The evolution of logistics and supply chain activities in Brazilian companies is clear and indisputable for those who have been experiencing this reality for some years. The scope of logistics functions has increased, as has their complexity.
The main executive of the area has reached increasingly higher hierarchical levels and with that the spectrum of activities under his command as well: the incorporation of areas such as Production, Supplies and Demand Planning has, many times, transformed the executive of Logistics into executive of Supply Chain Management indeed.
And how has the area's organizational structure evolved to support these changes in scope and responsibilities? The way the organizational structure is composed can bring countless advantages to the company, but it can also bring a series of frictions and inefficiencies to the logistical performance. The challenge exists mainly because logistics, in practice, is a sequence of interconnected and mutually dependent processes, as illustrated in Figure 1.
Figure 1 shows how logistical activities are part of a single large procurement process, where there is a flow of information and, in turn, a flow of materials. An organizational structure prepared for the efficient management of logistical activities must take into account this vision of the process and, with it, the need for coordination and possibilities for synergy between activities.
But then, how important is organizational structure to good supply chain management? Some indications show the relevance of this issue for executives in the area:
- Multifunctional nature: the fact that there are very different tasks and areas within the supply chain, such as supplies, production planning, sales forecasting, distribution, etc., means that the team needs to have different profiles and
knowledge, but at the same time know how to work in an integrated and synergistic way, each one understanding how their activity affects the performance of others individually and the global result. Structuring an organizational chart that facilitates this integration instead of generating friction is certainly a great challenge.• Expertise and focus: the complexity of logistics activities has increased a lot in the last decade due to factors such as the increase in SKUs, globalization, higher demand for service levels , etc. More and more sophisticated tools and calculations, more comprehensive analyzes and special training are required. This all ends up requiring logistics professionals with training focused on the area and often experts in certain topics. Having a specific Logistics and Supply Chain division, board, and vice-presidency is critical to attracting and retaining specialized professionals, in addition to promoting proper focus on performance and the challenges of the area, not only for the team but also for the main executive. - Strategic involvement: the increasingly strategic role that logistics and the supply chain are playing in companies, generating real competitive advantages in terms of service and cost, must be reflected in the organizational structure, whether at the level of the main executive, whether by the scope of activities and responsibilities.
 |
| Figure 1 – Logistic activities in the process view |
And finally, as a last sign, there is a great need to manage cost and service level trade-offs, as illustrated in Figure 2. Significant consequences can be caused by the fragmentation of logistics activities within the company's general organization chart, such as conflict of objectives and indicators, low communication and exchange of information, all of which culminate in poor management of logistical trade-offs, such as supply costs x production costs, transport costs x inventory costs, total cost x level of service, etc. ..
- EVOLUTION OF THE LOGISTICS ORGANIZATION
Understanding how organizational structures in the area have evolved over the years is of great value for managers to perceive the reflections of changes in the area in the organization charts, as well as for them to identify the stages and changes through which their companies have passed.
According to Bowersox (1996), until the 1950s, the organizational responsibility for logistics was dispersed throughout the company. This fact suggests that logistical activities were performed without inter-functional coordination, possibly resulting in inefficiencies. Poor information exchange and lack of clear responsibilities still contributed negatively to the picture.
Subsequently, a long period of attempts at functional aggregation emerged, encouraged by the need to control the total cost and by the belief that integration into the day-to-day operations would increase. Organizational proximity was seen as a great facilitator, which would make people understand the impact of their decisions and procedures on other areas, allowing the group to focus on global performance.
 |
| Figure 2 - Impacts of the fragmentation of logistics activities |
It was only in the 1980s that the process view became a major trend, accompanying the then new concepts of value chain and competitive advantage. These new thoughts greatly influenced logistics management practices, not only because of the new value creation role, but because activities finally began to be seen as part of a single process, which needed to be managed from end to end and whose global performance is that mattered.
Figure 3 summarizes this evolution, which culminates in the integration of logistics activities, with information technology as a great facilitator, enabling coordination between physically separated teams and allowing the combination of logistics with other areas, such as marketing and manufacturing.
In Brazil, examples of companies for all these stages of development can still be found. The great challenge for executives is to assess what stage their company is at and what is the best approach to achieve the best level of coordination, considering current and future skills needed, corporate culture and openness to change, among other variables.
 |
| Figure 3 – Development of the logistics organization |
This evolution can be better visualized and exemplified by the different organizational charts in the following figures, proposed by Bowersox (1996).
Figure 4 shows an example of a traditional organizational structure containing only the functions typically involved in logistics operations.
 |
| Figure 4: Traditional organization: no vision of integrated logistics |
According to Figure 3, this organization chart would represent the extreme left of fragmentation, as the logistical functions are dispersed throughout the company, functionally aggregated, or even organized in vertical “silos”. Meanwhile, as discussed in Figure 1, the logistics process takes place horizontally, “crossing” the company through its various areas.
In Figure 5, one can see the beginning of the grouping of the logistic functions, which Bowersox (1996) calls Stage 1, although without major changes in the hierarchy: the grouping in Marketing was with the vision of customer service and the advances in the area of manufacturing were in relation to the materials. An organization with these characteristics is still not able to manage logistical trade-offs efficiently.
In Figure 6, Stage 2 has as its main characteristic the placing of logistics in a higher position of authority and organizational responsibility. This independence and autonomy allowed the area to become a core competence and to defend and negotiate solutions and projects with the other areas on an equal basis.
Depending on the company's core activity, the distribution area could be elevated to the highest rank, or the manufacturing area could incorporate the other functions and become the highest level of logistics. But certainly the lack of adequate information systems would prevent complete integration.
Finally, considering Stage 3 by Bowersox (1996), there is the example organization chart in Figure 7. Even with the emergence of Supply Chain Management executives, these structures are still rare.
 |
| Figure 5 – Stage 1 logistical organization |
The objective is to concentrate as many operational and logistical planning functions as possible under a single authority and responsibility. But the most interesting thing is how the separation of tasks is organized: there is a clear division between Operation, Planning and Projects.
Thinking about these three “categories” of activities makes perfect sense due to several aspects: the profile of professionals is significantly different, as well as their skills and training needs. In addition, the nature of the decisions and their horizon are different, as well as the information and analyzes used.
Among the activities of the "Operation" would be, for example, the coordination of the receipt of raw materials, the interface with the production area, the management of picking and dispatch, the monitoring of deliveries, the processing of orders, the placement of purchase orders and handling returns, among others. These are extremely dynamic areas that normally need to “put out fires” every day. The professional who deals with these challenges is rarely able to think about long-term planning, supply chain strategies or carry out time-consuming analyzes for their decision-making, as they are entirely consumed by the operation. The nature of this work requires a professional capable of making quick decisions and with good leadership skills, as he usually works with relatively large teams.
The “Planning” activities would include demand planning, monthly inventories and resupply, coordination of the S&OP process (Sales and Operations Planning) and resource and capacity planning, such as fleet size for the following years, or even the
need to expand a factory or warehouse. Professionals in logistics planning tend to be distinguished by their ability to analyze and master IT-based planning tools.
The “Projects” area is still rare in companies, but more and more, at least one or two professionals can be found in companies focused on continuous improvement, for reviewing processes, seeking new technologies, bringing indicators and benchmarks and updating themselves. with new best practices, going to events and technical visits in the area. This type of work presupposes that the professional is capable of devising new solutions for the company, as well as implementing them satisfactorily.
- DIAGNOSING THE LOGISTICS ORGANIZATION
With this overview of the evolution of the logistics organization, the manager can now obtain insights to assess the structure of his area. Unlike other quantitative and logical analyzes in the area, there is no right or wrong when it comes to organizational structure; there are no formulas or “cake recipes” to apply to all cases. This is certainly why companies are constantly changing their organization charts in a process of trial and error.
Because it involves issues such as the profile and training of professionals, power games, business culture and hierarchy, defining organizational charts is a much more complicated task than one might think and varies greatly from company to company. But, without considering the “personograms” and potential political problems and looking at the more technical side, the logistics executive can try to diagnose his area through some dimensions shown in Figure 8.
In this figure, two large groups of analysis dimensions can be seen:
- Organization of activities
In this group are questions such as division of responsibilities, scope and interfaces of the area. The manager must ask himself whether the distribution of activities promotes the fluidity of the logistical process or makes the usual day-to-day problems go through intricate paths to be solved. Or, yet, how the positions related to Operation and Planning are separated, as discussed in the Stage 3 Organization (Figure 7). Many times there is also an opportunity to question the level of centralization or decentralization of some operations. A company that has several factories and/or distribution centers, for example, can find very significant gains with the centralization of decisions related to transport (dimensioning, counter-sizing and fleet scheduling) and inventories (volume and mix to be sent to each DC , avoiding the lack of product in one place while there is surplus in another). However, centralization of decisions is adequate and effective only when there are clear synergies that are not taken advantage of with decentralized responsibilities.
 |
| Figure 6 – Stage 2 logistical organization |
Equally important is the scope of action of the Logistics/Supply Chain area. As seen in the previous section, the area has, over the years, accumulated several functions that are part of the logistical process, but there are still countless Brazilian companies with a reduced scope, either because inventory management is in the Industrial area, control of distribution centers with regional sales or even coordination of distribution with Marketing. If logistical planning and execution decisions are taken in different areas, it is very likely that there will be some degree of conflict between them. This problem will be even worse if the performance indicators of these areas are conflicting, such as, for example, cost of inventories (the lower the better) and availability of inventories (the higher the better).
This point has a strong connection with the interfaces of the Logistics area. The more fragmented the activities, the more interfaces with other areas there will be, demanding excessive communication efforts, routine flow of information and joint decisions. Even with all this effort, it is possible that many inefficiencies still exist, as shown in Figure 2, if the interfaces are not minimized and at the same time very well delineated.
- Role and importance in the organization The second group of questions refers to the role and importance of logistics in the company. The level of autonomy for the manager to question and change any situation in this sense is certainly reduced, but it is always worth mapping and reflecting on the following points, because, depending on the moment of the company, the line of dialogue established with the senior executives or the opportunities and gains brought about by logistics, the area can start to receive the compatible attention.
 |
| Figure 7: Stage 3 logistical organization |
Even in companies with a more informal culture or where the hierarchy has little strength, the position occupied by the Logistics/Supply Chain Executive always conveys a message: it indicates the degree of autonomy and responsibilities of the area, as well as the priority of its subjects. It also defines its interfaces and the level of “equality” with other areas (Industrial, Commercial, Financial, etc.).
Closely linked to the theme of the chief executive's hierarchical level, is the participation of Logistics in the company's strategy. In addition to the concern that the mission and vision of the area are aligned with the company's global strategy, its main executive must participate, along with other areas, in the company's strategic decisions, regardless of their hierarchical level. Even if the main logistics executive is not at the highest possible hierarchical level, nothing prevents him from being summoned to meetings with the president, CEO or general director to discuss the role of logistics in the company's strategy.
Finally, if the Logistics area is subordinated to any other area, such as Commercial, Marketing or Industrial, the main executive of the logistics functions, as well as his superior, must be aware that such a situation can lead to loss of focus or priority for the Logistics area, its challenges and problems. The fact that the highest executive also has to be concerned with issues in another area means that attention is inevitably divided. In addition, the background of this “shared” executive can generate biases in decision making that are not always favorable to the total logistical cost and management of trade-offs.
For example, if the main executive responsible for Logistics is also responsible for the Commercial area (there are cases), he will be able to balance the decisions of both areas and maintain the global optimum, or at the end of the month he will approve measures for the “target of sales to be beaten at any cost” and leave in the background how much the peaks in demand at the end of the month could be harmful to the supply chain?
 |
| Figure 8: Diagnosis dimensions of the logistics organization |
3 Conclusion
There are many opportunities when reviewing the logistical organization, the biggest ones being to reduce the fragmentation of activities and increase planning and continuous improvement initiatives. Adapting the organizational structure to the logistical processes and elevating your executive to a compatible role and importance can bring a series of advantages, such as:
- Focus on logistics activities;
• Avoid dispersion of logistical knowledge;
• Potentialize the implementation of improvement projects;
• Speed in identifying problems in operations;
• Reduction of total logistical cost and better management of trade-offs.
While the first part of the article showed more theoretical concepts, the second part of this article* will present the results of a survey with seven consumer goods companies, which aimed to ascertain the level of integration provided by their organizational structures and processes of logistical planning.
The methodology evaluated both the organizational structure and one of the main integration processes in companies, the S&OP. Through in-depth interviews and pre-established criteria, it was possible to classify these companies and their levels of integration on a single scale, making it possible to draw a series of conclusions and lessons learned.
4 Bibliography
Bowersox, D.; Closs, D.. Logistics Management: The Integrated
Supply Chain Process, 1996, McGraw-Hill.
