In this Executive Perspectives episode, we hear from Dave Doherty, President of DigiKey, on the latest supply chain trends, new technologies in the space, what the future holds for distributors, and much more.
This interview has been edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect 0:20
Thank you for joining us today.
Dave Doherty, President, DigiKey
Tyler, it's good to be here. Thanks for having me.
If you could please introduce yourself to the audience.
Yeah, absolutely. My name is Dave Doherty. And I'm president of DigiKey.
Dave, well, thank you for taking the time today. I wanted to hear from you, hear your perspective and DigiKey’s perspective on the pulse of the supply chain industry right now and hear what you've been hearing.
The first thing I wanted to ask you was, we're coming out of a pretty tumultuous time, a lot of changes and different shifts in the industry, but I wanted to hear from DigiKey: What are some of the changes that you have implemented over the past few years to help untangle any of this supply chain backlog that the industry has faced?
Absolutely, and I think untangle is a great word, because these last couple of years have been unprecedented. If you've been in this industry long enough, you're not immune to the cycles. But boy, this particular one with having everything thrown at us with the 100-year pandemic and transportation issues, raw material issues, quarantines, etc. So, the good news is it is starting to untangle; we're seeing lead times come in on quite a number of products. So, there's still a little bit of challenges out there. But we've learned a lot through it. And we'll be more resilient as a result of it.
For us, I’d say the manufacturers are the champions of this, because they've got a much longer upstream supply chain they've got to deal with and we deal with just them and ask, “When are we going to get our parts?” But we can do our part. It starts with forecasting. The tools are getting better and better. We brought in a new tool at the beginning of COVID. And you've got to be able to look at things. You’ve got to be able to look at if you’ve got a spike demand. Is that something that's going to repeat? How do I pass that on to the manufacturer? When you're stocked out for two months, how does that disrupt the flow? Does the signal say I don't need that product anymore? Does it take into account that there's a steady demand for it, you're just not having the ability to show it?
While it sounds simple, there's a lot of complexity into it. And we've been looking at, now, how do those tools get smarter? How do we put in information, not just what people are buying, but what they're looking at on the web so we can be a little bit more predictive on what we forecast. Because the better we can get the information to suppliers, the more they can help us by getting that product on our shelf so we can get it to our customers.
Excellent. And I did want to talk to you about technology and implementing the tools to make that transparency take place. Can you touch on how you are implementing those processes? Or, what tools are you implementing? Maybe AI or machine learning? A little mix I'm sure of multiple technologies.
You know, definitely, the capabilities are there. It's, at the end of the day, the old saying, “Garbage in, garbage out.” And so, with these tools, its ability to process in real time is tremendous. So, what kind of intelligence can you load into it? It's not just rearward facing. We don't get a lot of backlog. So, we rely a lot on history. But as I mentioned earlier, the ability to look at web traffic and what parts people are searching for might be a predictor of what they're going to buy in the future, but they haven't yet. We can plug in information from our suppliers about what activity do they see that we haven't yet seen. So, the more inputs you can get in… the generative AI, what it can do with the inputs you provide, and in real time process it. So, I'd say those are some of the areas in forecasting.
And then of course, in our operation, if you go to our warehouse, it's unbelievably state of the art. It's taking into account, at any given time, you see where a part is in the process, if there's a jam, or any kind of blockage anywhere in the system across the 2.2 million square foot warehouse, we pretty much have it on video, we have it diagnosed; we've got 38 techs that are keeping that running. And so, I'd say that predictive element of being able to take large complex systems and give you very simple, quick, spontaneous answers is probably key to that.
And I'm curious about the push to get to that predictive stage; is that twofold? Something that DigiKey is driving because you want to increase these efficiencies or is this something that the customers are asking for that are you're anticipating customers to be approaching you with changes in their practices?
I'd say that those two elements are one of the same. At the end of the day, people want to pay for value. They don't want to pay for waste. And so, it behooves us in that it's our responsibility to make sure that we can make those experiences as streamlined as possible. Truth be told, we've been on the web since 1996. But there's still ways for us to more efficiently process an order and to ship an order and that's what we are really emphatically going out and looking at. And, you say the speed of digital – what does that mean? That means having these processes in place and having the architecture set up in your home office so that you can interface with your end customers, whether it's EDI or now API, etc.
We want to deal with exceptions; we don't want to have to touch the routine. That information, the system should take that in and make those decisions on its own.
And continuing from the customers’ perspective, are you hearing any new pain points that are coming from their end today? How has that changed coming out of this period? What are they saying today? What are they struggling with today?
The irony, I would say, is that the number one pain point is over inventory of some parts and not having sufficient inventory of others. We have really been thrown for a loop and mix. And I think that if you talk to our customers, you hear that; if you talk to our distributors, you'd hear that; and if you talk to the suppliers, they recognize that. So, the good news is, we feel like there's good steady ongoing demand for products, we just need to get this imbalance. It's not unexpected that given all those unforeseen events we talked about earlier, that you're not just going to flip a switch and miraculously all the lines are up and running at the same time. So, early on customers had the mindset and distributors alike that, “Hey, we'll take what we can get, and then we'll fill out the rest of the portfolio later.” Well, that's left us a little full in some areas, and still a little hungry in others.
I wanted to ask you also about the geopolitical discussions like we were touching on, there seems to be so much going on. And there's a lot of discussion of those events impacting trade and supply chain. But at the same time, there seems to be a great deal of resolve on the part of business leaders to help solve their own supply chain issues. And like you had mentioned, maybe some over inventory or under inventory in certain areas. What are some key understandings that have come from this? And is the industry better for it at large?
Yeah, we're at an interesting time. We went for 20 years looking at this and recognizing it as a global economy. But more recently, we recognize while it's global, it's critically strategic to entities regionally. And you don't want to have all your eggs in one basket. You can't necessarily control where certain precious metals are located in what pieces of Earth, but you can control where you have factories, and you can't be loaded up in one area. You have to protect ourselves.
Because what's universally understood is technology is going to continue to move forward; it's going to continue to be a way of life; it's going to continue to be strategic in all aspects, whether it's alternative energy, medical, healthcare, aerospace, etc. And if you become too dependent on one particular region, as these recent geopolitical events are showing us, then that dependency can really throw a monkey wrench into your operation. So, I think in a perfect world, we'd recognize where some of these precious gases or metals have to be and make sure that we can distribute them correctly, but where they don't have to be, hedge your bet by having these regional locations. You see the CHIP Act in the U.S., [unknown] having discussions about doing the very same thing, and not have a heavy dependency in any one country or region.
Yeah, it definitely pushes towards a more global and widened perspective, I think from all players.
Yeah, it does. And my hope is, as a human being on this planet and the fact that there are these global dependencies, that it's at some period of time we recognize that we're much better off engaging in global commerce together than hostilities against each other.
Yeah, absolutely. You know, we're talking about trends, we're talking about changes and integrations of technology. But I want to understand from where we have been in the traditional supplier and distributor networks, what has really changed? Has there been a shift in practices or offerings from either end?
I think what stayed the same is really the basic fundamental roles. As a distributor, we don't make anything; we rely on our partners, their innovation of end products. And it becomes more and more incumbent on us as they deal with a fewer number of strategic customers for that NPI development, for us to be that bridge to that large customer base. I think more and more, what COVID has accelerated is this ecommerce, this notion that I'm not always going to have face to face interactions with people, and a comfort level of dealing with people or information over the web. And so, in some ways that's helped accelerate forward innovation by saying, “Hey, I'm engaging with DigiKey. I don't know where they are; I don't care. I have information that helps me at the front end of my design; I have products that can be procured from DigiKey and they reach me very effectively.” And so, we hope that just continues to propagate.
But, again, the connection then between supplier and distributor becomes critical. Because I've always believed that the missing element is that a supplier does a lot of their product development by talking to their strategic end customers, but then you have the world we're in – these unwashed masses – of everything else in the world and how can distribution give a voice to that? How can we use our intelligence? And we talked earlier about AI or machine learning, how can we put a face to that? What are the product trends, whether its power, packaging speed, etc., so we can assist the manufacturers with new product development that that our customers, our extended customer base, are looking for. No one customer in particular, but how do you gather all that information and get some meaningful inputs? Because if we can do that, it'll just accelerate getting the right parts to get into the right applications to continue to let this technology flow forward.
Yeah, it's interesting. And you touched on something I wanted to follow up on, because it seems like the customer is more eager and more adept at engaging through the web. And it sounds like you have to set up and answer some of their questions before they even arise. And so, is this shaping or changing the role of the distributor with that new level of engagement, and how's DigiKey been addressing that?
It changes the role; it changes the medium in which the users want to interface. In my day, you wanted that live interaction. I started my career as an FAE. And while I never saw myself in sales, I saw that appreciation from the customer wanting to get access to that technical information. And then over time, it went from live FAEs, DigiKey was known for its call-in technical support, and we still are, there'll be a live body there, should you need it. But more and more of the customers are saying, “Hey, make it available on my timeline, instantaneously, in video or in some other format that I can digest when I want it, how I want it.” And search engines are only making that more efficient. And what we're seeing through some tools recently, like ChatGPT, are mind blowing on where that's going to head. So, I don't know that the basic need of the transferring of information has changed, but the medium and the means in which we do that is dramatically shifting.
Yeah, it's good to understand that, as a customer, you get to pick and choose how you need to engage, but understanding when you come to someone like DigiKey, that there's multiple avenues. And like you said, if human interaction is needed, it's there; it's in place. But offering the complete package, so to speak, for customer engagement and how they can navigate and solve their own problems, you have to anticipate a lot.
You do. And I guess if I have the opportunity through this forum to reach out to some of these end customers is make sure that they understand, you understand – your voice is heard. Help us. Communication, it's a two-way street. We look at every piece of web feedback that comes in, everything that comes into our customer service, inside sales, tech support [etc.]. Tell us where you're going, what you need. Our role in distribution is not to train you on our processes, but for our processes to adapt to your needs. And so, know that no matter how big or how small, your voice matters.
Communication is key. That's excellent. So, it sounds like there's a great change and implementation of newer technologies. We talked about how that has changed the customers’ engagement, and how it's changed the distributors’ role. Has this offered you the capabilities of maybe offering new skills or services to those customers?
Yeah, I think you hit it right on the head when you talk about services in particular. We've seen this growing trend that our customers need tracking documentation; there's more and more. They have a restriction on what date codes they're looking for. And those were foreign to us; we used to take all the same manufacturer part number and put it in the same bin. And when a request comes in, we'd have to go sort through the bin to see if we had a particular date code, and trying to keep the country of origin, the certificate of compliance, and all the paperwork associated with that transaction intact. Through the innovation, through our new warehouse, all that's received on the front end, and all of that product is sorted by date code in separate bins. So, we know on the front end versus having to sort on the back end, so we can provide more of that documentation that customers are looking for.
We talked about efficiencies. Cut tape is the most dominant format that we ship product out. So, parts will come in on a 15,000-piece reel and customers want anything from one piece to 14,499 or anything in between; they want the exact quantity. And it's incredible what our own engineers designed from the ground up; it's essentially a stamp machine that just spits out these parts from the seven-and-a-half-inch paper reel, which is the dominant format for that. And since we customized and we built it from scratch, we're able to print on the back of that tape. These parts are indistinguishable; they look like a speck of pepper, and they're sitting there on their tape. So, to have some of that information on the back, we've been told, is invaluable and helpful.
And that will also lower the cost. There used to be an add-on necessary because you're cutting down that reel and that human interaction caused the number of picks that you could support to be much lower than it is through this automation.
myLists is a new tool. Our customers want to manage their bill of material; they may want to just check availability upfront, and then later on, they may want to switch some parts out based on that availability, and then later they want pricing and quoting from that. So, give them the tools to hold on to that information and then continue to ping it off our system, again, without any interaction or assistance. They can do that any time of day, day of the week. And those are the kinds of things that we're being asked for.
And then lastly, what comes to mind is to assimilate our part information with EDA tools and schematic capture and with symbols and footprints. And so, we partner with third parties to provide it and we also link with manufacturers. We respect that customers want different things at different points in their design. They're not going to go to just us or just a manufacturer throughout that cycle. They may want to narrow the search upfront. And then they may want to bounce from us to the manufacturer to get deeper, richer information. And wherever possible, we don't try to host that information, we provide links back to the manufacturer that facilitate that journey and customer experience.
So, I've kind of covered a whole spectrum of things. But it really is all over the map and things we continue to learn from our customers and try to respond to that to meet those needs.
And it sounds like a common need is a need for more information, and clear and concise and actionable data. And having that information integrated into the services that you're providing is crucial for most of these customers.
Without a doubt. In some ways, shipping the part is the easy part of the process.
So, Dave, I know there's no crystal ball or way to look into the future, but I'm going to ask you to take a stab at what the future of this industry looks like. And with the distribution space of where we are today, and including the customers, what do you think is coming in the next six, 12, 24 months?
The hardest part is the exact timeframe. But what's happening, I think, is very clear to all of us, is that it is an extremely exciting future. Most of the prognosticators that I've seen have the next decade pegged at faster growth than either of the last two decades. And there's nothing that we've seen that would refute that. Some of the technology areas I've talked about, alternative energy, medicine, aerospace, the consumer space – those are going to continue to leverage ever- and ever-increasingly exciting technologies.
Right now, as we view it, there is the word “correction” or “inventory imbalance.” But we're a glass is half-full kind of company. So, we look at this as not the end of the last upcycle of the last couple of years, but this is really the beginning of the next cycle that's yet to come. Because, what makes me say that is, our engineers are demonstrating and we're seeing their activity on the web over the last couple of years, they've been inundated in trying to source product for old designs. And that burden is off their shoulders, for the most part, now. And we see more and more activity on fresh innovation, fresh designs, the things that get engineers excited to wake up in the morning to start working on it. There's a couple of different ways we track that, but that's what gives me that hope that these forecasts are more than accurate.
And it seems like a very exciting future for every facet of the industry involved.
It has been. I've been in it now 35 years. And what's fun is it's always changing. The end applications are changing, the technology that enables them is changing. I was with a gentleman for breakfast this morning and we were lamenting a little bit, talking about this young generation that we try to recruit in, and they look at this as a non-sexy industry. And they want to know, “What are you doing about ESG? What are you going to do about this world that you older folks are destroying for us?” And he reminded us that it's our technology, it's science and engineering, that is going to be the savior; it's going to be the solutions. And it's our end customers, and with technology like what comes off of our shelf and the manufacturers’ that's going to enable that. So, where I challenge my kids is, “Yeah, you can talk about it, lament, or you can get involved and you can do something about it.” And that solution is undoubtedly going to be technology based. So, this is where it's going to happen.
I think it's a very powerful challenge to put forth: Get involved.
You got it. You got it.