Manufacturing Supply Chain Woes
Lisa Reisman, Hannah Fallon Suka,
Sue Nordman, and Olga Sanchez
Welcome to the Manufacturing Woes Show. I’m Sarah Scudder, SMO at SourceDay and the show host. I am joined by Sue, Olga, Lisa, and Hannah. We have an all-female panel today. Wasn’t planned that way, but it happened and I love that. They have extensive manufacturing experience, and I’ve asked them to share their nightmare stories. So today we’re talking about the crap, the ugly stuff, stuff that we don’t always talk about. We kind of forget about it or hide it under the sheets, and we’re here to disclose all the craziness that happens in the industry.
Our show’s sponsor is RapidRatings. I’ve been friends with their team for many years. Actually, my previous company used their platform. I’ve asked Eric, who runs their partner program, to introduce himself.
Eric, maybe talk a little bit about how you add value to manufacturers.
Absolutely. Yeah, thanks Sarah, and we’re really happy to be a sponsor again this year. Yeah, we’re innovating in the financial risk assessment space, and so what we do is we produce predictive analytics around your, our clients’ suppliers, and their supply chain. And with obviously inflation and economic kind of uncertainty, and with corporate debt mounting, you know, it’s really been top of mind. And so we’ve also set up and created a, an exchange of suppliers with our clients, so they can come in and share their financials and get rated, and also exchange and also get pure benchmarking on themselves with other peers in their industry.
Eric, where are you joining us from today?
I am in Stamford, Connecticut, and it’s a nice 80 something degrees, so I’ll take it. And it’s not raining, so I love it. I got back to Austin on Sunday night, and it’s been a hundred plus with crazy humidity, so my hair looks like a constant train wreck. You do your hair, you leave the house, and then it’s like, why did I even bother? It was good to see you. Good to see you at ISM a few weeks back.
Yes, love to seeing you and the team in Orlando. And Eric, thanks again for sponsoring the show and enjoy our conversation today. Absolutely.
So to kick off our conversation, I’d like to have you share in the comments where in the world you are joining us from. It’s really fun to see all the different states, countries, and regions that are represented. So go ahead and drop that in the comments.
And then if you are in the manufacturing space, would love to have you share a word or phrase that describes your biggest manufacturing train wreck. So think about all the crazy things that had happened in your career and put a little note or story or comment about that as well. For us and our panelists here, we’re going to be here for the full hour, so feel free to put comments and notes throughout. And if a question pops up at any time, go ahead and drop that in the comments, and I’ll make sure that we have the panelists address those.
So to kick us off today, I’m going to have Sue introduce herself. So Sue, would love to have you talk a little bit about your background and how you got into manufacturing, and then share a personal or random fun fact about yourself.
Hi Sarah and everyone else, thank you for having me here today. I’m Sue Nordman from Obsidian Manufacturing Industries, and manufacturing has been in my life forever. My dad was a machinist, and my husband was a machinist, so it’s I’ve been around it. When I first left high school, I graduated. I had an accounting position at an accounting firm and worked with a lot of manufacturing clients. And then I stayed home with my kids for 20 some years and working off of a little laptop, helping my husband when he bought his first business, his first brand. And then we’ve just built our company up from there. We became women-owned a few years ago. My husband wanted to get back out on the shop floor, didn’t want to do so much administrative behind-the-scenes type thing, and I was happy to step up once our youngest child entered college. So that’s where I’m at today.
So how have your purchasing efforts been affected by the current supply chain issues? And then maybe highlight and talk about where you’ve seen the biggest struggles in that area.
Well, there’s there’s several different areas. We use a lot of copper wire, so the metals market, the ups and downs. Copper topped out in, I believe, it was March at record high prices, which you know affects the other metals as well. But we also use circuit boards in our chuck controls, so we have a chip issue. And we use a lot of resins and hardeners, and that was a big issue last fall. So I’ve experienced it all over the place. We like to use USA-made fasteners whenever possible. That was an issue; a lot of the U.S. manufacturers couldn’t keep up with the demand. So it’s been across the board, almost all of our products, and we have a wide variety of products.
And maybe tell us a little bit about your products, maybe highlight some of the main ones.
We own four brands. Magnum Lock is our workholding product, so that’s probably our biggest brand. Anywhere from vacuum workholding to electromagnetics to permanent magnets. And then we, of course, the chuck controls that run the electromagnetic chucks. Then we have Magna Lift and Power Grip, which are lift magnets. And then we also own Arter Precision Grinders brand, and those are actually rotary surface grinders. And that brand’s been around for over a hundred years.
Well, Sue, thank you for being with us today and sharing your wisdom and some of the craziness that you and your husband are living through. Yeah, thank you.
Hannah, would love to have you introduce yourself. It’s been a joy to be a part of your journey from graduating from college and getting into supply chain and the manufacturing space. So I’d love to have you share a little bit about your background and a personal or fun fact.
Sure. So I was introduced to supply chain in college, and it was later in my college journey that I first heard about supply chain. So I had gone four years through university, and I had the opportunity to carry out my fifth year of eligibility for my rugby scholarship. And I said, why not, I’ll just do a double major. And I had to pick one. I had originally done leadership and management and an entrepreneurship minor. So as I was searching through the list of major options, I found supply chain management. And I was like, this looks cool, this looks interesting. I’ll take this on. So as I was taking, you know, my classes and getting more into my coursework, I was like, this is exactly what I want to do. I love this. I got to do a practicum course with a company called Treetop. They’re based on the west coast. They do apple sauces and juices. And it was through that experience that I really found my passion for supply chain management and analytics too. I got to work on an EVC analysis for that company, and it was just really—it gave me a good perspective on what it takes to pull together data and how that impacts different departments and why it’s important to a company. But ultimately, you know, I’m really glad to be in supply chain and to be with my company now, Dearly Probiotics and Enzymes, where I get to be very hands-on. I started my career kind of in the midst of COVID, and that’s when I got on LinkedIn, and I was like, I, you know, want to get involved. I want to help somehow. I want to utilize my skill set. And Deerland was the perfect company for me, and it’s just been a huge pleasure ever since. And a fun fact, I have a twin sister, which not many people in my LinkedIn and work community know about. She is actually five foot two, so she’s a little bit shorter than me, blonde hair. No one believes that we’re twins, but it’s—it’s awesome. So I love having a built-in best friend.
So, Hannah, you’re on the buy side. You’re actually a practitioner in the weeds, day-to-day working at a manufacturer. So I’d like to have you share a time when you dropped the ball on an order for a material that was used in 80% of your recipes.
Yeah, so with COVID, there was a huge increase in health and well-being awareness. Everyone was turning to supplements. They were looking for anything that they could do to kind of boost immunity, make sure they were protected against COVID. And with that increased demand, we were seeing a lot of orders coming through, and for those who don’t know, Deerland is a contract manufacturer. So, you know, a lot of our customers were submitting orders trying to get product on the shelf. And one of the ingredients that we use is MCT oil powder. We use that as a processing aid in our blends. And it’s used in a large chunk of our recipes. You know, it’s a processing aid, so it has to go in many of those blends. Well, one day I saw a message from our director of planning, and she was asking me when the next shipment of MCT oil powder would arrive. And anytime I see a message from our director of planning asking about a raw material, my stomach just drops because I’m like, oh no, she’s asking for a reason. I probably overlooked something. So immediately, I pull up my own order report. I’m looking at my purchase order date, and I realized that my next order of MCT oil powder wasn’t coming in for another couple of weeks, and we had needed it like yesterday. I’m sure many other people in supply chain have experienced a moment similar to that. But I did what any buyer would do. I picked up the phone. I immediately called our primary supplier, and I said, is there anything that you can do to get this order to us sooner? Can we go over expedite options, you know, all of that?
And they said, you know, you’re not the only one that needs this right now. We have a huge backlog. We’ll do everything we can to get it to you sooner, but no guarantee.
So option B, got with our sourcing specialist, and we’re calling up all our vendors, trying to find inventory anywhere we can from anyone, you know, that’s approved, it’s a viable option. And we ended up finding somebody to ship us MCT oil powder, and it would hold us over until our next shipment came in. And then a couple of days later, I got a call from our primary vendor. Good news, we’re able to move your order up.
So it was two days of just being stressed out, overwhelmed, trying to get this oil powder in just to find out, you know, that at least something good came of it.
Thank you for being here today, Hannah.
Lisa, would you like to introduce yourself?
Great, thanks, Sarah, and everybody. I’m enjoying listening to the stories myself.
My background, well, I have a fun I’ll put the funny part at the end, so I guess the front part is I’ve been a consultant for a number of years and then started MetalMiner in 2007. We really provide metal market price intelligence to manufacturers that are procuring metals, and boy, I’ve heard my share of stories over the years which I’ll get to in a second. But by way of background, people always ask that question, well, how did you get in the metals industry? It’s not like you wake up one morning you’re like, wow, I really want to be in the metals industry, like what a great career. I’m going to be a steel girl. No, so I feel like I’ve attempted for many years to try to not be in the industry, but my first job out of graduate school was as an import-export aluminum trader, trading semi-finished aluminum products. So I learned a lot about global logistics and global sourcing from that, and then I moved over into consulting, went to Arthur Andersen and then on to Deloitte Consulting, and was hired because I had this direct materials procurement experience. So I thought, oh, I’m going to move more on the strategy side of supply chain, but invariably I kept getting pulled into any cost reduction engagement that was to be had with the manufacturer procuring metals. So I’ve struggled and never been able to get out of metal, so finally in 2004, I said that’s it, I’ll just be in the metals industry, and we’ll keep it at that. Some might even joke my fun fact is that the metals industry runs literally in my bloodstream. I think my great-grandfather fun fact was the first started the first metal powder press company in the United States. It was later sold to GKN Center Metals, and just you know when you talk about powder metals that’s like for additive printing now, but in the old-fashioned times it’s used, you know, to explode airbags, right? So that’s a metal powder that’s used for that application. Unfortunately, I wasn’t part of the family that bought and sold that company a few times and inherited the trust fund, so here I am, alas, at MetalMiner, and we provide metal price forecasting, cost models, etc., to help companies manage the volatility, and I think that would be the grand theme on top of supply chain woes, managing that volatility has been nearly impossible for most manufacturers that we’ve seen.
So, Lisa, let’s start with your first question and why don’t you share one of your craziest metal stories?
I have a lot, so I’ve even had some in my own personal experience, but you know like containers showing up at ports open with nothing in them, that’s happened. Fires at plants that have destroyed you know orders, etc., that’s kind of from my import-export days. I think there’s so much going on in the last two years, and I’m sure the other panelists here have a lot of different examples to share, so I’ll start with one that just happened in 2018 because it was sort of somewhat memorable. So if you all recall, we had the aluminum and sorry, my examples were all mostly metals-related, so I apologize in advance. There was an aluminum and stainless steel tariff that the Trump Administration had implemented that wreaked a lot of havoc in the industry, it cut prices to go up but there already was you know a bull market that was already happening, so prices were already going up. Well, on one day in April of 2018, the Trump Administration had banned a Russian oligarch from doing any business in the United States. That oligarch happens to own the largest aluminum production in the world, Rusal is the name of the company. They basically supply 10 percent of the world market for aluminum. But we received a panic phone call from one of our clients that had told us they didn’t know what to do, aluminum had spiked to four thousand dollars a ton which ironically in the last year, it’s also hit four thousand dollars a ton. But in this case, not only was the price—it wasn’t a matter of just that the price was high, it was the matter that this supplier was a key supplier to a large automotive OEM, and our the company that called us, this tiered supplier, tier one supplier, was sourced with Rusal. And what they were in a complete panic. So for those of you in the automotive industry, in order to add an additional supplier or a new supplier, you have to be sure that the part is packed, and you have to go back to that PPAP documentation. Well, if you’re producing some kind of older part that’s used and has been used for years and years, to go back and find that original documentation to see who else is PPAP even, that was a challenge for our client. They couldn’t even, so they were on the verge of holding up a line at an automotive OEM. And I think for those of you, if any of you are in the automotive industry, you know that there’s a hard dollar cost for shutting down an OEM’s line, and so there was a complete panic. The panic didn’t end until the Trump Administration reversed that decision to ban the oligarchs from, you know, trading in the United States. So a big nightmare, it got resolved, but it kind of like the lesson learned was you know, being you know having three sources, try sourcing your categories, and the criticality of having alternative suppliers and in the case of the automotive industry, having alternative PPAP suppliers remains kind of mission-critical. That was kind of the lesson that I learned. They were in a full-on panic, and I don’t wish that on anyone. That’s only one of the stories I noticed, but I’ll turn the mic back over to you, Sarah. There’s definitely more.
So, Lisa, did your client find alternative sources and mitigate risk for the future?
I’m hoping it has a happy ending. It did. I mean, there were two. It was two-fold. They did dig up the old PPAP from their centralized database. Apparently, that took a few days to locate. And they were able to identify an alternative supplier. There still were some hiccups, and then the Trump Administration quickly reversed that decision. It was that action that actually allowed them—they had some safety stock already, so they kind of used that to hold the line, if you will. They were able to resolve it. But I think they definitely said, yeah, going forward, we’re going to be looking at this a little bit differently so that we’re not solely reliant on one supplier. Crisis forces change sometimes in a good way. Yeah, for sure. Thanks for being here, Lisa.
Olga, you are up next. Hey, how are you?
Well, my name is Olga Sanchez, and I am a custom lighting manufacturer for the commercial hospitality industry, and also for the local residential, and everything that we do is made out of metal: aluminum, steel, and copper.
So, yes, I can relate to all of the stories, because I am the manufacturer. I am the one who is going to purchase those raw materials from you guys, so yes, it’s been a current nightmare the last couple of years.
So, Olga, maybe share a little bit about your background and how you became a manufacturer and a business owner, and then a personal or fun fact.
Sure, right. I’m, you know, I started my company 25 years ago in Tijuana, Mexico, which I still own and operate, and from here, we ship and export all over the United States, Canada, the Caribbean.
How I started my business is because I was born into the manufacturing industry. My dad used to be a furniture maker, so although the product changed, you know, the manufacturer, I continued to grow into the manufacturing industry. I changed it into lighting, which I saw a very good niche 25 years ago.
Then suddenly, it became interesting that most of the manufactured or the type of product that I fabricate right now overseas mainly went to Asia, and now it’s coming back, you know, incredibly exciting, back to the U.S., it’s coming back to the domestic market. So, you know, I started that 25 years ago, and it’s been a roller coaster experience, you know, for me to have my company. I haven’t thought about it, how I own and operated. I guess it’s a daily operation, so I know that I’m there all the time. I know I have to appreciate everything we have. Growth, we have reps all over the United States, Canada, but I guess trying to stay concentrated in what is, what I like to do the most, be at the manufacturing floor. I like to see how things are made. Each project is different, each metal is going to be handled in a different way, it’s going to turn into a different product, so I like to see, I like to oversee that all the time personally myself. I know that it’s kind of micromanaging, but I do that once a week. I like to see that. I’d like to see that on a personal and personally how the product is changing, the status, satisfy that how it’s going to turn into an art piece, basically. And yeah, okay, continue. Okay, so it’s not exactly a sense like a crazy story right now that everybody’s telling us that, while we are so expensive right now, why everything is so expensive. Well, it suddenly happened the last couple of years, you know, just during the pandemic and after, with the sometimes the pandemic, we started to source 99% of raw materials domestically, so that has impacted the manufacturing costs.
The only item that we import through the United States is the electrical components. Otherwise, all of the metals, every single metal that we use for all of our products is going to be domestic resource, and sometimes, most of the times, our procurement companies, our clients, do not like that one bit. However, they are willing to pay the domestic cost because of logistics, you know, versus having a shipping on the sea for I don’t know how many months. Now we are only a couple of weeks away, you know, door to door, at the most, regardless of the location in the United States or Canada. So, that is the kind of thing that is happening right now, that is a crazy streak, a lot of crazy stories right now, how the metals have gone not expensive, I hate to use that word, it’s not expensive, it’s a realistic cost, it’s what is happening right now, it’s the impact of everything that is happening worldwide. I mean, it’s not pretty what is happening right now, but it’s just the fact of life and we need to face those consequences if we want those products to have it installed, it doesn’t matter which property they’re going to go to.
So, Olga, craziest supply chain story that you’ve experienced this year. So, in 2022, you’re a Mexican manufacturer, right? So that makes you a little unique and different than everyone else on the panel. What’s the biggest nightmare train wreck story from this year?
Oh, well, right now, we have a crazy story that we have all our US metal supply in place, you know, everything is our customs and then we have no electrical components at all. So, no sockets, no kind of covers, no nothing. There is no way around it because it comes from overseas, and the US importers have no way to expedite those orders. So, we had beautiful light fixtures sitting on the manufacturing floor with no electrical components. That has been not a crazy story, it’s been a horror story. So, we waited, probably two weeks, we had to airfreight most of the electrical components from overseas. As one of the panelists mentioned, lesson learned, big time lesson learned, that we need to find a domestic US, Mexican, Canadian manufacturing supplier that we have that technology and supply what we lack. Enough right now that is one of the items that is, I think, has a great potential from whoever’s going to be adventurous enough at the capital to actually have it manufactured in the US.
Olga, well, thank you for being here with us. It’s been fun to get to know you the past month too.
So, you know, I know in our conversations, it seems like you guys do a lot of remanufacturing with repairs and rebuilds of products. How has the craziness and train wreck happening in supply chain and finding raw materials increased this work for you?
I think the economy and the fact that it’s taking so long to get other manufacturers to get new equipment to our customers, that rebuilds and repairing, you know, repurposing, I guess, some of their equipment has come to the forefront in their options of what they’re going to do with their equipment. They may have needed a new grinder or a new CNC machine and they can’t get it because a lot of it’s coming from overseas. So, they look to new options. Let’s look at the used market, let’s put used workholding on it, let’s get a used machine and get new workholding.
We do have a surge right now in people inquiring about our used arter grinders. Machines that were made 70 years ago, people are choosing to rebuild them all and make them like new again. They’re cast machines, so they are built here to stay here. I mean, they can take a lot. So, that option is on the table again, whereas, you know, 10, 15, 20 years ago, everyone wanted the new machines that were being imported. So, it has increased our rebuilds, our repairs. Anytime we see the economy do what it’s doing right now, people are going to look to repair versus new. That’s just the nature of the whole industry that we’re in. And, you know, I you guys brought up aluminum and the metals. Brass and aluminum were also too hot items that we couldn’t find anywhere. We ended up finding them, but those were just added to our list of things that we couldn’t find. We do need new metals to put into rebuilds and that type of thing, new gears or new workholding, all those kinds of parts. So, we still are using the metals and new manufacturing new parts for the machines, but a lot of times it’s a lot easier for our customers to just revamp their existing machine than to just try to outsource and get a whole new one.
Interesting. It’s going to be interesting to see how that market kind of pivots and changes and potentially is revitalized as the recession continues.
Yeah, I would agree. I would agree. It’s always been there in workholding. You can take an electromagnetic chuck that fits on one machine, you can pop that off and put it onto another machine that’s comparable. So, the workholding and workholding, at least our brand, lasts for decades. So, it’s worth saving that chuck from a machine that you were… is just beyond repair and you’re going to scrap or you’re going to buy a new machine but you need workholding for it. So, that’s always been part of our workholding line is reusing and repairing, which we do repairs on any brands, but we like, I said, we’ve had seen an increase in our arter grinders. So, interesting.
Hannah, a question for you. A lot of my friends that are buyers are having to get really innovative and creative. What happens when you can’t get the material or components you’ve historically purchased as a company?
So initially, you know, it’s a lot of chaos for the purchasing and supply chain department, because we’re so used to getting something out of that lead time. We’re used to having the ability to move orders up, you know, when we need to, and it’s been an adjustment to have lead times go from anywhere from like two weeks to now we’re seeing six months to 12 months on some of our components and raw materials. So, you know, it presents a huge challenge. Someone had mentioned the resin shortage earlier and at our company, we purchased bottles and lids.
So, our manufacturers were impacted by the resin shortage, and they were just unable to keep up with the influx of orders, and the resin shortage, you know, obviously didn’t help that with the plastics industry. So, we have, you know, as a contract manufacturer and a private labeler, we deal with a large number of bottles and lids, because packaging is going to be different for each customer. It’s not just this set in stone portfolio of bottles and lids that we always buy; it’s changing. The marketing teams are always wanting to do interesting and unique things with packaging.
So, you know, you’ve got a lot of customized packaging, and then you have some more, you know, standard options, which, you know, were also impacted by the resin shortage, and the lead times are longer on those. So, it was just kind of this all-around chaos in 2021 with bottles and lids.
So, you know, what I had to do was be proactive, get ahead of it, manage inventory, look at demand, make sure, you know, for months out, that we were covered on any bottles and lids, and working really, really closely with the sourcing team to get any alternative options that we could. So, we had just samples coming in every single day, and keeping those straight was the challenge in itself because you’re like, which vendor sent this, which size is it, which customer does this correspond to, so keeping that straight and just communicating internally with planning, production, customer service, sales, letting them know what’s going on with all the different alternatives, and writing deviations and keeping track of specifications, as well as communicating externally with suppliers and customers and making sure that we’re doing everything we can to get them bottles and lids for their product on time. It was a big challenge, and we learned the importance of keeping, you know, as much inventory as possible but also making sure that we have alternative options for our customers, even if it’s something that’s custom.
I’m hearing a theme here about the challenges with single sourcing.
Lisa, question for you. I know that your friend works in supply chain at Life Fitness, and they had some major challenges trying to move obsolete equipment to make way for the new models. What happened to them?
Well, this is one of the famous COVID supply chain stories. I actually was wondering if I would know anybody that this happened to, and then I found out this happened to a good friend of mine. But they had some of their new equipment that was on a shipping vessel that got stuck in the Suez Canal. When that ship got stuck there and here they were, she had a whole plan of action of how she was going to swap out that inventory. She even got the executive team or more management buy-in to look at some alternative sources, and they really wanted to create this sort of logistics portfolio where they were opening up their supply base for alternative suppliers, like kind of doing what I just said we don’t want to do, which is to sole source.
And then, you know, she had this kind of black swan event, you know, happen to her (I’m going to mention black swan one more time today). You know, this kind of one in a million, whatever, vessel that gets stuck, but you know, stuck there. So, all of those best-laid plans of like, okay, we’re clearing out the old and we’re bringing in the new and we’re going to go with this alternative supplier, and we’ve rerouted and we’ve got this different plan set up. She’s, you know, that needs a lot of demand planning initiatives and, you know, just anything can happen, right? I mean, the best-laid plans, anything can happen.
Obviously, I think that took several weeks to resolve before they were able to right the vessel and have it move in the correct direction. At that point, and I’ve heard, I’m hearing a lot of you saying this too, just things not shipping on time and much later than even the worst-case scenario expectation of delayed delivery time. So, I think that was sort of the, you know, the middle of the going from just in time to just in case. And I just want to comment on that, you know, as supply chain managers, or I can say for me, I’m a black belt, you know, it’s been beaten into me about just in time manufacturing and, you know, the Toyota, the lean way.
And I think that, you know, everything that happened kind of post-pandemic, kind of you know, starting in like April or May of 2020 to today, and just the notion of the bullwhip effect, and I think it’s been really hard for people to, you know, alter their thinking. It’s almost a paradigm shift, to be honest. We have this shift of going from, you know, we’re taught, you know, lean, lean, lean, no inventory, to, you know, this pivot from just in time to just in case. And now, you know, we may be at that cusp of sort of needing to kind of reconsider and pivot back a little bit.
There are so, you know, I’ve got other stories about companies that have a lot of inventory now, and I’m hearing tremendous inventory at some of our clients, way more than any historical average. So, I think it’s just the point of the story is even your best-laid last plans can go amuck, even if they’re the good, right, strategic plans, right? The notion of a portfolio strategy helps hedge a company against all sorts of risk. When you get a black swan in one of your portfolio buckets, though, it still messes up and creates the same havoc as if you had been sole sourced. So, kind of a sad story.
Interesting. The Suez Canal, I think, has really highlighted the logistics and transportation industry enough where my 93-year-old grandma talks about it, and 10 years ago, I don’t even think she knew what supply chain was.
Olga, question for you. During the pandemic, I know you mentioned that one of your big challenges was continuing business, just day-to-day operation and workflow. What was the biggest challenge for the workflow of business during the last couple of years?
The one thing that really stands out as the biggest pain point, all right, as Lisa mentioned, I think all of this started — thank you, Sarah — just mentioned that I think the whole shifting of doing business started in probably May of 2020. And what we have seen is that our hospitality market went down 58 percent, 58 percent — hotels, restaurants, you name it.
The hospital went under 58% for us, so we have to shift really quick to the residential market. Although we are have a bit of a, you know, coverage in that area, we went to the market to the luxury market segment, and that’s why it kept us up slow, but we went to the one percent, the luxury market, to the luxury market segment, and to our surprise, it continues to grow to this day, and actually that market settlement, that’s why it kept us afloat anywhere across the board, you know, from Southern California all the way to New York, Florida, I mean all across the world.
But that was one of the, one of the, one the market that we discovered. The other thing that we had was a challenging, you know, area for us that you have to keep in mind that the United States closed the border, north and south, close the Mexican, very close the Canadian border, but the commerce didn’t stop, customs didn’t stop. The flow of commerce was what’s happening, but it’s just that the borders in general for civilians were closed. So we had to learn how to do business with Zoom. We could really try to Zoom teams and all that to get the business afloat.
What else we had to use all those platforms, but I have, we had to do, my heart was breaking to an extent because we were seeing how the hospitality market was going under, basically what’s that not just our clients, to see your friends, companies, in general, you know, yes, those get pointed out. That hugely, I mean 58% is a big impact, but as I said, you know, we kept it afloat going to the luxury market. That took center stage, that kept afloat, but right now after that, as right now, we are supplying both markets, as right now.
Thank you, Olga.
Sue, you moved locations. Moving is probably one of my least favorite things to do. I’m looking for a house to rent in Austin and not something that I, I want to have to do again. I’m right there with you. I’ve never moved a business before, but boy, that was fun. I’m glad that’s behind me, and I don’t ever want to do it again. I will have a much better plan if I do. We were leasing the building and space in a building, and the building was sold. So all the tenants in the building had to get out by a certain date, and the date kept shifting, changing depending on who was buying the building and what offer was being accepted and not, and in our shoes, we were going through the same thing looking for a building to move into, and we had offers on three different buildings, and all three of them fell through for whatever reasons, not really anything to do with us.
And so we were faced with having to find a place in like three weeks and be out, or we were gonna pay thousands of dollars in fees and penalties every day, and after 10 days, it doubled and on and on. So we found a business that was out of, I just saw David’s comment. Yes, it wasn’t a huge undertaking. We found a building of a business that had gone out of business, and they just closed. All their stuff was still in the building and everything. So we struck a deal with them to lease the building and purchase all their equipment, but we had to clean the building out, and it was full, so we couldn’t get in.
So I just have to say, God bless our employees at that time. They went through a lot with us and stuck by us, and we got it done. And that’s in 2019. I took over in 2018, and then a year later, that happened. So it was a lot, and then as soon as we got settled, the pandemic hit. So it’s just, I just want to, like, go to work and do normal work, but I haven’t gotten that chance yet. I’m hoping it’s going to happen soon.
I listen to all of you guys’ stories, and I can relate to all of them. I think the biggest thing for me with all of this happening is you have a large order, and you’re trying to get it out, and there’s, you know, 450 screws that you need or bolts to put it together, and you can’t get them, that length. Do you buy others and cut them off? What do you do? The whole order is waiting on that. We had two very large lift magnets that we made. The customer needed them to continue their operation, and we couldn’t get the resin to set the coil to make the lift magnet lift. I mean, it’s those little things that we weren’t able to source that held up huge orders. So I can understand Olga’s situation of continuing her business. Those little things, you know, really stop you from the cash flowing from the orders going out, all of that. And it’s, it’s, that’s the moral of the whole story, is how do you find a balance, to not carry on so much inventory but to still have enough to get your orders out? It’s kind of like a fine line, you know, and some days I do well at it, and some days we’re like, we have too much inventory. I hope we get some orders to fill, because now we’ve got the stuff to fill it with, and then we’ll go to spiking with orders and trying to source things, and two weeks ago, that supply of whatever we needed was in stock, and then you go back to check, and your supplier doesn’t have any left. So, yeah, the moral of the story, I’d say, would be to find multiple sources, which we have, thank goodness, and have them and have a moving plan. Yeah, yeah, in the back of your mind, just envisioned, you know, yeah, three weeks to move your whole business. Yeah, it was a lot. There wasn’t a lot of gentle packing done, throw it in the box and let’s get going, working, basically three weeks straight. So, but I lived through it, so hurdle that, let’s move on. Thank you for sharing, Sue.
Hannah, what would you say is the biggest challenge you’re facing today? Of all the craziness, all the wild things happening, what’s like the number one, the biggest challenge lately?
Palettes. You can’t even mention palettes to me without my blood boiling. We’ve had so many issues, you know, being a dietary supplement manufacturer, we have some pretty stringent quality regulations and expectations, right? So we have to make sure anything that we’re moving throughout our warehouse and production areas are clean, free of debris, free of pests, you know, all that good stuff. And wood has been, you know, the prices are skyrocketing. I think it was up like over 100%. Price increases and lately we have been really struggling to find wood palettes that meet our quality expectations. So one thing we had to turn to is plastic palettes, and we’re exploring that. But again, you know, making sure that we have multiple sources for items which historically we haven’t had issues with is the big lesson here.
I also really like what Lisa said about lean inventory. You know, when I was in college, I got my green belt, so I really loved Lean Six Sigma. I loved learning about it. I thought the best way to run a warehouse was lean. And through my experience over the past couple years and in through COVID, I’ve learned that inventory does not always equal bad. So that’s been something that, you know, I’ve been trying to change my philosophy on, and that many of our business leaders and managers are starting to pay more attention to.
Olga, what is the craziest challenge that you’re facing today? Hannah shared hers with the palettes, but what is yours?
I think I mentioned this a bit earlier, you’re too expensive. That’s that is a crazy name that I keep hearing, you know, all the time, and as Hannah mentioned, actually makes my blood boil. You know, because we lose perspective. We, you know, we do not understand what is the supply chain right now in general. I mean, procurement companies or people in our industry understand it, but in general, we are not educated to understand what is happening and why everything is going on. If it’s not, it’s not done in purpose, it’s not personal. It is just, it gets that everything, you know, the display channel gets crazy right now, but is this kind of the crazy challenges that I face right now, and then trying to make our clients understand that, well, that we need to get a different perspective and then the lowest price is not necessarily meaning it is the best price. You know, the way we said it, yes, it is what it is, and sometimes you said you know what you can, feel free to shop around, you know, around and see how much it’s going to cost, and I’m pretty sure that it’s going to be kind of in, we’re going to be in the same range. But right now, that is one of the biggest challenges that we face. I think everybody’s coming to terms right now that everything is going up, but we’re not that term expensive. I think it’s not the right term. I think we just have to come, you know, have to come to terms with it. But if it is the crazy challenge that I deal with, that on a daily basis, I mean, it’s not a single day that I do not receive an email, a couple of phone calls, exactly tell me that, you know, and I find it just a crazy challenge that I need to face every day on a weekly basis. I sit down with my production staff and we go over coughing and, you know, there’s nothing that we can do about it. You know, that is one of the crazy challenges right now that we face on a daily basis.
Lisa, how has the Russian invasion of Ukraine impacted your clients?
Good question, thank you for asking that, because I think that one’s been kind of interesting. So I actually have two, like, a two-part answer. One is a woe story that I’ll share in a second, but the other is I think just the amount of volatility that we’re seeing in the market today is something that we haven’t experienced before, and it’s been tricky to kind of read the signals in terms of what’s happening. So on the one hand, you know, when you think about the prospect of a recession, and we can all debate whether or not we’re in one or part of one or if we’re going to go into one if it’s a soft landing, hard landing, whatever, normally in a recessionary environment, we as manufacturers think about cost reduction and how to, how do we look at our cost structures, reduce costs, whether it’s personnel, whether it’s office space, whether it’s, you know, how can we get costs out from our raw materials supply chain. And yet we’re in this inflationary environment, which we haven’t usually experienced with the rece with a recessionary environment. And so like, we’re talking about all of your costs are up, your labor costs are up, your raw material costs are up. And then, you know, I can speak from the metals then, you have things happening like what we see in the metals industry where right now metal prices are actually falling, and yet there’s still a lot of volatility, the last few days prices went up and that causes people to panic like, oh, they’re going up again, and so there’s rush to buys or suppliers are telling their customers they need to buy right now because prices are going up. But we’re still in this kind of deflationary trend within the metal sector, so there’s just a lot of noise and a lot of conflicting signals and a lot of volatility that I think is just wreaking extra havoc. People don’t know how, like we’re talking about, you know, pallets for example, or resin shortages, or you know, Oval, you’re talking about some of the components that you can’t get that are holding up your ability to fulfill orders and those prices are rising, and here I’m telling you some of these metal prices are falling, you should be asking for cost downs in this crazy environment, yet Sue, you mentioned you had shortages and in aluminum and finding those things. So it’s just, it’s just a lot of noise and a lot of craziness, but I think our, maybe our, you know, wackiest call that we got which was kind of unexpected, so we kind of help companies decide when and how much they should buy of a particular metal.
We help them manage the volatility, but we don’t typically get questions like this one. We literally had a client set up a call with us, and they said, “Look, we have an operation in the UK, and that operation in the UK sources material from Ukraine and Russia. So what we want to know from you guys is whether or not you think we should close up shop and bring all of that production back to the U.S., or should we keep it there?”
And I was like, “Whoa, that’s a little outside of our scope of purview, if you will.” But the reason he brought it up, again, I’m going to tie back to the earlier comment I made about sole-sourcing. A lot of the raw materials that they were purchasing for that UK operation were coming from Russia and Ukraine. So kind of what’s the choice there? They’re either going to need to source it elsewhere in Europe. And, you know, we basically said, “Look, your cost structure in Europe is very high. Their energy costs are higher right now than even in the United States. They’re really struggling, depending on the metal. I know, so you talked about some of the magnets and stuff, but, you know, zinc smelting is very expensive when energy costs are super high.”
So they’re kind of, you know, caught between a rock and a hard place. And I think the long-term—I don’t know what the outcome was, if they—what decision they made. But, you know, I think they wanted to know, “What’s the long-term prognosis for raw material availability from yet Russia, Ukraine?” And we kind of laid out different scenarios, and we said, “Look, this can be a long, dragged-out thing, Allah Syria. This was like right in the beginning. It could be, you know, done in three days. Obviously, that’s not what happened. But you have to kind of put yourself on a timeline of when you think something is going to, you know, be the trigger where you can make that decision.”
So I think after four weeks of fighting and kind of no resolution, I think they kind of used that as the basis to say, “All right, now we need to, like, think more longer term,” and they probably did take a more drastic action.
So I’ll ask our last question today on our panel. You talked, everyone’s actually talked a lot about inventory, having too much, having too little. How are you managing inventory today?
Well, it’s just kind of a guess. I’m gonna be honest. I try to base it on quotes, what our customers are saying, what people are looking for. And I don’t like to extremely overstock, hoard type thing. But I don’t like to be caught without any of anything. So I mean, we’ve had trouble getting fuses to run our check controls, I mean, things that you just wouldn’t think of. And it comes down to some component in them, you know, the manufacturer can’t get or can’t easily get, and so that makes the whole supply chain affected. So we just keep a steady stock on that we can, and but we’re not—we don’t have the capacity to overstock and get in that situation. I don’t want to get in that situation either. I don’t think that’s healthy for a business to have just an enormous amount of inventory.
Yeah, we’re in the direct space, and we talk to customers who have a year and a half to two years’ supply of inventory, unbelievable. But you see it sitting there in their warehouse, and you just think, “What is going to happen in the next year and how much of that’s going to be obsolete? What is that doing to your cash flow?”
All right, well, I want to thank Olga, Hannah, Sue, and Lisa for joining the show today. You can tune in to our show next month, and I want to wish everyone a wonderful afternoon.