Last month Texas Instruments (TI) announced changes to its authorised distributor network, with a new strategy aimed at establishing a closer, more direct relationship with its customers, writes Joe Bush, Managing Editor of Electronic Specifier.
In an October announcement the company encouraged customers to purchase all semiconductor products either directly from TI or from its authorised distribution network, through a security of supply policy, in order to reduce the risk of counterfeit product being purchased through the ‘grey market’. Consequences of this will see less business flowing through the distribution channel with the company winding down business with selected distributors.
In a recent visit to Thief River Falls, Minnesota, Electronic Specifier caught up with Digi-Key President and COO Dave Doherty (pictured) to gauge the response from one of TI’s key authorised distributors. As Digi-Key’s focus is the long tail of distribution, the situation is not currently giving Doherty sleepless nights and is viewing the new situation from a glass half full perspective. “We can’t control our suppliers’ supply chain strategies so we look for ways to work with them to ultimately meet the needs of end customers,” said Doherty.
“We have a close partnership with TI, and we are working together to figure out how best to reach customers with NPI needs that go beyond just TI and the longer tail of customers with their products.”
As Digi-Key operate in the slightly more messy realm of long tail distribution, Doherty added that the disruption currently taking place in the sector has, as yet, failed to significantly impact on operations at Thief River Falls, and is in fact empowering the company to look at a variety of ways in which to service that disruption.
He continued: “The emergence of E-Commerce capabilities has offered suppliers various options that didn’t exist previously. Digi-Key continues to strive to position ourselves to offer flexibility to suppliers as well as customers. In addition to a traditional distributor relationship, we also leverage our broad inventory position to support suppliers with sample fulfilment and ‘fulfilled by Digi-Key’ capabilities.
“In addition to these services, Digi-Key’s customers will be able to come to its website to find an even broader array of products and services. With a soft launch in the US in October, this capability will be called DK+, to signify an expansion to the existing needs you’ve come to Digi-Key for over the last 47 years.”
Doherty emphasised that the company’s digital capabilities is enabling a variety of different methods in which the company can pivot to meet customer needs. “The best way to bet on a winning horse is to have bets on more than one horse. Trying to move at the ‘speed of digital’ it’s important to look for ways to continue to offer disruptive capabilities, to avoid the risk of potentially finding your model disrupted by someone else,” he added.
The good news for Digi-Key is that TI has been very open regarding its strategy and have engaged in subsequent discussions on how the two companies can work together to achieve its goals. “We’ve yet to have a discussion where anyone has said that they don’t need any of our capabilities. We’ve listened to TI in the same way as we listen to our customers,” said Doherty.
In terms of the long-term outlook he alluded to the trend emerging in Thief River Falls where high school graduates often leave the area for the bigger cities and then return a few years later when they start to look for a better quality of life (less stress, more affordable cost of living etc). And Doherty intimated that the same may be true for some manufacturers.
“Shipping all these small quantities is a little messy,” he added. “So, the jury is out on the new distribution strategy from some of the larger manufacturers, and in the long-term shipping lots of low quantity product may not be for them.”
In addition, TI’s security of supply policy is also something that doesn’t appear to be an issue for Doherty. “If you’re truly an authorised distributor, then there’s only really a couple of places where you’d be able to interject counterfeit product,” he added. “One is where some of our competitors offer kitting, where they’ll buy non-franchised product to support their customers’ kitting requirements; and the other is customer returns. We tend to ship in such small quantities that we don’t get a lot of returns, and when we do, because of the small value of the product, often it is scrapped, so there is zero risk.”
Doherty added that Digi-Key does not offer kitting or franchised buying on any manufacturer product entering the company. “Counterfeiting is a legitimate fear,” he added. “There have been some issues where other resells etc have sold counterfeit product, but due to the reasons I’ve mentioned, I don’t think TI would have that fear with us. We learn from each other, and we don’t feel threatened by their new stance. They have some smart people, so do we, and we’re starting to collaborate more and more to establish a seamless customer experience.”
Doherty concluded by painting a picture of the current marketplace, stating that online has effectively changed the industry and turned it into something of a land grab. Manufacturers want traffic and their own relationship with their customers, and distributors want the same. The key, Doherty stressed, is realising what’s best for the customer, and he added that over the next few years, there will be greater enhancements in the passing of information between Digi-Key and manufacturers to make that experience more seamless.