The Supply Organizational
Structure Dilemma
AUTHORS
P. Fraser Johnson
is assistant professor of operations management in the Richard Ivey
School of Business at the University of Western Ontario in London,
Ontario, Canada.
Michiel R. Leenders
is the Purchasing Management Association of Canada professor of
purchasing management and chair of operations management in the
Richard Ivey School of Business at the University of Western Ontario
in London, Ontario, Canada.
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
SUMMARY that these major changes were a
result of changes in the overall cor-
porate structure, challenging the conventional view
found in standard purchasing texts that supply
executives have flexibility in matters of organiza-
tional 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,
The Journal of Supply Chain
Management: A Global consultants, and chief purchasing officers (CPOs)
Review of Purchasing were all identified as having involvement in the
and Supply Copyright
© August 2001, by the supply organizational structure change process at
National Association of some sites. A principal challenge for CPOs is to
Purchasing Management, Inc.
understand how to provide supply improvement
opportunities under any organizational structure.
4 The Journal of Supply Chain Management | Summer 2001
Large, multiunit firms regularly make major changes
to the organizational structures of their supply function.
While these companies frequently make minor adjust-
ments to their organizational structures as part of the
essential fine-tuning process that permits the organiza-
tion 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 orga-
nization structure over the seven-year period between
1988 and 1995 (Johnson, Leenders, and Fearon 1998).
While this research identified the magnitude and direc-
tion 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 organi-
zational structure of the supply function. A major struc-
tural 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 struc-
tural 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 pur-
chasing officer has a great deal of flexibility in matters
of organizational design. The standard purchasing texts
have suggested that purchasing executives must con-
duct a careful assessment of the advantages and disad-
vantages 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 chal-
lenge for CPOs is to understand how to provide supply
improvement opportunities under any organizational
structure.
 1745493x, 2001, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/j.1745-493X.2001.tb00101.x by University College Dublin Libr, Wiley Online Library on [16/04/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
The Supply Organizational Structure Dilemma

PREVIOUS RESEARCH Figure 1

The organizational sciences and strategy literature
PERCENTAGE OF COMPANIES USING A CENTRALIZED,
provides useful insights concerning corporate organiza-
HYBRID, OR DECENTRALIZED PURCHASING
tional change. A dominant message in this body of
ORGANIZATION STRUCTURE IN 1988 AND 1995
research has been that companies must adjust their
CAPS STUDIES, AND PERCENTAGE OF CHANGES
organizational structure and management processes
OUT OF THE 1988 STRUCTURE†
to adapt to changes in the external competitive environ-
ment or its strategy in order to maximize performance
Centralized
(Galunic and Eisenhardt 1994). Contingency theory
follows Chandler’s (1962) dictum that structure follows 1988: 27% 1995: 22%
strategy. Much of the contingency research has exam-
ined the relationship between organization size, tech- 19% 35%
nology, or environmental complexity and organizational Hybrid
variables such as structure and formalization.
4% 1988: 61% 1995: 68% 4%
Structure is also influenced by the need to have a com-
plementary alignment among the internal structural ele-
ments of the organization (Miller 1982). Factors such as 21% Decentralized 17%
task specialization, technology, spans of control, size
and responsibility of the administrative function, levels 1988: 12% 1995: 10%
of hierarchy, and integration must be balanced among
each other. †
Change percentages and arrows depicting direction of change are
Most contingency theory research, however, has tended shown for the 41 percent of the companies that changed purchasing
to focus on corporate-level change, not change at the organization structure between 1988 and 1995.
functional level. While there has been limited contin- Source: Johnson, Leenders, and Fearon (1998)
gency theory research in the related field of logistics
(for example, Persson 1982; Pfohl and Zöllner 1987;
Chow, Heaver, and Henriksson 1995), largely absent
from the purchasing literature is research that examines
the environment-strategy-structure relationship.
their purchasing organization structure between 1988
CAPS Research on Purchasing Organizations and 1995 (Johnson, Leenders, and Fearon 1998).
Two studies sponsored by the CAPS (Center for Figure 1 summarizes the results from the 1988 and 1995
Advanced Purchasing Studies, now known as CAPS CAPS studies and the organizational structure changes
Research) in 1988 and 1995 provided a basis for exam- that occurred in the 119 companies. A surprising finding
ining organizational trends in purchasing in large com- was that despite the popularity of the hybrid structure,
panies (Fearon 1988; Fearon and Leenders 1995). Using 17 firms, representing 36 percent, moved out of the
a mail survey instrument, these studies collected data hybrid structure. While this previous CAPS research
concerning the characteristics of the CPO, the functions has been useful in developing an understanding of the
reporting to purchasing, and the organizational structure amount of change occurring in the supply area, it pro-
of the respondents. The 1995 study compared the aggre- vided no insights concerning the reasons for major
gate data from both studies, showing that the hybrid organizational structure changes in supply.
structure had increased in popularity, from 61 percent
of respondents in 1988 to 68 percent in 1995, while the The Functional Perspective
centralized and decentralized structures had declined With the exception of the CAPS research, there has not
correspondingly. been previous research on organizational change in
supply. However, the standard supply textbooks address
While these findings did not suggest substantial shifts
organizational considerations, which typically include
in preferences, analysis of the data collected from the
issues such as reporting relationships, general job descrip-
119 companies that responded to both studies found
tions, and team-based management. Supply texts describe
a much different situation. This analysis permitted the
the advantages and disadvantages of centralized and
researchers to track the individual changes at each of
decentralized organization structures, suggesting that
the companies over the seven-year period rather than
every organization should consider the implications of
simply compare the averages of the two samples.
selecting a particular structure based on the challenges
Analysis of these 119 companies uncovered a surpris-
of the business. For example, Leenders and Fearon (1997)
ingly high level of purchasing organizational change,
indicated that “greater [purchasing] centralization is usu-
with 48 of the companies making a major change in
ally advocated on the grounds that the firm, as a whole,

The Journal of Supply Chain Management | Summer 2001 5


The Supply Organizational Structure Dilemma
Table I
PROPOSED SAMPLE CHARACTERISTICS
Number
Type of Organizational Change Firms
Decentralized to centralized 1 sional structures, a wide variety of product or service
Decentralized to hybrid 2
Hybrid to centralized 2 changes in these firms represent a significant manage-
Centralized to decentralized 1 rial challenge in both conceptualization and implemen-
Centralized to hybrid 2
Hybrid to decentralized 2 A common technique used when conducting case-
Total 10
will receive better prices and better service, labor can be
specialized, research and planning is better, greater effi-
ciency exists in developing policies, and better control
and evaluation systems are possible.” Dobler and Burt
(1996) identified greater buying specialization, consoli-
dation of requirements, easier purchasing coordination
and control, and effective planning and research work
as the main advantages of centralization. They cited
speed of operation, effective use of local sources, and
plant autonomy as advantages of decentralization.
Monczka, Trent, and Handfield (1998) observed, “As the
scope and importance of purchasing increased, however,
firms increasingly recognized the necessity of a central-
ized group to coordinate the overall purchasing effort.”
Overall, the standard supply texts indicate that while
supply organizational structure decisions need to take
into account the overall corporate structure, design of
supply organization structures should consider the rela-
tive benefits and costs associated with options ranging
from completely decentralized to completely central-
ized. This process implies consideration of the opportu-
nities to organize the structure of the supply function
to take advantage of opportunities to maximize supply
contribution to company performance.
METHODOLOGY
The primary motivation in this research was to investi-
gate the reasons for major changes in large purchasing
organization structures and how such changes were
accomplished. Previous CAPS research dealing with
organizational change in purchasing used large-sample
survey instruments. While useful in understanding char-
acteristics of the broad population, such as how much
and how many, this method cannot provide the rich-
ness of understanding regarding how and why events
occur (Yin 1994). It was felt that the case-based method
would be effective in providing the richness of detail
required at this stage of the research. The key research
question for this research project, therefore, was: What
6 The Journal of Supply Chain Management | Summer 2001
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are the reasons for major structural change in supply
organizations?
Sample
Large organizations with multi business units or divi-
offerings, and wide geographic coverage represented
the research target population. Major organizational
tation. Furthermore, documentation regarding the
change is more likely to be available in such companies.
based research is theoretical sampling, which involves
the selection of cases for theoretical, not statistical, rea-
sons (Eisenhardt 1989). The main criterion used to
select cases as part of this research was theoretical rele-
vance, which required identifying an appropriate
number of cases with specific characteristics that would
permit comparisons among the cases in the sample. The
proposed sampling frame developed at the outset of the
research is provided in Table I.
The sampling procedure required the researchers to
identify 10 large organizations that had undergone the
specific changes identified in Table I. This required a
process of screening each potential site to establish
whether a major structural change had occurred, to
determine if the type of change fit the sampling frame,
and to ensure that appropriate access would be provided
to key personnel and documentation.
As a further constraint to the sample, an objective was
established to include a minimum of three European
companies in the study. It was felt that including orga-
nizations from both North America and Europe in the
study would improve the richness of the results.
A total of 27 companies were contacted in order to
achieve the sample requirements. The final sample
included four European firms (Hoechst AG, Perkins
Engines Company Limited, Sasib S.p.A., and a major
international oil company whose name had to be dis-
guised) and six North American companies (Air Canada,
AirTouch Cellular, Chesapeake Corporation, Chevron
Corporation, Manulife Financial, and Ontario Hydro).
The selection of case-based methodology proved to
be advantageous. Four of the firms in the study had
undergone more than one major structural change in
the purchasing function over a recent period, pro-
viding an opportunity to collect data relating to more
than one change at these sites. Overall, the 10 sites
provided data from a total of 15 different major struc-
tural changes. Consequently, certain cells in the final
sample exceed the minimum requirements established
in the sampling frame as identified in Table I. Figure 2
summarizes the types of structural changes observed
at each of the sites.
 1745493x, 2001, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/j.1745-493X.2001.tb00101.x by University College Dublin Libr, Wiley Online Library on [16/04/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
The Supply Organizational Structure Dilemma

Data Collection and Analysis Figure 2

An interview protocol containing approximately 70
SAMPLE
questions was developed prior to the first site visit. Minor
adjustments were made to the protocol to improve the Toward Toward
clarity of questions and to streamline the interview Centralization Decentralization
process following the initial site visit. Certain questions
were added to the questionnaire for each site based on
Centralized
analysis of data available prior to the site visit, such as
Air Canada
annual reports. Interviews, however, were semistruc- Air Canada
2 Hoechst 3
tured in order to allow opportunities for the interviewee Major Oil
Ontario Hydro
to volunteer information and to pursue interesting and
relevant lines of questioning. Both researchers prepared
extensive written notes from each interview. Manulife
2 Chevron 1
Perkins Hybrid
Site visits typically lasted two days. Interviews were
arranged in advance and involved approximately six to AirTouch
eight people at each site. The interviews lasted approxi- Chesapeake
Chesapeake
mately 90 minutes each, although several went much 5 Major Oil 2
Ontario Hydro
longer. A total of 71 people were interviewed across the Ontario Hydro
10 sites. The key persons interviewed at each site typi- Sasib
cally included the CPO; the person to whom the CPO Decentralized
reported; a purchasing manager involved in the change;
and, depending on the circumstances, someone in Total Number Total Number
finance, corporate planning, internal audit, marketing Occurrences: 9 Occurrences: 6
and sales, consultants, and human resources. Follow-up
was required at each site after the site visits to clarify
important points as part of the site analysis process.
Data collection did not rely solely on the interview
Yin (1994) recommended having key informants check
protocol. Multiple sources of evidence were used,
case reports as a method of improving validity. A case
including the collection of relevant documents and
study describing the organizational change for each of
other related information. Since each organization in
the 10 sites was prepared and a procedure was developed
the study was a public company, annual reports were
whereby all cases were sent back to each site in order to
available. Additional information was available from
provide an opportunity for review by appropriate indi-
company Web sites and information, such as organiza-
viduals to ensure that representations were accurate and
tion charts and consultants’ reports, was also collected
that confidential or sensitive information was not dis-
during site visits.
closed. As part of the case review process, an executive
As a method of organizing the data, the researchers from each company was required to sign a release form
created a case study database and maintained a chain authorizing the researchers’ use of the case as part of the
of evidence. The protocol was used as a template to study. The case review procedure at some sites took
create a summary of findings for each question, based many months. However, despite the substantial time
on the data collected — the interview notes, docu- commitment required from the researchers, the benefits
ments, and observations. This process also represented of the case release procedure were seen as substantial.
a method of data reduction and provided an initial
level of analysis. Data displays were also used to orga- MAJOR STRUCTURAL CHANGE PROCESS IN
nize data and to generate meaning. Cross-site analysis SUPPLY ORGANIZATIONS
involved an examination of the commonalities and The supply organizational structure change process
differences among the sites using site-ordered, predic- established in this research is presented in Figure 3.
tive displays.1 The magnitude of the arrows in Figure 3 is intended

1
“Predictor-outcome matrices array cases on a main outcome or
criterion variable, and provide data for each case on the main
antecedent variables that you think may be the most important con-
tributors to the outcome. The basic principle behind the matrix is
explanatory, rather than purely descriptive; we want to see whether
these antecedents predict or account for the criterion variable”
(Miles and Huberman 1994).

The Journal of Supply Chain Management | Summer 2001 7

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The Supply Organizational Structure Dilemma

to reflect the researchers’ judgment regarding the degree
of influence exerted by each of the drivers, major influ-
encers, and moderators.
In each of the companies studied, major changes in
the purchasing organizational structure were a direct
result of changes in the overall corporate structure. In
none of the sites was a major change made to the supply
organization structure based on consideration of what
structure might best suit supply. Consequently, the
research did not find evidence of what is suggested in
standard supply texts, that choice of supply organiza-
tional structure should be based on an assessment of the
advantages and disadvantages of centralized, hybrid, and
decentralized structures.
The research found that the supply organization struc-
ture change process consisted of three sequential signifi-
cant pressures culminating in a major structural change
in supply organizations. Dominant environmental pres-
sures forced corporate strategic initiatives, which became
the driver for a major corporate structural change. It was
this latter change, the corporate structure change, which
was found to be the ultimate driver of the supply orga-
nization structure change.
Dominant Environmental Pressures
Once the researchers understood that major changes
in supply organization structure were caused by changes
to the overall corporate structure, the research tried to
establish why the company might have changed its struc-
ture. The researchers discovered that a common driver
for corporate organizational change in each of the 15
changes studied involved an attempt by the company
to improve its cost structure. External environmental
factors, such as competitive pressures, global influences,
technology, and continuous improvement, created the
perception that the current organizational structure —
centralized, hybrid, or decentralized — was inadequate
to cope with the external forces to reduce costs.
Consequently, the need to lower the firm’s cost struc-
ture was seen as a key argument to make a major change
in the company’s overall organization structure in each
of the sites studied.
The finding that cost was a driver in each of the 15
changes studied was startling. It implies that no perfect
organizational structure exists for large companies —
each company found itself in a position where it had
to reduce costs to remain competitive, and to accom-
plish this goal a change in corporate organization struc-
ture was implemented. For example, AirTouch moved
its corporate organization to greater centralization as
the management shifted its focus from growth to cost
control. The new corporate supply group was expected
to deliver $200 million in savings. Meanwhile, Chevron
decentralized its supply organization following a corpo-
rate decentralization move. Decentralization at Chevron
followed disappointing operating results and a major

Figure 3
MAJOR STRUCTURAL CHANGE PROCESS IN SUPPLY ORGANIZATIONS

Dominant Environmental Pressures

Cost, Major Market Change, Political, Parent Company

Major Corporate Strategic Initiatives

CEO Moderator
Influencer
Strategic Downsizing, Mergers/Acquisitions/Divestitures, New Vision
Preference

Consultants

CEO
Structure Major Corporate Structure Change
Major Moderator
Preference
Influencer Centralized, Hybrid, Decentralized

Driver

CEO Major Supply Organization

Structure Moderator Structure Change Moderator Consultants
Preference Centralized, Hybrid, Decentralized

8 The Journal of Supply Chain Management | Summer 2001


initiative to downsize. The company expected to cut
costs through a head-count reduction in purchasing of
approximately 100 people as part of the decentralization
plan. Although several of the organizations in the study
were in a downsizing mode, the research did not find
any evidence that downsizing implied a shift toward
either centralization or decentralization.
While cost represented a common driver, each
company faced other unique challenges. For example,
major market changes forced Manulife to respond
to changes in the structure of the financial services
industry and compelled Sasib to develop capabilities
to design complete systems for its global customers,
such as Heineken and Coca-Cola. Meanwhile, Perkins
had to respond to shorter product life cycles as a result
of new environmental legislation. Organizational
changes at Ontario Hydro and Air Canada were influ-
enced by developments in the political and regulatory
environment. Five of the sites were involved in
mergers, acquisitions, or divestitures that resulted in
major changes to the corporate organization structure
either toward centralization or toward decentraliza-
tion. A new strategic approach adopted by the CEO
of Hoechst ultimately led to decentralization of the
organization.
Moderators and Major Influencers
A major influencer is a person or a group of people
inside the company who caused a driver to change.
New CEOs had recently been appointed in 12 of the
15 changes studied and were found to be major influ-
encers. In four of the cases studied, a new CEO had a
strong preference for a corporate strategic shift, and in
six companies, a new CEO pushed for a particular orga-
nization structure.
The new CEOs came from inside the organization in
seven of the changes studied and from outside the orga-
nization in five sites. Consequently, for the sites in this
study, even the CEOs who “grew up” in the company
with a certain organizational structure were willing to
change it. For example, the new CEO at Manulife came
from outside the organization and introduced a new
organization structure by imposing greater centralized
control, while the new CEO at Hoechst, who came from
inside the company, changed the strategic direction to a
focus on life sciences and decentralized the organization
structure.
Moderators included other persons who were present at
the time of the driver change and had a say in the
option chosen: consultants, business unit managers,
CFOs, and CPOs. Once the decision was made to make
a major change in the corporate structure and the subse-
quent decision was made to align the supply organiza-
tional structure, the supply organization change was
influenced by consultants in 10 of the sites. Consultants
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The Supply Organizational Structure Dilemma
were either focused on the corporate structure change,
including purchasing, or involved exclusively with the
change in the supply structure. The CFO, while not nec-
essarily directly responsible for purchasing, did have a
strong interest in expense control and the financial
implications as a result of the change. The situation at
Manulife was one such example, where the CFO took
a strong personal interest in supply, becoming directly
involved in several early initiatives leading to
centralization.
The CPO moderated the change process in two sites,
Air Canada and Major Oil, involving changes from
hybrid to centralized supply organizations. However, in
both situations the change brought the supply function
in line with the existing corporate structure.
IMPLEMENTATION
Four aspects of the implementation of major structural
changes in supply — the role of the CPO, the effects of
the change on the CPO and the purchasing staff, shared
services, and the magnitude of the change — need fur-
ther comment. All of the 15 structural changes docu-
mented, with the exception of hybrid to centralized,
involved very major changes. The organizations faced a
number of issues — such as personnel, financial pres-
sures, supplier relations, information systems, policies
and procedures, standardization, cooperation, reporting
line, and geographic location — when making major
changes to the supply organization.
Once the decision had been made to change the orga-
nization structure of the supply function, it was left to
the CPO to implement the change. In five of the sites in
the study — Chesapeake, Hoechst, Manulife, Major Oil
Worldwide, and Sasib — new CPOs were recruited to
implement the organizational change.
The organizational changes affected the lives of many
people in the 10 companies in the study, and frequently
created an atmosphere of apprehension among the staff.
However, implementing the changes placed significant
pressures on the CPO, who had to worry about not only
managing the day-to-day affairs of the purchasing depart-
ment but also implementing the organizational change
successfully.
Shared services appeared to be a convenient parking
spot for the supply function while the company wres-
tled with establishing a new role for it following a major
corporate restructuring. Seven of the changes involved
the creation of a shared services organization, although
several different approaches to shared services were
observed. For example, some sites, such as AirTouch,
Chevron, Hoechst, and Ontario Hydro, set up a shared
services group as a separate business unit and operated
it on a fee-for-service arrangement. On the other hand,
Chesapeake created new shared services functions, but
did not use the fee-for-service approach.
The Journal of Supply Chain Management | Summer 2001 9
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The Supply Organizational Structure Dilemma

The availability of internal supply resources to assist objective in both situations was to preserve the organi-
with the organizational change differed based on the zation’s supply capabilities and talent, while adapting
type of organization change. The challenges associated to the new structural requirements of the company.
with these issues frequently contributed to the need to
seek assistance from consultants when implementing IMPLICATIONS FOR SUPPLY
a major structural change. The findings indicate that there is not one perfect orga-
nizational structure for a large organization and that any
In the process of moving toward centralization, the
structure adopted is unlikely to fit perfectly. The longer
source of supply talent at all levels of the supply func-
that a particular structure remains, the more pronounced
tion was a significant challenge to the sites in the study.
its rigidities, inefficiencies, and problems may become.
When moving out of the decentralized mode, the orga-
Ultimately, the time comes when it is necessary to break
nization may not have experienced senior corporate-
the organizational mold and start anew. This finding
level supply personnel. How and where to develop such
implies that there is a life cycle to corporate organiza-
organizational talent represented an important imple-
tional structures whose life span is influenced by external
mentation issue. This included talent at the CPO level,
pressures, internal problems, or a combination of both.
including his or her job background and organizational
The length of time that the companies in the study spent
credibility. Hoechst and Major Oil placed a greater pri-
in a particular structure varied substantially. Hoechst,
ority on CPO credibility within the organization, as
for example, had been a highly centralized company for
opposed to previous supply experience. Others, such
decades. Ontario Hydro, however, made several changes
as Perkins, Manulife, Sasib, Chesapeake, and AirTouch,
to its organizational structure during the 1990s.
identified new CPOs with previous supply experience
to handle the change process. All of the changes studied were extensive. For example,
Hoechst had been highly centralized before its new CEO,
The move toward centralization also created imple-
Jürgen Dormann, forced what the German business press
mentation issues at the middle and junior staff level.
called “the largest corporate restructuring in Germany
The research found that a move toward increased cen-
in this century.” Such major organizational changes have
tralization required the addition of staff with specialized
substantial human and financial costs. Jobs are lost,
skills in areas such as contracting. Quite often, the
responsibilities changed, staff relocated, and pay levels
existing supply talent in the decentralized organization
adjusted. Hoechst saw a head office function with 5,000
was perceived to lack the required training or experience
people reduced to fewer than 200. For some Hoechst
needed in the new centralized environment. The impli-
divisions, this represented an opportunity to acquire tal-
cation was that existing staff in the decentralized busi-
ented staff. At AirTouch, a very different problem arose
ness units were displaced by new individuals in the
as a result of the organizational change. Centralization
centralized group.
presented the challenge of finding new supply talent,
Although information technology systems, including
which meant the addition of staff from outside the
Y2K concerns and ERP systems, were not prime drivers
company. Meantime, many of the business unit supply
of change for the structure of the supply organizations
managers either were passed over for new positions in
in this study, they did factor into the organizational
the central organization or had to relocate to the new
structure change process. At Ontario Hydro and Manulife,
central purchasing office in California.
these issues supported the move toward centralization of
The challenge to do more with fewer people was a
the supply function as a result of the need for common
common theme, regardless of the direction of the
supply processes and standards.
change. For example, Chevron decentralized its supply
The research identified one implementation issue
function as part of a downsizing initiative in 1992,
unique to the sites in the study moving toward decen-
while Perkins centralized purchasing while reducing
tralization — how to dismantle the centralized supply
its total supply staffing levels.
unit effectively. Several different approaches were identi-
fied in the study. For example, Ontario Hydro created CONCLUSIONS
a shared services function that was responsible for nego- The research found that the 15 major changes in the
tiating corporate-wide agreements and establishing and supply organization structures of the 10 large, multiunit
maintaining corporate purchasing policies, while the companies studied were a result of changes in the over-
business units were responsible for materials manage- all corporate structure. This finding challenges the con-
ment activities. The approach taken by Hoechst was ventional view found in standard supply texts that the
to create a separate legal entity, Hoechst Procurement supply organization structure is determined based on an
International, that would also offer purchasing services assessment of the opportunities provided by either cen-
to other organizations on a fee-for-service basis. The key tralized, decentralized, or hybrid supply organizational

10 The Journal of Supply Chain Management | Summer 2001


structures. However, the research provides evidence to
support contingency theory research that shows organi-
zational structures are influenced by the environment
and strategy. The implication is that the organization of
the supply function must be consistent with the firm’s
strategy and structure.
The finding that corporate structure takes precedence
over optimum functional structure has significant
implications for managers. It could be futile to consider
opportunities to change the supply organization struc-
ture without a corresponding change in the overall cor-
porate structure. A more productive approach would be
to identify the opportunities for purchasing effective-
ness and efficiency under the predetermined functional
structure. Since each organizational structure has its own
advantages and disadvantages, the challenge for man-
agers becomes how to capture the maximum benefits
of a particular structure option while minimizing its
disadvantages.
A strength of this research is that the sample included
firms from both North America and Europe. Furthermore,
although some companies in the sample, such as
Chevron and Sasib, can be classified as either North
American or European, they have operations in many dif-
ferent regions of the world. The framework presented
incorporates findings from all of the sites in the study
and reflects the international component of the sample.
Implementation issues represent significant challenges
and impose a major personal toll on the individuals
involved. Four implementation aspects — role of the
CPO, effects of the change on the CPO and the pur-
chasing staff, shared services, and magnitude of the
change — were noted for nearly all changes. The
research also identified implementation issues unique
to the direction of the structural change. Sources of
supply talent and information technology were imple-
mentation issues observed in firms moving toward cen-
tralization, while challenges associated with dismantling
the centralized supply unit effectively were common
only in those sites moving toward decentralization.
Finally, this research suggests several opportunities
for future research. First, the focus on major structural
change ignored the frequent smaller organizational
changes that occur in supply, particularly within the
hybrid category. Substantial moves toward centraliza-
tion and decentralization can occur within the hybrid
category itself. Why such changes occur and who influ-
ences such changes would be a useful research focus.
Second, are other functions affected in the same manner
as supply with respect to organizational change? While
it did not appear in this research that supply was sin-
gled out, it would be interesting to understand how and
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The Supply Organizational Structure Dilemma
why major changes in organizational structures in other
functions are similar to or different from supply. Third,
while this research identified major corporate structural
change as the primary driver of major supply organiza-
tion structure change, a better understanding of domi-
nant environmental pressures and corporate strategic
initiatives would be useful in clarifying the organiza-
tional change process. This would require a corporate
perspective concerning how and why organizational
changes occur.
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