Contemporary Logistics 11th Edition

by Murphy Knemeyer ISBN

0132953463 9780132953467
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PART II
END-OF-CHAPTER QUESTIONS

CHAPTER 4: ORGANIZATIONAL AND MANGERIAL ISSUES IN LOGISTICS

4-1. Discuss several issues that influence the organization of logistics activities within a
firm.

The organization of logistics activities within a firm depends on a number of factors,

including the number and location of customers, as well as an organization’s size. The
number and location of customers might influence whether a firm adopts a centralized or
decentralized logistics organization. An organization’s size might influence the
organizing of logistics activities in the sense that there are limitations in the degree of
specialization of managerial talent in small firms.

4-2. Compare and contrast the fragmented and unified logistical organizational structures.

In a fragmented logistics structure, logistics activities are managed in multiple

departments throughout an organization. In such a structure, it is possible for the various
logistics activities to be managed in two, three, four, or more departments. Because
effective and efficient logistics is predicated on a high degree of coordination among
logistics activities, such coordination can become difficult when the logistics activities
are spread throughout an organization.

In a unified logistics structure, multiple logistics activities are combined into, and
managed as, a single department. The unified structure can be further classified based on
the number and type of activities assigned to the department. Regardless of how many,
or what type, of logistics activities are managed, the unified logistics structure should be
better positioned than the fragmented structure to achieve coordination across the various
activities.

©2011 Pearson Education, Inc. publishing as Prentice Hall 1

4-3. What are the differences between a centralized and a decentralized logistics
department?

A centralized logistics organization implies that the corporation maintains a single

logistics department that administers the related activities for the entire company from the
home office. A decentralized logistics organization means that logistics-related decisions
are made separately at the divisional or product group level and often in different
geographic regions.

There are advantages to both approaches, with a primary advantage of centralization

being its relative efficiency, whereas a primary advantage of decentralization is its
customer responsiveness. Centralization allows an organization to take advantage of the
cost savings that can arise from volume-creating opportunities. Many global firms need
to decentralize operations because of geographic and time differences from the home
office.

4-4. Describe the hierarchical and matrix organizational design.

Hierarchical, or functional, organizational design has its foundations in the command-

and-control military organization, where decision making and communication often
follow a top-down flow. Each employee reports to one, and only one, supervisor. In a
matrix design, one employee might have cross-functional responsibilities. For example,
the manager of small appliances at one organization might report to logistics, marketing,
and production executives, and the small appliance manager would have responsibility
for the production, marketing, and logistics of small appliances.

4-5. From a logistics perspective, how is network organizational design manifested in

terms of relevancy, responsiveness, and flexibility?

Relevancy, which refers to satisfying current and emerging customer needs, can be
facilitated by developing mutually beneficial relationships with key customers; at a
minimum, these relationships should provide an understanding of customer needs and
wants. Responsiveness reflects the degree to which an organization can accommodate
unique or unplanned customer requests; responsiveness can be achieved when the
appropriate decision makers are provided with both relevant information and the
authority to address unique or unplanned requests. Flexibility, which can be defined as
an organization’s ability to address unexpected operational situations, is predicated on
avoiding early commitment to an irreversible course of action. One example of logistics
flexibility would be the postponement of assembly, labeling, and so on until exact
customer requirements are known.

4-6. Define what is meant by productivity and discuss the ways in which productivity can
be improved.

At a basic level, productivity can be defined as the amount of output divided by the
amount of input. An understanding of this relationship leads to the recognition that there

©2011 Pearson Education, Inc. publishing as Prentice Hall 2

are but three ways to improve productivity: 1) reduce the amount of input while holding
output constant; 2) increase the amount of output while holding input constant; or 3)
increase output while at the same time decreasing input.

4-7. In what ways can unionized workforces be a challenge to improving productivity?

Union work rules are often very specific in the sense that job descriptions spell out in
exacting detail the responsibilities associated with a particular job. Although detailed
specifications help create additional jobs, the relative lack of worker flexibility can
potentially hinder productivity by increasing inputs (e.g., additional workers, hence
additional labor costs) while also decreasing output.

4-8. Discuss how technological considerations can help in managing truck drivers and
their productivity.

Some firms photograph or videotape drivers as making pickups at their loading docks.
Alternatively, a tachograph is a recording instrument that is installed inside a truck and
produces a continuous, timed record of the truck’s operations, its speed, and its engine
speed. In addition, the interfaces involving wireless communications, global positioning
systems, and graphical information systems offer tremendous technology-related
opportunities to improve driver productivity.

4-9. What are some potential challenges to improving productivity by getting more
output from existing assets?

The book offers two suggestions for improving productivity by getting more output from
existing assets. One is to use assets more during the course of a day, such as Southwest
Airlines’ ability to fly more trip segments per day. One challenge with increased usage
during the course of a day is that assets might need more frequent maintenance. A
second suggestion is to extend an asset’s revenue-producing lifespan; one challenge with
this is that an older asset might lack safety equipment that is standard on newer
equipment.

4-10. Discuss the reasons why logisticians might be concerned with theft.

Even though insurance will reimburse an organization for the market value of the stolen
items, the time and costs (e.g., documentation) associated with theft tend not to be
covered by insurance. A second logistical concern is that theft results in the planned flow
of goods being interrupted and can lead to stockouts in the distribution channel.

Theft can also factor into the facility location decision in the sense that many
organizations will avoid locating their facilities in areas characterized by high crime

©2011 Pearson Education, Inc. publishing as Prentice Hall 3

rates. It is also possible for the stolen products to reappear in the market at a lower price
to compete with products that have moved through traditional channels.

4-11. How can logistics managers attempt to control pilferage?

Control begins with the hiring process and one of the best ways to manage pilferage is to
avoid hiring people who are predisposed to steal, such as people with credit, alcohol, or
drug problems. Some organizations utilize psychological tests as part of the hiring
process in an effort to identify prospective employees who might pilfer.

Organizations can better control pilferage if they have clearly articulated and enforced
pilferage-related policies. Experts recommend that the best pilferage policy should be
based on zero tolerance because problems inevitably arise for those companies that
tolerate a “small amount” of pilferage.

4-12. Explain why piracy attacks on ships are a serious issue for today’s logistics
manager.

Approximately 20 percent of all pirate attacks in recent years have involved petroleum
tankers, which is of concern because of the potential for an environmental accident as
well as the fact that some tankers could be used as floating bombs. The pirate attacks
have caused organizations to take a variety of actions, such as vehicle escort services and
armed professionals, and these actions add tremendous costs—approximately $500
million annually just for the pirate attacks off the Somalian coast.

4-13. Describe some potential logistics social responsibility dimensions.

The text identifies various logistics social responsibility dimensions such as the
environment, ethics, diversity, safety, philanthropy, and human rights. Students can
describe one or more of these dimensions; for example, diversity might evaluate the use
of minority and female suppliers. Safety-related activities or practices include the safe
movement and storage of products as well as proper workplace equipment.

4-14. How can warehouses control their energy usage in terms of design, lighting, and
roofing considerations?

With respect to design, facilities might be positioned so that dock doors aren’t placed on
the north side of building (most cold winds blow from the north). In terms of lighting,
skylights, large windows that incorporate solar energy, and high-efficiency lighting can
reduce electricity usage between 20 and 60 percent. As for roofing, white roof material
tends to reflect sun-generated heat, while darker roof colors such as black and gray tend
to absorb sun-generated heat.

4-15. Discuss reasons why products might be returned.

©2011 Pearson Education, Inc. publishing as Prentice Hall 4

Products are returned for a variety of reasons, such as the customer making an error in
ordering or the shipper making an error when filling an order. Goods may also be
returned because of a product recall, which occurs when a hazard or defect is discovered
in a manufactured or processed item, and its return is mandated by a government agency.

4-16. What questions should be asked after a returned item has been counted and
recorded?

Is the product damaged and unsalable, or can it be refurbished and resold? Was it
returned as part of an overstock arrangement with a retailer? Is it a product that is being
recalled? Is the item in an unopened package that can go into inventory for immediate
resale? Does the item need to undergo special testing? What is the item’s worth? How
do the company’s returned goods policies apply to this item?

4-17. What are some ways in which the Transportation Security Administration is
attempting to improve the security of the U.S. transportation system?

The Transportation Security Administration (TSA) is the agency that conducts passenger
screenings at U.S. commercial airports. The TSA also plays a number of roles with
respect to freight security, such as using dogs to screen airfreight. In addition, the TSA
was responsible for developing a Transportation Worker Identification Credential
(TWIC), which is a common credential to identify workers across all modes of
transportation.

4-18. In what ways is the legislation requiring 100 percent scanning of U.S.-bound
containers likely to be disruptive to international trade?

A number of nondomestic ports currently do not have the technology required to scan
containers. These ports would have to acquire and install the relevant scanning
technology (which is quite expensive), discontinue sending containers to the United
States, or route containers through other nondomestic ports that are equipped with the
relevant technology.

4-19. Discuss the Customs Trade Partnership Against Terrorism (C-TPAT).

In C-TPAT, U.S. Customs and Border Protection (CBP) and private organizations (e.g.,
retailers and manufacturers) work together to prevent terrorism against the U.S. through
imports and transportation. Private organizations apply to CBP for C-TPAT certification,
and the process involves demonstrating that organizations have improved the physical
security of their containerized shipments as well as the ability to track people who have
access to the containerized shipments. Although the government-provided benefits to C-
TPAT certification include fewer security inspections of inbound containers along with
faster processing through customs, many companies have discovered that the C-TPAT
process has also led to a reduction in cargo theft.

©2011 Pearson Education, Inc. publishing as Prentice Hall 5

4-20. What are some types of complexity that are affecting logistics activities in a firm?

The book discusses network complexity, process complexity, and range complexity.
Network complexity refers to the growing number of nodes and the associated changes to
the links in logistics systems. Process complexity centers on the haphazard development
of processes, additions and modifications to processes over time, and/or changing process
requirements. Range complexity centers on the implications associated with the
increasing number of products that most companies continue to face in an effort to
differentiate themselves with their customers.

©2011 Pearson Education, Inc. publishing as Prentice Hall 6

PART III
EXAMINATION QUESTIONS

CHAPTER 4: ORGANIZATIONAL AND MANGERIAL ISSUES IN LOGISTICS

Multiple Choice Questions (correct answers are bolded)

1. ____ and ____ are the two basic organizational structures associated with logistics.

a. centralized; hierarchical
b. fragmented; centralized
c. fragmented; unified
d. unified; hierarchical

2. In a ____ logistics structure, logistics activities are managed in multiple departments

throughout an organization.

a. unified
b. fragmented
c. decentralized
d. matrix

3. One problem with a ____ logistics structure is that because logistics activities are
scattered throughout a firm, they likely remain subservient to the objectives of the
department in which they are housed.

a. fragmented
b. matrix
c. decentralized
d. hierarchicial

4. In a ____ logistics structure, multiple logistics activities are combined into, and
managed as, a single department.

a. hierchical
b. centralized
c. matrix
d. unified

5. A ____ logistics organization implies that the corporation maintains a single logistics
department that administers the related activities for the entire company from the home
office.

a. centralized
b. hierarchical
c. unified

©2011 Pearson Education, Inc. publishing as Prentice Hall 7

 d. command-and-control

6. A ____ logistics organization means that logistics-related decisions are made

separately at the divisional or product group level.

a. fragmented
b. decentralized
c. flexible
d. agile

7. A primary advantage of ____ logistics is its relative efficiency, whereas a primary

advantage of ____ logistics is its customer responsiveness.

a. unified; fragmented
b. unified; decentralized
c. centralized; decentralized
d. fragmented; centralized

8. Which of the following is an advantage of a decentralized logistics organization?

a. less expensive than a centralized organization

b. good opportunities for freight consolidation
c. better control over company data
d. can be responsive to customer service requirements

9. Which of the following is an advantage of a centralized logistics organization?

a. less expensive than a decentralized organization

b. good opportunities for freight consolidation
c. can be responsive to customer service requirements
d. easier to manage than a decentralized organization

10. ____ organizational design has its foundations in the command-and-control military
operation, where decision-making and communication often follow a top-down flow.

a. centralized
b. unified
c. matrix
d. hierarchical

11. A ____ organizational design attempts to create an organization that is responsive to

the parameters of the contemporary business environment.

a. matrix
b. network
c. decentralized

©2011 Pearson Education, Inc. publishing as Prentice Hall 8

 d. unified

12. A key attribute of network organizational design is a shift from ____ to ____.

a. function; process
b. centralization; decentralization
c. process; function
d. decentralization; centralization

13. ____ refers to satisfying current and emerging customer needs.

a. responsiveness
b. flexibility
c. relevancy
d. accommodation

14. ____ can be defined as an organization’s ability to address unexpected operational

situations.

a. relevancy
b. flexibility
c. accommodation
d. responsiveness

15. ____ refers to the amount of output divided by the amount of input.

a. control
b. monitoring
c. productivity
d. input-output analysis

16. Productivity improvement efforts in logistics are often directed towards ____.

a. reducing input while increasing output

b. increasing output by a greater percentage than inputs are increased
c. reducing input while holding output constant
d. increasing output while holding input constant

17. What is the most important purpose of warehouse work rules?

a. to control pilferage
b. to keep employees from engaging in unproductive and potentially
destructive activities
c. to protect companies from union grievance procedures
d. to give managers control over warehouse workers

©2011 Pearson Education, Inc. publishing as Prentice Hall 9

18. A ____ is a device used to monitor and control the actions taken by a driver and
his/her vehicle.

a. tachograph
b. tachometer
c. speedometer
d. regulator

19. ____ is a set of generic standards used to document, implement, and demonstrate
quality management and assurance systems.

a. benchmarking
b. Six Sigma
c. ISO 9000
d. ISO 14000

20. ____ refers to the integration of Six Sigma and the Lean approach.

a. ISO 9000
b. quality management
c. supply chain management
d. Lean Six Sigma

21. What is a key difference between IS0 9000 and the Baldrige Quality Award?

a. only the Baldrige Award focuses on quality

b. the Baldrige Award is more externally focused than is ISO 9000
c. ISO 9000 is more externally focused than the Baldrige Award
d. ISO 9000 focuses more on lean practices than does the Baldrige Award

22. The ____ has been established to identify uncertainty sources that can affect the risk
exposure for logistics activities.

a. Logistics Uncertainty Index

b. Logistics Uncertainty Pyramid Model
c. Logistics Risk Consortium
d. Logistics Risk Factor

23. From a logistics perspective, two of most important government agencies

incorporated into the Department of Homeland Security were the Transportation Security
Agency and ____.

a. Department of Transportation
b. Federal Maritime Commission
c. Surface Transportation Board
d. Customs and Border Protection

©2011 Pearson Education, Inc. publishing as Prentice Hall 10

24. The ____ is responsible for the security of the U.S. transportation system.

a. Department of Commerce
b. Department of Transportation
c. Transportation Security Administration
d. U.S. State Department

25. The Importer Security Filing (ISF) rule requires importers to file ____ pieces of
information and carriers to file ____ pieces of information.

a. 10; 2
b. 5; 5
c. 2; 10
d. 4; 8

26. All of the following are reasons why logisticians should be concerned about theft,
except:

a. stolen products may reappear to compete with other products

b. the time and costs associated with theft aren’t always covered by insurance
c. some organizations will avoid locating their facilities in areas characterized by
high crime rates
d. theft can lead to stockouts in the distribution channel
e. all of the above are reasons to be concerned about theft

27. The materials stolen in ____ are usually for the employee’s own use.

a. theft
b. demurrage
c. non-monetary compensation
d. pilferage

28. What is the primary difference between pilferage and theft?

a. there is no difference between the two

b. pilferage involves a firm’s own employees, while theft involves efforts from
outsiders
c. theft refers to stolen merchandise worth more than $500
d. pilferage refers to stolen merchandise worth more than $500

29. The concept of logistics social responsibility, or corporate social responsibility issues
that relate directly to logistics, did not emerge until which decade?

a. 1970-1979
b. 1980-1989

©2011 Pearson Education, Inc. publishing as Prentice Hall 11

 c. 1990-1999
d. 2000-2009

30. The two areas in logistics systems where most energy costs occur are ____ and ____.

a. warehousing; transportation
b. packaging; transportation
c. materials handling; packaging
d. warehousing; materials handling

31. With respect to the design of warehouses, one suggestion for energy savings is to
make sure that dock doors are not placed on the ____ of a building.

a. west
b. east
c. north
d. south

32. Transportation accounts for approximately ____ of all petroleum consumption in the
United States.

a. three-quarters
b. two-thirds
c. one-half
d. one-third

33. Which of the following is not one of the three critical factors associated with the
process of managing returned goods?

a. why products are returned

b. whether returned goods should be managed internally or outsourced to a third
party
c. how to optimize reverse logistics
d. how many products are returned

34. ____ complexity refers to the growing number nodes and the associated changes to
the links in the logistics system.

a. process
b. range
c. network
d. system

©2011 Pearson Education, Inc. publishing as Prentice Hall 12

35. ____ complexity centers on the implications associated with the increasing number of
products that most companies continue to face in an effort to differentiate themselves
with their customers.

a. process
b. range
c. network
d. system

True-False Questions

1. The organization of logistics activities within a firm depends on a number of factors,

including the number and location of customers and an organization’s size. (True)

2. In a decentralized logistics structure, logistics activities are managed in multiple

departments throughout an organization. (False)

3. One problem with a fragmented logistics structure is because logistics activities are
scattered throughout the firm, they likely remain subservient to the objectives of the
departments in which they are housed. (True)

4. In a unified logistics structure, multiple logistics activities are combined into, and
managed as, a single department. (True)

5. A centralized logistics organization generally results in better customer responsiveness

than a decentralized logistics organization. (False)

6. A decentralized logistics organization means that logistics-related decisions are made

at the divisional or product group level and often in different geographic areas. (True)

7. The majority of Fortune 500 companies employ a chief logistics officer. (False)

8. Societal changes are relatively easy to accommodate in a hierarchical, or functional,

organizational design. (False)

9. A matrix organizational design can be very responsive to customer requirements.

(True)

10. From a logistics perspective, a network organizational design in logistics is

manifested in terms of relevancy, responsiveness, and flexibility. (True)

11. Responsiveness refers to satisfying current and emerging customer needs. (False)

12. The postponement of product assembly and labeling until exact customer
requirements are known is an example of responsiveness. (False)

©2011 Pearson Education, Inc. publishing as Prentice Hall 13

13. Productivity can be defined as the amount of output divided by the amount of input.
(True)

14. Productivity efforts in logistics are often directed at increasing the amount of output
while holding input constant. (True)

15. Union work rules are often very specific in the sense that job descriptions spell out
the responsibilities associated with a particular job. (True)

16. As a general rule, the same types of supervision can be used for both warehouse
workers and truck drivers. (False)

17. The odometer is a recording instrument that produces a continuous, timed record of
the truck, its speed, and its engine speed. (False)

18. Wireless communications, global positioning systems, and graphical information

systems offer tremendous opportunities to improve driver productivity. (True).

19. Excess capacity, or unused available space, can be unproductive because it may
result in the purchase of additional equipment or space. (True)

20. Logistics service quality relates to a firm’s ability to deliver products, materials and
services without defects or errors to both internal and external customers. (True)

21. ISO 14000 is a set of generic standards used to document, implement, and
demonstrate quality management and assurance systems. (False)

22. The integration of Six Sigma with the Lean approach refers to Lean Six Sigma.
(True)

23. ISO 9000 involves organizations benchmarking themselves against organizations

from outside their particular industry. (False)

24. The Logistics Uncertainty Index has been established to identify uncertainty sources
that can affect the risk exposure for logistics activities. (False)

25. Terrorism can be viewed as an illegal use of or threat of force or violence made by a
group or an individual against a person, a company, or somebody’s property with a goal
of menacing the target, often grounded in politics or ideology. (True)

26. From a logistical perspective, the Transportation Security Administration and the
Department of Transportation are two of the most important government entities that
were incorporated into the Department of Homeland Security. (False)

27. The Transportation Worker Identification Credential (TWIC) uses biometric data to
exclude certain workers from secure areas at ports and terminals. (True)

©2011 Pearson Education, Inc. publishing as Prentice Hall 14

28. Customs and Border Protection is responsible for securing U.S. borders to protect the
American people and the U.S. economy. (True)

29. Companies that participate in the Customs Trade Partnership Against Terrorism are
exempt from all import tariffs and all import quotas. (False)

30. The Importer Security Filing (ISF) rule requires carriers to file 10 pieces of
information and importers to file two pieces of information. (False)

31. Experts recommend that the best pilferage policy should be based on zero tolerance.
(True)

32. One of the most effective methods of protecting goods from theft or pilferage is to
keep them moving through the system. (True)

33. Logistics does not have an inherent connection to sustainability. (False)

34. Potential logistics social responsibility dimensions include the environment, diversity,
safety, and philanthropy, among others. (True)

35. Warehousing and packaging are the two areas in logistics systems where the most
energy costs occur. (False)

36. Roof color is often overlooked as an area for warehousing energy control. (True)

37. Transportation accounts for about one-half of all petroleum consumption in the
United States. (False)

38. Reverse logistics can be four to five times more expensive than forward logistics.
(True)

39. Network complexity refers to the growing number of nodes and the associated
changes to the links in logistics systems. (True)

40. System complexity centers on the implications associated with the increasing number
of products that most companies continue to face in an effort to differentiate themselves
with their customers. (False)

©2011 Pearson Education, Inc. publishing as Prentice Hall 15

PART IV
CASE SOLUTIONS

CASE 4-1: RED SPOT MARKETS COMPANY

Question 1: How should Fosdick respond to the immediate situation?

Fosdick is on the spot and must respond immediately. Probably the best thing for him to
do is refuse the sandwich, indicate his surprise at—and clear disapproval of—the
pilferage, and continue on his way to the restaurant.

Question 2: What controls, of the types discussed in this chapter, might have been used
by Red Spot Markets to reduce or eliminate the problems discussed in the case?

Closer controls on worker productivity and on pilferage would have helped.

Question 3: What longer-range steps should Fosdick take to control the operations of the
Providence distribution center?

He should implement a management style whereby he, rather than Bigelow, determines
the pace of the warehouse work. However, this is much easier said than done, particularly
because of Bigelow’s almost overpowering influence.

Question 4: What longer-range steps should Fosdick take to improve the Providence
distribution center’s productivity?

Fosdick should first consult with Easter to determine whether the company is going to
keep or dump Bigelow. Bigelow appears to hold the key to the warehouse workforce’s
productivity and few schemes to increase output will succeed without his blessings.
Fosdick and Easter might also attempt to incorporate productivity measures into the
distribution center’s next labor contract.

Question 5: What longer-range steps can Fosdick take to reduce the distribution center’s
high rate of shrinkage?

Again, after consulting with Easter, a decision must be reached as to how quickly and
how forcefully the company is going to end the “free” lunch program, because that
appears to be a main cause of the shrinkage. Fosdick and Easter might also incorporate a
shrinkage target into the next labor contract and perhaps link performance bonuses to this
target.

©2011 Pearson Education, Inc. publishing as Prentice Hall 16

Question 6: Assume that Fosdick decides that the practice of free lunches from the open
cases of goods must be stopped. Develop and present arguments he should give in a
meeting with a union shop steward.

He might say that the practice is a form of stealing and clearly unacceptable to the
company. If there are behavior clauses in the union contract, Fosdick might invoke them.
He could emphasize that the pilferage has made Providence a high cost warehouse and if
these high costs are not improved within a certain time frame, then the facility could be
shut down.

Question 7: (This is a continuation of Question 6.) Assume, instead, that you are the
union shop steward. Develop and present your argument that the free lunches represent a
long-standing employee benefit enjoyed by the distribution center’s employees, and that
management’s attempt to stop them is a breach of an unwritten contract and will be
resisted.

You might argue that management has known about the practice for a long time and, by
not eliminating it, has tacitly accepted it. You could also argue that the practice is not
much different from management’s use of company phones and company cars for
personal activities.

Question 8: Much of the situation described in the case seems to revolve around the
personality of T.D. Bigelow. How should he be treated? Why?

This question may generate a wide variety of responses and the discussion can become
quite intense. Some students may argue that Bigelow should be fired. Others may argue
that he should seek assistance for his apparent substance abuse problem, possibly through
an Employee Assistance Program (if Red Spot has such a program). Still others may
argue for a “divide and conquer” approach in the sense that Bigelow, despite his inability
to count and spotty attendance, should be made some type of supervisor because of his
ability to get the warehouse employees to work. Such an approach could turn Bigelow
into an “enemy” of the hourly workers, in that he would no longer be one of them.

©2011 Pearson Education, Inc. publishing as Prentice Hall 17