Decision Making
Strategies in
Organising for
Logistics
Strategic Logistics
Management
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Areas examined will cover…
Mission Statements
Components of an optimal Logistics
organisation
Organisational characteristics, environmental
characteristics, employee characteristics,
managerial policies & practices
An approach to developing an optimal
logistics organisation
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Introduction
Organisations are facing;
higher operation costs,
increasing demands from customers for higher service levels
Logistics executives must understand WHAT makes an
organisation effective…… & HOW these factors inter-
relate…
… then take decisions about developing an optimal system
3 Cornerstones of Decision Making ….
The Decision, The Decision Maker, The Process of
Deciding. (Leigh, A (1983) Decisions Decisions: A practical guide to problem
solving and decision making)
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Mission Statements –
Personal Mission Statements
Individuals & organisations should establish a
mission statement to define its overall purpose
for existence
A personal mission statement sets a persons
overall guidelines for living
Organisations are encouraging individuals to
find personal fulfilment
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Mission Statements –
The Logistics Mission Statement
Corporate Mission Statements;
provide a foundation which firms develop
strategies, plans & tactics
defines the basic purpose of an organisation
provide the starting point for developing goals &
objectives
Logistics Mission Statements – will provide
direction for developing business strategies
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Mission Statements –
The Logistics Mission Statement
With a corporate or logistics mission statement,
…..
… the mechanics of a statement will be similar
… will vary in specific content
A Logistics Mission Statement is only one
element of a firms overall mission
Typical mission statements contains 8 key
components
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8 Key Components of Mission
Statements
(Source: Stock & Drőge, ‘Logistics Mission Statements’,1990)
1. Specification of 5. express commitment
targeted customers & to Survival, growth &
markets profitability
2. Identification of 6. Specify key elements
Principle products & of the Company
services Philosophy
3. Specify 7. Identification of
Geographic Domain Company self concept
4. Identification of 8. Identification of
Core technologies Desired Public Image
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Awareness of where the organisation is
in the Supply Chain?
Understanding an organisations location within a supply chain – will
impact on ALL decisions.
An organisation may deal with multiple suppliers, manufacturers and
distributors.
To become more optimised - should consider changing suppliers to a more efficient one
regarding …location, production capacity, service levels.
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The Decision Maker
‘In any moment of decision the best thing you can
do is the right thing, the next best thing is the wrong
thing, and the worst thing you can do is nothing’
Theodore Roosevelt, 26th President of the United States of
America
‘Standing in the middle of the road is very
dangerous; you get knocked down from the traffic
at both sides’
Margaret Thatcher, Ex British Prime Minister
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Place of Logistics Strategy in Organisational Decisions.
(Waters, D (2007) Global Logistics New Directions in Supply Chain
Management,)
For the whole organisation
Mission or vision
Corporate strategy
Business Strategy
For each business in the organisation
Logistics strategy Other functional
strategies
For each function
Logistics tactics Other functional tactics
Logistics operations Other functional
operations
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Decision Making Strategies
A decision? …… is the process of examining your possible options,
comparing them, and choosing a course of action.
On a strategic level, Michael Porter defines three strategies open to
a firm to maximise competitive advantage.
1. Cost differentiation – competing on the basis of cost.
2. Product/Process differentiation – competing on better product quality.
3. Niche Market – competing by targeting a specific market segment.
According to Skinner, an organisations ‘Strategic Focus’ involves
clearly defining certain characteristics which will add value to the
customer.
Some typical examples which impact logistics strategies include:
• Innovation, Price, Customisation, Quality, Lead times, Product Reliability
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Decision Making Process
Six C’s of decision making: Factors to
1) Construct – clear vision of what must be Consider:
decided 1) Perception
2) Compile – a list of requirements must be 2) Priority
meet 3) Goals
3) Collect – info an alternative that meet
4) Values
requirements
5) Risk
4) Compare – alternatives that meet
6) Resources
requirements
7) Demands
5) Consider – ‘what might go wrong’ for each
alternative 8) Judgement
6) Commit – to decide and fully follow through
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Decision Making Process
Source: Shawanta & Scott, (1981) – ‘A conceptual framework for
integrating six-sigma and strategic management methodologies to quantify
decision making’
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Some Approaches to
Decision Making
Optimising
Satisficing
Mixed scanning
(Source: Leigh, A (1983) Decisions Decisions: A practical guide
to problem solving and decision making)
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Optimising
(Source: Leigh, A (1983) Decisions Decisions: A practical guide to problem
solving and decision making)
Maxi-min: a conservative rule under conditions of uncertainty…
“the decision maker should select the course of action whose worst (maximum)
loss is better than the least (minimum) loss of all other courses of action possible
in given circumstances.”
Maxi-max: the optimistic (aggressive) decision making rule under
conditions of uncertainty.
“the decision maker should select the course of action whose best (maximum)
gain is better than the best gain of all other courses of action possible in given
circumstances.”
Probability: the decision maker considers the likelihood of a
desirable outcome as the consideration of choice.
Usually displayed as a figure between 0 and 1, impossible to certain respectively.
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Optimising
(Leigh, A (1983) Decisions Decisions: A practical guide to problem solving and
decision making)
EMV (expected monetary value): respective pay offs are
considered by attaching a monetary value to each alternative.
Probability of occurrence is also considered, to avoid blind decisions based
solely on highest pay off.
Utility: in contrast to EMV, this criterion focuses on the decision
maker’s preference of outcome and ranks them before considering
other criteria.
In summary, the decision maker is trying to produce the best possible
result.
What determines the best result ….. is down to the decision makers
attitude and selected criteria.
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Satisficing – 3 Types
(Leigh, A (1983) Decisions Decisions: A practical guide to problem solving and
decision making)
The single decision rule: quick and simple it is attractive in achieving the
aim. ….“if it worked last time, do it again.”
Elimination by aspect: using multiple single decision rules, alternatives are
narrowed to meet the minimal satisficing criteria.
E.g. renting a house, you eliminate first by area, then price, number of rooms etc.
Incrementalism: it implies we should do what we can, with what we have,…
… is aimed at solving immediate problems,
No goals are set, nor ways to reach them, but rather outcomes are determined by the readily
available means.
Schwartz (2000) describes the process as “muddling through” and Leigh as “fire fighting.”
Incrementalism is based on easing the problem rather than solving it,
with the assumption that continued Incrementalism will eventually lead to a solution
through compromise.
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Mixed Scanning
(Leigh, A (1983) Decisions Decisions: A practical guide to problem solving and
decision making)
Mixed Scanning seen as a more attractive form of decision
making strategy
combining both optimising and satisficing,
generally more acceptable to decision makers.
Mixed scanning attempts to strike the balance between extreme
rationalism and the laid back style of incrementalism.
There is a realisation that a decision must be made ….
… but also that there are constraints and so one can use
elimination by aspect to achieve minimal standards and from
these alternatives optimise (whilst considering constraints).
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Factors influencing the Effectiveness
of a Logistics Organisation
Four main factors can influence the effectiveness of
a logistics organisation
(Source: R. Steers, ‘Organisational Effectiveness’, 1977)
1. Organisational Characteristics
2. Environmental Characteristics
3. Employee Characteristics
4. Managerial Policies & Practices
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Organisational Characteristics
Structure & Technology main elements of a firms
organisational characteristics
Structure;
the relationship that exits between various functions
relationship often represented on an organisation chart
e.g. structural variables …...decentralisation, specialisation,
span of control, organisation size
Technology – mechanism to transform raw inputs into
finished outputs
Technology several forms …
Variations in materials used
Variations in knowledge brought to the activities
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Environmental Characteristics
Effectiveness is influenced by internal & external
factors
Internal factors
In general, are controllable by the logistics executive,
called organisational climate, or corporate culture
External factors,
referred to as uncontrollable factors,
include,
political, legal, economic, cultural & social
& competitive environments
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Employee Characteristics
Key to effective organisations, employees who carry
out their jobs responsibly
All employees have different outlooks, goals, needs &
ambitions
People will behave differently, even when placed in the
same work environment
Individual differences have a direct impact on
effectiveness
1. Organisational attachment
The extent to which individuals identify with their employer
2. Job performance
Without organisation attachment & job performance –
organisation effectiveness becomes almost impossible
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Managerial Policies &
Practices
Organisational effectiveness – which is
determined by planning, co-ordinating &
facilitating of goal directed activities
Depend on the macro & micro policies adopted by
the firm
6 Factors which can help the logistics
executive in improving effectiveness of the
organisation
(Source: R. Steers, ‘Organisational Effectiveness’, 1977)
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6 Factors which help the logistics
executive in improving
effectiveness of the organisation
(Source: R. Steers, ‘Organisational Effectiveness’, 1977)
1 Strategic Goal Setting
2. Resource Acquisition & Utilisation
3. Performance Environment
4. Communication Process
5. Leadership & Decision Making
6. Organisational Adaptation & Innovation
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1. Strategic Goal Setting
Two sets of goals,
the organisations goal
& the individual employees goal
Both sets must be;
compatible
& targeted at maximising company & employee
effectiveness
E.g. company has overall goal, of reducing order cycle
time by 10%, but it is the attempt of each individual trying
to improve his individual component is what will achieve
the organisation goal
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2. Resource Acquisition &
Utilisation
The use of human, financial & technological
resources to achieve corporate goals &
objectives…. example …
Having properly trained people operating the
truck fleet,
Proper storage & retrieval systems for the firms
warehouses
Having capital available to take advantage of
buying forward opportunities
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3. Performance Environment
Having proper org. climate to motivate employees &
maximise their effectiveness …. therefore the
effectiveness of the logistics function
Strategies can include;
Proper employee selection & placement
Training & development
Task design
Performance evaluation, combined with a reward
structure which promotes goal orientated behaviour
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4. Communication Process
Communication – one of the most important factors
influencing logistics effectiveness
With poor communication – logistics policies &
procedures are not transmitted throughout the firm
feed back of information on the effectiveness of the
policies, the successes or failures will not happen
communication flows can be,
downward (boss to employee)
upward (employee – to boss)
horizontal (boss to boss, or employee to employee)
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5. Leadership & Decision
Making
Very important – the quality of leadership & decision
making expertise exercised by the logistics executive
Logistics department – is often a mirror image of the
senior logistics executive in the firm
if the top logistics executive is capable & respected, who
makes logical & consistent decisions, then the logistics
department which report to him will also likely be highly
effective
The reverse is also true
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“We want to include you in this decision
without letting you affect it!”
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Comparison of Three Leadership
Approaches (Source: J. Tompkins, Revolution:
Take Charge Strategies for Business Success’, 1994)
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6. Organisational Adaptation
& Innovation
The environment surrounding logistics activities
requires constant monitoring
As conditions change, logistics must adapt to provide an
optimal service mix
E.g., transport regulations, customers service
requirements, degree of competition in target markets,
economic or financial changes in market place,
technological advances in the distribution sector
Important that adaptation & innovation is not
haphazard
Effective organisation must show stability & continuity
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Summary
First and foremost there is no single ideal decision strategy.
Adopting the right strategy is situation dependant.
The art lies in finding the best fit.
Research shows that people tend to move toward more
simplistic approaches.
To adapt a simplistic approach may lead to misjudging the situation and
result in a worthless decision & similarly processing all available
information and their complexities is usually too much for the decision
maker.
Schwarz (2000) supports this by stating that by trying to
optimise and explore all alternatives you may not be able to
find information, thus it is too time consuming.
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Summary
In today’s increasingly competitive & changing
business environment, firms must develop the most
effective logistics organisation and ensure it is as
efficient as possible.
A logistics mission statement can act as a guide for
a logistics executive when developing the logistics
function.
Various factors have been identified as contributing
to, and helping improving organisational
effectiveness,
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