Navigating Change
This article appeared in the May/June 2022 issue of MiMfg Magazine. Read the full issue and find past issues online.
It’s common knowledge that supply chain disruptions are having a major impact on manufacturing. Like many industry changes over the past two years, it’s a phenomenon rooted in the COVID-19 pandemic that has had far-reaching impact on manufacturers, distributors and consumers.
Despite the seemingly constant stream of obstacles, there is a positive side to the story. The continuing disruptions to supply chains all over the world have encouraged manufacturers to evaluate how their current supply chains function and develop a greater understanding of the true cost of doing business.
To adapt in the short-term and make sure their products get out on time, many Michigan manufacturers are finding a number of innovative solutions to overcome supply chain challenges. But facing these types of challenges is nothing new for resilient Michigan manufacturers.
“Facing and solving problems within their supply chain relationships, from material sourcing to distribution and delivery, is nothing new for the industry,” says Brett Smith, Director of Technology for the Center for Automotive Research.
The pandemic, however, created a scenario without any historic precedent.
“Over the last 20 years, we’ve seen many supply chain disruptions, but we’ve never experienced a global pandemic before,” says Smith.
The Center for Automotive Research (CAR) is an Ann Arbor-based nonprofit group that focuses on studying the automotive industry and its impact on the state and the U.S. Throughout the pandemic and the aftereffects, Smith and CAR have conducted research to gain market insights in the automotive sector and beyond. What they’ve found in Michigan is an industry that is resilient, open to change and has a desire to gain a deeper understanding about their supply chains.
“Most major manufacturers have never faced anything like this,” he says. “But if history has shown us anything, it’s that each time the industry goes through a disruption, we gain a greater appreciation of how challenging and how complex their supply base is and the companies take steps to better prepare for disruptions.”
Smith added, “These disruptions force us to see a true picture of what that supply base is doing from top to bottom.”
For Detroit-based PVS Chemicals, they’ve been able to weather the storm through the pandemic and ongoing supply chain issues largely because their supply chain is “really defined,” says Jeff Daniel, Vice President and Chief Financial Officer. PVS is one of North America’s largest providers of chemicals to make drinking water safe. They, along with their suppliers, were deemed essential early on during the pandemic.
“Through crucial and careful management, the actual flow of materials hasn’t been too much of a disruption for us,” says Daniel.
Because of the critical role PVS plays in the country’s drinking water supply, plants need to stay open 24/7. So that means they’ve had to pay a premium in order to get materials delivered and utilize alternative manufacturing processes to keep the plants running, says Daniel.
“We really don’t have the luxury of having a delay,” says Daniel. “We can’t say, we’re sorry we’ll get it to you a month from now. When you’re treating water, people don’t want to hear that.”
To address this and not pass all of those higher costs onto customers, Daniel and his team have had to carefully manage the process and identify areas to make improvements.
“We’ve identified where those bottlenecks are and we’re investing through capital and technology to ease that and create more efficiencies,” he says.
Amigo Mobility is also one of the many Michigan manufacturers that has discovered innovative solutions to the ongoing supply chain disruptions. Founded in 1968 and based in Bridgeport, they make motorized shopping carts and other mobility products so sourcing components from their normal suppliers was one of the first issues they encountered, says Jordan Thieme, Amigo’s Director of Operations.
Get More!
Hear from PVS Chemicals’ Jeff Daniel, Amigo’s Jordan Thieme, CAR’s Bret Smith and more at the MFG Forum in Ypsilanti on Tuesday, 6/14/22. Join us for real-world solutions on supply chain issues that will propel your business to the next level. Get details and register today!
“Since the beginning of COVID-19, our supply chain has struggled with not one, but many challenges,” says Thieme. “Early on in the pandemic, the issue was getting parts from overseas. Then, once our suppliers caught up on production, we couldn’t get things on a boat. Then, we couldn’t get things off the boat into the U.S. Then, we had trouble finding truckers to get the materials from the port to our facilities. Now, we are struggling to hire enough people to meet the current workload.”
In the face of these challenges, Thieme and the Amigo team recognized they needed to evolve their approach by requiring multiple sources — it’s a similar transition that many manufacturers have had to face.
“Instead of giving 100 percent of our business to one supplier, we now split the business between a few,” says Thieme. “We’re trying to maintain an 80/20 or 70/30 ratio, meaning our primary supplier still gets the majority of our business but we always want other suppliers as secondary sources.”
When facing things that are outside the norm, it helps immensely to have a culture that’s built around being agile and overcoming challenges. Daniel says that mentality is baked into the DNA at PVS.
“The pandemic was an eye-opener but headwinds are presented every day, and our team focuses every day on how to get better,” says Daniel. “We manage by using data and facts. We try not to be emotional about the headwinds that are presented. Instead, we ask, ‘What is the impact? How are we going to overcome it? What are we going to do?’”
He adds: “The pandemic didn’t drive that. That’s how we run our business.”
Thieme also gives a ton of credit to his team for being able to adapt, adjust and evolve the process to manage the sometimes daily disruptions.
“We’ve had to adapt to the increased prices, increased lead time, and just suppliers not having enough people to keep up with the workload,” says Thieme. “I definitely feel for my supply chain team.”
The Onshoring Question
Anybody recently shopping for a new car has, more than likely, learned about the global shortage on microchips. These important semiconductors power everything from cars to manufacturing equipment and technology and more.
Calumet Electronics, a printed circuit board (PCB) manufacturer in Michigan’s Upper Peninsula, understands this issue better than most. Calumet has been fabricating circuit boards for over 50 years and is presently making the necessary capital and workforce investments to produce IC Substrates, a technology that is otherwise only produced in Asia, critical to interfacing microchips in electronic systems.
“We must be able to produce IC Substrates in America because chips don’t float”, says Calumet COO Todd Brassard. Over his 20 years at Calumet, Brassard has witnessed many changes in the marketplace with most PCB production going overseas. Now, with OEMs experiencing the kind of severe disruptions that can happen when faced with a global pandemic, Calumet is seizing the opportunity to champion increased American production.
“We should be able to build in America what we can design in America,” Brassard said.
“What we are doing is advocating for electronics manufacturing and being a light for the industry saying, ‘We can do this in America. We must rebuild the U.S. electronics manufacturing ecosystem,’” says Meredith LaBeau, CTO at Calumet Electronics. “When you talk about semiconductors or chips, you have to talk about the ecosystem because microelectronics, especially the really advanced chips, need advanced substrates and circuit boards to go with them.”
Brassard explains that U.S. PCB shops currently lack both capability and capacity compared with their Asian peers. The most critical need is for U.S. shops to gain capability with investments in capital equipment and workforce for national security and to be globally competitive. Calumet seeks to enable the U.S. to manufacture the most advanced electronics systems in the world by plugging critical gaps in the ecosystem, doing so with the pride that the company is making a difference.
“We are helping America rebuild a 20-year lost ecosystem,” says Brassard. “The U.S. can’t build the next generation of electronic systems without the advanced IC Substrates and circuit board that we’re producing. Presently, the supply of these critical components are exclusively held by producers outside the United States but we are helping to solve this problem. Even as a small business, we can make the difference by closing gaps allowing more advanced systems to be produced onshore in America.”
Smith says he sees more products being made in the U.S. and potentially less reliance on Asia because of the pandemic but managing the economic realities of onshoring will be challenging in a highly cost-focused environment like manufacturing.
“Every time something like this happens, we hear people say, ‘We should be building onshore,’ and we start to move some of it back,” Smith says. “But, over time, cost structures push things in certain directions. I anticipate that, as a result of this most current supply chain disruption caused by COVID-19, there will be more products built here and that will probably last for a while, but it will remain fluid over time.”
The rapid growth of the electric vehicle market will be a good litmus test for applying new solutions to traditional supply chain economics.
“When considering onshoring a product, manufacturers have to consider many things: Are the materials available? What is the cost of onshoring this product? What are the logistics risks? And, at the end of it, what are the costs of doing it versus not doing it?” says Smith.
The idea of onshoring has been historically challenging, particularly in automotive. Manufacturing a vehicle is expensive, and yet costs to purchase a vehicle are not always permitted to rise at the same rate as production costs, says Smith. This has chief engineers on vehicle platforms fighting over as little as a 5-
cent expense variance between suppliers’ products.
That being said, Smith does believe there is a great opportunity for change and new thinking given the current environment.
“I think there is an opportunity for change but it will take time,” Smith says. “I believe that the men and women who run manufacturing supply chains and the suppliers are really, really good at what they do. They will get even better, and they will have a better understanding moving forward.”
He adds, “It’s still going to be a challenge to prepare for the next big event in an industry that experiences such cost pressure.”
Looking to the Future
Now is an opportune time for manufacturers to gain a deeper understanding of their supply chain: To study it, find out where the challenges are taking place and implement solutions.
“Companies that are willing to evaluate, invest in or own their supply chains will have an advantage,” Smith says. “It will show over the next few years who spent their time during the pandemic rethinking how to do their supply chain.”
The experts agree, manufacturers must understand their own supply chains and make constant efforts to evolve, or they will face compounding challenges down the road. Having multiple suppliers for each product, onshoring when possible, maintaining healthy relationships with suppliers and ensuring leadership has a solid understanding of the costs of doing business are just a few things manufacturers can do now to cope with ongoing, ever-evolving supply chain challenges.
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