A business strategy that has helped Digi-Key become the fifth-largest electronic component distributor globally is ‘No minimum order requirement and same day shipping’. In an interaction with Rahul Chopra of the EFY Group, Dave Doherty, president and chief operating officer of Digi-Key Electronics, shares the company’s strategy for retaining its high momentum in the electronics industry.
EB: What is the view within Digi-Key about the global scenario of high demand but low stocks?
You see, demand gives rise to the need to supply. When the pressure on the supply chain becomes excessive, the process gets hampered, and often spirals out of control. We have faced this many times before. Looking back on my experience in the industry, I believe the supply and demand ratio will be back to normal in the future. The fact that there are constraints on product costs creates an impact on the industry.
EB: How does Digi-Key intend to address this challenge?
We follow a business model that ensures we keep sufficient stocks. Slowly, we have started bringing in additional inventories. By doing so, Digi-Key has earned the trust of customers within the industry. Now, customers rely on us because Digi-Key has become a one-stop inventory solution for all the desired products.
EB: Will this help you in settling on a better price chart?
We are aware of the ongoing market prices. We maintain a fixed price model for various distributors as well as for the manufacturers. Maintaining a long term presence in the market is our target. So, we fix our price model keeping in mind our own needs as well as the ongoing market prices.
EB: Is any factor or industry segment driving growth in the electronic components domain?
A major driver of the supply chain is the automotive industry. The high influx from suppliers of capacitors, for instance, shows that the volumes are really starting to accelerate. Another big factor behind the growth is the urge to innovate. For instance, we have an entire team comprising the new generation of engineers and designers who are trying to innovate and find new applications for our design platforms. They have a healthy curiosity level and can bring products to the shelves quickly.
EB: Do you supply bulk volumes to any OEMs or customers?
We supply to customers, but in limited quantity. Some of our major customers these days prefer quick-turnaround manufacturing. They want to try their hand in the market with some trial products, and evaluate the odds before taking the big jump. This customer group works with incubators and engineers every day. The companies in this group are growing in number and their requirement for materials changes daily. However, the turnaround cycle of these companies remains consistently tight, and their profit relies on their speed. That is where Digi-Key comes in. Suppose a company commits to a 24-hour turnaround time. It takes the available materials and pipelines with us. By next morning, it collects the product and delivers it to its customer.
EB: Do you think rapid prototyping and EMS are growing in the USA and across the globe?
Yes, they definitely are. I think the phenomena started in the US itself. We are seeing a similar trend in the European market also. China, on the other hand, has quickly caught up with the other parts of the world in a much shorter time. It is rapidly turning its volume-manufacturing space into an innovation space. This is not only because of the larger consumer base for the typical high-volume production but also because of the growing impact of its economy. I think that’s a natural phenomenon that will continue to occur. Innovations are coming from students and new startups also. This movement is global. There will be no country boundaries, over time.
EB: Globally, which are the leading countries for Digi-Key in terms of revenue generation?
For the last 45 years, the USA has been Digi-Key’s biggest customer base in the NPI space, followed by Canada. These two countries are the epitome of technology and innovation. Our other large distribution bases are in Germany, China, Taiwan, Japan and the UK. Among these, some countries are still emerging into what we think will be fruitful markets for us, whereas a few are wholly developed markets.
In the past five years, we have started growing in Asia. Rapid innovation is happening in countries like India, and so we consider the Indian market to be nascent now. Within Asia, in terms of size and scale China is the largest market that we serve, followed by Japan. Presently, we are one of the largest online distributors in the Japanese market where we have got some of our leading suppliers like Panasonic, Omron, ROHM and Toshiba.
EB: How important is content becoming for organisations in the e-commerce and online sales space?
Content is important. How you create content will decide how likely the content can be found by search engines like Google. Unfortunately, some people have taken shortcuts and acquired media partners to get this done. Call me old-fashioned, but I still prefer pre-media content and an unbiased media. We have certainly shied away from such media because it’s too conflicting. When it comes to content, the one thing that engineers certainly want is unbiased, raw and practical information. They don’t want a lot of marketing stunts and sales pitches. They just want to be informed.
EB: What is your view on the trend of traditional distributors acquiring online flash catalogue distribution firms?
There are not many established online distributors, so I think the opportunity for acquisition will be limited. Major distributors have made acquisitions around the globe in places like Japan to establish an online presence. Companies should have their own strategies and must evaluate whether they have the expertise and competence to do this organically, or do they need some external expertise to accomplish this.
EB: What is Digi-Key’s strategy going to be, given that the landscape is changing?
In the USA, we are located in a very remote area and are not near any major technology hub. Yet, we survive by conveying information online and delivering service from a remote location. Talking to our customers made us realise that they are not really concerned about the place the product is getting shipped from—all they are interested in is the shipment reaching them on time. So given this customer feedback, we really don’t prioritise having warehouses across different places like India and China, because what matters is to drive and meet an aggregated global demand within the optimal time.
EB: How do you define your business model—do you call it B2B or B2C?
What we are seeing is a convergence of the two. We sell to engineers as well as purchasers. We don’t sell to companies, per se. The representatives in the companies can access our website. This indicates more of a B2C behaviour. Yet, when you look at the classic definition of business, the largest portion of revenue comes by selling to businesses or to OEMs that are manufacturing the products. So, as I said, the behaviour is converging.
EB: Do you think websites like FindChips are creating challenges for your business or are these more like partners?
One of the things that we did is to have our own website that assures customers authorised products from authorised distributors. I believe that these similar online outlets are here to stay, and we want to work with them. I believe that they will expose us to even more customer bases that we are not aware of today, and hopefully help in building some recognition for our brand.
EB: How have local websites for different markets helped you expand, especially in the case of India?
We do business in around 170 countries for which we have 81 websites. Our main intention behind having local websites is to reach out to customers where English is not the first language. In India, the trade policies, tariff rates, and the converting of currency are complex compared to many other regions. So, we stayed away from India for a while until we really got some experience and our customer base grew in India.
Now we have started seeing customers responding to our India website, and that is when we have realised the necessity to localise our products for this market. It’s a pattern of marketing that if you listen to customers, understand them and respond to their needs, then things will happen automatically. So is the case with India. In Asia, if you consider India as a revenue generator, then I am happy to announce that our growth, of both the customer base as well as revenue, will exceed our market average.
EB: How do you plan to expand your business with the OEMs and sell their products through your platform?
Expanding our business with OEMs is another area that has helped us grow substantially. Our growth rate in Europe was much higher when we started looking at some native European suppliers. We are seeing the same trend in China and Taiwan as well. Our strategy is not to be a North American distributor. Rather, we aim to be a truly global distributor.
EB: Do you invite the supplier onboard or do the suppliers reach out to you?
We certainly get several supplier entries. I always encourage the manufacturers to reach out to us. At the end of the day, we have to look at what our customers are ultimately going to need. And that has caused us to even expand in some areas beyond traditional on-board components.
EB: What business model do you follow with your channel partners?
This varies from market to market. In some countries, because of some of the local complexities, we have formalised our relationships – but this is limited. Overall, we prefer to keep our products labelled because it shows that the product has been procured directly from the manufacturer.
EB: Will the concept of the ‘electronics of things’ actually increase demand for electronics and increase its BOM in verticals unexplored so far?
I think the ‘electronics of things’ will continue to drive growth over a long period of time. There are a tremendous number of engineering activities being serviced – for small quantities, as prototypes or in incubation mode. This gives me the confidence that over time, the market will emerge.
It starts with our website, clearly. We create a lot of content that is not available in any designated format. We hold interactions with people over the phone or on chat. We deal with over 750 suppliers, and each has its own website and philosophy. We collect a lot of their videos and the rich technical content, and arrange these in a certain format to make sure the right content is optimised for engineers to search and get information. So, in a way, we create a library with our own internal sources of information which completes the total picture.