Time to re-route region’s supply chains?
Manufacturers hit by global disruptions
Pine Electronics in Grove City assembles printed circuit boards that are used in transportation and industrial power grids. Many of the parts are sourced domestically, but several key pieces come from suppliers in China. That turned into a problem this year.
“On a printed circuit board, it only takes one missing part to kill the build. It could be a $10 part or a penny part. Many times the penny parts are coming out of China and the places that got hit early [by COVID-19],” said Pine purchasing manager Ed Strandburg.
One of the company’s biggest customers lives in Wuhan, China, where the coronavirus originated. In February, he sent pictures of that city to Pine’s sales team. “‘Here’s what it looks like right now.’ And there wasn’t a car on the street,” Mr. Strandburg said.
To Eileen Anderson, who directs government relations for the Eriebased Manufacturer & Business Association, it’s clear the coronavirus has exposed America’s supply chain fragility, especially when it comes to the medical equipment and pharmaceuticals.
“One of the things that has to shift is the focus on price, because people go to China or Southeast Asia because of the lower cost,” she said. “We’ve really been caught with our pants down.”
The Manufacturer & Business Association, which provides human resource support for businesses in 54 of Pennsylvania’s 67 counties, is — along with other Pennsylvanian business organizations — calling for manufacturers to use this period as an opportunity to bring overseas manufacturing to U.S. soil.
On June 30, business coalition Pittsburgh Works Together unveiled a framework to make Pittsburgh an “epicenter of the nation’s post-pandemic economic recovery” by “reshoring much of what we’ve lost over the last few years back to America,” said co-chair Morgan O’Brien.
The plan calls for the region to fully develop its energy sector, especially around natural gas; encourage trade school routes for high school graduates who don’t go to college; rebuild local infrastructure; and reduce Pennsylvania’s corporate tax burden.
The coalition, formed just days before the pandemic shutdowns hit in March, brings together seven companies, 19 labor organizations and 10 business associations from Western Pennsylvania. Before the coronavirus outbreak, the group focused on battling negative images of industry. Now, it’s focused on using the pandemic as an opportunity to make Pittsburgh, and the U.S. as a whole, less reliant on offshore manufacturing.
China is the No. 1 supplier of goods to the U.S. — according to the Office of the U.S. Trade Representative, China exported $539 billion in goods to the U.S. and imported $120 billion of American goods in 2018.
So if companies do move to reorganize their supply chains, it won’t happen overnight.
“If a company’s importing 100% of their widgets from China, maybe now they’re all gonna do 50% from China and 20% from Malaysia, and then we’re gonna do 30% from the United States,” said Matt Holjes, managing director of business development for Catalyst Connection, a nonprofit business consulting organization in Hazelwood that works with hundreds of companies in the Northeast region.
“If you’re heavily embedded with a Chinese manufacturer, it could take several months to a year to identify new supply chain partners. But if you are willing to maybe look for a domestic source and be willing to pay a little bit more right out of the gate for some of these products, it could be a matter of a couple of weeks,” he said.
As the pandemic triggered shutdowns and other disruptions this spring, companies that tried to move their suppliers domestically ran into another issue early on. Manufacturers like Pine Electronics that weren’t deemed “life-sustaining” under the state’s rules were required to temporarily close, throwing a new wrench into the supply chain equation.
“That was the biggest challenge in the beginning: ‘Who is considered essential? Who can you get a part from?’ ” said Schmidt Technology sales manager Dave Zabrosky.
Schmidt Technology is a Cranberry-based equipment manufacturer known for its hand-powered and automated presses used in assembly. In March, nearly 40% of its business was rooted in the automotive industry, where many companies shut down or pivoted into making personal protective equipment.
Schmidt itself struggled with figuring out its classification. President Robert Tichauer said the company wasn’t sure it was included in Gov. Tom Wolf’s shutdown order, since Schmidt had a hand in so many industries — aerospace, automotive, medical, jewelry and even vaping.
Mr. Tichauer pre-emptively shut down the company and applied for a waiver, which was approved in less than a week.
With a product as ubiquitous as a press, the company’s sales have remained relatively steady, with around 60% going toward medical devices over the last few months. All 21 employees stayed on.
But Schmidt’s diverse portfolio could trigger another dilemma: This fall, it might see too much business. Many of the postponed pre-COVID-19 orders are sitting on the horizon.
“We still have to make that new part for that new model year car. It’s just been delayed for 3 or 4 months, and any industry delay of anything can be disastrous,” Mr. Zabrosky said. “There’s going to be a huge wave of ‘I need this, I need this, I need this,’ all over the place.”
For Wendy Mascio of Medical Equipment Source in Mars, that outlook sounds pretty good.
“Most people think if you’re in medical, you must be thriving right now, but that’s not necessarily true,” she said.
Ms. Mascio’s company sells remanufactured medical parts, and its team of service technicians perform preventative maintenance for laboratories in surgery centers and hospitals across the country. She likened the latter part of her business to “getting the oil changed for your car” for the health care industry.
The sudden stoppage of elective procedures has hit her business hard. Sales were down 50% in March and slipped even further in April and May, to 10% and 20% of last year’s levels, respectively. Ms. Mascio had to furlough two of her 12 employees.
Things looked better in June — around 40% of last year’s sales — but the current course of the pandemic is troubling. Around 50% of her clients are in Texas, California, Arizona and Florida, recent virus hot spots. Any further restrictions on medical procedures could hamstring her business.
The effects have already begun. In a client lab in Houston, one technician got COVID-19, and the entire office had to close. With a shuttered lab, there’s no maintenance to be done.
“We’re just trying to weather the storm until people start going to the dermatologist or getting endoscopies and colonoscopies again,” Ms. Mascio said.
As for Pine Electronics in Grove City, materials from China began coming in after the lull in March and April. The company considered a medical pivot briefly but was turned off by all the paperwork and regulation it would take.
Other drags on business have been popping up, like recent surcharges from shipping companies and missed business opportunities from a manufacturing shutdown that exceeded a month. But Pine’s long-term business partners have kept them afloat, and most of their manufacturing staff has returned after the March layoffs.
“It’s like you’re standing on the edge of the ocean and you keeping getting hit by waves, and every once in a while, you get this nice gentle pool where you can stand,” Mr. Strandburg said.
June had encouraging numbers for American industry: The Institute for Supply Manufacturing said 52.6% manufacturers reported growth last month. Why the recovery?
“It’s China getting back to work. I hate to say it, but that’s the reality of it,” Mr. Strandburg said.
Pine business development manager Tammy Mysliwiec agrees. She said the pandemic has “exposed us to our dependence” on China — and to her, that connection is near intractable.
“It’s kind of scary. You heard of everyone wanting to reshore, the president wants everyone to reshore, but actually doing that is mind-boggling,” she said.