Digi-Key’s Doherty on Amazon.com vs. Distribution

by

Dave Doherty, Executive VP, Operations, Digi-Key Corp.

Digi-Key Corp., one of the largest low-volume high-mix electronics distributors in the world, analyzes everything. Over the years it has tracked its customers’ buying behavior and adjusted its business model accordingly.  Digi-Key launched a low-volume supply chain business in response to customers’ demand for support beyond engineering orders. It was an early adopter of digital content and e-commerce. So when a Digi-Key executive provides perspective on a new element in online competition, such as Amazon.com’s b2b site, it’s worth listening to.

EPS Managing Editor Barbara Jorgensen spent some time with Digi-Key’s Dave Doherty, executive vice president, operations, over the phone just after EDS.

EPS: As a catalog distributor – meaning a specialist in low-volume design and engineering orders -- how do you view Amazon.com’s foray into the b2b components space?

Doherty: Amazon b2b is a continued validation of what Digi-Key discovered almost 20 years ago about changing customer preferences when in 1996 we began our e-commerce initiative.

Despite its already impressive growth, e-commerce is still in its early days.  Standards and conventions are forming.  We can no longer benchmark best practices solely within our industry as our target audience spends more time online.  We can see role that aggregation is plays in searching for leisure activities such as flights, hotel room and rental cars through sites like Expedia, hotels.com, Kayak and others.  Companies like Domino’s are providing adding functional utility within their sites of walking you through the path to purchase and providing dynamic order status telling you that the pizza has been made and is out for delivery.

Amazon is growing in its relevance to a large consumer base.  For anyone to ignore its potential would be naïve.  I shared the story of looking for a specific heating element to repair my dryer and how convenient that search and purchase was through Amazon.  That said, I believe there are unique and differentiating value propositions being delivered by Digi-Key and other authorized distributors:

1. Authenticity: Chain of custody matters in our world.  Product is being used in medical, military, aviation and other key, sensitive sectors.  Counterfeiting is a large concern and most online and independent sites don’t currently identify the source of product.  Digi-Key is routinely asked to provide data/lot code, CoC [certificates of compliance], COO [country of origin] and other documentation.  We also have large departments solely focused on export compliance.  Unlike the example of my search for a replacement dryer heating element, our customers are trusting them with their next generation product design and utilizing the most cost effective technology to meet their needs.  We are an interactive and collaborative partner with them.
2. Information – not just parts: Digi-Key supported 76 million website visits and 843 million page views in 2014.  Every day, our team of over 100 technical resources respond to 1,100 technical phone calls and web chats globally.  Our customers want solutions; reference designs, schematic footprint and symbols, white papers and other technical support to help them get to market faster.
3. Breadth of coverage:  Our customers want complete BOM [bill of material] support.  We stock 1.1 million active components and regular ship invoices with greater than 100 line items every day.  Third-party sites today tend to cater to excess inventory, such as Overstock.com.  While potentially convenient when looking for a “deal.”  It’s a lot of work to find substitute parts when you are trying to build a complete functioning unit.
4. Services: The majority of our shipments are for broken pack quantities, we count, weigh, measure and cut down to ship the customer’s exact quantity needs.  Often we must put cut tape product back on a customer tape and reel or “Digi-Reel”.  We provide a wide array of supply chain services.

EPS: Should the industry be concerned about Amazon.com driving component prices down?

Doherty: There is no doubt it can add to price spot-checking. We see people posting their excess inventory where they can stand to sell for less than they purchased the components for. From a low-cost standpoint I can say in our world, price certainly matters. We see Amazon as an aggregation site and with aggregators I think price is becoming more visible globally and therefore more competitive. Hotels started this trend and clearly aggregators are an element.

In my experience price is important, but not the most important. I think with aggregators you get a lot of visibility with price, but  going back to rationalizing services—we do have a tradition of trying to break those out a la carte but it is all part of a blended service package. There will always be someone looking for the rock bottom price or the lowest cost. But part of our total value proposition is engineers are staking their livelihood on our suppliers’ products. If you are looking for a piece part or replacement, then aggregators are a good option. But if we maintain our value to our customers, we are rewarded with trust and partnership. Technology changes so quickly and a customer may be looking for 3 discrete parts that are now a single chip or module.

I would never say never with Amazon. But we are also engaging our customers with content.  Putting together datasheets is critical but they have almost become commoditized. So we look beyond that to what kind of environment will the part be used in? What is the best driver? Customers want a solution so they can start testing and play right away. They want a starter kit with sensors and accelerometers and the option to put their own interface in.

EPS: How do you see your value-added with suppliers?

Doherty: For suppliers, we supplement their information with a reference design library which can be as simple how a part looks or a list by supplier to full reference designs. We also take content that comes from the manufacturer and normalize the data to find a common look and feel that customers are comfortable using. We don’t create the content but we give it a common format.

We also feel we act as a collaborator bringing parties – suppliers and customers – together.  Sometimes they find each other, and sometimes it’s bringing suppliers together to support the customer’s desire to have a complete solution. We see this as an important role in authorized distribution.