Supply chain, tariffs, labor all issues for manufacturers

FORT COLLINS — Supply-chain issues, labor shortages and the impact of tariffs have bedeviled the manufacturing industry in Northern Colorado. Chief executive officers of manufacturing companies compared notes at the BizWest CEO Roundtable this morning.

But while the issues are extremely difficult, the industry generally is performing well. “This wagon is rolling downhill,” said Paul Harter, CEO of Frederick-based Aqua-Hot Heating Systems Inc. and an outspoken advocate for the Northern Colorado Manufacturing Partnership. “We just need to steer it,” he said.

Supply chain

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The manufacturers noted that multiple factors are at play affecting the ability for local companies to get parts necessary to produce their goods. To some degree, said Bob Walker of Walker Manufacturing Co., the issue is a remnant of the economic downturn of 2008 and 2009. “Capacity has shrunk and hasn’t come back,” he said.

Jim Clay, president of Advance Tank and Construction Co., based in Wellington, said “the generation running these companies have seen the other side (of a robust economy) and are more cautious about making the expansions that may be needed.” Thus, more suppliers of key parts are waiting to produce parts until they know the demand and the price.

Terry Precht, CEO of Loveland-based Vergent Products, which relies heavily on electronic components, said larger operations with cash are seen as a priority by manufacturers of parts and everyone else has to wait in line. He said the lag time from order to receipt of supplies is 50 weeks in his business. To avoid downtown in his production, he needs to stock up on supply, which then becomes a cash-flow issue or a line-of-credit issue, with bankers looking with skepticism on the time between outlay and sale of manufactured products.

Precht said, “Sixty-five percent of my revenue is consumed by material I have to acquire. The cost of money creeping up is troubling.”

Tim Reeser, CEO of Loveland-based Lightning Systems, said he expects to pay 15 percent to 18 percent on working capital, which is a large impact on his business. Delivery of critical parts for his business ranges from 26 to 52 weeks, he said.

Bart Prins, CEO of Water Pik Inc., said it’s often 52 weeks for his company, which was also affected by a fire in a manufacturing plant in China.

Prins said retailers have retaliated by imposing a penalty if consumer goods don’t get delivered on time. Walmart, he said, charges 3 percent.

Tariffs create uncertainty

Tariffs and threats of tariffs have driven up the cost of doing business, too, several manufacturers agreed. Reeser said that he receives parts from Indian, Japan and China. “Many manufacturers are constraining supply until they know the price. The political situation is a big unknown for manufacturers.

Clay, who relies heavily on steel to manufacture tanks for the energy and chemical industries, said tariffs “are real bad.” For one component, “we’re paying 65 cents a pound now, and it was 30 cents. And it’s just to make the steel manufacturers happy; they were working at 80 percent capacity and are now at 85 percent.”

“The second they heard ‘tariff,’ they raised prices,” he said. “I thought about tweeting about it but …” he said.

Long term, tariffs aren’t going to be the answer, Clay said. “ I think lot of our trade deals are horrible but … the tactics we’re using are goofy to me.”

Dean Herl, CEO of Greeley-based Noffsinger Manufacturing Co., which makes conveyors, among other products, said they bought up a lot of steel at the end of last year and has enough on hand to continue operations. Still, prices for other components have increased as a result of tariffs or threats of tariffs, which has meant increasing the prices of the products Noffsinger sells.

Walker Manufacturing, which will produce it’s 150,000th commercial mower this year, has been able to maintain supplies of steel but has seen 20 percent to 30 percent increases in price. He said Canada has threatened retaliation for tariffs imposed on Canadian products, and the lawn-and-garden category is among those under consideration for Canadian tariffs.

Tharp Cabinet Co. of Loveland buys all domestic products so hasn’t been hit with tariffs, but the company has been hit with price increases because of the demand nationwide for construction materials. Trucking is also an issue, said Garth Rummery, CEO.

Clay said there aren’t enough commercial haulers available to meet demands. The Birmingham, Ala., plant for Advance Tank had 10,000 loads to go out and only 400 trucks available, he said.

“It amazes me,” Precht said,” that policy-makers make decisions looking at a point instead of the whole system.”

Prins said businesses will eventually rise up and not support the short-term solutions that policy makers have developed. “So much wealth has come from globalization. Tariffs can’t continue,” he said.

Workforce issues

Supply-chain and trucking issues are at least partially affected by workforce issues, the group agreed. Harter said a parts manufacturer that his company has used has machines sitting idle because it doesn’t have people to operate them.

Walker agreed that being downstream of companies that can’t find workers is an issue.

While finding trained bodies to do the work is an issue, so is the ability to pay workers what it requires to live in Northern Colorado.

Reeser said his board was discussing a couple of positions that Lightning Systems needs. “One of my board members said it is immoral to pay someone less than $20 an hour. You can’t sustainably live in Northern Colorado on that,” Reeser said.

Clay said he wouldn’t call it immoral but it certainly is challenging. He reported high levels of turnover in some positions in his company, to some degree because workers can’t find reasonable places to live or because other industries can lure them away.

Prins said Water Pik has been able to hire, but often the trailing spouse can’t find work.

Precht hires people out of high school and trains them. Once you’ve invested in that training, you want to keep them. He was chagrined to see this morning that even Dairy Queen is paying $13 an hour.

Rummery said he’d hire 15 or 20 manufacturing people today if he could find them. “They don’t even need to know how to spell “wood,” the cabinet maker said. “They do have to pass the drug test, including marijuana.”

“We’ve actually been losing folks to awful places like Indiana and Michigan,” Rummery joked.

Walker was among the few who said his company is fully staffed right now. “Our average employee has been with the company for 11 years,” he said. “We treasure long-term employees. When employees reach 20 years,  we hand them $10,000 in cash,” he said.

Harter said Aqua-Hot is also fully staffed. Instead of adding to paychecks, the company placed resources into the profit-sharing program. “We give employees 6 percent of pretax income every six months. By placing resources in profit sharing, it’s easier to taper back when the economy shifts,” he said. Turnover has been 5 percent or less for the past 12 months, he said.

Herl said Noffsinger has “unstainable amounts of overtime” in two manufacturing plants right now. “We could hire, but we’re trying to automate our way out of that,” he said.

Matt Morgan CEO of Paradigm Research Optics, based in Loveland, said his small company needs a combination of high-level, Ph.D employees and entry-level. Paradigm likes to hire entry level and train them for higher-level positions. “Our issue is retention. We can’t compete with some other manufacturers,” he said.

George Newman, director of the Advanced Technology Center at Front Range Community College, said that community colleges are well aware of the need to train more workers for manufacturing. But it also faces capacity issues.

He said FRCC is developing a new facility in Longmont, in what he called the geographic center of manufacturing activity, to train “high school graduates and twenty-somethings” to work in industry. “We can turn out 100 machinists a year, but the state says it needs 300,” he said.

“It comes down to you being willing to up-skill your people,” he said. FRCC can bring trainers into manufacturing plants to train staff or staff can come to night classes to pick up new skills. “The cost of not having people in these positions is enormous,” he said.

Front Range is also starting a two-year electronics and engineering technology program, which he called the single greatest need in manufacturing.

All this comes at a cost, and Colorado is 47th in the nation in support for education.

The Longmont facility will cost $6.2 million for a 10-year lease, plus renovation. The community college is asking the community to raise $2 million to provide equipment for the facility, with a potential move-in date of May 1, 2019.

Harter, who teaches part time at the college, encouraged manufacturers to step up and contribute to the need.

“We need to be an effective partner with education. If we vertically integrate with them, they succeed,” he said. He encouraged companies to invite students into their facilities to see first hand what is done.

“We have to work our way out of this or 10 years from now we’ll be bemoaning the same thing,” Harter said.

Participants

Bob Walker, Walker Manufacturing; Bart Prins, Water Pik; Dean Herl, Noffsinger Manufacturing; George Newman, Front Range Community College; Paul Harter, Aqua-Hot; Garth Rummery, Tharp Cabinet Co.; Terry Precht, Vergent Products; Tim Reeser, Lightning Systems; Jim Clay, Advance Tank; Matt Morgan, Paradigm Research Optics; Jim Sampson and Nick Roe, Hub International; Bryan Watkins and Sabrina Nowling, Elevations Credit Union; and Mike Grell, EKS&H.

EKS&H, Elevations Credit Union and Hub International.