What has been the impact of the supply chain shortages and other pandemic-related issues on Digi-Key’s revenue growth in 2021?
Digi-Key experienced significant global growth of around 65% in 2021. Sales and demand were strong in every region and segment, contributing to Digi-Key’s $4.5 billion in annual sales for the year.
A number of factors have contributed to global supply chain shortages, the first of course being unprecedented demand for semiconductors due to global design activity in many different vertical markets such as automotive, medical, consumer electronics, computers, industrial automation, 5G wireless applications and more.
Digi-Key was able to forecast this shortage well in advance. We keep a close eye on global design activities in the engineering community and made note of an uptick in activities throughout the second half of 2019. This, in addition to the high volume of new product introduction and design starts Digi-Key was supporting, triggered our team to ramp up purchasing inventory throughout 2019 and into early 2020. Digi-Key’s decision to schedule orders through the end of 2021 and into 2022 gave vendor partners as much visibility as possible into future needs, which we heard from our supplier community was much appreciated.
In addition, the COVID-19 pandemic caused many factories across the globe to either shut down for extended periods of time or work at very low levels of capacity, reducing the output. Now that the pre-pandemic design activity has resumed for the most part, design activity is very robust and demanding support from the semiconductor industry in particular.
Even throughout these unpredictable market conditions, Digi-Key has weathered the ups and downs by continuing to invest in strategic initiatives to expand warehouse capacity, localize the customer experience both digitally and from a support standpoint, scale digital offerings and web services and expand into new markets, in order to continue serving customers around the globe with the best possible purchasing experience.
What part of the business was most impacted by these challenges in 2021?
It’s no secret that this year has been difficult for customers to get their hands on some of the high-demand parts that they need, and in some cases that has led to increased order volume.
We applaud the global engineering community for being agile in designing with more flexibility for different component options over the past year than ever before. While there may still be some challenging times ahead, orders will likely begin to return to more realistic levels in the latter part of 2022 as customers find more breathing room.
In the meantime, all aspects of our team have been impacted by the demand crunch, and the team has truly rallied together to overcome the challenges of this year. We always say that our people are the true differentiator that set Digi-Key apart. They show up every day for our customers and each other. We’re heading into 2022 a stronger team than ever before.
Additionally, Digi-Key is in constant contact with its suppliers and customers, has long-term relationships with key manufacturers, and has invested in significant inventory to help customers weather the current capacity crunch now and into the future.
Is Digi-Key considering retaining any business practices that were implemented in 2020 and 2021? If so, please name them.
At Digi-Key, we whole-heartedly believe in a digital-first approach, and that has served us well in 2020 and 2021. We are constantly developing new ways to make it easier for our customers to engage with us digitally from anywhere around the globe, including localizing their experience in markets around the world with local language, currency and support hours, as well as fast shipping times, in order to remove barriers for global customers.
For many companies, and particularly those based in the U.S., it’s tempting to conduct business in a single language, using a single currency. However, as the electronic components industry continues on its global trajectory, Digi-Key continues to make strong investments in supporting customers worldwide with a seamless experience. Today, Digi-Key supports 26 local currencies and does business in 21 local languages – something that will continue to grow along with the business.
What is Digi-Key’s capital investment priority in 2022? (e.g., inventory expansion, digital marketplace, new product categories, new end markets, etc.)
Beyond simply investing in inventory, Digi-Key knows how important it is to continue finding creative ways to enhance our offerings and services to maintain a high level of customer and supplier satisfaction for years to come.
Digi-Key has increased its capital infrastructure investments in recent years to scale capacity to keep up with skyrocketing demand, and those investments will continue to scale as the business grows. These investments include the new Product Distribution Center expansion in Thief River Falls, Minnesota, more robust and predictive web search functionality, higher inventory levels and increased automation in the Digi-Key warehouse, which all benefit customers by providing an easy and efficient research, shopping and delivery experience.
Digi-Key has also invested in innovations including cut tape printing, providing more products and services within the ecosystem and expanding the Digi-Key Marketplace, providing customers around the world with even more reason to make Digi-Key their first stop in the design process.
These investments have helped Digi-Key, its suppliers and customers weather the storm of 2021, and leaves all parties well positioned for 2022.
Which end market segments (automotive, aviation, communications, computing, industrial, military, etc.) do you think will provide the strongest growth opportunities in 2022 and beyond?
Demand from nearly every industry vertical continues to drive significant interest and investment in IoT development and implementation. In the past year alone, there has been a surge in new product introductions in every industry from automotive to medical, industrial automation to consumer devices and everything in between, driving business across the board.
Wireless connectivity, IoT, industrial automation and electrification, among many other segments, will continue to drive innovation globally into 2022 and for many years to come, and Digi-Key will continue to provide all the components and services necessary to fuel that innovation.
Final Thoughts
Moments like these can either divide or bring people together – although the whole world had a major curve ball thrown at us, we can look back and see how it improved our ability to communicate and deliver on a global scale, pulling the entire industry closer together.
The impact that this last year has had on Digi-Key and the entire industry is an increase in the confidence and trust we have gained in each other and our ability to meet a crisis head-on -- ultimately benefitting customers.
Digi-Key is looking forward to the innovation of our customers that will come in 2022, and are excited to enable the world’s ideas.
