During a brief visit to the UK, probably on the look out for new franchises, Digi-Key’s president Mark Larson (right) took the opportunity to answer a few questions on the future of his company as a globally virtual distributor.

EE Times Europe: What is the current volume of components in your product distribution centre and how long does it typically take to turn this inventory over?

Mark Larson: We have over 400,000 different parts in our catalogue, 95 percent of which are on our shelves. Availability is what sets us apart from other distributors. This enables us to ensure a very high fill-rate, being able to ship most parts immediately upon order request. While the likes of Arrow or Avnet may turn over their inventory about six to eight times a year, Digi-Key would typically see its inventory turn over twice a year.

EE Times Europe: Does this mean more risk taking?

Larson: Maintaining inventory is the price to pay, but on the upside, this gives us a greater chance to meet customer demand. In the long run, this is our capability to respond quickly to orders that rallies our customers. Stocking all our parts in one product distribution centre – a 55,741 square meters facility in Thief River Falls, Minnesota – may seem counter-intuitive at times when most distributors spread globally opening many local offices and despatch centres. But logistics is not as an orderly business as it seems, at least not in the best academic way.
Very often, we have bought products from suppliers in Japan, or China, had them shipped to our warehouse in the US only to ship them back to Asia again. But overall it still proves more efficient for us and addresses some of the supply chain imperfections.
With this approach, we want to be seen as a one-stop distributor, where engineers can source immediately all the parts they need for their project. Very often, this all-in-one shopping experience reduces overall time and shipping costs too, compensating for the low-volume pricing.

EE Times Europe: When signing a franchise, how do you secure best service and delivery on products such as memory when production can be so volatile?

Larson: Fortunately with most suppliers, lead times are predictable. When we take a franchise order, we only announce the products once they are on our shelves. Then we project the rate of sales and place orders on replenishment. The longer the lead time, the further ahead we must make projections, taking a greater risk on inventory. This is where distribution becomes an art.
Digi-Key’s single strongest advantage is to be able to keep momentum and average out demand fluctuations across a wide range of products. The variety and the big number of parts play in our favour. Because we operate from one central location, we can stock any product to be delivered to any region of the world, without the limitations of having to justify local inventory. This means any engineer anywhere on the globe has access to all our products.

EE Times Europe: At a time when factories are closing down and consumer demand has been through a dramatic plunge, and in such a competitive environment that is the electronics industry, are there still gaps to fill in the market?

Larson: We are still a relatively small factor in Europe and our customer base has plenty of margin to grow there. Digi-Key only started to address the UK market five years ago. Especially with the increased internationalization, engineers are more and more comfortable buying online without necessarily looking for local distributors.
They want more choice and grouped items shipping costs often work out better for them.
Digi-Key is large enough to build relationships with hundreds of suppliers and get better purchase deals, even without targeting volume production fulfilments.

EE Times Europe: What is your expected overall growth for 2009?

Larson: Our sales only started to be impacted by the market downturn in October 2008, until then our revenues had remained pretty much the same as in 2007. Then we experienced a decline through November and December 2008. By January 2009, we had reached a plateau about 20 percent below our 2007 figures. August and September 2009 have already seen some recovery compared to 2008 and revenues in October 2009 were 12 percent better than in October 2007/2008. So if this trend continues, by the end of 2009 we could conclude the year only 10 percent down compared to 2008.
What is interesting is that between January and June, the number of our customers grew up by 8 percent. When looking at 2010, this growing customer base could support higher sales in 2010, maybe 10 percent over 2007 which was a good year.