Distribution is evolving with a new model for efficiency in high mix, low volume orders, explains vice president of supply chain for Digi-Key, Steve Vecchiarelli
Converging market dynamics are effecting a shift in how distributors think about inventory and fulfilment. As opposed to traditional catalogue models, or traditional broad line or volume distribution, there is a new model emerging that breaks traditional supply chain rules around inventory management. This new breed of distributor is known for its competency in delivering ‘high mix, low volume’ orders.
High-mix, low volume order management continues to grow in popularity as quickly changing technologies and new product introductions drive demand for short production runs and faster cycle times. At the same time, the next generation customer has different expectations and demands around how they buy products online. Thus, the evolved distribution model features a dual focus on advanced ecommerce capabilities and high-value personalised services for assigned accounts.
At the centre of this movement is a commitment to deep and broad stock inventory, customised orders and rapid fulfilment, with most orders shipping the day they are placed. There is no minimum order requirement (MOQ), so from a single component to a more complex order with multiple line items, all customers can expect the same level of service.
Concept to production
As an example, Digi-Key’s next generation model is said to fill a growing void. It provides a new way of thinking with regard to sourcing electronic components across the entire spectrum of the product lifecycle, through inception, prototyping and production. Unique to its approach, Digi-Key believes its online resources support both the engineer and the purchaser, with easy access to the right parts, in the specific order quantity, delivered exactly at the right time.
For the engineer, Digi-Key’s localised websites are designed to simplify access to millions of available parts along with an online library of reference designs, EDA tools, ‘how to’ articles, application-specific video tutorials and self-service resources. Digi-Key gives customers access to a range of technical resources, as well as 24/7 technical personnel, to support an efficient product design process.
For production-level sourcing needs, on the other hand, Digi-Key offers volume pricing and inventory management and other customised services designed to support the needs of the purchaser. Supply chain management services, forecasting, bonded inventory along with value-add services and dedicated account representatives are also available to customers.
Selection and service
One of the strongest differentiators Digi-Key boasts is its breadth of product. The company stocks over one million electronic components, which is claimed to be the broadest portfolio of electronic components available for immediate, ‘off-the-shelf’ delivery. The inventory is hosted within the company’s efficient fulfilment centre at its headquarters in Thief River Falls, Minnesota, near the geographic centre of North America.
Traditional, broad line distributors are focused on inventory turns, with the goal of stocking as little inventory as possible. In contrast, Digi-Key focuses more on fill-rates, with the ultimate goal of maintaining 95 per cent in-stock levels for the products carried. The variety of buyers turning to Digi-Key for their component needs allows the company to ‘burn down’ excess inventory rather quickly.
Digi-Key’s president Mark Larson stated: “We are not in the long-run production business where we handled million-part orders. Our sweet spot is delivering orders comprised of 100 to 100,000 units and our inventory-rich model is what appeals to customers seeking flexible options for short production runs and new product introduction (NPI). At the same time, Digi-Key has become the ‘go to’ distributor in the case of disaster recovery or business continuity challenges.”
For the customer, Digi-Key believes part availability and speed of delivery weighs heavily in their selection of Digi-Key over the competition. The company has long maintained its commitment to being the easiest place for customers to do business. The aim is that customers can go to the website and click ‘buy’ with the knowledge that the products will be in stock and available for immediate shipment anywhere in the world.
As a business-to-business ecommerce giant, Digi-Key understands how to serve customers by making it fast and easy to purchase parts online. Unlike pure ecommerce providers, however, Digi-Key is an authorised distributor of each product sourced from over 700 manufacturers. With counterfeiting on the rise, Digi-Key’s model helps ensure the delivery of genuine, high-quality parts.
Reduced inventory risk
Specifically, Digi-Key has built a broad and deep inventory model that offers the ‘long tail,’ or vast inventory selection, as a differentiator. Not unlike brick and mortar super stores like Wal-Mart or Ikea, in the world of electronic components, Digi-Key claims there is one place engineers can go to find what they need, when they need it.
For customers who need some decision-making support, a more efficient approach incorporates a centralised team of expert technicians and product design engineers. As part of a broader team, each application engineer (AE) is able to draw on the collective knowledge of the group, while owning areas of specialisation. This ‘virtual field application engineer (FAE)’ approach is said to provide a higher level of service compared to the traditional models that deploy field application engineers who may, or may not, have the relevant knowledge to solve a problem.
Efficiency as standard
Distributors that appeal to the emerging era of component buyers have adapted their business model to support self-service, localised websites and multi-lingual support. With nearly 50 per cent of its business coming from regions outside of the US, Digi-Key aims to offer the same level of service as well as in-country resources to support all customers, regardless of their location. In response to feedback from its expanding global customer base, the company continues to support additional languages and currencies via local websites, new offices and local teams.
Digi-Key’s innovative approach could be said to have has reinvented distribution by putting the customer in the driver’s seat and the speed at which the company has gained traction in EMEA and other parts of the world points to the effectiveness of its high mix, low volume approach.