Synnex Case Analysis

Date:         September 13, 2017

From:         Matthew Guinn

        Delaney Boyd

        Chandler Schnieder

To:        Dr. Dan Flint

Re:        IB 439 Synnex Case Analysis

Overview

Synnex, the world’s third largest electronic product distributor, is situated inside of a booming information industry.  Their company is in Taiwan which is known to be the world’s leader in numerous high-tech products.  They have grown from a local electronics distributor to now being a worldwide powerhouse that goes against conventional practices, has a full-range logistics operation, and advanced management information systems.  Synnex is considering extending its platform to cover additional products, e-marketing, and extending into foreign markets.  Synnex should extend its platform to other products and e-marketing, and extend into foreign markets.  We will also talk about how Synnex has positioned themselves in a strong position to have a competitive advantage in comparison to other Taiwanese electronics distributors.

External Distributors vs. In-country Sales Offices

There has been a booming industry that has attracted the likes of Microsoft and Intel.  A big area of concern for these companies was whether to use local distributors external from their company or developing in-country sales offices.  However, neither of these companies are familiar with the local environment.  So choosing to delegate product distribution to an indigenous firm is preferred as they know the local know how.  They already have relationships established, know the work culture, and the intricacies of operating in this field.  This allows these electronics companies to focus more on Research & Development instead of distributing the products themselves.  Also, distribution added a low-value to the product and also had minimal cost savings implications.  However, the market is very fragmented and securing distribution rights was a big challenge giving yet another reason to rely on this local firms to handle their distribution needs.  In addition, it was not very difficult for people already based in Taiwan to start their own company as it was very cheap and you didn’t need many employees.  When you compare all of these reasons to the cost a company would incur by creating their own internal sales force, you would be saving so much money relying on a better operating and cheaper external distributor.

Making sense of the Three Conventional Distribution Practices

All other companies that weren’t Synnex follow three basic practices that are considered “Conventional”.  The first two of the three was chasing after large volumes and dealing with big stores.  It was thought that all the small retail stores were too fragmented and there wasn’t enough money to be made.  So you find all the other distributors at the mercy of these large electronic companies pushing large amounts of inventory onto them that became obsolete very quickly.  However, they were able to get quantity discounts since they were purchasing such large amounts.  It was a good way for the firms to stay above water, but it was very hard for these companies to add value and make a good profit.  One of the biggest reasons that is comes from the reimbursement for unsold stock.  They were transferring the risk of carrying inventory onto their clients, and the risk is very high due to rapid price changes in technology.  Due to this, most manufacturers allowed distributors to reimburse retailers the value in losses they had incurred from their unsold stock.  When you combine all of these factors together it can make sense for a business that isn’t trying to revolutionize the way things are done.  You buy large amounts so you get a big discount.  You then sell these amounts to large retailers and reimburse for whatever is sold.  It’s fairly straightforward and you can make a little bit of money.  However, this wasn’t good enough for Synnex.

Synnex breaks these “Conventional Practices

Synnex was a new and young company with some of the best talent around.  They were innovators and seeking to find a way to add value to the job of a distributor that was seemingly a waste of money.  They saw how all of the smaller shops had been neglected.  They also saw the huge risk that was taken when you buy large amounts of stock that loses its value very quickly.  They were smart enough to tell smart retailers to not purchase more than their capacity.  They would rather have a higher than expected turnover and have higher service fees than a high inventory risk and bad debt.  The reason this was able to work was that would not reimburse the small shops for unsold stock.  The rationale behind this all is lowering risk, having a faster service, and centralization of inventory.  They were able to reduce the likelihood that one store would have items in stock while the other would be out of stock.  This risk sensitive and service forward organization revolutionized the electronic distribution industry.