect logistics organization, when new and far more pervasive rethinking of what constituted the ideal structure emerged.
Almost overnight, the emphasis shifted from function to process. Firms began to examine the role logistical competency could play in the overall process of creating customer value. This ushered in new thinking regarding how to best achieve logistical performance. To a significant degree, the focus on process reduced the pressure to aggregate functions into all encompassing organization units. The critical question became not how to organize individual functions but rather how to best manage the overall logistical process. The challenges and opportunities of functional disaggregation and information driven integration began to emerge.
The mission of logistics is to position inventory when and where it is required to facilitate profitable sales. This supportive work must be performed around the clock and typically throughout the world, which means that logistics needs to be an integral part of all processes. The ideal structure for logistics would be an organization that performs essential work as part of the processes it supports while achieving the synergism of cross functional integration.
Information technology introduced the potential of electronic integration as contrasted to physically combining logistics functions. Using information technology to coordinate or orchestrate integrated performance allows the responsibility for work itself to be distributed throughout the overall organization. Integration requires that logistics combine with other areas such as marketing and manufacturing. For example, rather than focusing on how to relate transportation and inventory, the real challenge is to integrate inventory, transportation, new product development, flexible manufacturing and customer service. in order to achieve overall organizational integration, a firm must combine a wide variety of capabilities into new organizational units. This means that the traditional single function department must be assimilated in a process. Such assimilation often requires the traditional organizational structure be dissaggregated and then recombined in new and unique ways in one sense, such a functional disaggregation may appear to come full circle back to the early days of fragmented single-function departments. However, the critical differences in the emerging organization model are widespread availability of unbridled information. The new organization format is characterized by an extremely different culture concerning how information is managed and shared.
Understanding the organizational development process permits logistics managers to evaluate the firm’s current state of organization and plan changes that can be accommodated.
Stages of functional organization
Figure illustrates a traditional organizational structure with dispersed logistical functions.. the initial belief was that integrated performance would be facilitated by grouping logistical functions normally spread throughout the traditional organization into a single command and control structure.. It was felt that these functions would be better managed, trade-offs better analyzed, and least-Total cost solutions better identified if all logistics work was integrated into one organization. In order for operational integration to occur, managers had to believe that performance could be improved.
Without this belief, they would continue to emphasize structure as opposed to management practice.
While the idea of functional integration is logical and appeals to common sense, it is not always supported by other unit managers. It is natural that any attempt to reposition management authority and responsibility will meet resistance. Many logistics executives can provide examples of how attempts to reorganize were met with rivalry and mistrust— not to mention accusations of empire building. Traditionally, in organizational structures, financial budgets follow operational responsibility. Likewise, power, visibility, and compensation result from managing large head counts and substantial budgets. Logistical reorganization, therefore, was typically seen as a way for logistical managers to gain power, visibility and compensation at the expense of other mangers. This also was ample reason for other managers to protect their power by resisting logistics functional integration. As a result, unified logistical organizations faces considerable resistance. But in an increasing number of firms, benefits were sufficient to empower reorganization. The resulting evolution typically involved three stages of functional aggregation.