Arthur Thomas, vice president of global purchasing, was preparing for the biggest challenge of his career. Bill McLaren, president and CEO, had asked Arthur the previous day to take over as the company's new chief purchasing officer (CPO), replacing Jeff Trudell, who was retiring. As a first step, Bill asked Arthur to put together some ideas regarding potential changes to the purchasing organization at Lambert-Martin. During their meeting, Bill commented, "Our business plan calls for the company to grow from $10 billion in sales this year to $15 billion in five years. It is essential that we take advantage of opportunities in our supply chain to support our growth objectives and to keep costs in line."

Bill suggested that Arthur review the current organization structure, develop alternatives, and meet with the group vice presidents to solicit their input. It was Tuesday November 6, and Arthur was scheduled to meet with Bill at the end of the month to review his preliminary ideas and recommendations. Lambert-Martin was a U.S.-based supplier to the global automotive industry, providing innovative products that improved fuel economy, emissions, and performance. Its main product lines were drivetrain components, including transmission control units, engine valve components, friction materials, and turbochargers. With 70 manufacturing facilities across 22 countries, it provided components to most major original equipment manufacturers.

The company invested heavily in product engineering and new product development. Its engineers worked closely with customers on new vehicle programs, and the Lambert-Martin Technology Center, also located in Troy, was a source of new product innovation.

Lambert-Martin operated under a decentralized model with five business groups: Engine Systems, Emission Products, Ignition Technology, Engine Cooling Systems, and Transmission Technology. Corporate office functions included accounting and finance, human resources, engineering, information technology, legal, and a small purchasing staff. Group vice presidents operated autonomously with control over sales and manufacturing operations, including purchasing.

The largest group by sales was Transmission Technology, with annual revenues of approximately $3 billion, while annual revenues at the other four groups ranged from $1.5 to $2.0 billion. For the most recent fiscal year, cost of sales represented 80 percent of revenues, while purchases were 50 percent; and selling, general, and administrative expenses were 9 percent. Net earnings after tax were $690 million. Most purchasing staff were located in the five business groups, each with a vice president of purchasing that reported directly to their respective group vice president. The group purchasing functions were responsible for commodity strategies, sourcing, quality control, cost reductions, and supplier development. The corporate purchasing group managed the supplier technology portal, supplier scorecards, risk management reporting, and the supplier manual. Arthur Thomas as vice president of global purchasing for the Engine Systems Group, Arthur reported to Bill McLaren, who, until his recent promotion, had been group vice president of Engine Systems. During his tenure as head of purchasing for the group, Arthur could see where Lambert-Martin's decentralized purchasing organizational structure constrained the company from capturing important opportunities in its supply chain. Specifically, the lack of communication among the purchasing organizations in the business groups meant that spend information for common suppliers was not shared, thereby potentially missing opportunities for price reductions through consolidation of purchases. Secondly, Arthur felt that because purchasing in each of the groups had separate organizations for sourcing, quality control, and supplier development, it would be possible to reduce overhead costs and improve the effectiveness of these activities through increased centralization.

Arthur had recently read a focus study report prepared by CAPS Research, Supply's Organizational Roles and Responsibilities, which indicated that approximately 10 percent of the large companies in the survey had decentralized purchasing organizational structures, and the majorityapproximately two-thirdsused the hybrid structure. With a new CEO who was looking for opportunities to make positive changes at the company, Arthur thought this would be a good time to take a fresh look at Lambert-Martin's purchasing organizational structure and the roles and responsibilities of the groups and head office functions. His meetings with the five group vice presidents were scheduled for mid-November. As he sat at his desk, Arthur wondered what questions he should ask during these meetings. Buy-in from the group vice presidents would be essential if any major changes were to occur. Furthermore, Bill McLaren was expecting some alternatives from Arthur regarding where he saw opportunities and how the purchasing function would be able to make a greater contribution to the strategic and financial goals of Lambert-Martin.