Arrow

9-598-022
REV: JANUARY 25, 2007

DAS NARAYANDAS

Arrow Electronics, Inc.
Jan Salsgiver, president of the Arrow/Schweber (A/S) group, a subsidiary of Arrow Electronics, reviewed the Express Parts Internet Distribution Service proposal with colleagues Skip Streber, A/S senior vice president for sales, and Arrow CEO Steve Kaufman (see Exhibit 1). Express had developed an Internet-based tradingsystem that would enable distributors to post inventories and prices to a bulletin board giving customers large and small an opportunity to shop for prices. The opportunity to quickly gain new customers had to be traded off against potential effects on Arrow’s relationships with current customers, who might exploit Express’s bulletin board to cherry pick products from different channels. Arrow’srelationships with its suppliers might also be affected. If they came to view Express as a legitimate option, its suppliers might dis-intermediate Arrow from their distribution channels.1 “As a distributor,” explained Salsgiver, we need to know three things: how we create value for our customers for the prices we charge; how this value is different from what our suppliers can provide to ourcustomers; and whether firms like Express can offer the same value or more for lower prices. We have a successful business model that is based on a portfolio of products and services that we offer our customers. Our customers come back to us because they get the most value from us for the prices they pay. If Express is going to change this equation, then we need to adapt our business model toaccommodate the changes. Salsgiver realized that before she could make a decision on the Express proposal she needed to answer a number of questions, among them: How many of A/S’s customers were likely to switch some of their purchases to Express? How would this affect A/S’s sales and profitability? How would A/S’s suppliers react to Express? Finally, was Express a threat to or an opportunity for A/S?Arrow Electronics
It was common for semiconductor and electronic component manufacturers such as Intel and Motorola (hereafter referred to as suppliers) to deal directly with large original equipment manufacturers (OEMs). Typically, sales to these customers accounted for 65% to 75% of the suppliers’ sales. Suppliers franchised small numbers of distributors such as Arrow Electronics to1Dis-intermediation was the removal of a channel member (or intermediary) from a distribution channel.

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Professor Das Narayandas prepared this case with the assistance of Research Associate Sara Frug. HBS cases are developed solely as the basis for class discussion. Cases are not intended toserve as endorsements, sources of primary data, or illustrations of effective or ineffective management. This case is based in part on a case developed by Stephen P. Kaufman, CEO of Arrow Electronics, for in-house executive training. Some proprietary data have been disguised. Copyright © 1998 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

598-022

ArrowElectronics, Inc.

manage sales to the remaining customers that they could not serve directly, whether because of diminutive size or extensive service requirements. Arrow Electronics was a broad-line distributor of electronic parts, including semiconductors and passive components. Founded in 1935 to sell radio equipment, the company had undergone a number of major changes. Three Harvard Business School...