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Arrow analysis

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Introduction

´╗┐The overview of the case Arrow Electronics is a broad-line distributor of electronic parts, including semiconductors and passive components. It was founded in 1935 and grown to the number two position by 1980. When Stephen Kaufman, who became president in 1982 and CEO in 1986, Arrow once more began to climb, reaching the number one position among electronics distributors by 1992. Arrow/Schweber, one of Arrow?s five operating groups and the largest one, which sells semiconductors to different customer bases like Original Equipment Manufacturers (OEM) and Contract Manufacturers (CM). Sales of 2.07$ Billion of 6.5$ Billion of Arrow Electronics? total Sales. Express Parts, Inc. was a new, independent distributor that developed an internet-based trading system around a multi-distributor bulletin board. It had more than 50,000 OEM through the US would have access to the service. Express would pick parts from the distributors and ship orders to customers. Express will pick 6% sales of each order as the fee. The Problem Definition Primary issues: Whether accept the Express?s proposal, which as follows: 1. A/S?s full list of inventory and price listing. 2. Express would receive order, do credit check. 3. Route to respective distributor electronically. 4. Express shipping facility. 5. Express?s fee: 6% of sales and paid 30 days after order shipped. Secondary issues: 1. Our current customers will get the information of all the distributors from the Express system and use it as a starting point to bargain with A/S. 2. If A/S accepted the Express proposal, they can not sure that all transactional customers and roughly 40% of relationship customers were assumed to switch their purchases from A/S to Express. ...read more.

Middle

Express Parts, Inc. entered this increasingly competitive industry as an independent distributor offering an on-line service which would allow customers to compare prices among leading electronic manufacturers allowing customers to bargain hunt for the best price among rival companies. For a fee of 6% per each payment, Express would handle what had been a previously time and cost consuming process of receiving and ordering transactional orders from customers. This process had proven problematic in the past for ArrowÂfs sales and marketing representatives as these orders tended to be of the Book and Ship variety and comprised 25% of the companyÂfs sales. Relationship customers usually dealing in Value Added requests have been more important to the company as this population represented more long-term and consistent orders as opposed to the more fickle transactional customers. Furthermore much of the companyÂfs focus on developing its core competency has been on improving its Value Added(VA) services as they comprised $1.443 billion of the ArrowÂfs $2.31 billion total services. With these considerations in mind Arrow has to decide whether to view Express as a potential competitor who could eventually cannibalize not only its transactional but also relationship customer base or as a business partner who could relieve Arrow of its transactional customers developing a collaborative network allowing the company to focus more on its core competencies of VA services. Collaborating with Express would essentially require Arrow to generate 36% of new customer revenue due to the fee of using Express services decreasing the companyÂfs contribution margin by 6%. ...read more.

Conclusion

Building its own on-line price checking and ordering system is aligned with A/S business model. First, it will facilitate the booking and ordering system and further reduce customer?s lead time. Second, it will reduce sales expense especially BAS sales expense. Third, it can help A/S differentiate itself from competitors by providing low price efficient ?one-stop-shop?. Last, A/S already had completed inventory control system, on the top of the system, building an on-line ordering system should be cost efficient. Comparing to existing on-line based enfranchised distributor, A/S should be able to lead the trend. Price Matching Strategy: It is not easy for A/S to lose relationship customers because of values provided by A/S. Most likely they will use Express as the negotiation tool. And for transactional customer, again because of the nature of this type of customer ---?small project and lead time sensitive?, A/S still has chance to win them back. So ?Matching Price of Express? will be the best strategy to compete with Express. And combining with the strength of A/S, it is possible for A/S to have minimum impact from Express while it is building its own web-based booking and ordering system. Conclusion: We think rejecting the proposal of Express is the wise decision for A/S based on the marketing analysis on A/S business. Although A/S will lose the sales in short run, it is able to maintain the gross margin. And A/S is able to create more demands on BAS and grow its sales on VA and BAS by focusing on VA sales. Later by providing similar web-based booking and ordering system, A/S can reduce its sales expenditure on BAS and be in better poison handing the transaction customer at electronic distributor markets. ...read more.

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