DigiKey CEO Dave Doherty spoke with EE World about electronic parts distribution.
Recently, a press release arrived at my inbox announcing that DigiKey CEO Dave Doherty had received the Robert H. Goddard Alumni Award for Outstanding Professional Achievement from his undergraduate university, Worcester Polytechnic Institute (WPI). Given that WPI is also my undergraduate university, I immediately reached out to DigiKey for an interview.
In the video below and the lightly edited transcript that follows, we discuss electronics distribution, how online sellers such as Amazon and eBay affect the electronics distribution chain, how DigiKey supports engineers, how it avoids buying counterfeit parts, and how the company and its engineer customers use AI to select and deliver parts.
Transcript starts here
EE World: Dave Doherty, CEO of DigiKey, thank you for taking the time to speak with us today, and let’s get started. First of all, the way this came about was when I saw a press release saying that you had received an award from your undergraduate university, Worcester Polytechnic Institute, which happens to be mine as well. I thought, “I have to talk to Dave about this.” We’ll get to that later, but I wanted to ask you a few questions about the distribution business and how it might be changing. So let’s get started.
As a CEO, what do you do to differentiate DigiKey from its competitors? The most important things I know when I’m buying something are price and delivery. What else does your company do to differentiate itself from competitors?
Doherty: Martin, that’s a great question, and you’re correct that pricing and delivery are where it all starts, and that was a differentiator for us 30, 40 years ago when we were one of the first to have real-time inventory and stock visibility. But given that that’s more table stakes now, we have to continue to keep up with the needs of our end customers. I would say for us, when people think about DigiKey, one of the first things they think about is selection. You know, we have most parts that we offer in stock. And while I’m a born and raised Bostonian, I’m now in Northwest Minnesota, in our headquarters, where we have just a huge warehouse, and we’ve got over two and a half million different products in stock that we deliver same day. So that differentiation of both selection in that high service level to get products in the hands of our engineers very quickly, I’d say it starts there. We can continue to go on with some of the other roles where distribution has changed. But let me pause, and I’ll leave that for now.
EE World: With so many parts, how do you assure both your customers and your inventory that, how do you deal with the possibility of fake parts? How do you weed them out? How do you identify them?
Doherty: Martin, ensuring the authenticity of product is job one for franchise distributors. You know, you can go online and search for a part, and you’ll see a whole host of folks. You can go to a trade show like Electronica, and it’s shocking how many different sources of products there are, but there are only limited numbers that are manufacturer’s authorized franchises, contractually. They offer warranties, and that’s the only place that we procure product. We don’t procure excess from a customer. It comes directly from the manufacturer, so we get that certificate of compliance that comes along with that, and that’s what we put our brand and stake our reputation on. And not only DigiKey, but there’s an association called the Electronic Component Industry Association, and that’s our mainstay across that association, that authenticity, or ensuring the fact that these products are real. You know, it matters where these products go into life support systems. They go into satellites, into military equipment, etc. Authenticity is job one.
EE World: In addition to distributors like DigiKey and its competitors, you can buy parts, as you said, online, from many sources. I recently bought some resistors from Amazon. Alibaba is another one, as is eBay. They sell not only components, they sell test equipment. And there are many others. How have those online sellers affected the distribution business, if at all?
Doherty: Yeah, you know the interesting question, because certainly you know the folks that you’ve mentioned, the Amazons, the eBays, the Alibabas, they are certainly a part of our overall life. But I would say for me and for most of the folks that I know, it’s in that consumer space where, again, that counterfeit or that authorization is less critical. Many of these websites live in a marketplace-type environment where they don’t necessarily scrutinize or screen the providers of their sources. So I’d say, anyone buying components or test equipment, you know the old adage of “buyer beware.” I can almost assure you, you’re not going to get the warranty pass-through from the manufacturer. You’re not going to be assured of the actual source of that product. It could be legitimate. Maybe I had bought some excess, and I don’t need them any longer, so I post them. But again, if you want to be sure, that’s where you go to a DigiKey or someone else inside of that ECIA umbrella to be sure. And in that regard, it hasn’t yet made a big impact on us because of that fact. We see our engineers and our buying professionals, and frankly, even the hobbyists are oftentimes they want the assurance of the product, but they also want a lot of additional information.
Our world is still one of information as well as product. They want the data sheet, they want app notes, they want pinouts. They want EDA symbols and footprints that go along with that. To date, Amazon and Alibaba have been pretty much whatever that marketplace provider shows for the product. You know, that’s it. They haven’t got into that depth of information that our customers have required of us, and they’d like to see bundled around the component itself.
EE World: In the vein of buying parts. Now, here in Boston, you mentioned, yes, I am in Boston. We don’t have electronic stores anymore. You know, Radio Shack. I used to have one within walking distance from where I live. The last one, You-do-it Electronics, which had been around since the late 1940s, recently went out of business. The only place you can get electronic parts is a small section at Micro Center. It’s more of a hobbyist section. So what to do? I’ll call them neighborhood engineers, and hobbyists now have to rely on these online sellers. Does not having local stores hurt them? I know I feel it, but have you seen anything about that as well?
Doherty: My feeling on the online stores is, it’s much like the music industry when I was young. If I were looking for a hot new single, and I’m embarrassed to say it was probably in a 45 rpm format, I could go to a local retail store, and they would have that section. Now, the compromise of having it there live was a limited selection. You probably got the top 100 or the top music of that day. You didn’t have a lot of genres. Where do people go now? They go to Spotify, or they go to iTunes, and they have virtually anything that they’re looking for. And that’s what our world has become.
I think the Radio Shacks and these stores can’t carry enough breadth. The manufacturers have gotten so creative with package types and different temperature ranges, low power, and high speed. That’s how our catalog started off. It was pretty thin. By the time we stopped producing it in 2011, there wasn’t a phone book around the globe that was as big as our catalog. And so I think that’s what started this demise. You lived in a very urban area where you had access to that. I think the beauty of this online is to be able to get the selection and from someone like DigiKey, anywhere in North America, you’re going to get that product the next morning air or second day if you’re getting it ground. I’m a hobbyist myself, and I was looking for a couple of resistors, so I placed an internal order. I felt bad. There was only an eight-cent order, but I had it within an hour, because I happen to physically reside alongside our warehouse. But for many of our engineers, what they tell us is that the ability to convert lead time into transit time far exceeds that. That opportunity to go to your Radio Shack or any other source Fry’s out on the West Coast, and get a very limited selection of product, resistor values, precisions, tolerances, etc., and so, you know, I think that’s a tradeoff of where this world has gone.
EE World: Come to think of that, do you have a place at your headquarters, where, if somebody local wanted to come over and buy a part and pick it up, can they do that?
Doherty: Absolutely. People buy from us. Our employees can buy from us, and it shows up at our east or west entrance, and we go and pick it up. Or, people can come into the entrance and have it delivered to that entrance the same day. Now, we’re more of an agricultural center up here, but you know, we do have some closet hobbyists that do take advantage of that proximity.
EE World: One thing that I’ve seen from distributors, and I think this is also a way we talked about differentiation earlier. But what do you find that engineers do? They come looking to DigiKey for technical support other than what’s online? What do you deal with that?
Doherty: Again, another really solid question about the role of distribution. I graduated, as you mentioned, from Worcester Polytech as a double E. I started off in engineering at Digital Equipment Corporation, one of those companies that many of your listeners may not remember. I’m sure that you recall them. From there, I went to a manufacturer as a field apps engineer and, and there were a lot of my peers out there from different companies. You had access to live people that sometimes they only delivered a data book, and other times they actually helped you with their design. Far and away they’re gone, unless you’re a mega customer or a very finite group of customers, where the manufacturers will deal with directly. And so we become the lifeline.
This year we will ship to — if we don’t cross 1 million customers, we’ll be right on the doorstep — and that’s starting at January 1 through December 31, representing about 700,000 physical addresses. Each one of them has an equal opportunity and access to our engineers online, to the tools we provide. Some of our most active sites on the web are some of the translation tools. You know, what do the resistor codes mean? How do I come up with some of these calculations and then go to the parametric search to look for parts? So some of that interaction that I used to provide live much earlier in my career is now happening over the web, self-serve, or in a traditional manner, through phone conversations or web chats with our engineers, but it democratizes that access to technology. We’ve got a customer in Africa that builds drones, and they tell us, “You’re our only lifeline to products.” Now these drones are delivering blood supplies and pharmacy in medicines to remote hospitals, but they’re saying, “I wouldn’t have access. No one’s going to call on me in this remote region, but through the web, it’s as if I’m right next door to DigiKey. So I’d say, you know, that’s the power of now, being close to your customer without being physically close to your customer.
EE World: I wonder how AI is changing, or might change, the way people find parts. What do people do? I’m sure people are still using search engines. Have you found that customers may be buying parts, or at least trying to identify parts by using AI? And you say, “Here’s what I need.” You put in as much detail as you can and see what comes up. Then, I suppose they might also say, “Okay, I want this part. Where do I go to find it?” They’re probably just asking AI for that. How does that affect the distribution business?
Doherty: AI is on everyone’s mind, and I would say, “Well, some people are getting a little discouraged, feeling that there’s more hype than meat on the bone.” I’d say that it’s the hype, maybe just a precursor, because it’s early days.
This is going to change the way we interact with each other, with websites, internally and externally. So if I can digress for a second and say, we’ve been on this AI journey because we’re in a physically remote location, we don’t interact directly with as many people as we do indirectly through all the transactions that they have with us. And so, we embraced AI from the get-go because of all this data, and we formed our terms that you hear now, our data or our own large language model, to do internal things to become more efficient. How do you assign an export compliance classification number or a harmonized tariff schedule? Those were all technicians who were doing that. Now, we can free those techs up to be customer-focused and let that happen in the back office.
To your question, AI is also coming to the front office now. You want to make sure that it’s ready for prime time when you’re exposing it to customers, and so we’ve been subtly rolling it out. If you go and do a search on our parametrics, you’ll find that if you look for a parametric like output voltage, there might be 100 parts. And let’s say you’re looking for something that’s at least 12 volts. Well, one supplier might spec it at 12 volts. One may say between 11 and 13, one between 10 and 15, and you would have to, in our old system, select each one of those individually that each met your criteria. Now we’re allowing this query and through AI to just use natural language. “I’m looking for such and such a part with an output voltage of at least 12 volts,” and it’ll automatically pre select all of those parametrics that meet that criteria. Really interesting, though, what you pointed out, I highlighted to our team.
With two and a half million parts, being able to create our own search engine and keep up to make sure that it’s fast and it’s relevant has been a challenge, especially as we continue to expand. I did my own experiment where, the other day, I was looking for a very simple connector. I had 22-gauge wires that I wanted to experiment with and find different resistor values to dim some LED lights. I posed that question on Gemini, and I asked it to find the part on DigiKey. And it took my natural language, and it found the exact part. If you went on DigiKey, sometimes I would almost say, I’m not embarrassed to say, because if I know what I’m looking for, there’s no site as powerful as ours.
If I’m looking a little bit more ambiguously, it can be somewhat overwhelming, because there are so many parts, so many decisions. My personal experience was that I found AI very useful in that one single case. I think that is just the entree of more and more. Just like people were doing Google searches, and DigiKey would come up, and they would find the part on DigiKey I think that’s going to just naturally translate to “I’m looking for a 100 pf capacitor that with this tolerance, this voltage, etc, and let me know who has it in stock and how much it is.” That’s coming, but it won’t be the only answer, because, again, they’re going to want the symbol and footprint. They’re going to want to know what other parts go along with this. In our world, so many of these parts are designed as part of a signal chain or as part of a larger, more complex block that it still is difficult for AI. The complexity of technical content that is parsed out in data sheets, we’ve not yet seen an external system or our own efforts to do that as flawlessly as we’ve been able to do it through some experience and brute force, frankly, to make it more usable. I’d say we still have the usability factor, but I’m not going to bet against AI in any of these end applications.
EE World: Well, you pretty much answered my second question, which was about how your company is using AI internally, so we’re going to skip that. I just wanted to have sort of a wrap up little session here. But before I do that, just off camera, I have a digital clock that I built while I was a student at WPI, and it still runs. It’s 47 years old, or something like that. For the first time, I replaced the power transformer because it started to leak, and while I had it open, I realized if I’m going to take the time to open the case, I should replace the electrolytic cap, which I was amazed lasted this long. Aluminum electrolytics, if you get 10 years out of them, you’re doing well. And this one was still working. But I figured if I’m going open the case, I’m going to buy a cap and replace it.
You recently received an award from our undergraduate university. I wonder if you could tell me a little bit about you and about your career, how you ended up at your current position, and how did the Lifetime Achievement Award come about?
Doherty: I was always interested in electronics, so I made the decision. Unlike my children, some other folks these days, we always started off with, Martin, I know I did, is “what jobs are going to be available when I get out of school,” not what my passion is to study in engineering. You know, certainly in the early, mid 80s, was right there. And I looked around at schools, and I just liked the WPI, Worcester Polytech philosophy. To me, it was a blue collar engineering school, but it was an interactive approach. It was, hey, it’s not about trying to be the smartest guy in the room. It was “how well can you work within a team environment?” And things like their Interactive Qualifying Project, the IQP, the MQP (Major Qualifying Project). I taught at a local high school up the street as part of my IQP.
I was involved with a team studying infant mortality in the burn-in process of components for my MQP. That prepared me more than any particular study. I think, as you know, you learn how to learn in college. The specific information has a short shelf life. And I thought Worcester Polytech did a phenomenal job at preparing me to be part of a team environment and to continue to stretch my learning. So that was an easy decision.
From there, I mentioned earlier, Digital Equipment Corporation at one time, the largest employer in the state of Massachusetts. I was in engineering and realized I was probably in over my head, technically, and I love to interact with people, so that path took me to a field apps engineer, eventually into strategic sales, and then into leadership.
I spent the first third of my career at a semiconductor company, and then went into distribution and found that supporting other engineers was a better fit for me. DigiKey was a hand-in-glove fit. The last 18 years, servicing engineers. The humility of our company is that we recognize that we have product that is a building block, but it’s our customers that are doing the innovating, and we play again this humble role of trying to serve those engineers because they’re changing the world. We put up posters and communicate across our building, these cool applications that our customers are discovering with our products. So that’s where my journey and my career, some of these functions, have brought me in.
I was surprised when I heard back from Worcester Polytech. You wonder, except for some of the alumni contributions that they request, how they track you down and keep track of you, and where you are in your career. When they reached out, you know, responded back, and was again truly humbled when they told me that through their organization, they evaluate certain criteria, and they wanted to present me with a Lifetime Achievement Award. Maybe the best part of that story is I reached out to one of my idols, another alumnus from our school, Dean Cayman, who truly has changed the world and his efforts with FIRST Robotics. When the school asked me if I would consider selecting someone to award me that prize, expecting that I would get a “Hey, thanks, but the schedule is just too busy,” I asked Dean if he could take time out of his schedule and he was gracious enough to do that. So that was as big a thrill as receiving the award was to do it with someone that I’ve admired for so long in my career.
EE World: Dave, well, thank you so much for your time, and maybe someday I’ll get to meet you, maybe even in Worcester, maybe even on campus.
Doherty: Martin, I would absolutely look forward to that. You’ve got it to date.
