In this Executive Perspectives episode, Dave Doherty, President of DigiKey, discusses the evolving demand of design and procurement professionals and how distributors have adjusted to accommodate their needs. From technology integration, expanded service offerings and a market outlook, Doherty presents what is different for stakeholders today and what they need to prepare for in the future.
This interview was edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Hey, Dave! Thank you for joining us.
Dave Doherty, President, DigiKey
Tyler. It's great to be here today.
Fussner
If you could please introduce yourself to our audience.
Doherty
Sure. My name is Dave Doherty, and I'm the President of DigiKey.
Fussner 0:30
Dave, I want to ask you about the transformation of the role of the distributor. What has changed over the last few years? And maybe you could tell me what's different in 2024 in distribution?
Doherty 0:42
I think it's a really good question, Tyler. And I don't know that it is so much of a transformation, but a continued evolution. At the end of the day, in its simplest form, our customers are remarkable. The things that they're designing, inventing, trying to figure out how to solve problems for us or enhance our lives. And so, our job as a distributor is to really be that bridge. There is a larger bank of products than there's ever been before. And there's a larger set of needs on the other end. And so, who's the translator between those two that can help the customer base look at what's going on in the manufacturing world? What's ready now and what will be ready if I'm looking at something a year from now? Can I trust what's out there? There's a lot of information out on the web. Can I get a trusted source that will give me information in real time that I can bank my company on as I'm coming up with new products?
Fussner 1:31
When you find yourself in that translation process, of course, you're talking to your customers. What are you hearing from your customers today? Are they having new challenges? Are they coming to you with new expectations?
Doherty 1:40
Yeah, it's interesting. I've just come out of a series of meetings and the common theme seems to be the unbelievable shrinking of the design cycle. Even in traditional areas like automotive that, historically, were three to five years, in the in the EV world, it's a fraction of that. And we talked about some AI applications. We've got a manufacturer that said within a handful of days, they developed a new connector for an AI application for power and for communications. And so, I don't know that I've ever seen in my lifetime the abbreviated cycles that our customers are demanding.
Fussner 2:11
You mentioned AI. I want to ask you, has DigiKey implemented any AI or advanced technologies to help your distribution processes? Have you found any particular challenges that this has helped address?
Doherty 2:25
I’ll broaden the question because whether it's AI or machine learning, or data analytics, the common theme is, “What can you do through data?” As a distributor that does not have a lot of feet on the street, but an awful lot of interactions with customers through the website, data has been a lifeblood for a long time. And to be more specific about AI, we first looked at that like many—excited about the power, a little nervousness about the privacy. What happens if you go on some of these public forums?
We very quickly set up our own infrastructure internally to start to run some pilot programs. The first pilot was a little mundane, but proved to be very effective, which was: Can we port all the information on export compliance for a distributor that ships out of the U.S. to 180 countries, which is critically important. We had a number of technicians whose sole responsibility was to manage assigning and exporting the compliance code to each of those products. Not necessarily a huge value-added step, but clearly necessary. With all that information ported, and with a little bit of tuning, we now let the AI engine code those parts and assign the correct ECCN number. And we're very happy with the results of that.
We've got a massive new product distribution center, where we are putting all the materials, all the training manuals, all the troubleshooting guides… if that system is down even for minutes, it has an impact us. So, we want to be able to arm our technicians with the latest information to diagnose what's wrong, and how to correct it as quickly as possible.
And then perhaps the most exciting now is getting into the front-end; the customer facing. Initially, how do you use language models where instead of looking for a parametric search, you can say, “Hey, I'm looking for a capacitor with this tolerance or this voltage range, this temperature, or an A to D converter that does this,” and let it find the product through that natural language search versus the traditional. I think it's going to continue to evolve, and the Holy Grail (we're not there yet) is tech support. “I'm having this issue with my board,” or “I'm trying to design this part,” and this end application helped me. Again, evolutionary in the sense that it's all helping designers get to market as quickly as possible.
Fussner 4:21
Dave, we certainly talked a lot about parts. But can you tell me some more services that you as a distributor could provide to your customers?
Doherty 4:30
It's natural to start with parts, but there are services that need to go around those parts. It is information and it is tools. Some of these simulation tools are very expensive, and customers only need them for a short period of time. We have found a very unique partner called LabsLand and what it is it's almost like thinking of that as leasing time on a tool, where these tools are remote. They're kept up by these local entities and then you can reserve time to simulate some very complex functionality remotely. And it is so much more economical and efficient; at different times of the day, whenever, on your schedule, you want to utilize the tool, take those results and move on. Those are the types of things you can expect from us.
While the major suppliers are always moving forward and doing exciting things, some of the most creative innovation happens from some of our smallest partners. And at DigiKey, I think that's one of the things that you can count on is that we will be your partner that is trying to search out and vet those credible sources, whether it's parts, whether it's information around your EDA tools, whether it's simulation tools, third party boards, etc., we see a responsibility to bring that whole ecosystem together to bring those breadth of services to our customers.
Fussner 5:38
Another question I wanted to ask you about, Dave: So many recent events can be seen as supply chain disruptions, whether it's the conflict in the Red Sea, the Panama Canal, the collapse of the Baltimore bridge, even the earthquakes in Taiwan… Have any of these issues particularly affected DigiKey? Or, more generally, how does your company navigate such supply chain disruptions?
Doherty 6:00
I think that's a very pertinent question in today's geopolitical environment. And thankfully, Tyler, to date they have not. Now, there's a couple of potential reasons for that. One is inventory is fairly readily available right now. So, we're not going to feel those disruptions. I can also say, we're not seeing the direct first order effects from our primary manufacturers. What's often bites us later on is their very complex supply chains on the inbound side for our manufacturers, whether it's the resin, the epoxies, the metal, a number of functions that happen upstream. And so, I'll never say never, but again, thankfully, to date, things have been working well. We're in a cycle where we're starting to gear up for the next upcycle by making sure that we have plenty of inventory, plenty of selection. So, again, so far, so good.
Fussner 6:45
In preparation for that next disruption that could take place, it sounds like the big focus is on inventory. Can you expand on that or share your insight that you would relate to your customers, and how they can prepare for disruptions?
Doherty 6:59
You know what, sometimes we have short memories. If I think back, and a couple of the cycles have been compressed, 2018 was a strong upcycle in the industry. We barely caught our breath in 2019 and 2020, when we were completely thrown a curveball in COVID, and 2021, 2022 became probably the biggest disruption that our industry has ever seen. But we learned some good practices; we learned that there's no silver bullets, but making sure that we design upfront with as much flexibility as possible. Distributors like ourselves use tools to make it easy to search for similar parts or better-than grades or cross references. And so, I'd say design in upfront with that flexibility in mind. Don't error and make the mistake of saying, “Well, inventory is available again. For the sake of speed to market, I want to get here with the single AVL where I haven't vetted it out.” Because so often, if you're moving with a partner, an EMS partner, etc., they're not given the allowances to substitute. And so those design engineering activities upfront are so critical.
I think we all learn a little bit in every cycle. One of the things that we learned is, we are not an outlet for mass production requirements where there are shortages that exist. We want to continue to fuel the innovation in the small-, medium-sized quantities. We also have a responsibility to do a better job of not letting all of our valuable inventory get gobbled up through one large OEM, but instead servicing that innovation audience that we are so committed to.
Fussner 8:22
You said it's important to not fall into the trap of having that short memory; and certainly, if any of these recent disruptions weren't the eye opener, COVID was. You have to take the lessons learned and, like you said, prepare for that flexibility, should you need it.
Something that may have some industries and stakeholders feeling flexible today is the recent setbacks in construction with domestic semiconductor fabricating facilities. What does that mean for distributors, and what do you think that means for the market in general? What's the future look like for domestic semiconductor fabrication?
Doherty 8:53
I think the future looks great. I think the CHIPS Act is a huge step in the right direction. We've learned that with any raw material or any valuable commodity, you don't want to overweigh it in any one region of the world. And certainly, we had started to get that way by trying to drive scale and particularly in semiconductors in some regions, whether it's Taiwan or elsewhere. It doesn't all need to move to the U.S. Europe is doing something very similar analogous to the CHIPS Act. But we have to remember, this is the long game. Don't look at the short setbacks as anything that we should be surprised by. The complexity of a fabrication facility today is unbelievably complicated. And these partners are committed; it will happen. But it's a three-to-five-year venture.
When you look at a partner like DigiKey, that's our responsibility to work at sourcing that product. We've just expanded our own warehouse and distribution center capabilities, where what won't change is that you'll get the product from us in an expedited manner through our world class logistics and then we'll deal with the suppliers on where they reside and making sure that we have that steady flow to the best of our ability to get that inventory in place.
Fussner 9:56
It's very important to understand that there are going to be some setbacks. But like you said, this is a major undertaking. So, sure, a setback right now might be something that you have to monitor but the horizon doesn't look all too bleak.
Speaking of looking towards the horizon, I'm curious, do you see any industries or verticals that are poised for growth over the next six months? The next 12 months? What's the future look like for the electronics market?
Doherty 10:22
Tyler, we get asked this question all the time. What's your crystal ball? I think the best answer to that is, think about any challenges we have in society or in our world today, or what are the trends, and it wouldn't take people long to consider EV is still in its infancy. AI is starting to explode. Healthcare, a number of folks like myself are starting to get into that age category of where healthcare matters. Alternative energy. If you think of any of those, you start to look at what's the solution. And undoubtedly, the solution is going to be built around technology.
We look at the cycles that we're in, and you can take a myopic view to say, “Oh, this is going to be a good year, and next year might be a down year.” For the long-term, we've had ridiculously aggressive growth over the last 40 years. When I think about those challenges and the opportunities that we face today, it shows nothing but great opportunity and heavy enthusiasm from us and others in what this industry has to offer. It's not outside the realm of possibility that we were told multiple years ago to expect that at some point in time, we'll ingest a pill, and that pill will send us a text message and say, “Hey, based on some of the markers, you're in a health situation, you need to address it now.” Or every time I put that physical key into my lock, I may be a little old fashioned, but there's still a lot of manual devices out there and mechatronics has not converted over. And AI, just like the revolution with connectivity, is going to just change the way we think and learn and do things.
Fussner 11:45
The future is certainly going to look towards digitalization and technology integration to help solve these problems. And what a time to be involved in the electronics market to help address these big problems, these big issues, and answer those big questions.
Keeping with that forward facing perspective, I have one more question for you: If we could narrow it all down to one thing, what do stakeholders really need to be prepared for come 2025?
Doherty 12:09
I'd say in 2025, we do expect that with these natural cycles we will see a tightening and we think the business will start to turn up; that some of the excess inventory, the hangover effect to the last cycle, if you will, should start to diminish by the end of 2024. So, I see 2025 as a strong year for consumption, which means let's be careful again, and design in that flexibility. And let's be ready to move forward on this next extended cycle, which my own belief is that unless something unforeseen happens will be more of a gradual, sustained, steady upside instead of this crazy peak that we saw in 2021 and 2022.
Fussner 12:43
Dave, thank you again for sitting down and joining us today. I really appreciate you sharing your expertise with our audience.
Doherty 12:50
Tyler, expertise may be a stretch, but it's always a pleasure to speak with you. Thank you for your time.
