Overall, the global economy rose in 2022 after two consecutive years of pandemic-triggered slump. While it seems the world is on its way out of the COVID-19 ward, challenges are far from over and economic uncertainties are hovering 2023. Particularly, the electronics industry will continue to face supply chain issues, which will likely give a dent, among others, on the industry’s outlook for the rest of the year.

Digi-Key Electronics is one of the companies that saw sales volumes registering tremendous increase in 2022. Recognized as an innovator in the high service distribution of electronic components and automation products globally, the company saw 2021-2022 as years of sustained growth, experiencing 80 percent growth during the 24-month period.

Last year alone, the Minnesota headquartered company reached sales of US$5.1 billion, processing and shipping more than 6.5 million orders around the world annually. It also served about 858,000 customers and added over 550 new suppliers and 75,000 new SKUs under its wing.

However, Digi-Key President Dave Doherty said 2023 might be less certain than 2022. Nonetheless, Doherty said Digi-Key, having the largest inventory in stock, is ready for any changes in industry requirements.

“With some exceptions in certain technologies, lead times are shrinking and we are rebuilding our available in-stock inventory to return to our normal service levels. We are anticipating that the focus from our engineering customers will be less on finding substitutes or alternatives as a result of supply chain constraints to focusing on new design activity. We are ready with the largest availability of NPI inventory in the industry,” said Doherty.

For one, Digi-Key Electronics opened last year its 204,000sq.m Product Distribution Center expansion (PDCe). Hence, enabling the company to scale capacity to keep up with skyrocketing demand.

The PDCe is among the products of the company’s significantly increased capital infrastructure investments over the last three years. In addition, the company has also implemented more robust and predictive web search functionality, higher inventory levels, and improved digital experience.

Last month, Digi-Key reached a milestone as it celebrated its 50th year in business on April 3. The City Mayor of Thief River Falls even proclaimed the day as “Digi-Key Day”.

In this interview with AEI, Doherty laid out the trends that will stir the industry’s long-term demand outlook and strategies that will foster further innovations with its partners. 

AEI: What industries have been driving demand to Digi-Key in recent months?

Doherty: Healthcare, automotive, energy, 5G and IoT will continue to drive innovation in 2023 and for many years to come. Digi-Key will continue to provide all the components and services necessary to fuel that innovation. We view the electrification of everything as a key industry trend that has driven significant growth and will continue to drive significant growth this year and beyond.

AEI: What is Digi-Key’s view on the supply issue hounding the chip and electronic components industries?

Doherty: Many supply chains have started to recover from the ongoing issues. 2022 will go down as the “year of the golden screw” with continued constraints for microcontrollers and power discretes causing challenges. The big question going into 2023 is, when some of those golden screws start to materialize – will the demand still be there?

We wholeheartedly believe the demand will absolutely be there, as we see this year as the year designers and engineers get back to innovating. While some supply challenges will still be there, engineers are ready to get back to new design challenges, and Digi-Key is ready to support them in their new endeavors.

AEI: What are Digi-Key’s strategies to ensure critical chips and electronic components will be there despite the global shortage?

Doherty: Digi-Key’s goal is to make it as easy as possible for customers to find alternative solutions that may fit their needs. When a customer tries to order a part number from our website and it is out of stock, Digi-Key automatically presents potential alternatives from our database of nearly 60-million-part number cross-references.

AEI: Automation has been pivotal in the manufacturing segment. How’s the growth of products and solutions that promote automation? 

Doherty: The manufacturing landscape has gone through some major changes in recent years. The pandemic and supply chain shortages have made the need for automation that much greater. Customers in every corner of the manufacturing industry are now looking to automate processes from predictive maintenance to quality control on the product line.

Digi-Key supports these customers wherever they may be in the process of automating their factories. For the last few years, we have continued to add industry-leading manufacturers and we now offer one of the broadest selections in the world.  We stock everything from sensors and controls, to robots and safety. Our goal is for our customers to fulfill their entire project needs from a single source.

AEI: How important automation has been in your distribution centers and how does this help you operate efficiently?

Doherty: Advances in technology and automation are helping to provide solutions for the skyrocketing growth in demand. We continue to invest in technology and automation through our new, state-of-the-art Product Distribution Center expansion (PDCe) which provides 204,400 square meters of space. Plenty of room to scale up as order volume continues to increase as well as increasing the number of new products we can offer for customers’ design and manufacturing needs.

AEI: Can you discuss the sophisticated technologies you have recently implemented that contributed to the massive automation of your centers?

Doherty: Our distribution center was designed to support broken pack quantities to support engineering and low/mid-level production requirements. The PDCe is nearly fully automated to achieve that purpose with product stored in trays that can be configured in various means to support bulk, tube, reel or other manufacturer packing conventions. That tray is brought to a pick station and targeted product is highlighted with a light to minimize errors. In addition to utilizing available third party systems, Digi-Key has also designed its own systems that further automate the pick process and improve traceability and more accurate pick quantities. The largest component of our newly automated system is the KNAPP Order Storage and Retrieval (OSR) which provides the right parts to the picker every time, eliminating walk time and providing an ergonomic environment for the picker. This high level of automation improves efficiency by up to 35 percent for picking and provides a great improvement in packaging quality and efficiency.

The PDCe features two primary sorting systems to provide redundancy in the case of a breakdown and provide for future growth. There are over 27 miles of automated conveyor belt in the new facility, and an average order will travel more than 3,200 feet inside the building.

The new PDCe also provides additional room for our carrier partners to grow and incorporate their own automation on site that will allow for ongoing and improved delivery options to customers. 

AEI: Can you share Digi-Key’s long-term outlook in the industry? Is the outlook that we see in 2022 the same that you are looking at on longer term perspective?

Doherty: Digi-Key is looking at this year as a transition year. We expect that shortages, panic buying, and human emotions might make this a more challenging year in terms of revenue, but we see this year as one of preparing for future growth.

Our industry is cyclical by nature and after a few years of such intense demand, we expect that to naturally taper off, but we’re prepared for that lull. The demand and challenges from the past two years will come back around again in new forms in the future, and we will be better prepared with the new building blocks that we’ve put in place.

Digi-Key has always taken a longer-term perspective and maintained our core strategies to support high service levels throughout the industry cycles. As we move forward, we are really looking at what high service means for both our customers and our suppliers.