The State of Manufacturing in Pennsylvania

Currently, there is no sector or business unaffected by COVID-19. In Pennsylvania, there are roughly 14,000 small and medium sized manufacturers facing new and unique sets of problems in their attempt to survive or thrive. Like all types of businesses, these companies are struggling with finding ways to continue serving their respective audiences.

Our organization, the Steel Valley Authority (SVA), runs what is called the

Strategic Early Warning Network (SEWN, for short). SEWN provides free layoff aversion services to these companies when they are in distress – which right now, is more businesses than usual. Through federal funding under the Workforce Innovation Opportunity Act, SEWN is managed by the Pennsylvania Department of Labor & Industry. The program provides technical assistance utilizing strategies around financial restructuring, diversification, succession planning, employee ownership, and reshoring.

Some industries within manufacturing are already showing a more than 40% decrease in orders comparing May 2019 to May 2020. Such decreases have forced companies to reevaluate their product lines, suppliers, cash, and futures. SVA recently conducted a survey in collaboration with the Manufacturing Alliance of Bucks & Montgomery Counties amongst manufacturers across the state finding similar issues (graphic of results below).

Retooling a product line or diversifying a customer base does not happen overnight. Companies must evaluate available resources including employee capacity, supply chains, and cash flow.

It’s no longer just making sure the bodies are there but to also ensure an additional level of safety. Feedback from the survey showed that over 80% of companies were able to provide adequate personal protection equipment (PPE) for their employees. Personal safety is only one small challenge the companies and their employees are up against. Limited access to child care and transportation along with stay-at-home orders heightened the need for remote work options. Manufacturers have scrambled to assess their options to keep employees working while attempting to maintain their bottom line as evidenced by the 82% of respondents who shared COVID related costs will affect their 2020 profits by up to 50%.

Industry partners believe now is the time to revisit reshoring. Made in America efforts are patriotic and sound, but manufacturers must evaluate why some of their supply chains were off-shored to begin with. For example, machines and technology evolve constantly. Small manufacturers cannot necessarily keep up with those changes on both personnel and equipment levels. They may already be losing cash or acquiring debt; having to purchase a $500,000 piece of equipment can add a heavy overhead.

This does not mean it cannot be done. It simply means that companies have to work harder to discover their options. Bud Tyler, President of the EF Group noted, “Our COVID-19 compliance customers asked us to exponentially accelerate our product deliveries. We relied on our people and our supply chain to help us react and adapt quickly.” He added, “After 9+ years of doing business, we had to prove ourselves once again. COVID-19 product demand continues to grow and new ways of responding are required daily.”

An equally important resource is cash flow and during a distressed time, cash is king. Bob Value, Deputy Director of the SEWN Program and a Certified Turnaround Professional, has advised numerous companies over the years of that important point. Payroll Protection Programs (PPP) offered the short-term band-aids that companies needed to survive temporary closings and layoffs, but as the survey reported, nearly 60% of companies anticipate declining sales by year end. SEWN’s experience in the 6 weeks since the survey was undertaken adds a degree of credibility to these concerns. Many newly acquired SEWN clients had seen sales levels decline by as much as 50% through the end of May and June revenue figures as well as inquiries and backlog declined further.

Value noted, “There is a lesson to be learned from those who lived through the hard times of the 1930’s and kept cash stashed in their mattresses. They understood that cash is king in the best of times but especially in the worst of times.”

Manufacturers are also facing the quandary of aging owners. Many are asking, is it worth the struggle? SEWN has come across companies who were family owned with no succession plan in place or who were contemplating an outside sale as their exit strategy. The uncertainty of the current economic horizon may preclude that strategy as potential suitors themselves take a defensive “circle the wagons” position. Strategies such as management buyouts, ESOPs, and other inward-looking exit strategies may be required to keep companies viable. In this era of COVID, company may well find their best and only buyers right out on the shop floor.

Our country was built on the shoulders of manufacturers. As we progress through the stages of COVID, manufacturers will continue to support the economy, deliver healthcare supplies, and provide family-sustaining jobs.