In the last 18 months, virtually every industry was impacted by the COVID-19 pandemic, including manufacturing, which arguably had the biggest impact on the economy — not only locally, but worldwide.
The manufacturing sector is a major part of the economy, accounting for nearly 16% of the global gross domestic product in 2018.
While most manufacturers in the U.S. were deemed essential, able to continue operations through the pandemic, lockdowns across the world still resulted in production disruptions, causing a ripple effect that was felt down global supply chains.
For example, shutdowns in Asian markets left the U.S. manufacturers and distributors without critical components, resulting in delays in import and transit times across industries, as well as material shortages, which, in turn, led to steep price increases.
Global foreign direct investment, or FDI, collapsed in 2020, falling 42% from $1.5 trillion in 2019 to an estimated $859 billion, according to a January United Nations Conference on Trade and Development report.
Such a low level hasn’t seen in the 1990s and is more than 30% below the low that followed the 2008-2009 global financial crisis, according to the UNCTAD report.
And the situation is likely to get worse, just as importers and exporters enter the traditional peak shipping season for the Halloween and Christmas holidays, experts suggest.
As recently as last week, factories in Vietnam were forced to suspend production as Vietnam sees its worst outbreak of COVID-19 since the pandemic began, while companies in Ho Chi Minh City have also halted production due to insufficient safety measures.
The story is similar across the globe, as variants of COVID-19 are clouding the outlook for a return to stability in the second half of the year, including in the U.S., which is now averaging more than 43,000 cases per day, with the Delta variant fueling a 65% jump in cases.
Keeping a finger on the pulse
The COVID-19 pandemic was a rude awakening for everyone, including Eunice Hajek, CEO of M & M Fasteners Supply Inc., a Santa Clarita-based fastener distributor, who described the first six months of the pandemic like being “frozen in time.”
“People just stopped,” Hajek said. “Sales went flat — they were the worst I’ve ever seen.”
While M & M was considered an essential business, that doesn’t mean that all of its customers were.
The near-complete stop was followed by a huge spike, once businesses began to reopen.
“I felt like the floodgates opened a bit,” Hajek added. “We were really busy. It was wonderful, but then, that tapered down too.”
Rather than be lulled into a false sense of security, as higher prices meant sale figures looked better on the surface, Hajek found herself having to keep her finger on the pulse, reviewing margins almost every couple of weeks.
Rather than be lulled into a false sense of security, as higher prices meant sale figures looked better on the surface, Hajek found herself having to keep her finger on the pulse, reviewing margins almost every couple of weeks.
Impacts of the lack of stabilization
And though there have been some spikes in sales the time since then, Hajek said the uncertainty of the pandemic has left a big question mark over the industry, as inventory remains unstable, with both delays and costs rising.
“We just get emails from our suppliers that say, ‘Due to the current environment, it’s volatile, we don’t know (specifics, but) there will be price increases — it can be up to 30%,’” Hajek said.
Hajek isn’t alone in seeing these increases, as the Consumer Price Index rise for April from a year earlier was the sharpest since September 2008, while the monthly gain in core inflation was the largest since 1981. Lumber prices alone have risen 124% in 2021 amid persistent demand for building materials.
“It’s all the way around — everyone is paying the price for this unstabilized environment. … And every day Americans are suffering as a result,” Hajek added. “We have no control over it.”
Price surges also have come amid supply bottlenecks caused by a number of factors, such as lack of containers to transport goods as well as lack of raw materials.
For M & M, these price surges have meant a markup in their own prices — and a change in pricing procedures.
“Every item has to be requoted based on the current cost … and quotes are only valid now for five days (when) they used to be valid for 30 days,” Hajek said.
While Hajek has heard that freight is supposed to start to see some stabilization by the end of the third quarter or in the fourth, many of the industry professionals agree it’s never going to go back to the way it was.
“I don’t know what stabilization means,” Hajek added. “What does that look like? Does it mean it’s going to go down by 10% when we’ve already been marked up 300%?”
Finding creative business strategies
Hajek started at M & M as a typist in 1982 before leaving, only to return in 2014 after finishing school and being involved in manufacturing for a time.
In 2016, when she took over ownership of the company, Hajek had to virtually start over, creating a new business model that would carry them through the pandemic.
“I brought my mom in to fix my books, which, she’s retiring now, so I’m training my daughter-in-law in to do it,” Hajek said. “I pulled my son in, and told him, ‘I need you to come help me run this company.’”
So, when the pandemic hit, Hajek couldn’t afford to shut down, instead choosing to hire a new business development manager, intending on finding new customers in diverse industries to make up for the shortfall.
And the strategy seems to be working, she said, as the company is busy enough to need an additional salesperson.
M & M was even able to open a new branch in Idaho at the beginning of last year, entering the construction market, which has continued to see growth in the last year, allowing them to already move into a larger facility.
“We just have to find ways to make it work,” Hajek said, adding that what they’ve found is key is balance in every facet of the business, whether customers or quality of parts. “I feel very fortunate … (and) I’m certain that with the team that I have right now, that it’ll be good.”
Now as Hajek looks ahead to the post-pandemic world, she said she anticipates slow, steady growth for the company.
