Digi Key Building

Executive Perspectives

May 14, 2020
Dave Doherty, president and COO of Digi-Key Electronics, discusses the impact of COVID-19 on his company’s operations with SourceToday.

SourceToday: Do you see the coronavirus impacting your business?

Dave Doherty: Coronavirus has impacted us in numerous ways (and not all bad). It’s taught us that our prior investments in IT infrastructure have enabled us to operate with almost two-thirds of our workforce (roughly 2,300 team members) working from home. It has put some pressure on our suppliers’ inbound receipts to us. We’ve been fortunate in that customer demand from essential service sectors has remained high.

It has caused a number of changes in our fulfillment operation to maintain a safe and healthy work environment with process changes to adapt to social distancing guidelines, including increased sanitization breaks every two hours to disinfect workstations, wearing masks and gloves, and other measures like asking team members working in the distribution center to take their temperatures before coming to work.

Our mission is to fuel innovation and the Digi-Key team takes that to heart—not only to fuel our customers’ innovation but also our own. Our team took a resourceful approach to maintaining safety in the Product Distribution Center early on in the pandemic by creating a tunnel to disinfect totes using ultraviolet light. The light eliminates any viruses—including COVID-19—as it passes through the tunnel on the current assembly line.

We also shared the UV tunnel design with ECIA members so other distributors can help protect their employees, too. Digi-Key’s engineers were also part of a small team working in partnership with the University of Minnesota to design and supply additional ventilators needed to keep critically ill COVID-19 patients alive as the world faces a critical shortage. The Coventor was the first ventilator design approved under the FDA’s Emergency Use Authorization during COVID-19, and it’s an open-source design that we hope is copied around the world.

Digi-Key is also supplying components to customers who are manufacturing thermometers, motion-activated hand sanitizing stations and equipment needed for employees working remotely.

Our longstanding business model—providing the broadest selection of products and high levels of inventory—has protected us and our customers through these times. Our in-stock position continues to deliver consistency and continuity to our customers when they need it most. We have more than 10.2 million products available globally, with more than 2.2 million in stock and available for immediate shipment (within 24 hours to North American customers), from over 1,200 quality name-brand manufacturers.

Our commitment to supporting customers with delivering products when they need them, combined with an online model and customer service, all contribute to a reliable and consistent customer experience through these turbulent times.

ST: How do you see the coronavirus impacting the industry?

DD: We see COVID-19 reducing overall demand with small business shutdowns. We’ve also heard that there have been high rates of absenteeism in manufacturing and distribution centers because people who are at higher risk and parents who need to stay home with school-aged children can’t come to work.

Digi-Key isn’t immune to that, but our entire team has stepped up in ways we never imagined before, with many business-side employees putting in overtime to work in our product distribution center (PDC), and others completely switching over to PDC work for several weeks on end and putting their day jobs on hold. We’ve had unprecedented numbers of employees at all levels showing up on weekends and staying late, just to make sure every order gets out the door in time.

While other companies seem to be experiencing long shipping delays right now, our team is doing everything possible to ensure our customers don’t notice a difference at all in their orders and deliveries from Digi-Key. The Digi-Key team has risen to the occasion to adapt, adjust and continue to thrive and meet customers’ needs, even in challenging circumstances.

ST: How are you handling supply chain risk?

DD: We’ve been in business for nearly 50 years and we’ve built strong relationships with our suppliers, as well as logistics and carrier partners, which helps immensely in managing the current situation. We’re continuously monitoring the situation with suppliers, who are providing regular updates so we can notify customers as soon as possible regarding any changes in lead times.

Additional buffering of supplier-stated lead times and pipelining, as well as holding additional safety stock, have also helped us to manage through this extraordinary time. We’re also working closely with our carrier partners to mitigate impacts on shipping. Finally, we’ve seen manufacturers across the global supply chain coming online again, including factories in China.

ST: How is the labor crisis impacting your company?

DD: Prior to the pandemic, we’d been slowly automating some functions and maintaining low turnover of existing team members. Since the pandemic, we’ve developed and implemented extra precautions to ensure the health and safety of our team.

For example: “Take 5 to Sanitize” (breaks every two hours to disinfect work stations); wearing masks and gloves; additional deep disinfecting of the distribution center; the UV sanitizing tunnels noted earlier; asking team members to take their temperatures before coming to work; and providing an additional 40 hours of PTO to use and stay home for any team members who aren’t feeling well.

ST: How has your company been impacted by the tariffs?

DD: To mitigate the impact of tariffs, Digi-Key established two Foreign-Trade Zones—one in Thief River Falls, Minn., where Digi-Key is headquartered and our Product Distribution Center is located, and a second in Fargo, N.D., where additional product inventory is sometimes warehoused. This avoids the imposition of tariffs for simply transporting material back and forth between the two facilities.

While there are still challenges with suppliers that import product and don’t provide documentation to allow us to submit for duty drawback on our international shipments, we’re working with them to reduce these issues. The process of setting up the FTZs has taken over a year, working with our more than 1,200 suppliers, our carriers and CBP to actually set up the zones. Digi-Key is one of the largest FTZs in the United States in terms of the number of small packages shipped daily.

Digi-Key is also the first FTZ transferring between two states, Minnesota and North Dakota. In fact, if you compare Digi-Key to other large companies doing similar business, we discovered that even retail behemoth Amazon only has one FTZ, located next to the UPS hub in Louisville, Ky.

ST: What measures are you taking to counter the tariff issues?

DD: Establishing the FTZs noted above and duty drawback are the two major steps Digi-Key has taken to mitigate tariffs. Digi-Key hasn’t done it alone; it has truly been an industry-wide effort. Working in conjunction with ECIA, we are establishing best practices on how FTZs need to be set up in order to function properly. One of the biggest benefits to suppliers around the world is that they are able to ship directly into our FTZ, removing cost and complexity by deferring duties, taxes and tariffs until the material shipped.

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