Digi-Key Redefines Distribution

7 Supply Chains to Look Out For in 2007

To become the sixth largest distributor of electronic components in North America and the ninth largest in the world, Digi-Key Corp. (www.digikey.com) in Deep River Falls, Minn. built its business model on having products available and speedy delivery. How successful have they executed to plan? Digi-Key will exceed one billion in sales next year, according to Steven G. Tsukichi, its marketing vice president.

"From the time we hang up with the customer until the order is picked and clears shipping can be as little as 20 minutes," he says. "We have a fulfillment system here that is very different. If we have a 10 line item order, our fulfillment system allows us to pick all 10 items simultaneously. The order is actually completed at the boxing station."

Digi-Key stocks approximately 270,000 different SKUs. In 2005, the company did business with slightly over 198,000 different businesses worldwide. Approximately 83% of the company's customer base is design engineers.

"We have no outside sales force and no facilities other than in Northern Minnesota," he says. "But we do market heavily with our catalog. We have 30 different catalogs that we distribute worldwide as well as web sites in those countries." Digi-Key has six call centers throughout the world that run from six in the evening on Sunday until six in the morning on the following Saturday.

The company has 600,000 sq. ft. of space in Deep River Falls. About a third of that is for administration with the remainder for warehouse and fulfillment operations. While its line is highly automated the picking itself is done manually.

For inbound products Digi-Key tries to have all receiving completed by noon so backorders can be shipped the same day. Components are sourced from Asia and Europe as well as North America. Digi-Key has franchise agreements with more than 330 different manufacturers. On its web site it offers over 700,000 different products.

All shipments outside North America go by air. In North America, the customer makes the decision on what type of shipping method is used, although many customers do specify air.

"With our efficient operations here," explains Tsukichi, "we can take an order as late as eight at night and have it on North American customer's desk by 10:30 the next morning. Outside of North America we use UPS and can deliver to Europe, depending on the country, between 48 and 60 hours. Those times apply as well to Asia, with the exception of China. We can get it to China very quickly but once it's in country, delivery is difficult to predict."

The company's main customers, electronic design engineers, have to deal with time-to-market pressures and when they want product, they need it right away. When they are building prototype products, component availability is important.

"Once they design your product in," says Tsukichi, "you have an advantage when that product goes to production. The end goal is to get designed in so we can take advantage of the higher order quantity when it goes to production."

Digi-key Vital Statistics
Annual sales: $640 million
Employees: 1,700
Primary facility: 600,000 square feet
Products stocked: 270,000
Orders processed/year: 2 million plus
Orders shipped same day: 99.9%

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