The Power Triangle in Electronic Component Specifying and Purchasing

I recently had the opportunity to interview Mark Larson, the vice chairman of electronic component distributor Digi-Key Electronics. The company was founded in 1972, and Larson joined only four years later to what is now one of the largest such companies not only in North America but the world. He led the company as president for an astounding 39 years, just recently stepping down in July.

In the four decades during which Larson ran Digi-Key, there was considerable change -- in the electronics being sold, in whom the products were sold to, and in the supply chains the products traveled through. The other thing that has changed is the way Digi-Key interacts with different points of contact at each customer. Although it has always aimed its marketing efforts at design engineers -- and continues to do so -- it has had to adapt to the growing role of centralized procurement in managing purchases.

Since the interactions between engineering and procurement have not always been naturally easy, the insertion of a third party into the electronic component purchasing process has brought some benefits. When looked at from an outsider's point of view, the two teams may have more in common than they realize.

The good news, according to Larson, is that the primary "wants" of engineering and procurement are not all that different. "One thing that has been interesting to see is that if you look at industry surveys on the needs of the design engineer -- what they highly value in a distributor -- they say they want to access the broadest range of products, they want parts in stock for immediate delivery, [and] they want consistent on-time delivery," Larson said. "Those essential needs of the design engineer, they closely parallel the needs of the purchaser once that design goes into production."

On the other hand, as long as engineering and procurement both continue to exist, there will be differences in perspective in component and vendor selection, such as cost versus performance. From my perspective as a procurement professional, there is an important caveat for all companies trying to bridge a divide between their engineering and procurement teams: it creates an opportunity for suppliers to increase their influence and leverage.

As Larson explained of Digi-Key, "If those two sides [engineering and procurement] aren't blended in-house, we can be the facilitator to see that each side operates in a fluid and efficient manner."

In other words, information about specifications, performance requirements, and demand volume can pass from engineering through Digi-Key and on to procurement (or vice versa). This way, Digi-Key serves as a key facilitator in the decision-making process. There is not necessarily anything wrong with this, and Digi-Key has, according to Larson, built a competitive advantage out of being able to foster and maintain such close working relationships with their customers, in part through its parts catalog and application experience.

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Digi-Key thus has created additional value as a supply partner out of being tuned in to both engineering's and procurement's sourcing demands. Suppliers who see the opportunity to fill a void between engineering and procurement and steer purchasing decisions are unlikely to pass it up. Suppliers who are able to fill this void skillfully have an opportunity to grow their revenue and market share.

Digi-Key ensures the seamless flow of information from design to production. This range of involvement requires the organization to demonstrate product knowledge while also being cost effective and guaranteeing on-time delivery. It needs to be able to recognize and meet -- equally -- the needs of engineering and procurement.

But the resulting dynamic is something like a triangle, where the supplier becomes a third and equal player in the supply management process, which for any procurement professional would want to keep internal in terms of communication and workflows. Even if having an external facilitator works in the short term, it is inefficient in the long term and puts suppliers in a position of artificial strength.

If engineering and procurement can bring themselves into alignment first and then consciously define a role for the supplier, all three parties get the opportunity to collaborate, with each leveraging the full potential of its unique role and viewpoint in the supply management process.

You can listen to my interview with Mark Larson in its entirety to learn more about Digi-Key's operations and its role in today's electronic component supply chain and component specifying and purchasing.

Kelly Barner is the co-owner of Buyers Meeting Point, an online resource for procurement and purchasing professionals. She has been an industry award-winning supply management practitioner and consultant, and is now an independent thought leader and author on procurement, sourcing, and purchasing. She is co-author of Supply Market Intelligence for Procurement Professionals: Research, Process, and Resources. Kelly earned her MBA from Babson College.

[image via pixtawan, FreeDigitalPhotos.net]