solution to arrow electronics case

2. QUESTION 1

3. 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

4. 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

5. QUESTION 2

6. 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.

7. 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

8. 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

9. Impact on sales and profitability
 Overall effect
(billion $) Change in % sales Change in % gross
margin
Optimistic (25) (42.1)
Pessimistic (65) (82)

10. QUESTION 3

11. 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.

12.  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.

13. QUESTION 4

14. Finally, Was Express a Threat to
or an opportunity for A/S?

15. 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

16. 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

17. 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

18. THANK YOU