Denotation of Process- and Flow Orientation for Integral Logistics

Table of Contents

Abstract

Table of Contents

List of Illustrations

List of Abbreviations

1 Classification of Revised Means of Logistics – between SCM and Process Management

2 Interrelation of Integral Logistics, Processes and Flows
2.1 Development of Integral Logistics
2.1.1 Historical Evolvement of Logistics
2.1.2 From Logistics to Integral Logistics
2.1.3 Distinct Process Types
2.1.4 The Role of Flows
2.2 Transformation from Functional to Process-Orientation

3 Processes in Integral Logistics
3.1 Process Design and Related Objectives
3.1.1 Requirements and Attributes of Processes
3.1.2 Design Approach
3.2 Process Objectives
3.3 Holistic Approach to Integral logistic processes
3.3.1 Advanced Performance with Aid of Software
3.3.2 Improvements Based on Process Performance Indicators (PPI)
3.3.3 Introducing a Chief Process Officer
3.3.4 Processes as a Competitive Advantage
3.4 Descriptive Example

4 Limitations of Applicability in Daily Operations

Bibliography

Abstract

According to Schönsleben “The link between process management and logistics management is evident” (2007, p.153). In order to be able to agree to Mr. Schönsleben, the thesis on hand focuses on processes and flows involved in integral logistics. In this context, touching supply chain management is indispensable. The author also wants to sensibilise the reader for recognizing the omnipresence of processes and accompanying flows in daily operations and their increasing significance for business success.

Questions answered during the following elaborations concern the development from logistics to integrated means, the existence of different process types and how to design the same. Additionally, process implementation and the position of a chief process officer are discussed. The paper also tries to point out reasons for the status quo of process handling within companies.

Demonstrating the current relevance of the given topic, the results are mainly based on literature originating from the previous 15 years plus contemporary sources available via Internet. A study conducted by PricewaterhouseCoopers dealing with business processes also influenced the findings.

Complexity of business models and widely-branched supply chains long for a sophisticated organisational effort. Nearly every part of an integral logistics chain is related to a process and IT-support is inalienable for handling them. Physical and information flows are of equal importance. Companies do acknowledge the benefits of process management but yet the majority stays behind possibilities. Necessary investments still represent obstacles but advantages of well-working processes outweigh related concerns increasingly.

Thus, further clarification is necessary among the management level to enhance sustainable awareness about process implementation for staying competitive.

List of Illustrations

Figure 1: Michael Porter’s Value-Chain Analysis

Figure 2: Correlating factors in process designing

Table 1: Process Design

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Classification of Revised Means of Logistics – between SCM and Process Management

Logistics – often referred to as the process of storing and transporting goods. While in former times latter mentioned where the main issues, the focus is set on far more than that in current times: Adding value, minimising costs and reducing lead times are important logistic tasks (cf. Carter 2007) to not only satisfy customers basic needs but excel their expectations towards a good or service.

The term logistics adopted a new meaning with the emergence of supply chain management (SCM). Their correlation may be divided into at least four distinct assumptions: The traditionalist claims logistics is still the overall term with SCM only being a part of it. Conversely, determining logistics as a part of SCM is called the unionist approach. Relabeling is another way to handle both terms; hereby SCM is simply used as a synonym for the former logistics. Last, the intersectionist recognizes clear differences but at the same time also commonalities between logistics and SCM. The debate over this topic is on since more than 20 years without agreeing on one general solution. (cf. Faint 2011) (cf. Lambert 2008, p.1) This paper will follow the assumption of the unionist approach. As the thesis will deal with integral logistics the focus is set even more on the different stages of a company’s value chain which will be clustered according to Michael Porter’s definition originating 1985 in his book "Competitive Advantage: Creating and Sustaining superior Performance" into primary activities and support (cf. Recklies 2001). A more detailed explanation of aforementioned will be given in the course of this thesis.

Conceptualising a product, designing a marketing strategy, hiring employees, contracting with suppliers, taking orders, producing, distributingbasically all business activities can only be carried out efficiently when being accompanied by processes. Hence, processes are at the core of any company. But why? Processes help to structure the whole value-adding chain of a company, to direct all workforce towards one common goal and to keep track of actions in all departments for sustainable analysis. Without processes the available human and material resources would not be used in the most profitable way and detecting redundant steps would be difficult. Thereby, it is irrelevant whether a company employs two or 2000 members of staff and which product or service they offer as the denotation of processes is equally essential.

Linked to processes there is a need for flows. Beneath the flow of product related tangibles (from raw materials to work-in-progress to ending inventory) the information flow is equally important for all types of businesses: Being not only intangible but often received as invisible, an adequate information flow is inalienable to achieve business performance goals (cf. Long 2009).

The thesis on hand is divided into four parts, with the first chapter giving an overall idea about the topic as well as the standpoint concerning the placement of logistics and SCM. The second chapter provides historical background information about the development of logistics, different process types are introduced and the transforming to process-orientation within companies is mentioned. An introduction into process designing, the function of software use and notions about a chief process officer as well as the comparative advantage of superior processes are discussed in the third chapter and followed by descriptive examples. At last, an overview about the current status quo and about limited realisation in the daily business are depicted.

Please note that in the course of the thesis Douglas M. Lambert’s definition of a supply chain will be used: “Supply Chan Management is the integration of key business processes from end-user through original suppliers that provides products, services, and information that add value for customers and other stakeholders.” (Lambert 2008, p.2)

2 Interrelation of Integral Logistics, Processes and Flows

2.1 Development of Integral Logistics

2.1.1 Historical Evolvement of Logistics

Getting back briefly into the historical meaning of logistics (logistikē = practical numeration) one is confronted with the military context: Assuring that all necessary material and human resources are at the right place at the right time for facing the enemy was the main objective of logistics during the time of Napoleon Bonaparte (*1769-1821) (cf. Bundesvereinigung Logistik (BVL) e.V. n.d.). Even over one hundred-twenty years later, after World War Second, neither manufacturing nor service companies were concerned about implementing logistic functions on an advanced level and it took several years more to change their views about it. But how did they handle their procedures back then? As there was no responsible person for logistics, the sales department cared for most of the value chain activities like customer service, arranging outbound transport and sometimes even inventory management. Inbound logistics were usually organised by suppliers. (cf. Sadler 2007, p.32)

Nowadays, the handling is different as enterprises recognised the benefits evolving from a superior integrated logistics system. Employing an own logistics manager or a whole department dedicated to it has been acknowledged as indispensable by firms across all industries (the extent depends on business section, size, and type of company).

2.1.2 From Logistics to Integral Logistics

As mentioned in chapter one, with the upcoming of SCM, logistics reached an expansive new substance. Relating to integral¹ logistics, the major focus is set on interconnecting the whole value chain of a company: Order-processing, procurement, supplier relations, inbound transport, manufacturing, inventory management, distribution, and after-sales-services are all part of it (cf. Sadler 2007, p.33). Important to notice is that each and every action is directed to one main objective: Anticipating and fulfilling customer needs in the requested quality and time (cf. Olomolatan 2012) to generate profits. This underlines the essential difference to former logistical tasks as those were solely focused on transporting and storing of goods.

Having a general idea about integral logistics one recognises the emphasis set on processes. According to Carter (2007), processes are one of the three pillars a company is built on, aside from people and technology. A process is generally known as “a series of actions carried out as part of the provision or distribution of products or services.” (Sadler 2007). Thus, it combines assigned activities to get from a starting point to the desired outcome (cf. Schönsleben 2007, p.902). Descriptive examples are provided in chapter 3.6. In fast-moving times processes gain importance to handle the upcoming complexity and help to deal with the changing customer demand. Errors in processes induce performance issues, leading to customer complaints as well as dissatisfaction among employees (cf. Schönsleben 2007, pp.1–4).

2.1.3 Distinct Process Types

Before getting deeper into the topic the existence of different types of processes has to be acknowledged.

Business or core processes (also: primary processes)

As mentioned in the introduction, according to Porter primary processes are inbound logistics (transportation and storing of (raw) materials), operations (conversion work like assembling and packaging) and outbound logistics (warehousing and distribution). In addition, marketing and sales related activities as well as basic and value-adding services (e.g. customer relationship management) build up the core processes of a firm (cf. Figure 1) (cf. Value Based Management.net 2014). Frequently, companies core processes are those in which they hold competitive competencies (cf. figure 3.1.2.2 Schönsleben 2007, p.156).

Support Processes

Support Processes are necessary for ensuring the whole enterprise is working as it is supposed to. Human Resource management, IT, payroll, research and development – short, all functions which cannot be directly traced to the produced good but serve the company in any other way. They are to a certain extent equally important to primary processes as they ensure a smooth flow of all other departments. Non-core functions are the first to be looked at when minimising costs and as the procedures are fairly standardised among industries, they are likely chosen to be outsourced. (cf. Value Based Management.net 2014)

Abbildung in dieser Leseprobe nicht enthalten

Figure1: Michael Porter’s Value-Chain Analysis

Source: (Schmarzo 2012)

Management Processes

Processes relating to management topics are generally executed by the seniors of a company and imply strategic decisions, company policies and performance measurements. Constantly assessed and enhanced they profoundly influence all other processes.

Being aware, that each process is commonly divided into sub-processes and on the other level all processes are somehow interconnected in a process chain (cf. Feldbrügge, Brecht-Hadraschek 2008, p.18), is necessary to yield sustainable results out of working with and on them.

2.1.4 The Role of Flows

As briefly touched in the introductory part, processes are accompanied by flows. So-called physical flows deal with the tangible product itself: Operations like inbound logistics, storing (where seamless flows will reduce total inventory and increase utilisation (cf. Schönsleben 2007, p.50), assembling and distribution are part of it. Although this may appear as being the most essential for a company in the industrial sector, the proper flow of information is equally crucial. Data for planning and controlling as well as administrative reasons have to be prepared and communicated appropriately. Without an adequate information flow, there is little chance to meet expectations of all involved parties within a supply-chain (suppliers, employees, end-consumers). (cf. Regattieri, Santarelli 2013) Those two significant flows can be extended by introducing the control flow which assures the progressing of goods and data during the order process. Main reason for focusing on the control flow is to overcome the widely-known bullwhip effect in this context (cf. Schönsleben 2007, p.159).

2.2 Transformation from Functional to Process-Orientation

In former times, enterprises used to be organized by functions, meaning by the distinct departments like procurement, production, sales, customer service or accounting. In the 1990s a first wave of process-orientation was evolving. With Michael Hammer and James Champy publishing their concept of “Business Process Reengineering”² the rethinking started and firms from different sectors followed the example of first establishing the processes and arranging everything else accordingly as a second step. Customer satisfaction was classified as highest priority. (cf. Anon. 2014) (cf. Pawson, Matthews 2002)

Certainly, improvements in the field of communication and information technology had a huge impact on the revised means of processes and enabled companies to improve their output quality while simultaneously saving time and costs (cf. Lambert et al. 2005, p.26). Nowadays, according to a study of PwC, nearly 90% of asked company representatives agree that the meaning of business process management will grow and 71% state that the business success will depend essentially on a successful implementation of processes (cf. PwC 2011, p.15).

Nevertheless, not every company adopted the transfer from functionto process-orientation and those who did were not necessarily successful with it. Reasons are given within chapter three of this paper.

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¹ In the following the terms “integral logistics” and “integrated logistics” are used synonymously

² Business Reengineering: Die Radikalkur für das Unternehmen;Campus Verlag; Auflage: 7. (2003)