Arrow Electronics’ CFO Inc.
turns to software to realize $ 130 million in annual savings on electronics distributor operations, an effort that could be expanded if the company’s outlook deteriorates due to trade tensions between the United States and the United States. China.
The Centennial, Colo.-Based company lowered its forecast in mid-July following lower sales. It posted a net loss of $ 549 million in the second quarter, compared to a profit of $ 170 million in the same quarter a year earlier. Arrow cited a drop in demand for all component products, all regions and most industries in a earnings release in early August.
“We don’t want a lasting impact on operating income and earnings per share,” CFO Chris Stansbury said in an interview on Tuesday. “Barring the moderating effects on demand from tariffs and trade wars, Arrow would have expected operating profit to increase year over year,” Stansbury said.
Arrow expects to collect $ 130 million in costs by the end of the year and its new enterprise resource planning system is expected to play a key role in achieving that goal, Mr Stansbury said.
The company’s ERP system links a range of business processes into a common data or network structure. ERP systems combine information on finance, inventory management, supply chain management and human resource management.
Arrow now operates three versions of the same ERP program in three business regions, the Americas, Europe and Asia. Integrating previously separate systems into the three they have now allows the CFO to have a more holistic view of the company’s operations, Mr Stansbury said.
The company is focusing on back office functions such as finance and human resources as well as warehousing and operations to reduce costs, Mr Stansbury said. It will also end its business of selling personal computers and mobility assets, a repair and recycling unit. Front-line engineering and sales staff will not experience cuts, Mr Stansbury said.
“ERP has enabled us to achieve all of these cost reductions,” said Stansbury. “We couldn’t have done them without it.”
Analysts expect a large chunk of the savings to come from job cuts.
“Their biggest cost is people,” said Shawn Harrison, vice president of Longbow Research LLC. “The only area where they’re not cutting expenses are their engineering and design teams. “
The company employed around 20,100 people as of Dec.31, according to Arrow’s annual report.
The new ERP system will help the business during the current uncertain economic phase, Mr. Harrison said. Arrow gets better visibility of its accounts receivable and accounts payable through the software, he said.
The system could also increase efficiency across departments, reducing the potential need for further reductions in a year or two, said Steven Fox, managing director of Cross Research LLC.
“If there are any side economic effects, we obviously have to start over,” Stansbury said. He added that current cost-saving measures would not be enough to fully compensate for the company’s lost profits.
Trade tensions between the United States and China have hurt Arrow customers, Mr Stansbury said. “I don’t think the tariffs are going to go away,” he said, adding that “it is a moving target”.
Arrow passes the cost of tariffs on to its customers in the form of higher prices, Mr Stansbury said. “Tariff pain comes in the form of lower demand, resulting in lower sales, resulting in decreased ability to generate profit relative to our fixed expense base,” he said. .
The company has approximately 200,000 customers worldwide, many of which are small and medium-sized industrial enterprises. “What they see in their business is a direct reading of manufacturing trends on a global scale,” said Mr. Harrison of Longbow.
Activity at US factories contracted for the first time in three years in August. New factory orders, employment and production all declined last month from July, according to manufacturing figures released Tuesday by the Institute for Supply Management.
—Mark Maurer contributed to this article.
Write to Nina Trentmann at [email protected]
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