DIGI-KEY: Redefining distribution

You might compare the tiers of conveyer belts and flurry of activity to Willy Wonka's chocolate factory, humming along and churning out products. With millions of colourful parts and packaging, there is a giant grey building that pops out tens of thousands of carefully wrapped packages each day, filling aircraft containers bound for global shipping hubs. Thousands of employees stream into the parking lot, heading to their homes in the rural Northwest Minnesota community that is a stark contrast from the rapid pace on the factory floor. This quiet giant in the world of electronic component distribution is - as you may have guessed - Digi-Key. It has earned a cult-like following of design engineers as a consequence of its vast product selection, overnight product delivery and exceptional service. With a laser focus on the needs of its customer base, the company has grown to 3100 employees with over $1.6bn in sales and an in-stock inventory of one million parts. Today, Digi-Key is one of the fastest growing electronic component distributors in the world, reporting record sales growth figures in excess of 30% in Europe so far this year. According to company leaders, Digi-Key's success is directly tied to its unique perspective on traditionally held tenets of the distribution industry. When it comes to stocking parts and managing inventory turns, Digi-Key breaks the textbook rules, yet its innovative approach continues to reap consistent, unparalleled growth. In 2013, Digi-Key reported double-digit growth, nearly tripling industry averages. At the same time, electronic component buyers continue to select Digi-Key as the industry's most preferred distributor. So what, exactly, is it that makes Digi-Key different? Customer buying patterns shape a new, hybrid distribution model Most distributors fall into one of two categories: traditional catalogue and e-commerce providers or larger, broad-line distributors. Most players in the business distinctly fit into one box or the other. However, a new model has emerged in response to an emerging next-generation of buyers with different expectations and demands for how they buy products online. To date, Digi-Key is the only provider that has fully adopted this evolved 'hybrid' model. The primary differentiator of this model is a dual focus on advanced e-commerce capabilities and high-value personalised services for assigned accounts. Digi-Key's next-generation distribution model fills a growing void, ushering in a new way of thinking with regard to sourcing electronic components. With more than three million searchable parts, a vast online library of relevant content and easy-to-use ordering tools and other self-service capabilities, digikey.co.uk visitors can easily research available parts and pricing along with all the tools they need to make purchasing decisions. During the product prototype process, design engineers may choose to access high-value technical articles, reference designs, product design software tools and how-to videos, as well as interact with engineering peers through its technical community, the eewiki. For production-level sourcing needs Digi-Key offers volume pricing, inventory management and other customised services designed to support the needs of the purchaser. Supply chain management services, forecasting and bonded inventory along with customised value-add services and dedicated account representatives are also available to customers. Digi-Key's 'Prototype to Production' hybrid distribution model claims to be the industry's first to span the entire spectrum of the product lifecycle - supporting the design process through inception, prototyping and production. More than one million in-stock components One of the strongest differentiators Digi-Key offers is the company's unequalled breadth of product. The company stocks over one million electronic components at its main facility in Thief River Falls, MN, the broadest portfolio of electronic components available for immediate, "off-the-shelf" delivery in the industry. Traditional, broad-line distributors are highly focused on inventory turns, with the goal of stocking as little inventory as possible. In contrast, Digi-Key focuses more on fill-rates, with the ultimate goal to maintain 95% in-stock levels for the products carried. While maintaining a high volume of components in stock, the variety of buyers turning to Digi-Key for their component needs allows the company to 'burn down' excess inventory rather quickly. For the customer, the benefit of immediate part availability and shipping weighs heavily in their selection of distributor. Digi-Key has long maintained its commitment to be the easiest place for customers to do business. Customers can go to the website and click 'buy' with the knowledge that the products will be in stock and available for immediate shipment anywhere in the world. As a business-to-business ecommerce giant, with website traffic that rivals consumer sites such as Amazon, Digi-Key understands how to serve customers by making it fast and easy to purchase parts online. Digi-Key is an authorised distributor of each product sourced from 650+ reputable manufacturers, ensuring the delivery of genuine, high-quality parts. Supporting the design engineer Digi-Key understands the complexities of the product design process and is committed to providing the best possible systems and tools to support the design engineer. The company has found a niche in the 'high-mix, low volume' space, supporting prototyping and short production runs, as well as filling stock deficiencies for larger customers. "We are not in the long-run production business. We are an ideal source for production runs of anywhere from 100 to 100,000 units. Runs of a million or more units really do not fit with our model," said Mark Larson, Digi-Key President. "Digi-Key's strong inventory position allows the company to provide a flexible option for companies looking to produce short production runs, as well as supporting shortages and unexpected usages within larger corporations." The hybrid model is built around the company's broad and deep inventory that leverages the 'long tail', or a vast inventory selection, as a differentiator. Not unlike brick and mortar super stores like Wal-Mart or Ikea, in the world of electronic components, there is one place engineers can go to find what they need when they need it – and that is Digi-Key. For customers who need decision-making support, Digi-Key has a centralised team of expert technicians and product design engineers. As part of a broader team, each application engineer (AE) is able to leverage the collective knowledge of the group. This 'virtual FAE' approach provides a much higher level of service to the customer as opposed to the traditional distribution models that deploy field application engineers who may or may not have the relevant knowledge to solve a problem. Heading toward 2015 As Digi-Key continues its journey forward, the company is focused on continuing to provide the same level of service, enjoyed by customers during the past 40 years, to an ever expanding global audience. The company's next-generation approach has universal appeal, turning the industry on its head. Digi-Key's hybrid distribution model has become the gold standard in distribution, and is well positioned to adapt to fluctuating market changes.