🔒After year of disruptions, CT manufacturers rethink supply chain strategies

Anyone who unsuccessfully attempted to buy toilet paper when the COVID-19 pandemic first hit U.S. shores last year is familiar with the concept of supply chain disruption.

The dynamic led to a lot of frustration — and some entertaining jerry-rigged solutions — among consumers, but for manufacturing companies the issue of world events creating volatile supply chains is a continuing problem.

From COVID-19 leading to periodic global factory closures, to travel restrictions to events like a container ship getting stuck in the Suez Canal, many manufacturers across the world have scrambled and struggled over the past year to get the products they need to complete orders on time for customers.

In response, Connecticut manufacturers are taking steps like expanding their supplier base and avoiding purchases from outside North America when possible to sure up their supply chains.

“At a moment’s notice these things can happen, we learned that the hard way,” said Kate McGinnes Collins, general counsel for East Granby-based aerospace parts maker MB Aerospace, which has experienced supply chain disruption over the last year. “We had to pivot quickly.”

Contracts, jobs at stake

Supply chains are the essential, if mundane, vehicle for making and selling products. For example, one company may sell raw metal materials to another that uses them to make aerospace components, which are then used by a company to build a jet engine; the engine maker sells the finished product to an airplane manufacturer.

Every cog within the system must operate on a predetermined time schedule in order to maintain a reliable supply chain. At stake are not only on-time orders but contracts, revenues and ultimately jobs.

The issue is so important that President Joe Biden in February ordered a far-reaching review of U.S. supply chains in key industries, including semiconductors, defense, pharmaceuticals and energy, in order to bolster domestic manufacturing capacity and try to prevent future shortages of critical goods, like personal protective equipment, during times of crisis.

Connecticut manufacturers mostly fall in the middle of supply chains, and sell parts to companies rather than end users, said attorney Jeff White, who heads Hartford law firm Robinson+Cole’s manufacturing practice. Raw materials have increased in price, or become harder to find over the past year, and companies that make products for the defense and aerospace markets have been worried customers could enforce “force majeure” clauses that allow them to terminate contracts if they cannot be fulfilled on time due to unforeseen circumstances.

Use of a force majeure clause could be especially deleterious to the many Connecticut manufacturers that work on multi-year defense contracts, since a single deal often covers millions of dollars in revenue for years of planned work.

“For most of my clients it’s been raised at the highest levels as a concern,” White said. “The crisis is, ‘we’re going to be extraordinarily late on our contract and fulfilling our orders.’ ”

But the inability to source raw materials isn’t the only issue at play since the pandemic began. Factors like international travel restrictions are creating bottlenecks at ports, where supplies are arriving but cannot be exported out, said Jeff Rossi, Connecticut office managing partner for CohnReznick, who leads the accounting and consulting firm’s manufacturing and distribution industry practice.

As a result, Rossi’s manufacturing clients are buying more products from suppliers in North America to avoid back-ups attributable to cross-border logistical problems. Companies that buy from countries in Asia, for example, are now looking at suppliers in Mexico or the U.S., Rossi said.

“Issues caused by COVID have accelerated reshoring efforts,” Rossi said. “As U.S. companies make investments in technology and manufacturing capabilities, I think that we’ll see [reshoring] to the U.S.”

Twenty-two percent of the 100 U.S. middle-market manufacturing CFOs recently surveyed by consulting and accounting firm BDO said they plan to reshore to the U.S. this year in order to bolster their supply chains.

Coping strategies

Ulbrich Stainless Steels & Special Metals Inc., a North Haven company that makes steel components like shaped wire and metal sheets for various industries, has been adjusting its suppliers in the wake of an especially erratic year, said owner Chris Ulbrich.

The company already sources about 75% of its materials in the U.S., but has been moving away from some of its suppliers in Asian countries in favor of companies in North America, Ulbrich said. It’s not always possible to find domestic suppliers that make the same material of a similar quality and price as in Asia or Europe, but another tactic Ulbrich is looking at is creating supply chain redundancies so it isn’t too dependent on a single company.

“We’re trying different suppliers for different things, and one of our goals is to have two suppliers for each of our products,” Ulbrich said. “Sometimes that’s not possible, but we’re trying.”

Creating supplier redundancies isn’t a new concept, said Collins at MB Aerospace. But MB has increased its focus on supply chain reliability in the wake of disruptions over the past year. Since the pandemic began creating issues — compounding preexisting challenges like tariffs — MB has also been expanding its supplier list, and working with customers to find alternative suppliers to ones that have slowed production.

“We’ve found religion around [continuity planning], … now it’s something that we are constantly looking at,” Collins said. “There will be another COVID, if it’s not another pandemic, it will be geopolitical concerns … something will happen.”

Other companies have taken to ordering more than they need, and warehousing supplies, said Alfredo Fernández, an attorney for Hartford law firm Shipman & Goodwin, who advises regional and national manufacturers.

However, Fernández said, that tactic is an expensive proposition. Storage costs money, and if the company never uses the extra materials, it’s a total loss.

“It’s a cost/benefit analysis that’s going to break differently for different companies,” Fernández said. “What is the cost of that security, is it worth it?”

Essex-based BrandTech Scientific Inc., which distributes laboratory equipment throughout the U.S. and Canada has recently taken to over-ordering some specialty items, said Carol Myers, vice president of operations for BrandTech and sister company VACUUBRAND Inc.

It’s become necessary for BrandTech to order some specialty products ahead of time, rather than wait for a customer to ask for it, Myers said. That’s because the company can never be certain it will be able to import the product on the customer’s timeline. The strategy makes sense for BrandTech’s business, since laboratory work has been increasing and Myers expects demand to continue on an upward trajectory.

“I do think the pandemic made us all more nimble in the work we’re doing,” Myers said. “We’re trying to really use some of the things we learned to continue to grow in a smart way.”