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Arrow electronics case b2 b

solution to arrow electronics case

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Arrow electronics case b2 b

  1. 1. QUESTION 1
  2. 2. How many customers were likely to switch some of their purchases to Express?  In case of A/S the transactional customers contribute around 25% of the sales while 75% comes from relationship customers  The impact of Express can be analyzed using two scenarios Optimistic Pessimistic
  3. 3. Scenario Total Sales Sales from transactional customers Sales from relationship customers 2,310.00 577.50 1,732.50 Optimistic 1,732.50 - 1,732.50 Pessimistic 1,039.50 - 1,039.50 Scenario Total Sales BAS business Value added Business Optimistic 577.50 293.00 284.50 Pessimistic 1,270.50 601.00 669.50 Expected loss of sales due to express segment wise
  4. 4. QUESTION 2
  5. 5. Impact on sales and profitability  Transaction customers constitute 25% of sales.  Majority of transaction customers are BAS customers.  Assuming no selling expenses for transaction customers as majority go by BAS.  Cost of good sold is 83% of sales.(Exhibit 2)  Selling and administration expenses is 9.2% of sales.(Exhibit 2).  Selling expenses reduction in proportion with drop in sales of relationship customers.
  6. 6. Impact on sales and profitability  Optimistic scenario – 100% transaction customers switch to Express (Billion $) Before Express After Express Total Sales 2310 2310 Transaction sales (25%) NA 577.5 Current Sales NA 1732.5 COGS (83%) 1917.3 1437.975 Selling Expenses 159.39 159.39 Gross Margin 233.31000000 135.135
  7. 7. Impact on sales and profitability  Pessimistic scenario – 100% transaction customers and 40% relationship customers switch to express. (billion $) Before Express After Express (Billion $) Before Express After Express Total Sales 2310 2310 Transaction sales and relationship sales (65%) NA 1501.5 Current Sales NA 808.5 COGS (83%) 1917.3 671.055 Selling Expenses 159.39 95.634 Gross Margin 233.31000000 41.811
  8. 8. Impact on sales and profitability  Overall effect (billion $) Change in % sales Change in % gross margin Optimistic (25) (42.1) Pessimistic (65) (82)
  9. 9. QUESTION 3
  10. 10. How would A/S’s suppliers react to Express?  All the 50000 customers are exposed to all the major suppliers. In this way they will reach to more number of customers through Express.  Since any supplier has franchised only 2 distributors for the same line card (product line), they can very well intentionally reduce the price of the products and further reduce the margins of existing distributors. Margins for commodity products (BAS) may get reduced from 25 % to lower levels due to the intentional price reductions from the supplier.
  11. 11.  Suppliers through the bulletin board have information about the inventory levels of all the other competitors via their franchised distributors. Hence with the proper demand forecast they can efficiently modify their production schedules to accommodate the inventories in lieu of the competition.  On the other hand since no actual communication is involved between the distributors and OEMs or customers, hence it will be very difficult for the suppliers to demonstrate and generate the demand. They used to generate the demand with the help of their distributors.
  12. 12. QUESTION 4
  13. 13. Finally, Was Express a Threat to or an opportunity for A/S?
  14. 14. Opportunities  Access to larger customer base  Reduction in selling cost  -cut down of sales representatives  -Transactional Cost  -Transportation Cost  Increase in reach to customers who couldn’t be reached with current business model  Reduction in time and effort in order to locate potential customers  Scrutinizing the suspects (credibility check) is done by Express Inc., avoiding Relational cheating
  15. 15. Threats If enters Express Inc.  Increased competition  Initiation of price war  No demand creation, only order- taking  Reduced supplier control  Loss of market share to competitors  Risk of loosing franchisee distribution from suppliers  No direct relationship with customers  Inability to build up long term relationship  Demotivation of Sales Representatives  6% service fee If Not  Current customers can move to express system and use it as a bargaining tool for lowest prices  Limited customer base Switching of Transactional & Commodity customers of A/S to Express
  16. 16. Do Not Go for express. Analysing threats and opportunities:  Long term relationship is important in B2B -Sales force remain motivated  6% service fee can be avoided  Exposure to customers is vital  Delivery of products might be compromised -3rd party involvement
  17. 17. THANK YOU

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