Writer: Max Crampton-Thomas
2 min read August 2021 — Dave Doherty, president of Digi-Key Electronics, talked to Invest: about the incredible year that his company has had in spite of the pandemic. The one issue that needs to be resolved pertains to slowdowns in the supply chain, although this is expected to dissipate in the coming year, he remarked.
How did you fill that niche between distribution and manufacturing that Digi-Key is well known for?
It’s all about the right manufacturing partners. We’re a distributor. We don’t manufacture anything ourselves. Our industry is characterized by our manufacturers that like to build in a lop-sided fashion so that they get the economy of scale. We found that niche whereby we could have all of that product inventory in one location and ship it to the world. This allowed us to aggregate that worldwide demand and ship to international customers. That niche has continued to grow.
What supply chain issues have you encountered?
The constraints we see now are beyond anything that has come before. Our industry is notoriously cyclical but I don’t think anything has been felt to the magnitude at which it is now. Everything went into shutdown mode in the spring of 2020. There were a lot of layoffs that caused a lot of supply chain disruptions. Right now, we’re facing this pent-up demand: demand for automobiles or electronics. Remember, there was a complete 180-degree turn, completely unexpectedly in a relatively short period of time. The lead time in our industry, though, especially with building-related semiconductors, can take a couple of years. So, the short term doesn’t even exist. We have complicated supply chains: resin goes into our materials, as does copper and other precious metals. Every aspect of the supply chain has seen a disruption caused by this dramatic downturn. The shortages clearly exist. That said, Digi-Key has been advantaged because we’re not a public company and we haven’t been driven by things like inventory turn. It’s simply not an issue for us. Having inventory on the shelf is the most critical thing for us in terms of growing our sales. That said, even though we have an inventory-rich position, even that dissipates with these kinds of supply chains.
Has Digi-Key encountered any issues with labor shortages?
Labor has been the challenge for us throughout our history. It goes back to the pros and cons of being in a rural area. The pros are that it generates an unbelievable amount of tenure, loyalty and pride. Conversely, there is a finite labor pool. We’ve learned to compete by offering above-market wages and benefit programs to attract employees. Due to such measures, our rural area, unlike most others, has been growing thanks to such measures. But clearly, labor is the question of the day and there is a lot of uncertainty and pressure with people and parents whose lives have been impacted by the pandemic and the change in lifestyle it presented.
When do you expect the industry to stabilize in terms of labor and supply chain?
For the industry, that stabilization is happening but it’s not going to be a flip of the switch. There are still issues in terms of transportation: the ports on the West Coast are backed up with cargo products. Some of this comes from North America but a lot of it comes over from Asia. A lot of this product is bulky and must be transported by ship. Therefore, containers — the things you never would have thought twice about — have become critical. For us, there is a stabilization of the supply chain but there has to be some patience for that capacity to grow to meet this demand.
In your business, what technology is emerging as significant?
One of the buzz phrases in our industry is the Internet of Things. The connectivity of appliances that can transmit information between themselves. This is consequential. The technology keeps getting better.
What is your outlook for 2022?
We expect the current conditions to stay in place, at least through the first half of next year, by which I mean the constraints in supply. Then we see things starting to free up. The future continues to look great as long as we don’t get complacent. We must continue to look at new technology and new suppliers. We must look at how to reach new customers. We’re planning for capacity. Right next door, we have a 600,000-square-foot warehouse going. Across the street, there is a 2.2-million-square-foot site that is waiting to come online. So, we’re betting on our future in a big way.
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