LGMT 682 ASSIGNMENTS

LGMT 682: INTEGRATED LOGISTICS MGMT

I)

Post your answer to only one of the topics below. Begin your post with the question you are answering and then make your response.

1. Having control over your logistics and supply chain operations is a major issue for large corporations, but at the same time, many firms are outsourcing services that are not considered to be part of their core competencies. How are firms dealing with the risk of losing control while obtaining the benefits of outsourcing?
2. Control is a major issue in Performance Based Logistics (PBL) management. What are some of the advantages and disadvantages associated with PBL and what is being done to limit the downside risk of allowing one or more additional parties to manage a firm's (or the government's) logistics operations?
3. As the head of logistics and supply chain management for your firm, what are some of the major steps you would take to insure that your international supply chains are secure?
4. How can an audit of a firm's logistics operations indicate where to improve performance? What is benchmarking and how can it help?

Reply to at least two of your classmates on different topics than your original post.

CLASSMATES POSTS:

1) TIMOTHY

1. Control is a major issue in Performance Based Logistics (PBL) management. What are some of the advantages and disadvantages associated with PBL and what is being done to limit the downside risk of allowing one or more additional parties to manage a firm's (or the government's) logistics operations?

PBL is a business concept that aims to reduce the customer’s total costs for capital-intensive products and increase the supplier’s profit. The design of the contract, performance measurements and payment models are important aspects for successful implementation. Today many manufacturing firms’ offers contain more than physical products, they sell the output of their products, i.e. the product performance. The trend toward selling performance is especially apparent among manufacturers of defense and aerospace equipment where the products are large-scale, capital-intensive technical systems. Manufacturers within the defense and aerospace industries became performance-orientated early on and now seem to have the most developed approaches for selling performance.(Holmbom, Bergquist, Vanhatalo, 2014) PBL is comprised of suppliers, system integrators, and customers. This combination of its resources, technologies, policies, procedures, and flows; is a post-production service strategy that is highly dependent on the supply chain supporting its logistics. (Randall, et al. 2011)

My discussion focuses is on Performance Based Contracts (PBC), since it is a strategy (process) within the performance based logistics (PBL) concept and is an aspect that directly complements it. Figure 1 Challenges related to adoption, design, and management of PBC (attached file)(Selviaridias & Norrman, 2014), illustrates how a properly constructed PBC works from adoption through the management stage and identifies various challenges or issues that the various stages typically have. Performance based solutions have proved challenging since organizations struggle to link performance to incentives and payments. The struggles companies face are seen in the three areas of a PBC, adoption, design, and management.

Adoption of a PBC into an organization requires a methodical approach that has clearly define policy, parameters, and performance criteria that supports of all parties involved for it to be effective and successful. Reasons why organizations find it hard to adopt or incorporate into their business functions include:

• Differing business logics. How to aligning provider and customer incentives and goals, or partner’s perspective on PBC and rewards sharing. (Selviaridias, et al., 2014)
• Conflicting goals. What are the service goals and emphasis, and how are they based and they perceived?
• Perspectives on PBC and reward sharing. Perception is key, are the risk for rewards poorly constructed and conveyed?
• Reluctance to offer bonus payments. The whole concept is payment (incentives) for performance. Upper management support is required and a willingness to pay a must.

The contract design challenges center around KPI and monitoring systems, and designing incentive payment systems and allocating risk, as seen in Figure 1. (Selviaridias, et al., 2014).

• Designing performance indicators: Selviaridias & Norrman, (2014), stressed that performance specifications in terms of key performance indicators (KPI) was a key challenge. This is due to a correlation on how a PBC is perceived and managed.
• Designing Performance based incentives: Having the right incentives is a key challenge and why companies have concerns regarding the viability of offered bonuses and penalties. (Selviaridias, et al., 2014)
• Designing performance monitoring systems and their contribution to improved customer-provider relationships. Selviaridias & Norrman, (2014), indicate that attempts to increase accountability is through use of assigning service failures.
• Service co-production effects and risk allocation. Contracted carriers, customers, and even customer’s suppliers/customers can influence service performance and cost reductions outcomes. (Selviaridias, et al., 2014)

Contract management challenges include four key challenges: managing and improving performance, managing organizational changes, perceived fairness of performance-based incentives, and re-designing performance metrics and incentives.

1. Managing and improving performance. This requires a proactive approach through ownership of performance, which enables an effective PBC.
2. Managing organizational changes within the provider firm. PBC management requires often organizational changes in terms of processes and resource allocation internally. (Selviaridias, et al., 2014).
3. Managing organizational changes within the provider firm. PBC management often requires organizational changes in terms of process and resource allocations, internally. (Selviaridias, et al., 2014). The process may include monthly meeting, analysis of performance, and a dedicated manager to oversee the program.
4. Perceived fairness of performance-based incentives. A key challenge is overcoming the fairness of these incentives. KPIs can elevate the perception that the designed incentives are unfair. , at least to some extent.
5. Re-designing performance metrics and incentives. Challenges exist in revisiting current contracts and redesigning the metrics and incentives. Flexibility is crucial during re-design. This is where perceptions of unfairness are eliminated and a win-win business relationship implemented. (Selviaridias, et al., 2014)

For a PBC or PBL to be successful and effective, having a sound business theory is essential, otherwise leaders and businesses may find themselves moving from one “fad strategy” to the next, not understanding why things work in one context and not the next. (Randall, 2013) Upper-level support is crucial, reducing perception is a key challenge, design of KPIs essential but a complicated task, and managing the PBC is essential to provide payment for the incentives and to identify flaws for re-design of the KPIs and contract. Jin & Wang (2012), recognize that PBC programs should be planned from a lifecycle perspective by considering reliability, system usage and other performance drivers as endogenous decision variables. (Jin, et.al., 2012) Figure 1 also shows that once in the management stage, the data is analyzed, and then there is redesign based on the issues or flaws (lessons learned). As with any other fundamental business function, a methodical approach is crucial in the beginning stages to assure all key challenges are identified and mitigating factors are designed as to reduce the risk to an acceptable level so that the strategy is adopted. Once adopted, implementation occurs and the constant monitoring or management process occurs so that issues are dealt with in a timely manner and corrected or redesigned as necessary.

References:

Holmbom, M., Bergquist, B., & Vanhatalo, E., (2014), Performance-based logistics – an

illusive panacea or a concept for the future?. Journal of Manufacturing Technology Management. 25(7). 958 – 979. http://dx.doi.org/10.1108/JMTM-06-2012-0068 (Links to an external site.)

Jin, T., & Wang, P. (2012). Planning performance based contracts considering reliability and

uncertain system usage. The Journal of the Operational Research Society, 63(10), 1467-

1. doi:http://dx.doi.org/10.1057/jors.2011.144

Selviaridis, K., & Norrman, A., (2015) Performance-based contracting for advanced logistics

services: Challenges in its adoption, design and management, International Journal of

Physical Distribution & Logistics Management. 45(6), 592 – 617. D oi:http://dx.doi.org/10.1108/IJPDLM-11-2014-0267

2) EDUARDO

1) Having control over your logistics and supply chain operations is a major issue for large corporations, but at the same time, many firms are outsourcing services that are not considered to be part of their core competencies. How are firms dealing with the risk of losing control while obtaining the benefits of outsourcing?

It is a tough decision for a company to figure out if a supply chain function is truly not a core competency, and if the benefits of outsourcing really outweigh the risks. The company must really look over their organization and find those activities that will be best performed by an outside vendor, and thoroughly investigate that vendor to see if the truly fit into the company’s strategy (Barthelemy, 2003). Companies that decide to outsource a non-core competency need to keep the vendor within their strategy, and oversee them to ensure they are meeting company requirements; the company shouldn’t lose complete control of the outsourced activity. It is critical for a company, especially a large one, to oversee their entire outsourced suppliers and emphasize that they are co-partners and not simply co-suppliers. “My adventures in outsourcing helped me realize that, while it was imperative to outsource the core of my business during the initial phase of the company, the loss of control almost caused my entire business to implode. The important thing to remember is that you should have controls in place that allow you to closely monitor outsourcing relationships (Duchman, 2015).” Monitoring outsourcing relationships is key to the success of the company, Barthelemy (2003) suggests that in order to prevent complete loss of control over the outsourced activity, the company should form a small group of managers to handle the vendor. This is a way for a large corporation to reduce some risks and have a little more control of the outsourcing services.

Reference

Barthelemy, J. (2003). The seven deadly sins of outsourcing. Academy of Management Executive, 17(2), 87-95. Retrieved from http://www87.homepage.villanova.edu/kevin.d.clark/Barthelemy%20seven%20deadly%20sins%20of%20outsourcing%20AME%202003.pdf

Duchman, Z. (2015, May 29). How I Used Outsourcing During A Crucial Time, But Lost Control Of My Business. Retrieved from http://www.forbes.com/sites/zalmiduchman/2015/05/19/outsourcing-or-not-how-i-used-outsourcing-during-a-crucial-time-but-lost-control-of-my-business/

PS: AFTER YOU ANSWER ONE OF THE QUESTION, YOU WILL NEED TO RESPOND TO BOTH OF MY CLASSMATES AS YOU'RE TALKING DIRECTLY TO THEM. THE POST CAN BE NEGATIVE OR POSITIVE.

II) QUESTIONS // ANSWERS

Submit your responses to the questions below (taken from the textbook's questions for discussion and review).

Chapter 3:

1. Question 3 - What are the two key components of an income statement?
2. Question 5 - What are the key components of the strategic profit model? How can it be used to examine the affect of logistics decisions?
3. Question 9 - Do you agree or disagree that return on assets is a good way to examine operational efficiency? Why?
4. Question 10 - How does logistics strategy connect to overall corporate strategy? Is it a one-way or two-way connection?
5. Question 14 - Do you think corporate cultures are relevant for designing a logistics measurement system? Why or why not?
6. Question 19 - Do you agree or disagree with the sentiment that logistics measurement systems need to include both financial and nonfinancial measures? Why?

Chapter 4:

1. Question 1 - Discuss several issues that influence the organization of logistics activities within a firm.
2. Question 4 - Describe the hierarchical and matrix organizational design.
3. Question 5 - From a logistics perspective, how is network organizational design manifested in terms of relevancy, responsiveness, and flexibility?
4. Question 13 - Describe some potential logistics social responsibility dimensions.
5. Question 17 - What are some ways in which the Transportation Security Administration is attempting to improve the security of the U.S. transportation system?
6. Question 18 - In what ways is the legislation requiring 100 percent scanning of U.S.-bound containers likely to be disruptive to international trade?
7. Question 20 - What are some types of complexity that are affecting logistics activities in a firm?

PS: I WILL NEED ASSIGNMENT I AND RESPONSE TO MY CLASSMATES POSTS BY TOMORROW AND THE REST AS ASSIGNMENT II BY FRIDAY. IF YOU CANNOT MEET MY DEADLINE. PLEASE DO NOT ENGAGE