Growth, technology trends and investing in the future

Author : Mark Gradwell, Consultant Editor of EPDT; and Paige West, Editor of DPA/Connectivity4IR

07 March 2018


EPDT and DPA met Digi-Key's President Dave Doherty and Vice Chairman, Mark Larson to talk about how Digi-Key – the world’s 5th largest electronics distributor – are driving their company’s growth, as well as their future investment plans that will more than double distribution capacity.

Working in the electronics industry for 15 years, I am very familiar with the Digi-Key name and brand – and have regularly seen Mark Larson at industry events over the years. But despite that, I was not particularly familiar with the story of this electronics industry giant – and even if you’ve purchased components from them, many of you probably aren’t either. Despite its rapid growth and phenomenal success over the last decade, the company’s history, values and development continue to inform much of how it operates today.

With over $1.8 billion in sales, around 500,000 customers and over 3,500 employees, Digi-Key processes more than 4 million orders per year (3 million via the web) and is based in the small, remote Midwest American town of Thief River Falls, Minnesota, about 6 hours north of Minneapolis – and 70 miles south of the Canadian border. The town spends almost half the year under more than 10 inches of snow, with average temperature lows below -10°C.

The vast majority of its workforce lives in Thief River, which has a population of around 8,500. Founded in 1972 by Ronald Stordahl, it has been based in Thief River throughout that time. Stordahl had a keen interest in amateur radio and while obtaining his PhD in Electrical Engineering from the University of Minnesota, he began to sell a digital electronic keyer kit (called the ‘Digi-Key’) for ham radio operators sending radiotelegraph (Morse) code. The keyer kit was discontinued, but after college, Dr. Stordahl returned to his hometown, Thief River Falls and founded his company, Digi-Key, to sell electronic components.

For its first 10 years, Digi-Key focused on hobbyists, using direct marketing to reach potential customers. In 1976, Stordahl’s friend Mark Larson, joined as General Manager, when the business had annual sales of just $800,000 and only 14 employees. In 1982, the company began to shift its focus and direct its catalogue mailings to the commercial market.

Digi-Key President & Chief Operating Officer Dave Doherty

As a result, commercial users have grown from 20% of total business to more than 98%. In 1985, Larson became President & Chief Operating Officer, leading the organisation until handing over the reins in 2015 to Dave Doherty, previously Executive Vice President of

Operations. Larson joined founder, Ron Stordahl (who has little day-to-day involvement, but still privately owns the company) in a board-level role as Vice Chairman, where he serves as a company advisor.

Doherty notes that remaining a private company ensures they are better able to focus on servicing customers, not shareholders. Continuing to invest during the downcycle following the financial crisis a decade ago has been instrumental in their growth during that period. Rather than laying staff off, they found other tasks for them to do during quieter periods – for instance, using warehouse staff to help photograph products for marketing.

The evolving customer

Since its founding in 1972, Digi-Key has offered a broad selection of board-level electronic components to help engineers through the entire design process from prototyping to production. With over 1 million parts in stock, comprehensive rich content on all products (from technical data and specifications, pricing, inventory and delivery times, to product videos, how to guides and technical support) needs to be exchanged with customers in the method that best suits them.

Digi-Key Vice Chairman, Mark Larson

For most engineers and purchasers, online has long been the preferred option. With 82 websites worldwide, in 8 supported languages, Digi-Key’s IT requirements are now huge and as its digital infrastructure continues to grow, the way the company interacts with customers has evolved.

Data is now an integral part of the process. By mining the data from the millions of interactions it processes each year, the company can start to tailor the customer experience down to an individual level. With this change comes the requirement for new skills: they’re looking for themes and trends all the time, and how best to service them. To interpret these large volumes of data, Digi-Key is now hiring data analysts.

Keeping up with technology mega-trends

Customers are using components more broadly than they ever have in the past. Emerging trends like IoT, 5G and autonomous vehicles have seen tremendous growth in technologies such as sensors, relays and connectivity – and Digi-Key is constantly adding new lines to keep pace with this. 2017 saw the addition of almost 100 new suppliers (bringing the total to over 650) and around 145,000 new parts. This ongoing process continues to open up new sets of customers for Digi-Key.

Digi-Key production in progress

So how does the company decide which lines are most relevant to the engineering community and which ones will be in demand? It comes back to mining the data: what do people type in the search bar? Which suppliers are they looking for? How popular is a certain product? Using this information, Digi-Key can reach out to suppliers with real data and together predict which products are going to be popular.

Doherty notes that predictions become easier with longer data sets over a sustained period of time, rather than in the short term. A certain level of automation is used to monitor trends and decide appropriate stocks levels, but the company also has dedicated teams that look more closely at historical transactions, analyse the data and make appropriate decisions.

Looking to the future

Digi-Key’s service and support systems have been designed to respond to the needs of customers. It’s one of the few distributors that doesn’t have multiple warehouses across the globe, meaning its distribution centre in Thief River Falls, Minnesota, USA doesn’t have to compromise on the breadth of products. Having so many products in stock in its distribution space of more than 800,000 square feet (74,000 m2 ) enables Digi-Key to ship 99% of all orders the same day they are placed.

Digi-Key headquarters

Digi-Key now plans to double its capacity in the next 10 years – and to do this, is expanding its presence in Thief River. Over the next few years, a new building will be constructed to accommodate an even wider product portfolio, as well as provide more office space for the growing data analysis and marketing teams. Digi-Key is investing millions in this new facility, with approximately 3.5x the footprint of the current one.

A connecting bridge between buildings will be incorporated, featuring not just a walkway, but a conveyor. Advanced automation technology plays a key role in keeping Digi-Key ahead of the game and particularly in removing non-value added tasks, like walk times for workers, replacing them with goods-to-person and shuttle systems. The company uses its own engineers, originally brought in to service customer needs, to help make its facilities more efficient.

This investment will not only expand the company but also the surrounding community of Thief River. Every year, Digi-key is attracting more people to the area and Doherty states he has a strong commitment to creating 1,000 new jobs over the next ten years.

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