Arrow Electronics Inc - GLIM

7/31/2019 Arrow Electronics Inc - GLIM

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IntroductionArrow/Schweber Electronics (A/S)

Subsidiary of Arrow Electronics

Arrows North American operations headquartered at Melville, NY

Founded in 1935 to sell radio equipment's and gradually positioned itself as abroad-line distributor of electronic parts, including semiconductors and passive

components by successive acquisitions.

In 1992, it reached #1 position

Arrows largest working group with sales of around $2.07 billion in 1996

Arrow Electronics is a global provider of products, services and solutions to industrialand commercial users of electronic components and enterprise computingsolutions


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Company History

1935 Founded & positioned itself into a broad-line distributor of electronic parts

1968-1980 Acquired #2 position

1992 reached #1 position among electronics competitors

1980economic recession & death of companys top 6 officials and 8executives


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Operations StructureFive Operating Groups distinguished by product & strategy

Zeus Electronics semiconductors to military and aerospace customersAnthem Electronics and Arrow/Schweber semiconductors to industrial customers

Product Driven Groups

Gates/Arrow Distribution computer systems, peripherals & softwareCapstone Electronics passive components

These operating groups being individually responsible for asset & materialsmanagement and P&L


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Arrow/Schweber Technical certification of its field sales representatives Dedicated investments in product management

Six Regional VP 39 Branch/General Managers

Field Sales Representatives Inside Sales Representatives Product Managers Field Application Engineers Administrative Personnel Additional Managers

Organization Structure


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Express Parts Independent Distributor

Internet-based trading system around multi-distributor bulletin board

50000 OEMs to use its service

Takes care of shipping to customers

Fee worth 6%


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Product and Suppliers

A/S

Propriety

Standardized

Singularsuppliers

Multiple suppliers75%

25%


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Only franchised distributors 56 suppliers in 1997 and growing big four

Altera Intel Texas Instruments Motorola

Suppliers

Two chip categories Standardized chips -

interchangeable and produced bymultiple suppliers

Proprietary chips - manufacturedby a single supplier

comprehensive services

Products &Services

OEM Contract Manufacturers Customers buying customized, computer

product sub-assemblies

Customers


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Distributor/Customer Relationship

Transactional customers are thosethat place requests-for-quotes withdistributors simultaneously

Mostly Book & Ship

25% of business

Conversion to relationshipcustomers: 50%

Relational customers are those thatdistributors use value-addedproducts to build relationship with

Mostly Value Added

Cross Selling

75% of business

Initially mostly transactional

Transactional customers Relational customers


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Discount

Winning business through Engineering support and Design Work Higher Discount

Design Win

Winning business based on Competitive pricing by manufacturer No extra margin

Jump Ball Win


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Analyzing the Market: Porters Analysis

Bargaining power ofsuppliers On design wins: Low On Jump Ball: High On standardized products:Low On Proprietary products: High

Bargaining power ofCustomers Transactional customers:Shop around for best prices,May convert to relationships Relationship customers

New Entrants

Moderate barriers to entry New entrants need to buildrelations with suppliers

Competitors Avnet Inc

Foreigncompetitors

Substitutes

Direct dealing with suppliers Managing services bythemselves Shopping on the internet(disintermediation)


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4 P - Analysis


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Arrows Selling effort No. 1 among electronics

Distributors 60% sales from Value Added

Content Credit facility Value added services Cross selling

Strengths Weaknesses

ThreatsOpportunities

Strong online presence Collaboration with Express Learn to how to sell against

Going out of business

Reduction in Operating Incomein 1996

Expenses at 11% with Grossmargins of 15% No online presence Low switching cost for

customers

Express as a competitor Cannibalization of BAS business

if Express proposal accepted Competitors making online

business model


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Arrows Selling effort Book and Ship (BAS)

Real time, On-line computer system tracking costs, prices & inventory movement300 Branch based sales & marketing representatives (SMRs) responsible forsecuring business from customers requesting quote, obtaining discounts fromsuppliers and shipping productGross margins on BAS products-20% to 25%

Value Added (VA)

Design win Situation- Order originated by field engineering, facilitated by field salesrepresentative (FSR)400 FSRs visiting customers design engineers (10 -12 per FSR) and promote new

productsGross margins on VA products-10% to 15%


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Express Parts Non franchised distributor Internet based trading Multi-Distributor bulletin board Quick cross reference equivalent parts Cost competitiveness Popular with price sensitive customers Margins narrowing

EXPRESS PARTS PROPOSAL

A/Ss full list of inventory and price listing Express would receive order, do credit check Route to respective distributor electronically Express shipping facility Express fees 6% of price Paid 30 days after orders shipped


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Examining Express

How many of customers will Express be able to take away?Signing up for Express could create a potential trade-off between gaining newcustomers and affecting arrow's relationship with existing customers who may driftaway to pick products from different channels.

Express would expose our business to more customers.

Existing customers may bypass Arrow and go directly to Arrows competitors All transactional and about 40% relational customers may switch to Express orcould easily switch to another distributor and potentially destroy A/S low pricemodel.


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Pros and Cons of association with Express

Express business model cut cost on building new customer relationship and could

potentially reach customers outside A/S present target market

Risk losing franchise distribution or distribution due to removal of their channelmember status by the suppliers, with suppliers using Express.

Express cannot create new business as it only respond to demand, where A/Screates new business through its value added products

The reduction in the overall gross margin and slashing of prices due to competitivemarket place, And since prices are open to the public, bargain of lower prices byexisting customers may occur

Difficulty in deciding on association between commodity products andtransactional behaviour on one hand and value added products and relationalbehaviour on the other.


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Options available

Option 1: Not to associate with Express Inc. Business as Usual

Option 2: Get Associated with Express Inc.


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Go with Express

Gain access to Express potential customers Expand customer base Potentially secure competitors transactional customers

Give promotional responsibility to Express

Express Incs request to join this invite only limited distributors network that couldpotentially help them to cater to a larger market and increase sales at less thanhalf the cost of doing so via its branch network.

Sign up would expose A/S to estimated 50,000+ OEMs throughout the US andincreasing sales

Cost and time effort savings in serving and converting low price shoppers intopotential customers.


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Fundamental Value Creation of Arrows

How does Arrow create value for its customers for the price it charges

How this value is different from what suppliers can provide to customers directly

Whether firms like express can offer the same value for firms at lower prices


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Recommendation B2B Buying process

Service component is important B2B emphasizes personal selling rather than advertising. Complex buying process; takes longer duration Buyer Seller Relationship (v. close relationship) Designing Customer Solutions

B2B must understand the technical aspects of the organizations requirements;as well as knowing who influences the buying decision and why


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Not to Go with Express

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 who are either customers going in for

modified rebuy or straight rebuy.

Products need delivery that would be compromised if we partner with Express

Build relationship with customers by creating supply chain system that will providevalue-added services. Evaluate, adapt and adjust the existing business model tothe changes Express may create


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Recommendation

Do not partner with Express AND develop websites purchasing capabilities

Give 5% discount to online buyers Gain access to customers previously unavailable Give relational customers opportunity to use online purchasing as well

Create Our Own Internet Presence:

Introduce purchasing capabilities on website already in operationServe price-sensitive customers through website

Direct re purchase, online support, payment gateway, Knowledge Centre


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Discussion

Arrow Electronics Inc - GLIM

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