The ‘Key’ to success
12 January 2009
An interesting report from the BPA in this week’s news (PCB and laminate industries outlook) points out differences between the dot.com crash of 2001 and the current financial crisis. In summary, it says that in 2001 everyone was expanding as quickly as their suppliers would allow, resulting in vast over-capacity.
As I commented last week (Nose to the grindstone – and that is if we are lucky!), we are leaner than we were and so the trough should not be as deep.
But as we are constantly hearing, certain manufacturers, retailers, banks are going out of business, while others are better placed to face the storm. Getting business strategies right are going to be crucial to determining which companies will fail, survive, prosper, emerge running etc.
One crucial factor in this is managing the supply chain, and I had the opportunity at the end of last year to talk to Steven G. Tsukichi, Vice President of Strategic Operations at Digi-Key about how component distributors play a key role in this, and how his company is evolving to meet the requirements of their customers. The company’s high profile, technically-based, global but centralised model will not work for every organisation, but it is a shining example of a company that determined the right business model to suit itself and its customers, and have followed that plan religiously.
Anyway, here are the edited highlights of what I found, in the current economic climate, to be a most enjoyable and optimistic conversation.
Tim Fryer: Obviously for a distributor the drivers are going to be product range, availability and pricing, but do you also have any further services for your customers in terms of technical or design expertise?
Steven Tsukichi: The technical staff that is at our customers’ disposal is well over 100 people. They operate at three different levels. The first is at the basic level and they field most of our customer questions because most of our customer questions are fairly simple like ‘what is the temperature rating for this component?’ or ‘can I replace this component with another one?’ Questions like that are fairly easy to answer and we have staff that takes about 350,000 calls a year of that nature.
The second level is what we call product management level and these are people who can answer more complicated questions about the components. They are specialised by manufacturer and they have factory training, so they have very good knowledge of a manufacturers products.
In the third level there are what we call design support services which is Digi-Key’s version of FAEs, the difference being that our sales staff are all in house. They don’t pay visits to the customer but they work with customers on complicated design issues like a normal engineer would. There are some advantages of having them in house and centralised. One is that they are always available because they are never out on sales calls. The second, probably bigger, advantage is that our FAEs are trained in different areas. If a customer of one of our competitors has a question that needs to be answered by an FAE, the customer contacts the sales representative and they make an appointment for the FAE to visit the customer with the representative and maybe they don’t have the expertise so need to ask someone else – it all takes time. With Digi-Key you can call us, or email us, or fax us, with a question and get it answered at any time, right round the clock.
It means that if a customer has a number of questions they can be solved in one call. With traditional distributors they have to get answers from different FAEs which takes more time.
Tim Fryer: So do customers pay for each of those levels of support?
Steven Tsukichi: These are free services. There is no fee at all to the customer. It is part of what we feel we need to be to be truly customer-centric at the service level.
Tim Fryer: On a global basis who do you compete with?
Steven Tsukichi: All the main catalogue distributors – they all have different business models but they are all catalogue distributors.
Tim Fryer: And what is it that makes you different from them – is it the technical support?
Steven Tsukichi: First of all we have no onsite sales team
Tim Fryer: So that is a cost reduction?
Steven Tsukichi: I don’t think I would call it a cost reduction. I think it is a difference in marketing strategy. We believe the customer of today does not have time to be visited by a sales person – to sit down at a desk and have a coffee and talk about the family. They are more rushed than they have ever been. They have time to market issues, companies are asking them to do more with less and we believe that more and more customers are preferring to have a non-intrusive kind of relationship with their vendors where they can order, they can get information, they can order on their terms at whatever time they want. They can make an enquiry without worrying that they are going to get salesman calling them all the time.
These are all differences not only between Digi-Key and the other catalogue distributors but between Digi-Key and the rest of the distribution industry because we do the sum volume and sum deduction but we don’t try to be head-to-head with the broadline distributors. We believe that this is the way the customer is moving in the future so… our goal was to meet the customers on their own terms – not on our terms. And we believe that being non-intrusive is one of the things that customers want.
Tim Fryer: How about the EMS side from your point of view. Is it important to address supply chain issues as well as design issues?
Steven Tsukichi: Our customer base is very broad. It isn’t just design engineers. We can fulfil a specific set of customer needs and different customers have different needs. But a contract manufacturer for example, if they are at the end of a run and they have a shortage then essentially they need a small order distributor who can ship relevant stock and can ship quickly. It is the same requirement as a designer but a different need. We can, and do, fulfil that need for many contract manufacturers.
Tim Fryer: Particularly relevant for NPI?
Steven Tsukichi: Yes, we can be good at that. The small and mid-size manufacturer sometimes use us for our Just In Time inventory because of the high availability and the reliability of our shipments. So where the need fits we can be an excellent supplier. We have focussed on the design engineer because that has been our bread and butter, but those same requirements are also true of other types of customer and we are increasingly trying to fulfil those needs also.
So there we are – an overview of how one company has identified a path through which it can differentiate itself from the pack. And who is to argue – in the last six years the company has progressed from sixteenth to fifth in the ‘league’ of US distributors and revenues now exceed $800m. And speaking as a veteran of a huge number of trade shows, Digi-Key’s red Corvette and a Marilyn Munroe lookalike certainly added a bit of colour to the normal fare as well!
Contact Details and Archive...
Most Viewed Articles...