Case Study: Marshall Industries
Simon Higgs worked directly with CEO Rob Rodin to build Marshall Industries very first web site for it's public launch in 1994. This ground-breaking ecommerce project provided a 26% boost in sales for that financial year. The following was written by analysts prior to Marshall Industries' acquisition by Avnet Inc. in 1999 in a cash-stock-debt deal worth approximately $764.6M:
Marshall Industries is a large electronics distributor that has been in business since the 50s and recently reinvented itself in a way that made it the talk of the entire electronics distribution industry. Marshall has 38 locations with about 1300 employees, half of whom are sales people. CEO Rob Rodin describes the organization as a junction box, selling and packaging the goods of over a hundred suppliers to meet the needs of over 30,000 customers.
As a distributor of electronic parts, Marshall Industries represents about 150 different vendors like IBM and Texas Instruments to 1000's of small and mid-sized enterprises via a sales force consisting of 600 outside sales reps and a few thousand inside sales folks.
Marshall Industries was one of the first companies in its sector - distribution of electronic components - to recognise and take advantage of the opportunities offered by information systems, computer networking, collaborative tools, Intranets and the Internet. These new technologies play a key role in helping Marshall differentiate its offering from that of its competitors and establish a competitive advantage in what is basically a commodities market.
Marshall Industries is the fifth largest domestic US distributor of industrial electronic components and production supplies. Sales growth really took off in 1993, when total sales grew at 13.5%, followed by 26% in 1994 and 22.7% in 1995. Most of Marshall's customers are OEM manufacturers in computer mainframes, office equipment, communication, etc. Marshall distributes semiconductors, connectors, passive components, computer systems and peripherals, production supplies, tool kits, instrumentation and workstations from 150 suppliers, mainly brand-names. The products fall into over 170,000 individual parts numbers.
Marshall faces two challenges today. It needs to maintain the first-mover advantage it gained through using the new technologies to improve and optimise its relationship with its constituents, as its competitors follow in its footstep and start offering similar services; this will be achieved through constant innovation. In addition it needs to learn how to compete in a new market, the interactive and entertainment services industry; this will mean developing new skills beyond technological competencies.
Rob Rodin, the CEO, clearly wanted his company to be seen as an innovator, ahead of its competitors. These objectives of course were subject to the need that the changes generate revenues and new customers, although Marshall does not focus as much as its competitors on financial targets at the micro, individual activity levels. Instead, it is more interested in the global effects of the company. This means that projects such as the redesign of information systems and the introduction of groupware, Intranets and Internet were not implemented on the basis of a predicted fixed ROI. Top management was however convinced (and remains convinced) that electronic-based applications would significantly contribute to the company's financial results.
Before implementing electronic-based applications, Marshall did carry out some basic market research. It organised focus groups with customers (who would be the future users of the systems) and employees (who were the most familiar with the legacy systems). Many engineers declared that they did not see a use for electronic-based applications. However, Marshall believed that these results were due to generational differences among engineers, since a 25 year-old engineer is completely different from a 50 year-old engineer.
In the beginning therefore Marshall made the decisions for its constituents - customers, suppliers and employees. Believing that customers do not always know what they want in advance.
Marshall distinguishes between two different kinds of customers:
- Design engineers, who constitute its core customers. These people are looking for technological specs and want to know what's out there and how it all compares. Although they had declared that they would not use the billboard advertising on the Web during the original focus groups, in reality they make extensive use of these and advertising has become a major source of revenues for Marshall. Purchasing is almost spontaneous. The Internet has given these customers a vehicle facilitating their purchases. They are given information concerning price, availability and product characteristics. Marshall was actually forced to create sites for more than 50 of its suppliers, which did not have a Web presence.
Suppliers provided the content and Marshall converted this content into a harmonized site. Some suppliers showed strong resistance and invoked all kinds of reasons for not wanting to prepare such sites, such as legal reasons (what if there is a mistake in the specifications?). Marshall convinced them by proving to them that there was little difference between information on the Internet and information on paper, that the problems in the real world were the same as the problems in the virtual world.
- Purchasing departments of manufacturing companies, who are negotiating long-term, high-volume, high-price contracts with Marshall. They care more about prices, lead times, ordering forms, out-of-stocks, etc. Their relationship with Marshall continues to be mainly based on direct, telephone or face-to-face interactions.
Marshall's Internet solution contains password/SSL-protected areas with customised information for specific classes of users. A new service specific for design engineers should soon be introduced. It is used by suppliers to find information about sales volumes, design registration activity, pending sales opportunities and quotations. Customers use it to find information about backlog, credit limit, work in progress, purchases to date, pricing and inventory.
The nature of Marshall's relationships with its suppliers depended on the sophistication of these suppliers. The least sophisticated waited for monthly paper reports on the state of business. However suppliers realised that they could not afford to wait 30 days to get the information and that constant, up-to-date information was necessary. Marshall undertook an aggressive campaign to move over its suppliers to electronic-based solutions. It organised interactive multimedia seminars over the Internet, to which over 100 suppliers participated. Suppliers understood that they needed to follow in order to remain competitive.
Marshall is currently running a pilot program to test the potential for doing EDI over the Internet. As there is too little demand yet from suppliers, Marshall prefers to wait until suppliers integrate this technology into their workflow before it starts pushing this feature.
The company also claims that the Web site has produced 125,000 new customers since 1994 and that 10,000 new addresses are logged on each month from 67 countries. A reliable cost-benefit analysis is difficult to carry out. On the cost side, the company says it has invested $1 million in development costs of the Web site since 1994. During the last three years employment decreased 16% while sales doubled.