Leading low-volume high-mix distributor Digi-Key Corp. is gradually expanding into the prototype and low-volume production business. In Digi-Key Ventures Deeper into Supply Chain, Electronics Purchasing Strategies managing editor Barbara Jorgensen spoke with Dave Doherty, vice president of Global Supplier and Product Operations for Digi-Key, to find out how Digi-Key is managing this growing venture. In the second part of this interview, Doherty talks about how Digi-Key has modified its operations to manage both volume and on-demand orders.
EPS: When Digi-Key has a customer that starts with engineering orders and moves into production-level orders, does the customer work with the same Digi-Key sales rep or account manager?
Doherty: Customers generally stay with the same [Digi-Key] contact, although we’ll provide some modification and additional services if it’s warranted. We will assign sales reps [if a customer wants] or customers can continue to choose self-service. But we do have people in-house that look at customer behavior and if an order swings in one direction or another we’ll ask [the customer] if we missed something. Maybe there is a BOM item that went end-of-life. We have the infrastructure available to give customers more opportunity to review their transactions. At the same time we have 300 people that handle inside sales. We understand customers don’t like [sales rep] turnover so we try to maintain continuity.
EPS: How does Digi-Key manage the level of technical support is known for? Are all sales reps trained in all the products?
Doherty: We believe technical support is our responsibility and we provide a level of service and support that you would get [directly from a vendor]. We work with our vendors and our customers and we get as deeply involved as traditional field applications engineers [FAEs]. We have a board shop and we design solutions that we submit to the manufacturer. Although we are an online distributor we are not out of sight: we know our customers and suppliers expect we will provide a high level of support.
EPS: Do you participate in demand-creation programs?
Doherty: We won’t call our customer and query them on the name of their project or when it is expected to go into production. But we will provide some visibility [to suppliers] so suppliers know we touched the customer early in the design cycle.
EPS: Has Digi-Key had to modify its business model – shipments are handled out of Thief River Falls – to manage the production business?
Doherty: We continue to upgrade and carry more inventory and we’ve filled most of the available warehouse space; and we are looking to move to the next stage to better handle forecasting.
Forecasting is a different business – you have to look in the rear-view mirror and use the law of big [volume] numbers. But if you recognize repeat patterns and have enough small numbers you can forecast a certain amount of demand. That has prompted the need for more physical space and we have had to become more sophisticated and replenish the inventory more often, but that sits on top of our core model. The good news is we don’t get too heavily concerned with our return on working capital and we wait to see inventory burned down.
EPS: Companies in the past have tried to manage a catalog business within a volume business with not-so-great success. How is Digi-Key doing things differently?
Doherty: What I believe happens is the traditional guys are looking to play down the food chain [and use catalogs] to identify the bigger customers early. But if you can’t service this business – such as break reels down for one piece – in a cost-effective manner it is not a portable model. In these transactions of what we call volume, we are satisfied with the transaction size and we aren’t in the game so we can be a loss leader.
I think the bigger guys struggle [in the volume vs. catalog] business. We ship a lot of products that come from reels we have broken down – we are not a machine that can support the bigger-box sales—we use our inventory more efficiently. All of our orders are handled with the same process flow and the genius of [our volume business] is it fits the traditional [catalog] model. Our transaction size is smaller than packaged quantities and if we break down reels those parts stay in the bin until we sell them.
EPS: How has the expansion into global markets changed Digi-Key’s model, if at all?
It’s interesting – we see our business almost as customers that outsource heavily [such as in Asia] or those that prototype a lot [in the Americas and EMEA] – these issues transcend boarders. What we do see is the need to create new products [globally] is more important than it has ever been .
Asia was initially a bit of an unknown [regarding the catalog business] but now we see [Chinese] engineers coming out of schools and they are using EDA and they can get cheaper more efficient board-level products and then they develop something. The next step is they need components and they want to buy them though a secure outlet. I couldn’t be more bullish about what the future will bring.
As to the physical logistics, we are starting to add some presence in foreign markets. The difference you see once you get into the production business is customers want a face behind the company. Although customers have great relationships with Digi-Key sales reps they’d be hard-pressed to describe anyone they met from the company. We have found there is some sense of confidence from customers when you have a sales office and a presence in their market. Customers like a local touch.