Executive Briefings

Arrow Electronics Expands Definition of 'Distributor'

Company focuses on value-added supply-chain services An interview with Paul Katz, director of digital supply-chain solutions

Arrow Electronics

Paul Katz
VP of Digital Supply-chain Solutions

Robert M. Hribernik is vice president-global supply chain with Baxter Healthcare Corporation, headquartered in Deerfield, Ill. In his current position, created by the company in April 2000, he is responsible for the entire supply-chain processes of Baxter's business divisions. He is also a member of the company's Operations Management Team, consisting of senior management. His previous positions include vice president of distribution and logistics with TechData Corp., vice president of logistics and supply chain at Bruno's Inc., and director of global logistics with Bausch & Lomb Inc.


Q. You joined Arrow two years ago as vice president of digital supply-chain solutions. Did this title denote a new strategic approach for Arrow?

A. Arrow has a long history of doing a lot of good things related to the supply chain, but right about 1999 there was a crystallization of thinking under Francis Scricco, who was a relatively new CEO, to begin to focus on supply-chain management as a business. So my becoming part of the Arrow team made sense at that time for all concerned. The organization that has evolved under me includes a group of people who work on developing or designing supply-chain solutions with our customers that draw on the various service capabilities that we have. These are fairly sophisticated people, usually 20-year veterans who have come out of both industry and consulting experience, who know how to go in and do a business needs analysis for the customer and in a number of cases they actually do a total cost of ownership analysis. This leads to dialog about activities where Arrow ultimately can play. Sometimes they come up with models where Arrow doesn't play, but it's all in the spirit of solving our customers' most significant needs and priorities relative to the supply chain.

Behind this forward-facing group is a group of people who maintain the actual value-added programs that we have today. We have, for example, in the commerce arena a tool called e-Compass which stands for Customer Originated Material Planning and Scheduling System. It grabs the customer's MRP [materials resource planning] and integrates it with our systems. Maintaining that product and others like automatic replenishment, or kitting and turnkey services are what this group does.

Q. It sounds like Arrow does a lot more than a typical distributor. What was the thinking that put the company on this path?

A. Yes, I think we here at Arrow struggle with the term distributor because it doesn't begin to describe what we do. There were two things, I believe, that moved Arrow in this direction and that were coming together over the period from the late '80s to the early '90s. This was a time when OEM companies began to realize they were far better off investing in R&D than in inventory and our customers were increasingly expressing a need for services around their supply-chain activities.

Arrow had always been working on building bulletproof, scaleable capabilities in terms of buying and selling parts, but customers were incrementally requesting different kinds of services. In the late '80s, Arrow was one of the first companies to have an in-plant store, where it literally took over running the warehouse and managing the materials for a customer on site.

Another thing we started doing is what we call programming, which is coding electronic components. These were things that were traditionally done inside an enterprise, but as companies de-verticalized they unbundled some of these things and said, 'Arrow, can you do this for me?' So we built up a whole laundry list of services out of that demand. Currently, we maintain a list of 43 services, which just kind of grew out of customers' progressive needs.

The other thing that happened in parallel was an increasing recognition that companies needed to be electronically linked. This happened in fairly small steps, but as people began to share portions of their bill of materials, we started moving toward a scheduled business. Arrow responded by enhancing its own internal technologies and putting in place EDI linkages with customers and suppliers.

I arrived on the scene at a point where much of the brick-and-mortar capability was in place and some of the electronic commerce was beginning to take shape, so the platform was there for an integrated supply-chain solution. We saw that we could solve the customer's most important supply-chain needs in terms of enhancing flexibility, improving time to market, reducing working capital, and containing or even reducing head count, so we focused on the objective of satisfying our customer's supply-chain needs. We now have a portfolio of value-added services that we have been building out very aggressively over the last couple of years, along with the e-commerce tool set to make it all work smoothly.

Q. What functions do the Arrow Digital Solutions enable and is that changing?

A. Because of where we are in the supply chain we developed this linked, and now interactive, relationship with our customers. We pass information back and forth with them, and we have information that comes from our suppliers as well, so our digital solutions draw on that. The solutions are always growing in terms of features and functionality, but those already available in the marketplace include Arrow Risk Manager, which provides key information about the procurement or the procurability of components. How available is this component? How many suppliers are there? Where is the component in its life cycle? What is the nature of customer usage? All the pieces of information that ultimately tell you whether this component has a high-risk profile or is one that would be easily manageable. This is very valuable information because parts evolve so fast in this industry. A component engineer, for example, could easily select a part that is about to go end-of-life and that is not healthy for anybody. So we help the customer right from the conceptualization phase to reduce the risk in the bill of materials. This is available as a tool that the customer can access whether they ever buy parts from Arrow or not.

Arrow Alert is a way of taking that same information and making it more dynamic and specific to the customer's activities. It interactively updates customers on what is changing in their bills of material, rather than have them find it out at the next buy point or the next RFQ. If some components are now no longer available or are at risk of not being available with high reliability, the customer is actually proactively notified of that. And configurability lets the customer decide what he wants to get notified on. There are some companies that want to know if anything changes, even though the change may only be the manufacturing site. Others only want to know about changes in the risk profile or about real, tangible changes like the footprint it will take on the board.

The third tool is Arrow Collaborator and what this does is marries information that we have about the customers' forecasts, their MRP, with the information we have about the availability of components. This tool was recently introduced and focuses on what we believe to be key touch points for the customer: where are the gaps in my supply chain, what are the things I really need to address today? This is valuable knowledge sharing. I know of no other tool that can have this marriage of collaboration and interaction of information with the kind of content that we have available. And, again, it can be configured in the way the customer wants, whether they are concerned about what is happening in the next two weeks or they're worried about six weeks out. So, first, it's what are the most acute problems I need to address, then what can I do about them? What are my options? When will these gaps either naturally close or what actions can I take to close them? And finally it looks at how did I get here? What happened in terms of engineering changes or parts that somehow dropped off the MRP communication, or what was wrong in the behavior of my forecast that led me to all of this? Because at the end of the day it isn't just about how Arrow or any supplier responds to the customer, it is also how well the customer has its process under control.

Q. What type of process failures do you commonly run into?

A. We have learned through hundreds of engagements that things happen with electronic transmissions, particularly duplications. The marketing department may throw in some new twist that wasn't intended to make its way through to the MRP, but it comes through anyway. It's amazing the things that happen. So we wanted to put in a sort of process control capability to help identify things that are bouncing around and that need attention, as well as a tracking methodology. We keep six months of history for the customer that shows if they are getting better in the quality of their forecast, or in the kind of spikes that raise havoc with forecasts. It's one thing to have a forecast that isn't quite what you purchased; it's another thing when you forecasted five pieces and you actually needed 5,000. Those are spikes that make it tough to respond. The tool is there to help identify those kinds of gaps and to close them, but closing them is also about process control and workflow. That is our mindset here - an approach that drives toward improving the process, because the information is there to help you do it and to track whether you are making progress.

Q. You have enumerated the benefits of your value-added services for customers. What are the benefits to Arrow?

A. Arrow's rapid growth certainly has been helped by the value-added programs that we offer. Today almost 70 percent of Arrow's business in North America and close to 55 percent globally is associated with some form of value-added service. And there is the fact that it has enabled us to build relationships with our customers and to really know their business.

As we move forward, we are focusing on more explicitly capturing the value of these services. Our total cost of ownership analyses show tremendous benefits to the customers and we are moving toward models where the service aspects of what we provide are broken out and placed on a fee-for-service basis.

Q. Do you think you might spin the services off as a separate company at some point?

A. Well, we are moving very aggressively to build out the capabilities. But in terms of a business model, there are pieces of what we do that are just so core to our business - the everyday aspects of getting closely in line with the customers needs, from the time they start the conceptual aspect of a product until it goes into full-scale production. So I think these supply-chain capabilities will always be there as an integral part of the core selling business of Arrow. In effect, the selling business of Arrow changes from being just distribution of parts to a provider of goods and services, right in the core business. And, as I said before, the way we get paid is beginning to change. The Arrow Digital Solutions are all sold separately and the revenue streams are separate, but I don't think we will form a separate company per se.

Q. What is your primary goal for the coming year?

A. We are trying to keep focused on getting full traction with the things that have already been introduced and making sure that refinements take place in terms of how they are implemented, and working smoothly. Nothing is every quite done. That is one of the things I have learned - there is always room for improvement in anything. And we are not that far from introducing new features and functions that will collectively become the next generation of tools. Our customers include OEMs and contract manufacturers so we are focusing on addressing needs that arise out of the outsourced manufacturing model -"what if" scenarios and how to more effectively deal with complexities like the triangulation and reconciliation of information that needs to occur.

Q. What do you consider the most significant learnings of your supply-chain career?

A. Even though I have talked a lot about technology solutions here, one is that the answer does not lie just in technology. You still really have to think through the network - how many warehouses and the flow of materials, the stuff we used to worry about 20 years ago. The most effective supply chains really work through this and through the issues of who is going to do what work. As this outsourcing trend becomes more prevalent, it is important to not get into an over-the-wall mentality, but to understand what the customer will do, what Arrow will do, what the contract manufacturer will do - really thinking that through and having it clearly established.

And finally, recognizing that the world works differently in different situations. The component for which there are 10 or 15 suppliers and thousands of customers is just a different animal than the component that is being used by three customers in the world.

Arrow Electronics

Paul Katz
VP of Digital Supply-chain Solutions

Robert M. Hribernik is vice president-global supply chain with Baxter Healthcare Corporation, headquartered in Deerfield, Ill. In his current position, created by the company in April 2000, he is responsible for the entire supply-chain processes of Baxter's business divisions. He is also a member of the company's Operations Management Team, consisting of senior management. His previous positions include vice president of distribution and logistics with TechData Corp., vice president of logistics and supply chain at Bruno's Inc., and director of global logistics with Bausch & Lomb Inc.


Q. You joined Arrow two years ago as vice president of digital supply-chain solutions. Did this title denote a new strategic approach for Arrow?

A. Arrow has a long history of doing a lot of good things related to the supply chain, but right about 1999 there was a crystallization of thinking under Francis Scricco, who was a relatively new CEO, to begin to focus on supply-chain management as a business. So my becoming part of the Arrow team made sense at that time for all concerned. The organization that has evolved under me includes a group of people who work on developing or designing supply-chain solutions with our customers that draw on the various service capabilities that we have. These are fairly sophisticated people, usually 20-year veterans who have come out of both industry and consulting experience, who know how to go in and do a business needs analysis for the customer and in a number of cases they actually do a total cost of ownership analysis. This leads to dialog about activities where Arrow ultimately can play. Sometimes they come up with models where Arrow doesn't play, but it's all in the spirit of solving our customers' most significant needs and priorities relative to the supply chain.

Behind this forward-facing group is a group of people who maintain the actual value-added programs that we have today. We have, for example, in the commerce arena a tool called e-Compass which stands for Customer Originated Material Planning and Scheduling System. It grabs the customer's MRP [materials resource planning] and integrates it with our systems. Maintaining that product and others like automatic replenishment, or kitting and turnkey services are what this group does.

Q. It sounds like Arrow does a lot more than a typical distributor. What was the thinking that put the company on this path?

A. Yes, I think we here at Arrow struggle with the term distributor because it doesn't begin to describe what we do. There were two things, I believe, that moved Arrow in this direction and that were coming together over the period from the late '80s to the early '90s. This was a time when OEM companies began to realize they were far better off investing in R&D than in inventory and our customers were increasingly expressing a need for services around their supply-chain activities.

Arrow had always been working on building bulletproof, scaleable capabilities in terms of buying and selling parts, but customers were incrementally requesting different kinds of services. In the late '80s, Arrow was one of the first companies to have an in-plant store, where it literally took over running the warehouse and managing the materials for a customer on site.

Another thing we started doing is what we call programming, which is coding electronic components. These were things that were traditionally done inside an enterprise, but as companies de-verticalized they unbundled some of these things and said, 'Arrow, can you do this for me?' So we built up a whole laundry list of services out of that demand. Currently, we maintain a list of 43 services, which just kind of grew out of customers' progressive needs.

The other thing that happened in parallel was an increasing recognition that companies needed to be electronically linked. This happened in fairly small steps, but as people began to share portions of their bill of materials, we started moving toward a scheduled business. Arrow responded by enhancing its own internal technologies and putting in place EDI linkages with customers and suppliers.

I arrived on the scene at a point where much of the brick-and-mortar capability was in place and some of the electronic commerce was beginning to take shape, so the platform was there for an integrated supply-chain solution. We saw that we could solve the customer's most important supply-chain needs in terms of enhancing flexibility, improving time to market, reducing working capital, and containing or even reducing head count, so we focused on the objective of satisfying our customer's supply-chain needs. We now have a portfolio of value-added services that we have been building out very aggressively over the last couple of years, along with the e-commerce tool set to make it all work smoothly.

Q. What functions do the Arrow Digital Solutions enable and is that changing?

A. Because of where we are in the supply chain we developed this linked, and now interactive, relationship with our customers. We pass information back and forth with them, and we have information that comes from our suppliers as well, so our digital solutions draw on that. The solutions are always growing in terms of features and functionality, but those already available in the marketplace include Arrow Risk Manager, which provides key information about the procurement or the procurability of components. How available is this component? How many suppliers are there? Where is the component in its life cycle? What is the nature of customer usage? All the pieces of information that ultimately tell you whether this component has a high-risk profile or is one that would be easily manageable. This is very valuable information because parts evolve so fast in this industry. A component engineer, for example, could easily select a part that is about to go end-of-life and that is not healthy for anybody. So we help the customer right from the conceptualization phase to reduce the risk in the bill of materials. This is available as a tool that the customer can access whether they ever buy parts from Arrow or not.

Arrow Alert is a way of taking that same information and making it more dynamic and specific to the customer's activities. It interactively updates customers on what is changing in their bills of material, rather than have them find it out at the next buy point or the next RFQ. If some components are now no longer available or are at risk of not being available with high reliability, the customer is actually proactively notified of that. And configurability lets the customer decide what he wants to get notified on. There are some companies that want to know if anything changes, even though the change may only be the manufacturing site. Others only want to know about changes in the risk profile or about real, tangible changes like the footprint it will take on the board.

The third tool is Arrow Collaborator and what this does is marries information that we have about the customers' forecasts, their MRP, with the information we have about the availability of components. This tool was recently introduced and focuses on what we believe to be key touch points for the customer: where are the gaps in my supply chain, what are the things I really need to address today? This is valuable knowledge sharing. I know of no other tool that can have this marriage of collaboration and interaction of information with the kind of content that we have available. And, again, it can be configured in the way the customer wants, whether they are concerned about what is happening in the next two weeks or they're worried about six weeks out. So, first, it's what are the most acute problems I need to address, then what can I do about them? What are my options? When will these gaps either naturally close or what actions can I take to close them? And finally it looks at how did I get here? What happened in terms of engineering changes or parts that somehow dropped off the MRP communication, or what was wrong in the behavior of my forecast that led me to all of this? Because at the end of the day it isn't just about how Arrow or any supplier responds to the customer, it is also how well the customer has its process under control.

Q. What type of process failures do you commonly run into?

A. We have learned through hundreds of engagements that things happen with electronic transmissions, particularly duplications. The marketing department may throw in some new twist that wasn't intended to make its way through to the MRP, but it comes through anyway. It's amazing the things that happen. So we wanted to put in a sort of process control capability to help identify things that are bouncing around and that need attention, as well as a tracking methodology. We keep six months of history for the customer that shows if they are getting better in the quality of their forecast, or in the kind of spikes that raise havoc with forecasts. It's one thing to have a forecast that isn't quite what you purchased; it's another thing when you forecasted five pieces and you actually needed 5,000. Those are spikes that make it tough to respond. The tool is there to help identify those kinds of gaps and to close them, but closing them is also about process control and workflow. That is our mindset here - an approach that drives toward improving the process, because the information is there to help you do it and to track whether you are making progress.

Q. You have enumerated the benefits of your value-added services for customers. What are the benefits to Arrow?

A. Arrow's rapid growth certainly has been helped by the value-added programs that we offer. Today almost 70 percent of Arrow's business in North America and close to 55 percent globally is associated with some form of value-added service. And there is the fact that it has enabled us to build relationships with our customers and to really know their business.

As we move forward, we are focusing on more explicitly capturing the value of these services. Our total cost of ownership analyses show tremendous benefits to the customers and we are moving toward models where the service aspects of what we provide are broken out and placed on a fee-for-service basis.

Q. Do you think you might spin the services off as a separate company at some point?

A. Well, we are moving very aggressively to build out the capabilities. But in terms of a business model, there are pieces of what we do that are just so core to our business - the everyday aspects of getting closely in line with the customers needs, from the time they start the conceptual aspect of a product until it goes into full-scale production. So I think these supply-chain capabilities will always be there as an integral part of the core selling business of Arrow. In effect, the selling business of Arrow changes from being just distribution of parts to a provider of goods and services, right in the core business. And, as I said before, the way we get paid is beginning to change. The Arrow Digital Solutions are all sold separately and the revenue streams are separate, but I don't think we will form a separate company per se.

Q. What is your primary goal for the coming year?

A. We are trying to keep focused on getting full traction with the things that have already been introduced and making sure that refinements take place in terms of how they are implemented, and working smoothly. Nothing is every quite done. That is one of the things I have learned - there is always room for improvement in anything. And we are not that far from introducing new features and functions that will collectively become the next generation of tools. Our customers include OEMs and contract manufacturers so we are focusing on addressing needs that arise out of the outsourced manufacturing model -"what if" scenarios and how to more effectively deal with complexities like the triangulation and reconciliation of information that needs to occur.

Q. What do you consider the most significant learnings of your supply-chain career?

A. Even though I have talked a lot about technology solutions here, one is that the answer does not lie just in technology. You still really have to think through the network - how many warehouses and the flow of materials, the stuff we used to worry about 20 years ago. The most effective supply chains really work through this and through the issues of who is going to do what work. As this outsourcing trend becomes more prevalent, it is important to not get into an over-the-wall mentality, but to understand what the customer will do, what Arrow will do, what the contract manufacturer will do - really thinking that through and having it clearly established.

And finally, recognizing that the world works differently in different situations. The component for which there are 10 or 15 suppliers and thousands of customers is just a different animal than the component that is being used by three customers in the world.