The Supply Organizational Structure Dilemma

By Johnson, P. Fraser; Leenders, Michiel R. | Journal of Supply Chain Management, Summer 2001 | Go to article overview

The Supply Organizational Structure Dilemma


Johnson, P. Fraser, Leenders, Michiel R., Journal of Supply Chain Management


This article presents the findings of research into how and why large, multiunit firms make major changes to the organizational structure of the supply function. The research used case-based methodology to investigate 10 large companies that had recently made a major supply structure change. A total of 15 major supply organizational changes were studied at the 10 sites. The research found that these major changes were a result of changes in the overall corporate structure, challenging the conventional view found in standard purchasing texts that supply executives have flexibility in matters of organizational design. The research identified that a common driver for corporate organizational change in each of the sites studied involved an attempt by the company to improve its cost structure. Chief financial officers (CFOs), business unit managers, consultants, and chief purchasing officers (CPOs) were all identified as having involvement in the supply organizational structure change process at some sites. A principal challenge for CPOs is to understand how to provide supply improvement opportunities under any organizational structure.

Large, multiunit firms regularly make major changes to the organizational structures of their supply function. While these companies frequently make minor adjustments to their organizational structures as part of the essential fine-tuning process that permits the organization to adapt to internal and external pressures, major changes occur less frequently, require more planning and resources, and have a greater impact. Earlier research found that 41 percent of large companies had implemented a major change to their purchasing organization structure over the seven-year period between 1988 and 1995 (Johnson, Leenders, and Fearon 1998). While this research identified the magnitude and direction of the organizational change, it provided limited insights concerning the causes.

This article presents the findings of research into how and why large firms make major changes to the organizational structure of the supply function. A major structural change is defined as any move away from one of the primary forms -- centralized, decentralized, and hybrid -- to one of the other two forms. This research used a case-based methodology to investigate 10 large companies that had recently made a major supply structural change. Findings indicate that major structural changes are a result of factors external to the purchasing function and are directly influenced by changes in the overall structure of the organization.

The conventional wisdom has been that the chief purchasing officer has a great deal of flexibility in matters of organizational design. The standard purchasing texts have suggested that purchasing executives must conduct a careful assessment of the advantages and disadvantages of centralized control versus decentralized flexibility. However, findings from this research suggest that supply executives have limited freedom to select their preferred organizational structure. A principal challenge for CPOs is to understand how to provide supply improvement opportunities under any organizational structure.

PREVIOUS RESEARCH

The organizational sciences and strategy literature provides useful insights concerning corporate organizational change. A dominant message in this body of research has been that companies must adjust their organizational structure and management processes to adapt to changes in the external competitive environment or its strategy in order to maximize performance (Galunic and Eisenhardt 1994). Contingency theory follows Chandler's (1962) dictum that structure follows strategy. Much of the contingency research has examined the relationship between organization size, technology, or environmental complexity and organizational variables such as structure and formalization.

Structure is also influenced by the need to have a complementary alignment among the internal structural elements of the organization (Miller 1982). …

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