“We Believe Inventory Is An Asset That Promotes Sales”: Digi-Key

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Dave Doherty, president and chief operating officer, Digi-Key Electronics
Dave Doherty, president and chief operating officer, Digi-Key Electronics

Formalising a strong supply chain strategy is critical for the success of any business, as it helps organisations flourish and meet customer demands on time. Rahul Chopra of the EFY Group caught up with Dave Doherty, president and chief operating officer of Digi-Key Electronics, during the launch of the company’s IoT Studio at Electronica 2018 in Germany, to find out, among other things, the market strategy that has helped the organisation retain a strong foothold in the dynamic supply chain ecosystem. Excerpts follow...

EB: What made Digi-Key come up with the concept of the IoT Studio?
The world has talked about IoT for a number of years. At Digi-Key, we have dealt with processors, sensors and connectivity for so long. We now intend to expand further, using the many designing tools and platforms available in the market. So we are bringing libraries that are available through most of the EDA platforms to our customers. Two years ago we talked about Scheme-it, which is still very popular as a low-end schematic capture tool. You can use it to bring your components together; assemble, design and share them with your colleagues, and then export them into some more full-featured EDA tools. The IoT Studio we are coming up with now is a similar platform. It has the ability to take a board platform with some sensor devices that will work on the edge. It will be running on your phone very soon with the help of a cloud service.

EB: Does this change any of your revenue streams?
It definitely does. The easiest example will be data services. With many services, IoT does not work without a data platform. Traditionally, component distributors do not offer data platforms to their customers. We offer data plans, but these are not the ones you would sign up for as a regular customer of mobile services. These are the low data rates that you require to do the transmission and upload it on the cloud. We aim to provide all that in one place now, with the IoT Studio.

EB: Will these data plans work globally or are they limited to certain geographical areas?
I don’t know if the architecture is universal, but the solutions are available within different regions.

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EB: How important is India as a market for you?
We have always been excited about India. We had started off with our website supporting only the US dollar, but now we support the Indian rupee too, which is pretty interesting. Generally, the payment mode is credit cards only. However, we are planning to bring in local support. We are still trying to map and navigate the best and most effective ways to have resources on the ground. We are trying different ways to abide by the legal regulations, tightly coupled with a third-party relationship. We are still trying to lay the groundwork of how to proceed with this and are fine-tuning the details, but the commitment towards the Indian market is very much there.

Talking about business, in recent times our business witnessed some exponential growth in India. In 2015-2016, we grew by 10 per cent, and in 2016-17, by 30 per cent. In 2017-18, and till date, we have had 40 per cent growth in India. The activity on the website has really started off well since the Web traffic is the highest from India! It proves that there is interest in this country, and this fact motivates us to make a bigger commitment and serve the Indian market.

EB: Any analysis done on the website traffic and transaction patterns?
We have a wide variety of historical data available with us. Hence, without even looking at India specifically, we know that the more we lower the barriers through currency, payment modes, etc, the more successful we will be. We saw this success story in China, Germany and Canada a few years back. The marketplace is ready and we are also not a new entity, for we have been in this domain for years. Hence, we intend to lower the barrier to get access to the technology. The other thing that excites us is the logistics. We do that through third party partners like UPS and FedEx. Some of these partners believe that they can now accelerate their delivery time in India, thereby helping us save another day. This very idea excites us.

EB: You have mentioned your plans of opening a support system in India. Will it be similar to what is available in other geographical regions?
Yes, it will be similar to some extent. From the activity we have seen on the website, we believe that it is necessary to have some sort of support infrastructure that is deeper and specific to India.

EB: With many local players coming in alongside the big players, is the Indian market getting saturated by competition?
The market has been very strong in the last two years. People right now have resources and they are looking to expand. Digi-Key takes a long term position. We do not accelerate in the market and then pull back if the market starts to recede. We want to stick around for the long term and that turns out to be beneficial for us too. Great days are ahead as India’s economy is on the rise and the electronic components business is growing, which was not so over the last 20 years. Right now, people are aggressive about expansion opportunities, but it needs to be seen if they can do so with the market growing so rapidly. We have been serving 170+ countries for the past 20 years now and so the systems for maintaining the service standards are in place. We are just taking these to another level. We don’t view this as something different from what we are doing in other regions of the world.

EB: Is Amazon playing an active role in this space?
From my perspective, it is not. The industry that we are in, i.e., the high mix and low volume industry, involves breaking down products. Most of what we ship are cut tape component reels and not full reels. Amazon is seen as a pure retail business, where boxes come in, are aggregated and then sent out. The other aspect is authenticity. Many of the manufacturers are very reluctant to participate in a market chain where there is no chain of custody. So, some of these things are unique to our industry. My personal view is, Amazon and Alibaba will continue to reshape the retail climate, whereas, we are still uniquely positioned to cater to some of the customers’ requirements. We are almost like a manufacturer in how we operate.

We see some small players buying from Digi-Key and then putting the product up on Amazon. Honestly, we don’t support our brand being put up like this. We keep an eye on the Web functionality that Amazon and Alibaba are using, to understand the expectations a consumer will have from a shopping cart. From the perspective of the Web experience, these sites are changing the entire game plan. We are watching them carefully and trying to emulate some of the services they offer to customers. We consider them a great source to help us ideate on how to structure our Web delivery services.

EB: Does Digi-Key follow the ‘buy only as much as you sell’ method for your inventory or do you have an altogether different supply chain mantra?
There is a saying that you cannot sell from an empty wagon, i.e., if you don’t have it, you cannot sell it. We believe inventory is an asset that promotes sales. For example, when I go to a grocery store, I expect the store to be stocked with all the necessary items. But it’s becoming harder to forecast what the customer needs nowadays. We would like to have new products before the demand is created for them.

We want to be a part of the demand creation side along with being part of the inventory support cycle so that customers get that one-stop shop experience by having all their requirements met with the help of just one website. We are not supply chain experts that have inventory coming today and going out tomorrow, for we believe we serve a customer base that is not highly efficient but relies on us to hold that working capital so that it is there when they need it.

EB: So what is Digi-Key’s own strategy for supply chain management?
Our mantra is to ‘have it in stock’. If we commit that a product will be in stock, we intend to maintain that. Since we do not get a lot of forecasts about demand, we have to look at history and the trends in the industry, buffer these and make sure that we bring in inventory in advance of the market’s need.

People appreciate this since it is something unique in today’s supply chain system. We do not measure returns on working capital, but we do measure stockouts so that we can keep up to our commitment towards customers by maintaining zero stock outs. The financial market also rates a company on how well it turns its inventory.

EB: How important is the role of content becoming in the entire game?
Content is playing a huge role. We have 1.6 million parts available and 8.4 million parts on the website itself. If you can’t put context on that content, how is the customer going to navigate through it? Customers do not want to go to the manufacturer’s website and digest all the content.

Therefore, in addition to tools, customers need content to understand the capabilities and services of a product. We have our own original content and also involve the curators of our manufacturers’ content. We remove all the marketing content and bring out the crux of the product, curate it further and reach out to the customers. In fact, for a long time, we had content as part of our product training modules.

EB: What is your leadership style?
I am a big believer in teams. It’s important for all team members to know what their roles are and how they need to support each other. We essentially have 4000 team members and there is not much of ego or hierarchy! The motto is to take our customers very seriously and, therefore, we act together in serving that goal. I did not start this culture, but years ago, I joined the company because of it.

EB: Is India popping up on your calendar anytime soon?
Yes, I definitely look forward to that.

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