Digi-Key expects a record year as investments in global expansion and a sharper focus on production business bear fruit
Digi-Key Corporation is expanding its reach these days, and the effort is putting the distributor on the path to record growth in 2013. So says company president Mark Larson, who sat down with Global Purchasing earlier this month to talk about the company’s direction and his outlook for the electronics industry as a whole. The interview is part of our “5 Questions With …” series, which highlights Global Purchasing’s Top 50 Electronics Distributors of 2013 report, published in May.
Larson points to Digi-Key’s global expansion—the distributor continues to add resources in Europe, the Middle East and Africa and is on track to announce a new presence in China early next year—and its relatively new focus on “high mix/low volume” production business as a couple of key reasons for the growth. He also points to the distributor’s non-traditional market approach and its broad “off-the-shelf” product offering as important differentiators in the electronics supply chain. Here are some excerpts from our conversation.
Global Purchasing: With most of 2013 behind us, what’s your outlook for the electronics industry for the remainder of the year?
Larson: For Digi-Key, we expect 2013 to be a record year, with fairly robust sales growth. Sales are being driven by both an increase in the number of orders and increasing average order size.
In 2013, we have gained customers by expanding our presence globally and addressing the needs of high mix/low volume production business buyers. As manufacturing organizations seek to mitigate inventory risk and more creatively manage their supply chain, more buyers are choosing a distribution partner competent in supporting the entire product lifecycle—from design to production to delivery.
GP: What are some of the greatest changes you’ve seen in distribution over the last decade?
Larson: Relationship marketing is diminishing in importance as customers place greater emphasis on performance. And customer buying habits are changing, as they require more sophisticated online resources and tools and a much higher level of service. Today’s componentbuyer expects immediate access to a wide range of multimedia tools, along with the ability to quickly and easily search and order parts. There is a much higher value placed on speed and accessibility to self-service resources to support the product design process.
Going forward, distributors need to provide more than just parts to compete in today’s market. Supply chain services, expert tech support, and online tools, for example, are just some of the additional value customers expect to find when choosing a distributor.
GP:Digi-Key claims to have a different approach to the market than more traditional distribution models. How so?
Larson: Digi-Key is unique, differing from traditional distribution in several significant respects. The traditional distributor is highly focused on inventory turns, with the goal of stocking as little inventory as possible. Digi-Key, on the other hand, is focused on fill-rates – with the goal of maintaining 95% in-stock levels for the products we carry. When customers order product they expect to receive it almost immediately. The “return on working capital” that prevails in traditional distribution is not able to meet this expectation.
Digi-Key is also unique from traditional distributors in terms of the breadth of product it stocks. We stock almost 1,000,000 electronic components. This is the broadest portfolio of electronic components available for immediate, “off-the-shelf” delivery in the industry. This gives our customers access to the broadest selection of components in the industry.
Digi-Key also recently coined and trademarked the phrase, “Prototype to Production®,” to better emphasize our commitment to the engineer and to the professional purchaser through the entire process from product design, to NPI, to production.
Our value proposition goes back to the strength of our model and our unequaled ability to deliver high-mix, low volume bill of materials. Digi-Key has developed significant strength in helping manufacturers reduce their total cost of acquisition, mitigate risk and speed time-to-market.
GP:Is Digi-Key getting into the volume business?
Larson: Yes and no. Digi-Key has developed a significant infrastructure in terms of people, programs, and inventory to support NPI and “high-mix/ low volume” production. We are rapidly gaining recognition in the market for our strengths in these areas, representing well over a half-billion dollars of our sales.
But we are not in the “long run” production business. We are an ideal source for production runs of anywhere from 100 units to 100,000 units. However, we may not be the best source for production runs that are a million or more units. Of course, Digi-Key’s strong inventory position often gives instant access to inventory when a long production run faces a shortage
—and we are considered one of the best sources in the industry to cover shortages and unexpected usage.
GP: What kind of growth opportunities do you see in the months ahead?
Larson: We anticipate continued growth in production business as more suppliers turn to us for supply chain services and larger volume business. In North America, this will account for well over 50% of our business by the end of 2014. In addition, we will continue to expand into the EMEA region with additional local resources to serve our growing customer base there. Also, we are planning to announce a presence in China in early 2014.
Mark Larson is president of Thief River Falls, Minn.-based Digi-Key Corp., which ranked 7th on Global Purchasing's 2013 Top 50 Electronics Distributors report.