601-131 Delivery Problems at Arrow Electronics,Inc.(A) accommodate the newly acquired companies.Scheihing had learned that acquired companies often had developed interesting and more effective approaches to various aspects of managing the business,which she would try to incorporate into Arrow's processes and MIS system soon after the system integration was complete. Up until the mid-1980s,SMRs would take a call from their customers,quote the price and availability on the product ordered over the phone,and would then write the order on a paper form. The order form went to the General Manager's desk where it sat in a wire basket,awaiting approval. Once approved,the order entry clerk entered the order into the on-line system,which then processed the order and immediately directed it to the appropriate warehouse.Orders for same-day shipment had to be printed in the warehouse by 4:00 p.m.in order to be picked,packed and given to the transportation carriers,who generally made their last pick-up at Arrow's PDCs between 5:00 p.m. and 6:00 p.m.This process is charted in Exhibit 5. For the most part,GMs reviewed orders to make sure they met minimum gross margins,and to check for accuracy of price quoted.Only very rarely was an order rejected once taken from the customer,and prices were virtually never changed even if the SMR had used bad judgment in determining the pricing.In such circumstances,the GM usually decided that there would be more harm to customer relations in calling and trying to raise the price of an order the customer assumed had been accepted,than benefit from the potential price increase.However,discussing it with the SMR(or FSR)provided an opportunity to coach and train them in what constituted a "bad"and "good"order for Arrow.In general,a good order was one that contained only accurate information and had a gross margin as high as possible,given its contents,the state of the market,and the customer's profile. In the late 1980s,Arrow enhanced the order entry system to allow SMRs to enter orders themselves,while on the phone with their customers (called Direct Order Entry,or "DOE"), eliminating the need for a paper form.With this system,a customer order could be "built"on-line as the phone conversation between customer and SMR proceeded.This required training Arrow's sales force to use a new and unfamiliar on-line transaction-and to adjust their views of the division of labor involved in the order process.At the same time,under pressure from local competitors,Arrow had extended the "same-day shipment"window and began advertising that orders received by 5:00 p.m.would be shipped the same day (as opposed to the previous 4:00 p.m.cut-off time). Initially,most SMRs did not use the DOE,perceiving the data entry task as clerical,menial,and inappropriate for skilled and highly paid sales personnel.They were familiar with,and liked,the paper forms they had used for years,and which provided them a permanent hard copy of the order. Furthermore,the new DOE screen and transaction was somewhat clumsy and not very user friendly. In addition,it turned out,many of the older SMRs could not type well.Finally,management had not eliminated the original paper order forms,making it possible for the SMRs to continue in their old ways. During the acquisition of Schweber,Scheihing concluded that they had a superior and more user- friendly DOE system than Arrow-called "scratch-pad"-which she had integrated into the Arrow system shortly after the merger was completed.During the programming of this revised DOE system,Kaufman had asked for a number of enhancements and adaptations to be made.In January of 1992 he had returned from a one-week executive education course at a well-known eastern business school.While at the course he had become intrigued with the classes led by a noted senior professor of industrial marketing on value creation and margin improvement through more intelligent pricing mechanisms and sales force management.A result of the classes and a dinner with the professor,Kaufman decided that Arrow's on-line system should be modified to automatically monitor pricing decisions around the country.This would happen minute by minute,city by city, 6 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
601-131 Delivery Problems at Arrow Electronics, Inc. (A) 6 accommodate the newly acquired companies. Scheihing had learned that acquired companies often had developed interesting and more effective approaches to various aspects of managing the business, which she would try to incorporate into Arrow’s processes and MIS system soon after the system integration was complete. Up until the mid-1980s, SMRs would take a call from their customers, quote the price and availability on the product ordered over the phone, and would then write the order on a paper form. The order form went to the General Manager’s desk where it sat in a wire basket, awaiting approval. Once approved, the order entry clerk entered the order into the on-line system, which then processed the order and immediately directed it to the appropriate warehouse. Orders for same-day shipment had to be printed in the warehouse by 4:00 p.m. in order to be picked, packed and given to the transportation carriers, who generally made their last pick-up at Arrow’s PDCs between 5:00 p.m. and 6:00 p.m. This process is charted in Exhibit 5. For the most part, GMs reviewed orders to make sure they met minimum gross margins, and to check for accuracy of price quoted. Only very rarely was an order rejected once taken from the customer, and prices were virtually never changed even if the SMR had used bad judgment in determining the pricing. In such circumstances, the GM usually decided that there would be more harm to customer relations in calling and trying to raise the price of an order the customer assumed had been accepted, than benefit from the potential price increase. However, discussing it with the SMR (or FSR) provided an opportunity to coach and train them in what constituted a “bad” and “good” order for Arrow. In general, a good order was one that contained only accurate information and had a gross margin as high as possible, given its contents, the state of the market, and the customer’s profile. In the late 1980s, Arrow enhanced the order entry system to allow SMRs to enter orders themselves, while on the phone with their customers (called Direct Order Entry, or “DOE”), eliminating the need for a paper form. With this system, a customer order could be “built” on-line as the phone conversation between customer and SMR proceeded. This required training Arrow’s sales force to use a new and unfamiliar on-line transaction—and to adjust their views of the division of labor involved in the order process. At the same time, under pressure from local competitors, Arrow had extended the “same-day shipment” window and began advertising that orders received by 5:00 p.m. would be shipped the same day (as opposed to the previous 4:00 p.m. cut-off time). Initially, most SMRs did not use the DOE, perceiving the data entry task as clerical, menial, and inappropriate for skilled and highly paid sales personnel. They were familiar with, and liked, the paper forms they had used for years, and which provided them a permanent hard copy of the order. Furthermore, the new DOE screen and transaction was somewhat clumsy and not very user friendly. In addition, it turned out, many of the older SMRs could not type well. Finally, management had not eliminated the original paper order forms, making it possible for the SMRs to continue in their old ways. During the acquisition of Schweber, Scheihing concluded that they had a superior and more userfriendly DOE system than Arrow—called “scratch-pad”—which she had integrated into the Arrow system shortly after the merger was completed. During the programming of this revised DOE system, Kaufman had asked for a number of enhancements and adaptations to be made. In January of 1992 he had returned from a one-week executive education course at a well-known eastern business school. While at the course he had become intrigued with the classes led by a noted senior professor of industrial marketing on value creation and margin improvement through more intelligent pricing mechanisms and sales force management. A result of the classes and a dinner with the professor, Kaufman decided that Arrow’s on-line system should be modified to automatically monitor pricing decisions around the country. This would happen minute by minute, city by city, This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Delivery Problems at Arrow Electronics,Inc.(A) 601-131 and product by product,on a real-time basis,as a way to stem,and perhaps reverse,the gross margin decline that the company had been experiencing. During implementation of the revised scratch-pad system,Arrow re-trained its SMRs to use the new DOE,and eliminated most order entry clerk positions as well as the old order entry forms.Some SMRs continued to write their orders in a personal notebook by hand while on the phone,and then entered them into the DOE system during slack periods throughout the day.Most SMRs,however, used the new system as intended to enter orders on-line throughout the day.GMs were still required to review the orders,but through a new on-line screen and transaction called MGRAP(for Manager Approval).The orders were queued real-time in a "virtual"in-box,accessible only to the GM for review and release,replacing the prior approval procedure using the paper order form.(The revised DOE order management process is also described in Exhibit 5.) The Order Surge Early in 1992,Arrow's four PDCs began to lose their ability to ship all orders on the same day they were taken.The company's same day shipping performance dropped from over 94%shipped to 75% within a few quarters.Customers,and Arrow's own sales people,complained loudly as the company continued to miss the committed arrival dates quoted to customers at the time of their orders. Scheihing assumed this was the normal result of closing Schweber's three main warehouses and transferring the inventory and shipping load to Arrow's four PDCs.However,by June 1992,the Schweber warehouse consolidation was complete,and staffing and management in Arrow's PDCs had been increased and stabilized,yet Arrow's same-day shipping performance was still not back to the 94+%it had regularly maintained prior to the Schweber acquisition.The four PDC managers complained that a large surge of orders"dropped"in the warehouse late in the day,making it impossible to prepare all of them for the various freight carriers'last pick-up(usually around 6 p.m.). As a result,each morning the PDC managers were forced to change the shipping method on an increasing number of the prior days'"held-over"orders to reclassify them as "priority-next day air" shipments,at much greater expense to Arrow,to ensure they would arrive at the customer by the promised arrival date. Possible Solutions During the most recent monthly staff meeting,the executive committee had discussed the poor shipping performance issue for 15 or 20 minutes,some of it quite heated.Scheihing had described the problem as resulting from a late day surge in orders hitting the PDCs in such quantities that it was not possible to pick and ship them by the last carrier pick-up.The senior vice president of Sales had responded that"we damn well better figure out a way to handle these late in the day customer orders or we will find our competitors eating into our share.When I was a sales rep,customers always placed their orders late in the day,having spent the morning and early afternoon calling around to all the distributors looking for the best price." As he said that,Scheihing thought back to her seven years as the operations manager in the Philadelphia branch and recalled that there was some truth to his statement.In those days,each branch had its own warehouse and delivery trucks,so the late orders just meant a little overtime in the warehouse and an early start the next morning for their driver.Obviously,with the closing of the local branch warehouses and the building of the four PDCs,the situation had changed dramatically. The senior Sales vice president went on to say that"maybe all this centralization and all these acquisitions have just made us too big,fat,and slow to be responsive to the needs of our customers. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Delivery Problems at Arrow Electronics, Inc. (A) 601-131 7 and product by product, on a real-time basis, as a way to stem, and perhaps reverse, the gross margin decline that the company had been experiencing. During implementation of the revised scratch-pad system, Arrow re-trained its SMRs to use the new DOE, and eliminated most order entry clerk positions as well as the old order entry forms. Some SMRs continued to write their orders in a personal notebook by hand while on the phone, and then entered them into the DOE system during slack periods throughout the day. Most SMRs, however, used the new system as intended to enter orders on-line throughout the day. GMs were still required to review the orders, but through a new on-line screen and transaction called MGRAP (for Manager Approval). The orders were queued real-time in a “virtual” in-box, accessible only to the GM for review and release, replacing the prior approval procedure using the paper order form. (The revised DOE order management process is also described in Exhibit 5.) The Order Surge Early in 1992, Arrow’s four PDCs began to lose their ability to ship all orders on the same day they were taken. The company’s same day shipping performance dropped from over 94% shipped to 75% within a few quarters. Customers, and Arrow’s own sales people, complained loudly as the company continued to miss the committed arrival dates quoted to customers at the time of their orders. Scheihing assumed this was the normal result of closing Schweber’s three main warehouses and transferring the inventory and shipping load to Arrow’s four PDCs. However, by June 1992, the Schweber warehouse consolidation was complete, and staffing and management in Arrow’s PDCs had been increased and stabilized, yet Arrow’s same-day shipping performance was still not back to the 94+% it had regularly maintained prior to the Schweber acquisition. The four PDC managers complained that a large surge of orders “dropped” in the warehouse late in the day, making it impossible to prepare all of them for the various freight carriers’ last pick-up (usually around 6 p.m.). As a result, each morning the PDC managers were forced to change the shipping method on an increasing number of the prior days’ “held-over” orders to reclassify them as “priority-next day air” shipments, at much greater expense to Arrow, to ensure they would arrive at the customer by the promised arrival date. Possible Solutions During the most recent monthly staff meeting, the executive committee had discussed the poor shipping performance issue for 15 or 20 minutes, some of it quite heated. Scheihing had described the problem as resulting from a late day surge in orders hitting the PDCs in such quantities that it was not possible to pick and ship them by the last carrier pick-up. The senior vice president of Sales had responded that “we damn well better figure out a way to handle these late in the day customer orders or we will find our competitors eating into our share. When I was a sales rep, customers always placed their orders late in the day, having spent the morning and early afternoon calling around to all the distributors looking for the best price.” As he said that, Scheihing thought back to her seven years as the operations manager in the Philadelphia branch and recalled that there was some truth to his statement. In those days, each branch had its own warehouse and delivery trucks, so the late orders just meant a little overtime in the warehouse and an early start the next morning for their driver. Obviously, with the closing of the local branch warehouses and the building of the four PDCs, the situation had changed dramatically. The senior Sales vice president went on to say that “maybe all this centralization and all these acquisitions have just made us too big, fat, and slow to be responsive to the needs of our customers. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012