Mark Larson, President of Digi-Key Corporation, talks to CIE about the competitive nature of the distribution market in Europe and how Digi-Key, as a ‘hybrid-distributor’, has positioned itself to successfully meet the needs of its European customers.
CIE: The segment of “Catalogue distribution” is in a process of change – what will the catalogue distributor of the future look like?
Although I do agree that change is occurring within each of the distributors within this class, I’m not sure that all catalogue distributors are moving in the same direction. On this basis I would not be confident in speaking for the entire segment of ‘catalogue distribution’ but I can speak for Digi-Key and what we believe the future will look like for us. Digi-Key’s position in the market continues to evolve.
Although Digi-Key is often grouped with catalogue distributors I would be more inclined to put us in a class of our own. I would do this for several reasons: Firstly, although we started as a catalogue distributor and our roots are in catalogue distribution we have not published a “catalogue” in the traditional sense for several years. More importantly, though, Digi-Key is rapidly bridging the gap between catalogue distribution and traditional or production-based distribution.
We’re a distributor that has maintained the speed and agility of the catalogue or high service distributors, with the ability to offer immediate, off-the-shelf delivery on more than 800,000 components from more than 650 manufacturers of electronic components. But at the same time we offer this strength in supporting the engineering community and we have developed the infrastructure to serve the production needs for NPI as well as high mix/low to medium volume production.
I would classify Digi-Key as a ‘hybrid distributor’ not a catalogue distributor or a traditional distributor, but instead a distributor that can effectively serve both engineering and production quantities.
CIE: To call Digi-Key a catalogue distributor might be obsolete but what, apart from the ‘printless’ catalogue, makes Digi-Key different?
I believe the fact that we are the only distributor in our segment with a ‘printless’ catalogue makes a clear statement to Digi-Key’s sensitivity and commitment to environmentally friendly business practices.
But there are other significant differentiations, some that might seem subtle, but several that are very significant and very objective. Most customers ultimately recognise that not all catalogue distributors are equal. Digi-Key clearly stocks the broadest range of product in the industry, from both catalogue and traditional distributors. Digi-Key clearly has developed the most production business in the segment. But even beyond these more objective parameters are customer-recognised differences in terms of more subjective elements of service such as responsiveness to customer problems.
CIE: The European market is a very competitive place for a catalogue distributor. How is Digi-Key facing this challenge?
The fact that Digi-Key has the largest sales of electronic components by a significant margin has given us a key advantage. It gives us the ability to offer ‘off-the-shelf’ delivery for more electronic components than any other distributor in the world. We are able to offer a far greater depth of inventory on components than other distributors in our segment.
We’re also paving new ground by essentially breaking the traditional rules of distribution. We’re different in that our high-mix, low volume production business strategy allows us to literally remove most of the inventory risk for the benefit of our customers.
Our globally centralised facility is core to the success of the business. With all product shipped from a single Product Distribution Center that serves a worldwide market, we are able to take advantage of economies of scale not available to smaller distributors.
CIE: What kind of traction are you getting in the market since expanding your presence in the UK, and how do customers perceive the company?
The feedback from our customers has been extremely positive. They like our brand, appreciate our model and choose us for our customer service, website and our broad and deep inventory holding. Customers, whether engineers or purchasing professionals, often need to access a broad range of components quickly, via an efficient ordering process. The feedback is that Digi-Key provides a great solution for them and this is being reflected in our sales growth.
CIE: What does the competitive landscape look like in the UK?
It is very competitive in the UK, with local, pan-European and global distributors, many of which have been well established here for some time. Digi-Key now has a presence in the UK and we are building relationships with customers and suppliers alike. We offer the customer something different from the traditional distribution model and continue to build our business with a broad range of engineering and production customers.
CIE: What kind of customer support services does Digi-Key offer specifically to UK customers?
Although Digi-Key was once known as a catalogue distributor, we have now evolved into a ‘hybrid’ distributor. We support our UK Production Business customers with an internal contact, competitive volume pricing, technical support and supply chain solutions. Our hybrid model allows us to find a match for each customer whether it is mostly online or more interactive with our sales team. Customers in the UK appreciate our customer service and flexibility at Digi-Key. We will continue to listen to their feedback and grow our business during 2013.
CIE: What are your strategic targets for Europe and the UK?
Our strategy is to exponentially expand awareness of Digi-Key, growing both our core business and our production business accounts in the UK as well as Germany and the rest of Central Europe. Later this year, we’ll expand our sales and support efforts into Southern Europe and the Nordic regions. This is a process that takes time. We must prove our value to each customer, one at a time.
CIE: In November 2012 Digi-Key introduced its production business teams for Europe. Do you expect that your competitors will follow in this way?
I’m not sure how our competitors will react. Digi-Key’s model is so fundamentally different that it’s not an apples-to-apples comparison. We’re just going to keep doing what we do well and, as we continue to experience, the customers will follow. Customers have many choices. We must win their business and then retain their business. Whether they choose to follow Digi-Key or not follow Digi-Key it is critical that we consistently meet their needs. We must perform for our customers. We must outperform our competition.
CIE: Production business means volume business: so do the limits between volume distribution and catalogue distribution disappear?
I believe the limits between volume distribution and catalogue distribution have disappeared as our sales have grown. This is because that supporting this sales to the engineering community has required significant increases in our investment in inventory. It is this depth of inventory that gives us the ability to support production as well as engineering quantities. This is a significant factor in making Digi-Key a one-stop solution to challenges faced by both the engineer and the volume buyer for high mix/low to medium production quantities.
Since we’ve approached the supply chain challenges from the reverse perspective – from the engineer to the purchaser, our model is difficult for others to replicate. This is because to develop a business that mirrors the Digi-Key model it is necessary to overcome a circular problem. You must have an inventory offering unmatched breadth of components to have an electronic customer base as large as Digi-Key. On the other hand, you must have an electronic customer base as large as Digi-Key’s to justify an inventory offering the breadth we do. This barrier to entry is why the Digi-Key model is unique and why we are the only distributor that has evolved into a significant full-service provider of both prototype/design and production quantities of electronic components.
There are five key distinguishing characteristics of Digi-Key’s next generation ‘Prototype-to-Production’ model: Availability – Broad and deep product line, available for immediate delivery; Content – Access to design-phase knowledge to support the process; Scalability – Ability to ship high-mix/low-volume orders; Speed – Able to ship parts for delivery within 48-hours and, Service – First-rate sales and customer service professionals trained to support all types of customers, from the engineer to the production business purchaser
CIE: What role do online communities play for catalogue distribution?
Customers are driving significant changes in how we do business, demanding new methods of information access, self-service and on-demand interaction with an organisation.
Interactive online communities and sophisticated online tools are central to Digi-Key today and going forward. Everything we do relies upon the front-end sophistication of our website integrated with a sophisticated supply chain on the back-end that guarantees fast and efficient product delivery.
Evolving customer demand is shaping web content and online interaction and the entire online experience, from engagement to delivery, is central to our hybrid model.
The proliferation of mobile devices and cloud computing have also contributed to this shift requiring distributors to improve how they manage content and communications. Video and other multimedia formats align with social media, blogs and online communities are becoming expected forums for communication.
Going forward, it will be critical for distributors to effectively manage online content while answering customer demand for immediacy, relevance and online interaction.
CIE: How does a catalogue distributor support the NPI process of the supplier partners?
The New Product Introduction is a very important part of the equation for us and our suppliers. Our suppliers understand the value of a relationship with Digi-Key.com when their new product is ready to go to market. By turning to us for co-marketing and online support, their product is exposed to reach hundreds of thousands of design engineers.
Our core strengths – product selection, superior service and fast delivery – actually translate into an effective volume production model for NPI. As we have approached the supply chain challenges from the reverse perspective from the engineer to the purchaser, our model is difficult for others to replicate.
CIE: How important is a catalogue distributor for technical innovation and prototyping?
Design Engineers repeatedly visit our site for the best available online design tools. Suppliers recognise that design engineers are the key to design-ins and that Digi-Key’s reach into the design community is an essential element in introducing their newest products. If we want to earn the business of the design engineer it is critical that we are a leader in the introduction of new products and new technology.
To support the online part search, we have deep online tools and resources, application engineers on hand to assist with product design questions and a customer service team known for exceptionally high levels of support – responding to the needs of both the design engineer and the production business buyer.
As opposed to broad line distributors, Digi-Key was born out of the engineer’s world. We understand how to manage the engineer culture and talk their language and because we understand their needs and we know that they prefer self-service and easy access to valuable reference designs and PCB web tools, educational content, videos and other valuable resources.
CIE: Digi-Key has hundreds of supplier partners, is it difficult managing so many lines? Do you have focus partners?
Managing hundreds of lines requires several hundred specialists: product managers, strategic sales managers, dedicated purchasers, marketing specialists…the list of supporting staff is a long one. But offering the broadest range of product in the industry is our goal.
We track customer patterns and online requests, industry trends and other factors to understand market needs. We work with most of the industry leading suppliers and we are always searching for new partners who have a product that fills a gap or an important need for our customers. We seek out quality niche suppliers that offer unique product solutions.
I suppose it would be accurate to say that we have focus partners in the sense that partners have developed greater sales within Digi-Key generally that require great resources to support these sales. But the fact is that most customers access us on the web and the web is quite supplier agnostic. A parametric search will show the all matching product including product from the largest supplier, the smallest supplier and many suppliers in between. Customers can objectively evaluate all product that meets their criteria and make a decision based on that.
CIE: And last but not least: any upcoming news?
The biggest news is that Digi-Key is rapidly becoming far more local. As you know, we recently expanded our global presence into the EMEA region. We’ve recruited sales directors with industry experience to support customers in the UK , Central Germany, Israel, and Ireland and we are planning to add two more directors within the next few months.