The Representor, Lead Article, Spring 2008 Collaboration with reps is driving Digi-Key's growth
It's not an accident that Digi-Key has grown to become the fourth largest electronic component distributor in North America, with annual sales of nearly $1 billion - a feat accomplished with 100 percent organic growth (i.e., no acquisitions). The obvious questions then are why and how? A major factor in Digi-Key's growth is its strength in serving the design/engineering community in North America. But just as important is Digi-Key's emergence as a formidable player in production business through its Volume Business Division. And this initiative is increasingly being driven by collaboration between reps and Digi-Key. This joint effort represents a radical departure from the way business has been done in the past. A few years ago, no one would have envisioned that a rep/Digi-Key relationship would drive hundreds of millions of dollars of business. A significant force behind this change is the "disruptive technology" of the Internet. It's this technology that has both facilitated and driven abrupt changes in customer behavior. The customer who "works the Internet" is far less dependent on salespeople for both engineering and production support. Digi-Key's business model capitalizes on this change because the force behind this change is the customer ... or more precisely, the force behind this change is customer behavior ... and Digi-Key is extremely customer centric. There is no reason to believe that this change in behavior will diminish. Customers want a "light touch" from all sales channels. The demands on their time make redundancy in the sales channel a luxury they can't afford. There is every reason to believe that this mentality will become even more pervasive and more intense. So the key for any rep is to determine the best way to approach this "new reality." We believe success based on the evolving strength of the rep/Digi-Key relationship clearly demonstrates that this is the way more and more customers want to do business. Customers vote with their dollars - and Digi-Key's continuing gain in market share speaks for itself.		About the Author ... This article was written by Mark Larson, the president of Digi-Key Corporation of Thief River Falls, Minn. He received a bachelor of science degree in business administration from the University of Minnesota. Prior to joining Digi-Key, he worked in several sales and management positions in addition to running his own business. Larson assumed the management of Digi-Key in 1976 when the business had sales of just $800,000 and only 14 employees. Under his leadership, annual sales have grown to nearly $1 billion, and the company now has more than 1,900 employees. Digi-Key has risen in the ranks of electronic component distributors from 20th largest to fourth largest in the last six years, all on the basis of its own increasing market share, without acquiring other companies.

Let's get specific
The Problem:

1. Manufacturers want reps to be more involved in "demand creation."
2. But engineers are increasingly using the Web for prototyping and design.
3. And reps do not have visibility to Web based design activity.
4. So it takes reps more time to discover and penetrate design activity.
5. And more time means more cost to the rep.
6. But manufacturers continue to squeeze rep commissions.
7. With more cost and lower commission rates, a rep has three choices:

• Make less.
• Work harder.
• Work smarter.

The best solution?Work smarter!

My guess is that given the choices of "make less," "work harder" or "work smarter," as many as eight out of 10 reps would choose "work smarter." If we disregard the masochists, I believe this number might approach nine out of 10. But the real question is not whether to "work smarter," but how to "work smarter," and that's where Digi-Key comes in.

Understanding the problem
Before I give you the simple solution to how reps can "work smarter," I believe it might be helpful to review why our world is the way it is today. The answer: Our world today would be a lot more like it was 10 years ago if it wasn't for "The Internet" (aka: "Disruptive Technology").

"Disruptive Technology" is new technology that is so clearly superior that it essentially replaces existing technology. The classic example is the automobile and how it supplanted the horse as the primary means of transportation. But most advances in technology are not as extreme and don't totally supplant existing technology. For example, radio impacted but did not supplant newspapers. And television impacted but did not supplant radio.

These technology advances did, however, enable a strategy or business model that created a disruptive impact. This process is called "Disruptive Innovation" - innovation enabled by technological advances. Why is this important? Please keep reading.

Digi-Key = "Disruptive Innovation"
All sales channels in the electronic industry have been impacted by the Internet, and the impact has seriously disrupted the way business is done. The impact of the Internet on many in the sales channel has been negative. Traditional distributors have lost market share. Both direct and rep sales forces have diminished access to the engineering community and have lost significant visibility to their design activity. The Internet may never totally supplant the way business was done, but it continues to become increasingly prominent in sales transactions.

The engineers involved in prototype and design work embraced the Internet first. It was a quick way to get real-time inventory information and access to hundreds of thousands of electronic components. As a "catalog" distributor targeted at serving the engineering community, Digi-Key was uniquely positioned to take advantage of the Internet. Today, more than 60 percent of Digi-Key's sales come through the Web.

Knowledge is power
Ponder this: Digi-Key processes more than 10 million purchasing transactions a year. If you had detailed visibility to selected transactions within your territory, is it conceivable that you could profit from this knowledge? It seems logical. So several years ago, Digi-Key began working with a small number of rep firms to see if their detailed knowledge of their territories, coupled with selected Digi-Key transaction data, could really result in more business.

Although the early results were very positive, it was clear that to optimize this process required developing communication and trust between Digi-Key and reps that didn't initially exist. What we have seen is that, as this communication and trust develop, reps and Digi-Key can work together in a very "light touch" manner to mine this database to significant mutual advantage for both reps and Digi-Key.

From concept to reality
So let's talk about reality. A rep reviewed a Digi-Key First-Time-Buy (FTB) report and spotted sales activity on four components that appeared to have been purchased for prototype and design purposes. Because the contact information on the FTB report typically drills down to the engineering contact, the rep was able to connect with the customer early in the design process and lock-in the business. (Order booked: $32K with additional potential.)

A rep spotted a purchase on a FTB report that he believed had potential. Digi-Key connected with the supplier to assure competitive pricing. The rep and Digi-Key worked together to close. (Order booked: $12.5K with real potential for additional $50K.)

Digi-Key spotted a design transaction that, when collated with information from our Design Support Services Group (Digi-Key's virtual FAEs), looked interesting. We connected with the rep firm and discussed the best strategy. Based on this discussion and the rep's knowledge of the territory, Digi-Key connected with the customer. (Result: probable $80K over two years.)

FTB report showed a transaction with a design house that triggered the interest of the manufacturer of components purchased. The manufacturer of components connected with Digi-Key and discussed the possible opportunity. Design house involvement made it difficult to determine the actual owner of the design. The collaboration of the rep, his principal and Digi-Key resulted in identifying the project "owner" and in locking in a number of design wins related to this project. (Result: very significant potential.)

And for a different twist, as a result of developing closer working relationships with rep firms through the FTB report, the unique value proposition of Digi-Key has resulted in other wins. Here are just two examples.

• A passive opportunity identified by a rep played into Digi-Key's strong inventory position and ability to quickly respond to schedule changes. The Digi-Key area director and the rep discussed Digi-Key's value proposition with customer. (Result: $200K.)
  
  
• A major traditional distributor threatened to convert a rep's business to competitive product based on its in-house store position with the customer. The Digi-Key area director and the rep worked with the customer on Digi-Key's value proposition. (Result: Existing business of several hundred thousand dollars was salvaged, and another $200K in new business was added.)

We've only just begun
The impact of the rep/Digi-Key collaboration is like a snowball rolling down a hill. It's rapidly gaining in terms of both mass and momentum. It's becoming increasingly clear that when a rep's detailed knowledge of a territory quickly filters Digi-Key transactions, it's like panning for gold - but a lot less work and a lot more profitable. And as the rep/Digi-Key relationship matures, it's apparent that the potential grows exponentially.

What ERA reps say about Digi-Key
Editor's Note: The Representor asked a number of ERA reps about their experience with and opinions about Digi-Key. Following is a sampling of their responses.

Mark Conley of O'Donnell Associates North in San Jose, Calif., says: "Digi-Key is an extremely valuable asset in the supply chain. When we design a product in at a particular customer, we can contact Digi-Key, let them know ahead of time about the design win, and they will put that product in inventory long before the customer places an order. In most cases, they already have the product on hand, ahead of our phone call.

"Digi-Key can also be extremely competitive in the higher volume opportunities that come along. Digi-Key is our second largest distributor and rapidly gaining on the number one position in terms of sales. The company embraces us as its demand creation partner and does everything possible to keep our relationship positive and productive."

Phil Duerfeldt of Duerfeldt Engineering, Inc./Com-Peer Group in Tigard, Ore., adds: "Digi-Key has the might to get not only the design and prototype supply accomplished with our Pacific Northwest customers, but its Volume Business Division supports the production quantities."

David Norris of Norris & Associates, Inc. in New England notes: "We have found Digi-Key to be an extremely valuable resource in our market. We have many customers who will only design in components that are available through Digi-Key because they believe that, if it's available through Digikey, it is a part that will be supported. Countless new designs for our principals have begun by an engineer downloading data sheets from Digi-Key's Web site, ordering prototypes for next day delivery from Digi-Key stock, and building our products into their next generation products, all because of accessibility of parts and data from Digi-Key."

Tom Teal of Naudain Associates Southern in Woodbine, Md., now has five lines in common with Digi-Key and calls the company "absolutely our ‘go to distributor' for inventory and customer service. Digi-Key's First Time Buy report is invaluable for reps to data mine their territories."

ERA Chairman Mike Kunz, CPMR, of R. W. Kunz & Associates, Inc., in St. Louis, Mo., stresses that Digi-Key is "very comprehensive and quick responding to customer requests." He also says: "Digi-Key now competes very well in the mid-range OEM market. They stock the product ... look to rep companies for the demand creation part of the sales cycle ... and share important POS [point of sale] data with reps. We actually feel like part of the Digi-Key family."

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2008 Electronics Representatives Association (ERA), Chicago, IL 60611
Originally printed in the Spring 2008 issue of The Representor
Cannot be reprinted without the permission of the Electronics Representatives Association (ERA)