Presented by

Parmeet Brar
Rajan Mittal
Manvir Singh
Rakesh Kumar

ARROW ELECTRONICS
Jan

Salsgiver president of Arrow/Schweber A/S(Subsidary of Arrow

Electronics).
Stephen
Both

kaufman as CEO & vice president sales

of them reviewed & developed express parts proposal system with colleagues.

Express

to develop internet based trading system that would enable distributors to

post inventories giving customers large & small opportunities to shop for price.
Above

system could also be a trade off against existing relationship with its supplier
& customers.
As

a distributor we need to know:

- how we create value for the prices we charge.
- how our value is different from what our supplier can provide.
- whether express can offer same value or more for lower price.

History

Arrow electronic was a broad line distributor of semiconductor &

electronics parts (as supplier) to deal directly with OEM(Original
Equip. Manf.).
Founded in 1935 to sell radio equip initially, and undergone a
number of major changes since then.
Under Stephen kaufman leadership in1992 Arrow became no.1
among electronic distributors.
Arrow has out numbered various competitors such as Pioneerstandard, Wyle, Marshall Industries.
Arrow sales continually growing.

Year

1996

1995

1994

Sales

$ 6,534,577

$ 5,919,420

$ 4,649,234

Arrows North America operations were head quartered in

Melville,NY.

Sales & Marketing function were divided among five operating

groups, distinguished by product & strategy, individual responsible
for asset & material management and P&L.

A/S sold electronic equipment to industrial customers.

A/S president Jan Schweber was leading Arrow toward higher level
of technological expertise through technical certification.

Products & Supplier

A/S was a franchised distributor comprised of two chip

categories: Standardized & Proprietary.
Standardized chips were interchangeable & produced by
multiple suppliers.
Proprietary chips were manufactured by single supplier.

A/S largest supplier was Altera, i.e. proprietary product,

Programmable Logic Devices(PLD) requires considerable
value addition.

20% of the products were purchased directly by customers

& 80% through franchised distributors.

Customers

A/S traditional customer base include mid & small-sized Original

Equip. Manuf. accounted for 56% sales in 1996.

Customers were to small for the supplier to serve directly.

Franchised distributor allowed customers to order in small

quantities, with shorter lead times.

Distributor also considered value added services for customers like

- credit management for customers,
- receiving all the products that are needed in single shipment,
- release products to shipment based on forecast.
- Imp. for customers adopted JIT.

Another growing new market was Contract

Manufacturer(CM) Business has grown at 30% b/w 1992 to
1996.
A/S served two customers segments
- Intel x86 chips accounted 11% to A/S
business.
- final segment comprised of the customers that
purchased entire systems or
assemblies.

Needs of
Suppliers from
Distributers

To win business in their standardized

products.
To represent new technologies and
proprietary products to our customers.

Components
of
Relationship

Suppliers refuse to honor warranties of

products purchased through channels other
than the ones they designated.
Suppliers ship their proprietary &
standardized product at list price or
marginally below it.

A/Ss Relationship with Suppliers

Discounts offered by the Suppliers

Design
Win
Jump
Ball

Suppliers offers a much higher

discounts to the distributor
credited with the design
registration as compared to any
other distributer.
Suppliers offered all
distributers the same margin
which was significantly less
than design win.

Managing Relationship with Suppliers

In case of jump balls suppliers inform the customer

about the various distributers they can buy from..
Suppliers distributor lists- The order in which
suppliers in form the distributers about an opportunity
Suppliers manage the time they take in
responding to a distributors request for prices.
Suppliers can manage the flow of orders by managing
the time they take in responding to a distributers
request for prices.

Arrow balancing power

Design wins and competitive

standardized products
Knowledge about customers to create
demand for suppliers
Knowledge about growth opportunity,
including watching small companies

Arrows Selling Effort

Book and Ship transaction:

Online computer system

SMR try to secure the business & arrange to ship the

product.

Margins on BAS products ran above average in the

range of 20% to 25%.

Value Added transaction:

Orignated by the Field Engineer and

facilitated by field sales representative(FSR),
the typical Design win situation.
Culmination of tremendous effort and
expenditure of substantial resources.
FSR visit customers design engineers to
learn about current projects and explain &
promote new products being introduced by
Arrows suppliers

Inventory buffer (1977)

Altering components to meet customer
needs by programming or kitting parts
(1987)
Virtual organization (1997)
Order cycle management(Today)

Percent of Arrow Sales

Chart Title
70%
0.6

60%

0.51

50%
40%
0.28

30%
20%
10%
0%
-10%

0.01 0.03

0.07

0.33

0.36

0.4

1975
1980
1985
1991
1992
1993
1994
1995
1996

Value Added Services

Transactional Cost Reduction

Total Cost Ownership Analysis-Make Versus Buy,
help companies to identify the total cost associated with
particular activities or processes.
Automated Replenishment :Kanban environment using
pull processes, deployed at point of use, dramatically
reduce inventory and associated inventory cost.
Electronic Data Interchange :Faster, accurate,
information transfer reducing supply chain costs and
improved productivity.
In-Plant Terminals :Real time information Customer
staffed terminal enabled purchasing department to check
on inventory availability

VASPlanning And Material Pipeline

In-Plant Stores: On-site staff in A/S in plant

stores responsible for planning, purchasing and
fulfilling production requirements

Turnkey Service- They Provide its expertise in

material management with that of certified
turnkey partners to production requirements ,
decreasing time to volume and time to market.

Improving Logistical Efficiency

Production Kitting: Supplying prepackaged

kits to designated customers production
facilities just in time helped to reduce
stockouts.
Device Programming-Customers that
Programmed through A/S avoid Costly
capital equipment expenditures and
minimized product obsolescence.

Complete Supply Chain

Management

A/Ss Business Needs Analysis evaluate

customers material planning & make
practical recommendations.
Custom Computer Products(CCP):
Provide design and development assistance
as well as total project management from
concept to completion

Phantom Inventory: Distributers paying

relatively low figure for inventory carried on
the books at high cost.

Relationship with Customers

Transactional Customers Customers that placed

request for quotes(RFQ) for one or a few products
with a number of distributors.
The distributors obtain current pricing information from
their suppliers and respond to RFQs.
According to Kaufman25% of sales come from Transactional Customers .
Transactional Customers are major source of
relationship customer in long run.
Customer want to check out and monitor ,
performance, before they are willing to get into any
sort of agreement.

According to Salsgiver

Most of their relational customers do more than half of

their business with their top distributors.
Because in order to ensure continuous availability of
products and to keep their primary distributors in check.
Most of their customers buy a basket of products from
them, which includes BAS and VA products.
For competitive nature of business, it is difficult to get
close to customer through BAS.
Their approach is to use VA products as the first step to
building a relationship.

A peculiar trait in the business.

Cant charge more for the VA services, customer can switch to
other distributors.
So, they try to demonstrate tangible financial benefits to justify their
prices, there are the time when give the value created for them and
recover their profits in other areas.
For example, their gross margins on VA products run below the
company average in the range of 10% - 15%.
They sell their products to customers by offering them significant
breaks on the VA products in return for their commitment to buy the
BAS products exclusively from them.

As per the Kaufman

They need to go further to make the relationship virtually

unbreakable.
They need to get the customer to invest along with them
in system and processes that enable them to provide
value added services.
Because the trend towards greater demand for VA
services is the best bet to counterbalance the high price
senstivities of their customers and the relational
cheating takes place in their business.

ARROW/SCHWEBER AND
INTERNET
MID

1990s- many electronic distributors established

homepages , provided line card information and even
sold products.
Do

not offer manufacturers warranties.

Home

page was established later but did not

incorporated purchasing capabilities rather functioned as
INFORMATION CENTRE

Express The new Distribution System

An internet trading system around a multidistributor bulletin board providing customers
large and small an opportunity to shop for
prices.
Estimated 50,000 OEMs having access to the
service.
Allow customers to compare prices and to
bargain for the best price among competitors
distributors will transmit the full list of
available inventory and corresponding prices
every night.

Registered Express customers could then sign

onto the service via internet and could search by
part numbers or description.
Express would review the order, perform credit
check and acknowledge accepted orders to
customers and simultaneously route them
electronically to the appropriate distributor.
Express appointed shippers would pick parts
from the distributors and ship orders directly to
customers
Express then billed customers, then after
deducting a fee of 6%, made payments to the
distributors 30 days after orders were shipped.

Examining Express

How many of our customers will Express be able to take away? And
how will it affect our profit margins? How will our suppliers do
business with Express?

Express would expose our business to more customers. However

transactional customers could easily switch to another distributor and
potentially destroy A/S low price model.

All transactional and about 40% relational customers may switch to

Express

Express business model cut cost on building new customer

relationship and could potentially reach customers outside A/S
present target market
Express cannot create new business as it only respond to demand,
where A/S creates new business through its value added products

EXPRESS: SWOT ANALYSIS

Strength

Invite only limited distributors to cater to

a larger market and increase sales at
less than half the cost via its branch
network
Reaching out to the additional business
that are outside the current perview and
selling to them

Weakness

The reduction in the overall gross margin

and slashing of prices due to competitive
market place.
Also since prices are open to the public,
bargain of lower prices by existing customers
may occur.
All transactional customers and about 40%
relational would switch to Express.

OPPORTUNITY

Express exists only to respond to demands

but not to create but A/E creates demand by
design wins.
Express may make reduce the effort in
building new relationship with new customers
Express may bring Arrow additional business
from potential customers that Arrow has not
been able to reach with its current business
model
Reduction in the time and effort of trying to
build new customers.

THREAT

Express may be used as a bargaining tool

Existing customers may bypass Arrow and go directly
to Arrows competitors
Arrows profit may be cut down due to an existence of
Express as intermediary
Risk losing franchise distribution or distribution due to
removal of their channel member status by the
suppliers
Commodity products AEs (and its suppliers) primary profit

source will fall down.

Suppliers reaction? They will lose control if the Internet
commences.

Available options

Sign up for Express system with an

optimism- additional business and selling to
those customers that are out of reach of the
current business model.

Sign up would expose A/S to estimated 50,000+

OEMs Expand customer base and Increase market share

Increasing sales at less than half the cost.

Cost, time and effort savings in serving and

converting low price shoppers into potential
customers.

Create Own Internet

Presence

Introduce purchasing capabilities on website

already in operation

Develop a strategy using the Internet as a direct

channel

Serve price-sensitive customers through website

Maintain relationships already established by

keeping a direct line of communication while attract
new transactional customers focused on price

Business as Usual

Choose not to associate with Express

Avoid 6% service fee
Avoid possibility of losing customers if we are not always

lowest price

Continue serving customers as we

always have
Focus on relationship customers

E/S products need delivery that would

be compromised if we partner with
Express

Recommendation Do
Both

Partner with Express AND develop websites

purchasing capabilities
Gain access to customers previously unavailable
Use Express as an advertising medium
Transactional customers go to Express website because it is

the market place

Service fee only applies to purchases not simply having our name
out there
Important to maintain option to buy from Arrow
Give relational customers opportunity to use online purchasing as
well

Ideally, savvy transactional customers will visit

Express website to compare prices, consider extra

channel and overhead costs, and then visit Arrows
page to make actual purchase