Digi-Key Corp. is intensifying engagement with small to medium-size OEMs by expanding globally a range of programs it has instituted to support customers demanding supply chain management activities. The component distributor says the supply chain functions are complementary to the design chain services it is reputed for, noting these will remain at the core of its services to the electronics industry.
The strategic objective behind the supply chain support services, which Digi-Key introduced several years ago at the urging of some OEM customers, is to enable these companies quickly bring products to market, reduce overall production costs and maintain a competitive edge against larger rivals according to company executives.
While the supply chain support offerings Digi-Key has introduced over the last years were driven primarily by customer demand the company too believes in closely aligning its extensive design chain support activities with the production operation of customers to improve the success of their product introduction programs, according to Steve Vecchiarelli, head of supply chain services at the Thief River Fall, Minn., electronics components distributor.
“Since we are involved from the design phase some customers asked us also to collaborate with their contract manufacturers to make sure there are no hiccups when they bring products to market,” Vecchiarelli said in a recent interview. “Our biggest successes have been with customers that started on the design side and then pulled us into the production operation.”
It’s not unusual for OEMs, especially smaller enterprises with limited design chain and supply chain resources, to ask distributors and electronics manufacturing services (EMS) providers to increase the range of services offered in a bid to reduce time-to-market and production costs. For Digi-Key, however, getting pulled into supply chain services hasn’t been quite as easy because of the company’s intense commitment to its design chain services customers.
The company began actively offering supply chain services a few years ago as customers urged it to support them as they moved from design to volume production. The range of services demanded goes well beyond regular components procurement and include inventory management, forecasting, shipment and logistics management and export control. These services are in addition to traditional Digi-Key functions such as design collaboration and other product development offerings the company already provides, many of them free of charge to the customer, according to company executives.
“Digi-Key is a value-play company,” Vecchiarelli said. “We have application design engineers who work with customers through our numerous online support offerings or directly on the phone depending on the OEM’s requirement. As a company, we start with our design efforts which will continue to be our strongest and most important offering. But we are also sensitive to the customers’ needs because the customer always comes first; If we can’t provide the service they need, they’ will go somewhere else.”
The customers serviced by Digi-Key with supply chain support offerings are usually small to medium-size companies with revenue ranging from several millions to the hundreds of millions. It has also worked with pre-revenue companies, including a start-up customer that emerged from a university setting and built a business with more than $12 million in sales within a few years, according to Vecchiarelli. Customers like this require a lot of handholding and support with basic design chain and supply chain management services, which means companies like Digi-Key must carefully weigh the returns on the time and resources invested to support them.
Additionally, Digi-Key has built a reputation as the go-to company for engineers involved in product development activities and it remains wary of diluting that carefully cultivated relationship and branding image, according to company sources. As a result, Digi-Key continues to monitor the range of supply chain services it offers and has so far avoided expanding these to the largest OEMs because of their size and wider range of demands.
“If we ever get to the point where the supply chain services move beyond our comfort zone we’ll review them,” Vecchiarelli said. “Where we believe we are most effective is in our broad inventory offerings especially for design engineering but we are always being called upon to support companies in other areas. The supply chain programs are in response to these requests.”
Digi-Key initially rolled out its supply chain support services to companies in North America and other Western locations. The company has had to expand these globally, though, due to the continuing shift of production to lower-cost Asian locations. In fact, some low-volume manufacturing have even shifted to Asia from Europe and North America, forcing companies like Digi-Key to increase support services to such customers.
“Initially, our market was in North America but the dynamics of the market has changed over the last 10 years,” Vecchiarelli said. “Asian manufacturers also now support low-mix production which means companies like Digi-Key have to be primed to service those customers. In fact, we have tools in place to do prototype runs and move companies from napkin-design to volume production.”
Industry observers note that companies like Digi-Key must continually innovate product offerings based on customer demand while keeping a firm grip on their core customer base. In a recent report McKinsey & Co. noted that product innovation can be a growth driver for all companies but the process must be carefully managed to avoid disruptions.
“Since innovation is a complex, company-wide endeavor, it requires a set of crosscutting practices and processes to structure, organize, and encourage it,” said authors Marc de Jong, Nathan Marston and Eric Roth in the research report. “In the digital age, the pace of change has gone into hyper-speed, so companies must get these strategic, creative, executional, and organizational factors right to innovate successfully.”
Digi-Key executives say the company will remain true to its origin as a design-services support distributor but believe the set of supply chain and other manufacturing-related offerings are complementary to the company’s core operations. Supply chain boss Vecchiarelli said the company will respond to customer demands but also ensure offerings remain closely tied to design services. This type of focus on core operations while introducing innovative offerings is essential to success, according to the McKinsey researchers.
“Innovation is inherently risky, to be sure, and getting the most from a portfolio of innovation initiatives is more about managing risk than eliminating it,” they said. “Since no one knows exactly where valuable innovations will emerge, and searching everywhere is impractical, executives must create some boundary conditions for the opportunity spaces they want to explore.”