Weary of Snarls, Small Businesses Build Their Own Supply Chains

https://www.nytimes.com/2022/10/19/business/small-businesses-supply-chain.html

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What’s more stressful than a nightmare you can’t wake up from? For Ken Rosenblood, it’s watching ships, tiny dots on a radar, stuck at sea, unable to deliver the lifeblood of your company. That’s how he remembers the early days of the pandemic.

His company, obVus Solutions, produces ergonomic office equipment, and his laptop stands were stuck on ships just as demand was swelling for tools to work from home. Unable to get more from his manufacturers in China, he saw his revenue plummet, and his main sales channel, Amazon, stopped ranking his company in searches.

“If you run out of product, you are persona non grata on their algorithm,” Mr. Rosenblood said. “So our business was just destroyed. We had to completely start over.”

So Mr. Rosenblood decided to bring obVus’s production and supply chain back to the United States, a process called reshoring. He bought an old 18,000-square-foot furniture store in Victor, N.Y., and spent $4 million to turn it into a factory. Products started rolling off the line last month.

“I’ve got my plant here, and I’ve got my engineers — we can make the adjustments, and we can control things,” Mr. Rosenblood said. “That gives us speed, and that is a huge advantage over China.”

He is also betting that it will cost the same — if not less — to make his products in the United States. And as he said: “I hate to lose a bet.”

The pandemic forced companies to reckon with the cost of producing and shipping goods overseas. ObVus joins other small businesses that are following multinational counterparts, like Ford Motor, First Solar, Intel and Lego, that have recently announced new U.S. plants as a solution to global snarls that left them without access to key components and empty shelves when consumer demand seemed insatiable.

“I always wondered what would happen if the global supply chain suddenly ground to a halt,” said Amy R. Broglin-Peterson, an industry consultant and instructor in Michigan State University’s supply chain management department. “We were spread too thin to continue working to the degree we do with our supply centrally located in Southeast Asia.”

The experience has been challenging for small-business owners, many of whom found themselves pushed to the back of the supply line because they did not have the order size, capital or relationships needed to take priority over big firms. And even if they could, the costs of shipping containers, which tripled from prepandemic levels, was often prohibitive.

“They’re really left with the brunt of the costs and bad service,” Ms. Broglin-Peterson said. “And they don’t have a ton of means to deal with it.”

Supply chain pressures eased over the summer, but the Federal Reserve Bank of New York’s global supply chain pressure index still stands near record highs, and a recent Goldman Sachs survey showed that delays and backlogs remained a top economic concern for small-business owners.

With no end in sight to delays and backlogs, building domestic supply chains from scratch is becoming more appealing and feasible. Small businesses are putting a priority on proximity to their customers so they can react to market demands in real time, and are leaning into a resurgent pride in “made in America” goods.

“A decade ago, we saw similar interest, and I said it was more of a trickle than a trend,” said Scott N. Paul, president of the Alliance for American Manufacturing, a nonprofit advocacy group. “I think it’s different now. It’s not a torrent, but it’s more than a trickle.”

Challenges remain for small businesses, however, including labor availability and costs; a patchy, opaque system of suppliers and manufacturers that is reliant on word of mouth; and a lack of capital innovation, automation and sometimes just knowledge.

“I can’t stress how few companies, even big companies, really know where their materials come from, all the way back to the earth‌,” Ms. Broglin-Peterson said. “You’ve got to understand your supply chain. You’ve got to understand your raw materials, your components. Can you even get them locally?”

Mr. Rosenblood spent five months researching whether obVus could make products in the United States with domestic supplies like aluminum, nuts and bolts, and even skilled labor.

The answer, he decided, was yes — with some innovation. He switched to recycled aluminum because he could not source enough aluminum domestically and opted to produce nuts and bolts in house at a tenth of the cost that suppliers were charging. Computer-controlled routers, lathes, cutters and millers, which are critical to keeping labor costs down, would be imported from China, and the company would hire and train about 25 machinists to run them, paying at least $52,000 annually.

Mr. Rosenblood plans to make a foldable keyboard and smartwatch, and is still studying whether he’ll have to return to China to find affordable components — not an uncommon roadblock to reshoring.

But there is a nascent shift, he said, resulting from recent policy moves by the federal government to promote reshoring and the growth of U.S. production. The Inflation Reduction Act, for example, is encouraging investment in domestic battery production for electric vehicles. Days after President Biden signed the bill in August, Honda and LG Energy announced a $4.4 billion battery plant to be completed by the end of 2025.

“There is much more intent to have economic policy that promotes onshoring, reshoring, growth of production in the United States,” Mr. Paul said.

That can’t come soon enough for Scott Colosimo. He hopes to use those domestic batteries in his electric motorcycle start-up, Land Energy.

When he started the company in 2020, his goal was a domestic supply chain with everything built, assembled and shipped from his 65,000-square-foot warehouse in Cleveland. He had the same dream in 2009 when he started a gas-motorcycle company, but it wasn’t feasible. Today, he’s closer to making it real: Mr. Colosimo’s 15 employees produce and assemble almost everything on site, except for the batteries and some high-volume, low-cost parts that he cannot find here.

“We’re looking at the high-intellectual-property items,” he said. “If we can invent a process or shrink development time or reduce costs by doing it ourselves, that’s what we’re bringing in house.”

Those new processes require capital, however, and fund-raising is Mr. Colosimo’s primary challenge. That refrain is common for small-business owners, especially those looking to build production abilities that are no longer in the United States. But they do have an unexpected advantage.

“Most small businesses are family owned or privately held, so they are not answering to shareholders or private equity who are concerned about the next quarter rather than investing for the future,” Mr. Paul said.

The long-term commitment is what initially struck Robert Yturri when, in 2019, he met Andy Techmanski, who was interested in starting a company to make technical hunting gear in the United States. A lifelong hunter, Mr. Techmanski knew exactly what was missing from store shelves, but he needed a supply chain expert to navigate manufacturing.

Mr. Yturri warned him: “The type of product we want to make is extremely difficult to build in the United States, like, nearly impossible. It will take money and it will take time.”

With Mr. Techmanski’s assurance of capital, Mr. Yturri agreed to become the chief product officer of the new company, Forloh. He called every manufacturer he had worked with in his career guiding outdoor brands such as the North Face, looking for suppliers who could produce the softest, quietest, most durable, breathable hunting gear on the market.

But most could not do what he needed, so Mr. Yturri got creative. He found a printable synthetic leather used by automakers that was perfect for kneepads and elbow abrasion. He turned to a commercial HVAC company to make waterproof membranes. And when he could not find a three-ply fabric supplier, he ordered bolts of greige cloth — raw fabric right from the mill — plus lining fabric and other materials and found a factory to make three-ply fabric exclusively for Forloh.

“You have to have a ‘don’t say no’ attitude to get you through this U.S.A. manufacturing hurdle,” Mr. Yturri said.

Setting up the domestic supply chain was expensive but worth it for the flexibility, Mr. Yturri said. Being close to their suppliers and customers allows them to come up with a prototype for an idea, test it and get it to market in as little as six weeks. If Mr. Yturri had to go overseas, it could take two to three years.

Plus, companies that manufacture clothing offshore are stuck with whatever they ordered a year earlier, he said, but Forloh can make smaller runs and order quickly if something is unexpectedly popular.

“We need to be able to react fast to market needs,” Mr. Yturri said.