Both 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:</li></ul> - how we create value for the prices we charge.<br /> - how our value is different from what our supplier can provide.<br /> - whether express can offer same value or more for lower price. <br />
History <br /><ul><li>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 Pioneer-standard, Wyle, Marshall Industries.
Arrow sales continually growing. </li></li></ul><li><ul><li>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.</li></li></ul><li>Products & Supplier<br /><ul><li>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. </li></li></ul><li>Customers<br /><ul><li>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 </li></ul>- credit management for customers,<br />- receiving all the products that are needed in single shipment,<br />- release products to shipment based on forecast.<br />- Imp. for customers adopted JIT.<br />
<ul><li>Another growing new market was Contract Manufacturer(CM) Business has grown at 30% b/w 1992 to 1996.
A/S served two customers segments </li></ul>- Intel x86 chips accounted 11% to A/S business.<br />- final segment comprised of the customers that purchased entire systems or assemblies.<br />
Managing Relationship with Suppliers<br />In case of jump balls suppliers inform the customer about the various distributers they can buy from..<br />Suppliers’ distributor lists-The order in which suppliers in form the distributers about an opportunity<br />Suppliers manage the time they take in responding to a distributor’s request for prices. <br />Suppliers can manage the flow of orders by managing the time they take in responding to a distributer’s request for prices.<br />
Arrow ’ balancing power<br />Design wins and competitive standardized products <br />Knowledge about customers to create demand for suppliers <br />Knowledge about growth opportunity, including watching small companies <br />
Arrow’s Selling Effort<br />Book and Ship transaction: <br />Online computer system<br />SMR try to secure the business & arrange to ship the product.<br />Margins on BAS products ran above average in the range of 20% to 25%.<br />
Value Added transaction:<br />Orignated by the Field Engineer and facilitated by field sales representative(FSR), the typical Design win situation.<br />Culmination of tremendous effort and expenditure of substantial resources.<br />FSR visit customers’ design engineers to learn about current projects and explain & promote new products being introduced by Arrow’s suppliers<br />
Inventory buffer (1977)<br />Altering components to meet customer needs by programming or kitting parts (1987)<br />Virtual organization (1997)<br />Order cycle management(Today) <br />
Value Added Services<br />Transactional Cost Reduction<br />Total Cost Ownership Analysis-“Make Versus Buy”, help companies to identify the total cost associated with particular activities or processes.<br />Automated Replenishment :Kanban environment using “pull” processes, deployed at point of use, dramatically reduce inventory and associated inventory cost.<br />Electronic Data Interchange :Faster, accurate, information transfer reducing supply chain costs and improved productivity.<br />In-Plant Terminals :Real time information Customer –staffed terminal enabled purchasing department to check on inventory availability<br />
VAS…Planning And Material Pipeline<br />In-Plant Stores: On-site staff in A/S in plant stores responsible for planning, purchasing and fulfilling production requirements <br />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.<br />
Improving Logistical Efficiency<br />Production Kitting: Supplying prepackaged kits to designated customers production facilities “just in time” helped to reduce stockouts.<br />Device Programming-Customers that Programmed through A/S avoid Costly capital equipment expenditures and minimized product obsolescence.<br />
Complete Supply Chain Management<br />A/S’s Business Needs Analysis evaluate customers’ material planning & make practical recommendations. <br />Custom Computer Products(CCP): Provide design and development assistance as well as total project management from concept to completion<br />
Phantom Inventory: Distributers paying relatively low figure for inventory carried on the books at high cost.<br />
Relationship with Customers <br />Transactional Customers – Customers that placed request for quotes(RFQ) for one or a few products with a number of distributors.<br />The distributors obtain current pricing information from their suppliers and respond to RFQs.<br />According to Kaufman-<br /><ul><li>25% 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.</li></li></ul><li>According to Salsgiver- <br />Most of their relational customers do more than half of their business with their top distributors.<br />Because in order to ensure continuous availability of products and to keep their primary distributors in check. <br />Most of their customers buy a basket of products from them, which includes BAS and VA products.<br />For competitive nature of business, it is difficult to get close to customer through BAS.<br />Their approach is to use VA products as the first step to building a relationship. <br />
A peculiar trait in the business.<br />Can’t charge more for the VA services, customer can switch to other distributors.<br />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.<br />For example, their gross margins on VA products run below the company average in the range of 10% - 15%.<br />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.<br />
As per the Kaufman<br />They need to go further to make the relationship virtually unbreakable.<br />They need to get the customer to invest along with them in system and processes that enable them to provide value added services.<br />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.<br />
ARROW/SCHWEBER and INTERNET<br /><ul><li>MID 1990s- many electronic distributors established homepages , provided line card information and even sold products.
Home page was established later but did not incorporated purchasing capabilities rather functioned as INFORMATION CENTRE</li></li></ul><li>Express – The new Distribution System<br />An internet trading system around a multi-distributor bulletin board providing customers large and small an opportunity to shop for prices.<br />Estimated 50,000 OEMs having access to the service.<br />Allow customers to compare prices and to bargain for the best price among competitors<br />distributors will transmit the full list of available inventory and corresponding prices every night.<br />
Registered Express customers could then sign onto the service via internet and could search by part numbers or description.<br /> Express would review the order, perform credit check and acknowledge accepted orders to customers and simultaneously route them electronically to the appropriate distributor.<br /> Express appointed shippers would pick parts from the distributors and ship orders directly to customers <br />Express then billed customers, then after deducting a fee of 6%, made payments to the distributors 30 days after orders were shipped.<br />
Examining Express <br /><ul><li>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,</li></ul>where A/S creates new business through its value added products <br />
EXPRESS: SWOT ANALYSIS<br />Strength<br />Invite only limited distributors to cater to a larger market and increase sales at less than half the cost via its branch network<br />Reaching out to the additional business that are outside the current perview and selling to them<br />
Weakness<br />The reduction in the overall gross margin and slashing of prices due to competitive market place.<br />Also since prices are open to the public, bargain of lower prices by existing customers may occur.<br />All transactional customers and about 40% relational would switch to Express.<br />
OPPORTUNITY<br />Express exists only to respond to demands but not to create but A/E creates demand by design wins.<br />Express may make reduce the effort in building new relationship with new customers<br />Express may bring Arrow additional business from potential customers that Arrow has not been able to reach with its current business model<br />Reduction in the time and effort of trying to build new customers.<br />
THREAT<br />Express may be used as a bargaining tool<br />Existing customers may bypass Arrow and go directly to Arrow’s competitors<br />Arrow’s profit may be cut down due to an existence of Express as intermediary<br />Risk losing franchise distribution or distribution due to removal of their channel member status by the suppliers<br />Commodity products – AE’s (and its suppliers’) primary profit source will fall down.<br /> Suppliers’ reaction? They will lose control if the Internet commences.<br />
Available options<br />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.<br /><ul><li>Sign up would expose A/S to estimated 50,000+ OEMs Expand customer base and Increase market share</li></ul>Increasing sales at less than half the cost.<br />Cost, time and effort savings in serving and converting low price shoppers into potential customers.<br />
Create Own Internet Presence<br />Introduce purchasing capabilities on website already in operation<br />Develop a strategy using the Internet as a direct channel<br />Serve price-sensitive customers through website<br />Maintain relationships already established by keeping a direct line of communication while attract new transactional customers focused on price<br />
Business as Usual<br />Choose not to associate with Express<br />Avoid 6% service fee <br />Avoid possibility of losing customers if we are not always lowest price<br />Continue serving customers as we always have<br />Focus on relationship customers<br />E/S products need delivery that would be compromised if we partner with Express<br />
Recommendation – Do Both<br />Partner with Express AND develop website’s purchasing capabilities<br /><ul><li>Gain access to customers previously unavailable
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 Arrow’s page to make actual purchase</li></li></ul><li>