ARROW ELECTRONICS ,

INC
Arrow Electronics, Inc.
 Broad-line distributor of electronic parts
 Annual sales of $16B
 Supply channel partner for approximately
700 suppliers and 140,000 OEMs, contract
manufacturers and commercial customer
 a global network of over 300 locations in
50 countries and territories
Company History

Founded
1935& positioned itself into a broad - line distributor of ele


 1968 - 1980 Acquired # 2 position



 economic
1980 recession & death of company ’ s top 6 officials and 8

 1992 reached # 1 position among electronics competitors

1992 reached # 1 position among electronics competitors

Operations Structure
 Zeus Electronics – semiconductors to military and
aerospace customers
 Capstone Electronics – passive components
 Anthem Electronics- semiconductors to industrial
customers
 Arrow/Schweber– semiconductors to industrial
customers
 Gates/Arrow Distribution – computer systems,
peripherals & software
•
Arrow/Schweber
 Subsidiary of Arrow Electronics
 Arrow’s largest working group with sales of around
$2b
 Technical certification of its field sales
representatives
 Dedicated investments in product management

Organization Structure

•Fie ld S a le s R e p re se n ta tive s
•In sid e S a le s R e p re se n ta tive s
•Pro d u ct M a n a g e rs
S ix R e g io n a l 3 9 B ra n ch / G e n e ra l •Fie ld A p p lica tio n E n g in e e rs
VP M a n a g e rs •A d m in istra tive Pe rso n n e l
•A d d itio n a lM a n a g e rs
Distributor/Customer
Relationship
• Transactional customers
 Transactional customers
are those that place
requests-for-quotes with
distributors
simultaneously
 Mostly Book & Ship
 25% of business
 Conversion to relationship
customers: 50%

• 

• Relational customers
 Relational customers are
those that distributors
use value-added products
to build relationship
with
 Mostly Value Added
 Cross Selling
 75% of business
 Initially mostly
transactional
Analyzing the Market: Porter’s
Analysis
Bargaining power of Bargaining power of
 suppliers Customers
•On design wins: Low •Transactional customers
 Ball: High
•On Jump :Shop around for best
•On standardized products: prices, May convert to
Low relationships
•On Proprietary products: •Relationship customers
High •
Competitors
•Avnet Inc
•Foreign
New Entrants competitors Substitutes
•
•Moderate barriers to entry •Direct dealing with
•New entrants need to build suppliers
relations with suppliers •Managing services by
• themselves
•Shopping on the internet
(disintermediation)
4 P analysis
Express – The new Distribution
System
q Express Parts, inc, a new independent distributor developed an internet-based
trading system around a multi-distributor bulletin board enables
distributors to post inventories and prices to bulletin board providing
customers large and small an opportunity to shop for prices.
q Estimated 50,000 OEMs through out the US having access to the service.
q Express would allow customers to compare prices and to bargain for the best
price among competitors in the market
q Registered Express customers could then sign onto the service via internet
and could search by part numbers or description. Its search engine could
quickly cross reference equivalent parts from multiple manufacturers
based either on part number or technical description
q On making a selection, customers could view relevant returned results
containing product details, price and available quantities for shipment
and click to place the order
q Express would review the order, perform credit check and acknowledge accepted
orders to customers and simultaneously route them electronically to the
appropriate distributor.
q Express appointed shippers would pick parts from the distributors and ship
orders directly to customers and notifying Express electronically once
the shipment has been made.
q Express then billed customers, then after deducting a fee of 6%, made
payments to the distributors 30 days after orders were shipped.
SWOT Analysis
• Imminent introduction of Express
• Express Inc’s request to join this invite only limited distributors network that could potentially help them to cater to a
larger market and increase sales at less than half the cost of doing so via its branch network.
• The reduction in the overall gross margin and slashing of prices due to competitive market place, And since prices are
open to the public, bargain of lower prices by existing customers may occur.
• Time constraint at the A/S end in deciding on the pros and cons on signing up for this system
• Signing up for Express could create a potential trade-off between gaining new customers and affecting arrow's relationship
with existing customers who may drift away to pick products from different channels.
• Risk losing franchise distribution or distribution due to removal of their channel member status by the suppliers, with
suppliers using Express.
• Difficulty in deciding on association between commodity products and transactional behaviour on one hand and value
added products and relational behaviour on the other.
• Resulting in optimistic cannibalization of $293b and a pessimistic cannibalization of $601b
• Express ability to create better value for the customers at a lower price, with a noticeable reduction in cost
• Evaluate, adapt and adjust the existing business model to the changes Express may create.
• Bright side being reaching out to the additional business and selling to those customers that are out of reach of the
current business model
• Reduction in the time and effort of trying to build new customers.
• Standardized price offering over internet leads to minimizing time and efforts and significant reduction in costs to serve
customers shopping for low prices.
• Express may bring Arrow additional business from potential customers that Arrow has not been able to reach with its
current business model
• Express may make reduce the effort in building new relationship with new customers
• Express exists only to respond to demands but not to create
• Arrow’s profit may be cut down due to an existence of Express as intermediary
• Existing customers may bypass Arrow and go directly to Arrow’s competitors
• Express may be used as a bargaining tool
Available Options
• Sign up for Express system with an optimism that it will gain in terms of getting
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 throughout the US and
increasing sales at less than half the cost of doing so via its branch
network.
• Cost, time and effort savings in serving and converting low price shoppers into
potential customers.
• Maintain strong relationships with suppliers by creating demand for their
products, could translate into getting better competitive prices to sell.
• Continue with providing value added services to retain relationship customers who
are either customers going in for modified rebuy or straight rebuy.
• Still retain those customers who get financed by A/S or those who rely on value
added services like A/S inventory and material management systems.
• 70% of the commodity product sales to transactional customers are of products
manufactured by major suppliers who wouldn’t want to see their commodity
margins shrink which would keep them away from offering same price to other
distributors. This is a blessing in disguise for A/S to continue with being the
exclusive franchise of “big four” the suppliers.
• A/S exposure to technology and internet could provide a sort of leverage over
Express by incorporating an internet model for commodity projects so that low
price shoppers could use the information and perform transactions.
• Scan the environment for other possible Value added & customization services that
could be added to existing core business.
• Build relationship with customers by creating supply chain system that will
provide value-added services
 Recommended Option ( s )

Value Added Service

Standardized Engineering support
Products/Commodity Supply chain solutions
Credit Management
Inventory/Material
Reduction of Management
costs/efforts/time serving
customers who are shopping
for low prices
Environmental Scanning for
new value added
Loss of 6% on sales via products/services
Express + Loss in
booking & shipping
Internet & revenue
interactive voice
response

Express

Customers
Starting a Portal
H a ve b e tte r re so u rce s to p u llo f a p o rta l
C a n p ro vid e b e tte r se rvice s b e in g le a d in g

d istrib u to r
S u p p lie rs w illn o t b e h a p p y w ith fa llin

p rice s- lo b b y w ith th e m to a vo id se llin g

th ro u g h o n lin e p la tfo rm tillth e tim e yo u
co m e u p w ith a n a lte rn a tive
M a ke su p p lie rs lo b b y to p re ve n t d ro p in

p rice s & g e t exclu sive d e a le rsh ip s to se ll

th ro u g h E xp re ss

Starting a Portal
Initial Investment will be less than $1
million
Promotion of Portal can be done through
existing distribution channels & by regular
promotion activities for which Arrow will
have to budget another $5 million
In addition to offering payment services
portal should divert customers to existing
channels of sale
Being the first mover among insiders Arrow
can expect to retain at least 60% (40% may
prefer Express) of transactional customers &
entire relationship customers.

Starting a Portal


But being a distributor Arrow get exclusive

 dealership from some manufacturers & also

 can increase the range of brands they offer


over portal thus gaining at least 25% of
transactional customers from competitors
This in turn will result in a higher market
share for Arrow
This will also help to put a check on lose of
market share to Avent
From a long term perspective this makes sense
It has to be understood that there will be a
delay between introduction of portal &
change in consumer buying behavior
(applicable to Exprees also)