Case 3-2: Lambert-Martin Automotive Systems Inc.

IMMEDIATE ISSUE

1. Prepare for meeting with group vice presidents to review opportunities in purchasing.

2. Investigate opportunities for changes to the purchasing organizational structure.

BASIC ISSUES

· Organizational structure of supply

· Strategic and financial contribution of the supply function

· Change management

Suggested Student Assignment – Answer these in your Case Report process (Very brief summary/Problem identification, Analysis, Recommendations & Action Plans)

1. As Arthur Thomas, what issues would you raise with the group vice presidents during your meetings? What questions would you ask them?

2. What is your assessment of the organizational structure at Lambert-Martin? What changes might you explore and data would you need as part of your analysis?

Thought Generating Questions

1. Should Lambert-Martin move towards great centralization of the purchasing function? Why?

2. What arguments would you use to justify your position?

3. Do you think it is reasonable for Arthur to maintain his current position as vice president of global purchasing, Engine Systems Group, and add the corporate CPO title?

4. What is the burning platform that you would use to create a sense of urgency for change?

5. What internal data to you need for your analysis?

6. What external data do you need for your analysis?

7. How sympathetic do you think the group vice presidents will be towards greater centralization?

Lambert-Martin Automotive Systems Inc.

Arthur Thomas, vice president of global purchasing, Engine Systems Group at Lambert-Martin Automotive Systems Inc. (Lambert-Martin), 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 in two months, after eight years in the role. 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 AUTOMOTIVE SYSTEMS INC.

Lambert-Martin was a U.S.-based supplier to the global automotive industry, with headquarters in Troy, Michigan. Its origins dated back to the early days of the automotive industry, when the company was formed in 1924 with the merger of Lambert Clutch and Gear Company and Martin Engine Systems. It was a recognized leader in drivetrain technology, 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.

The Purchasing Organization

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. Historically, the CPO had a dual role as vice president of purchasing for one of the groups as well as responsibility for the corporate purchasing organization. For example, Jeff Trudell had the title of vice president global supply for the Transmission Technology Group as well as being the company’s CPO. Similarly, in his new role, Arthur would maintain his current position as vice president of global purchasing, Engine Systems Group, and add the corporate CPO title.

PREPARING FOR THE MEETINGS

Arthur Thomas was a mechanical engineer with 20 years of experience in the automotive parts industry. He joined Lambert-Martin 15 years prior, originally working in engineering and product management in the Emission Products Group. After five years in engineering, Arthur was asked to join the purchasing organization in Engine Systems, where he held positions as strategic sourcing manager, director of supplier development, and director of commodity management before being promoted to his current role, which he had held for the last three years. 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 majority—approximately two-thirds—used 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.