Doug Houser:
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If 2020 taught us any lessons, particularly the fact that no matter how hard you try, you will never truly be prepared for everything. Even so, understanding the essential functions of your business may keep you going strong until you are able to get back on course. Today, Andrew Geiser, a Senior Manager on Rea & Associates Manufacturing and Distribution Services Team is here to share his projections for 2021. I also hear he might share a few recommendations for mastering the art of resilience within the manufacturing industry. Welcome back to unsuitable, Andrew.
Andrew Geiser:
Thanks, Doug. It's good to be back. And so I appreciate you having me on.
Doug:
Always, always love hearing about your expertise in the manufacturing sector. And for those in the audience that don't know, right, you spent time certainly inside the industry on the manufacturing side. So you've got that great perspective as well.
Andrew:
Yeah.
Doug:
You don't miss that too much though, do you?
Andrew:
I mean there are days where looking back on it, that it was a lot of fun when I was doing it, but I would say overall, no, I'm pretty happy where I'm at and really enjoy helping out manufacturers and our other clients with all of their needs and issues.
Doug:
Yeah, that's a great thing. I spent time on the other side of the desk, so to speak as well. And I think the fun part about what we do is you get to help so many different companies, right? You see so many different situations and you try to take those best practices and put them into play for folks because it's easy for us to forget that most of our business owners, it's maybe the only company they've ever known, it's a family operation and that's all they've seen. And it's easy not to have the perspective that we have.
Andrew:
Yeah.
Doug:
That's great. So 2020, obviously just a crazy year that none of us could have predicted. Talk a little bit about what you've seen overall in the manufacturing sector and how it was initially impacted with COVID and then bounced back and where you think we are.
Andrew:
Yeah. So I think initially, a lot of people were just on edge trying to figure out how the various governor orders across the different states affected them and whether they were essential or not. But once we kind of worked through that and got out of that, I think really manufacturing in general, from what we've seen has rebounded very strongly. A lot of that has been dependent on the specific industry that your customer base is, because one of the things that we've heard is we've seen pretty much identical companies in the same industry, located very closely together, that one has had a great year, one has had a little bit of a down year. And a lot of the determining factor of that is simply who are they selling to and what industry, where their customer's in, and was that industry essential or not?
But all that aside, I would say looking back on it, and kind of where we're at now, at least here at Holmes County, where I'm at and the surrounding counties are things are looking good. People are busy and they've got a lot of work to get done. So I'm overall fairly positive right now.
Doug:
Yeah. I would say, certainly throughout our footprint, I know, for me in Central Ohio and more in Southeastern Ohio overall, it seems that the manufacturing sector has fared well. Most of my clients in the construction real estate space, who obviously are somewhat tied to manufacturing, they're either working at those facilities, building those facilities, or distribution, et cetera, continues to look really, really good as we move forward.
Andrew:
Yeah, I think one of the biggest issues we're seeing right now is actually more on the supply side and supply chain issues, just getting materials, whether it's steel lumber, or you name it, it's getting those materials and getting them timely. And also just with the rising costs and managing those on that side, that's been one of the biggest issues we've seen and we're working through now.
Doug:
Yeah, for sure. I agree with you on the supply chain issue. Do you see that trend continuing to where organizations are evaluating those supply chains and either trying to source from more suppliers or bring those closer to them?
Andrew:
Yeah. I see people continuing to evaluate that and looking at where their product and their materials are coming from. I think the other thing that they're going to be evaluating is their suppliers, who else are they selling to, because we've seen some of that squeeze where someone may have been a big fish before to a supplier and now they're a little fish because another bigger player has entered and is now buying from that supplier. So we've seen some of that as well. And so I think just in general, doing those evaluations and understanding their supply chain is going to be critically important as we move forward. As right now, it's becoming an issue to the point where it's limiting growth for people.
Doug:
Wow. Yeah.
Andrew:
And so people are expressing that. I could grow X percent more, but I just can't get the materials in the supply chain.
Doug:
Yeah. That's interesting. What about the labor market? Because we continue to hear about shortages in labor areas. Is that abating at all or is that still an issue for a lot of manufacturers?
Andrew:
That's still an issue and looking back on it, that was an issue before the pandemic and really the pandemic kind of exacerbated it. When you look at the fact, with the extra federal unemployment enhancement, that took away some of the incentive for folks to work. And we're seeing that. And a lot of our manufacturers are feeling that. That was obviously restored here within the Consolidated Appropriations Act that was passed at the end of December, but it wasn't as big of an enhancement, but it was still there. And so that's had a major impact on the manufacturing industry and the labor market as a whole. So it's still an issue. And it's still something that our manufacturers are really trying to work through and figure out, where to get that labor from.
Doug:
Yeah. We hear that often. It's like, you see obviously unemployment, very high in some sectors such as retail, hospitality, but it's not as simple as taking somebody from that industry and then just training them overnight, right, and throw them into... It doesn't work that way. There's longer-term factors to try to recruit and get those people.
Andrew:
Yeah. And more, a lot of our labor force and manufacturing is highly skilled with the amount of automation that's out there and just with the machinery that's being used. It's not your classic, manual labor anymore. It's highly skilled labor. And it does take time to develop those skills and recruit those skills.
Doug:
Yeah. And to that point, when you look at automation, obviously the advancements in technology in automation, you see that continuing, I would imagine in the coming decade or years ahead.
Andrew:
Yeah. I think that's something we've been talking about internally and with our clients is the impact of that, of automation. And I think it's only going to grow because we're getting to the point from what we're seeing in the labor market, similar to the supply chain issues that we were just talking about is where it's becoming a gross limiter. And so having those conversations around can you really expect to grow over the next five years X percent and what does that mean from growing your labor force and is that even a realistic goal or a realistic number?
That's an especially prevalent issue here in our area as, I don't know if it still is, but the unemployment rate here in Holmes County was the lowest in the state. I think it was down to maybe around 1%. And it's to the point now where it's almost a war for people. Some of the bigger manufacturers are winning out because they can offer more competitive comp packages and the like. And so from our standpoint we're just trying to plant the seeds and say, from an automation, what are you doing, what are you looking at to help support that growth? Because it's probably not realistic to think you're going to be able to increase your labor force to a great degree without significantly higher costs.
Doug:
That's a great point. And that's where you're and in my experience, you're so astute, when you and I've experienced this firsthand was, you walk through a facility of one of our manufacturing clients and point some of those things out and ask those questions. To me, the value you provide and what you get owners to think about, it is just fantastic, because as you said, even though a piece of equipment that significantly up upgrades, it might be quite costly, it really may be cheaper than trying to find two extra people to work with existing equipment that's not so efficient. And just thinking about how there... Talk about to that end, some of the things you do look for when you go through a facility and what you notice, what questions you ask, all those types of things.
Andrew:
So one of the things that I focus on is just the process, trying to think through what's actually happening. How is material moving? What are people doing? What are machines doing? What are those actions? And really looking for really where could we potentially put a piece of machinery to help, whether it's a dangerous task to help from a safety standpoint or from an efficiency standpoint, where can we start interjecting those types of things into the process and help gain efficiency is really what it comes down to. So that's one of the biggest things that I look for.
Doug:
Yeah. And just, I mean, the things you notice, the detail, it's phenomenal to watch really. See, telling the audience Andrew is not your typical CPA, that's what he does so cool, I think. Talk a little bit about it's a great time for clients to kind of take that step back and really evaluate everything they're doing. Maybe talk about sales and marketing a little bit. Do you have those conversations too with clients?
Andrew:
Yeah. Those have started to become more and more prevalent just with everybody. Everybody seems to be backlogged and they've got long lead times, they're busy, they've got plenty of work to do. And it's gotten to the point where some of them are pulling back on the marketing aspect and the sales aspect, because they do have these lead times. And obviously you've got to balance both. It's a balancing act, but it's just kind of trying to remind them that you can't forget about it because it is a central part of business.
And if you do forget about it, the backlog is there now, but as we learned last year, we never know what could happen tomorrow or in next week. And you would hate to get stuck in a situation where you're working on a big backlog, long lead times, and you can put some of that sales and marketing type stuff to the wayside and then all of a sudden that disappears. And now you've got quite an uphill battle to restart that and get that train moving again. And so just trying to help people understand to keep an eye on it, keep doing it, making sure they are balancing it, keeping things in balance, but not losing focus of it.
Doug:
Yeah. Absolutely. Well, now that we're into, obviously the early part of a new administration at the federal level, can you talk a little bit about what you're seeing in terms of emphasis from the government with regard to manufacturing, what changes we may see perhaps come out of the Biden Administration that might benefit folks?
Andrew:
Yeah. I think if there's one thing we learned through the pandemic, it's that we need to be able to be self-sufficient as a country. And we know when borders started closing and then it became more of an issue to get... The flow of goods just didn't happen as easily. Really, I think that opened some eyes to what we need to be doing here in the US. And so I think with that, there is a renewed focus on domestic manufacturing and trying to incentivize the restart of that, whether it's of old abandoned factories or properties or the construction of new.
And so, in looking through Biden's proposals, there is a heavy emphasis on manufacturing. There's a proposed Made in America tax credit for renewed domestic production or expanded payroll. And that was something that was floated around out by the Trump Administration, never came to fruition and then Biden has actually included that in some of his proposals as well. We don't have a lot of detail as far as exactly how that would work, but we do know that it's part of the proposal.
And then he's also floated out the idea of a manufacturing communities tax credit. And so really not a whole lot of detail on that as well either, but at the very least, it's good to see that manufacturing is heavy and hot on their minds and they're thinking about it. But one other area I just thought of that they're really emphasizing this, I think is one of the executive orders that he signed, relating to Made in America and federal contracts and federal spending and that arena there and mandating the US and domestic production of stuff that the Federal Government's versing. So that was good to see as well. And we'll see what comes out of that.
Doug:
Yeah. So it sounds like at least early on there's some traction to certainly help the sector overall. And I think sometimes the misnomer that people have, it's not that the same type of manufacturing that we've had in the past necessarily comes back. I mean, we're not going to make autos in the same way that we did in the 1970s, for instance, but that we focus on the things that we do well here and really incentivize those and emphasize those. Right?
Andrew:
Yep. Yeah. And so for the manufacturing that does come back and manufacturing growth in general, it is going to look different. I think manufacturing already looks different from even not too long ago, just with the automation and with the skill level that's needed in our manufacturing facilities to keep them running and keep the machines running and all the maintenance and everything that goes into that. And so, yeah, I agree. It's going to look different, but I think it's going to be a positive different.
Doug:
Yeah. That's good. And you touched a little bit on something that reminded me, you talked a little bit about government contracts and things like that. Can you touch a little bit on this new CMMC requirement related to cybersecurity? I know you're not obviously a cyber expert. We've got another team that does that, but I know you're certainly aware of it from government contract perspective.
Andrew:
Yeah. That's for sure. I'm definitely not a cyber expert, but I know just a tiny bit enough to be dangerous from our cyber services team and Shawn Richardson and Paul Hugenberg and their team. But from what I understand is it's basically a new framework for cybersecurity that the Department of Defense has partnered with, I believe it's NIST, the National Institute of Standards and Technologies, but you might not want to quote me on that. And it's basically upping the game for cybersecurity for businesses that hold federal contracts and are doing work for the Federal Government and have access to certain levels of classified information and making sure that they have the controls and the hardware infrastructure in place from a cybersecurity standpoint.
And the interesting thing is, and talking with our cyber team, this framework seems to go beyond that in that it's culture too. There's an emphasis on the cyber security culture at companies that are holding this information. And so the only thing, that's about all I know, so I would encourage anyone that has questions or is affected by it to get in touch with our cyber services team, because yeah, you definitely don't want me working on that. But I can point you in the right direction.
Doug:
No, I know from the construction side too, we've got certainly some of our contract clients that do work obviously for the government or the military, et cetera. And we've touched base with them on this. And it's, yeah, definitely some things to be aware of. If you're at all touching anything that relates to the government, you've got to be on top of this stuff. And as you said, really, it's good for the business' culture and everything overall. One of the things we've learned through M&A type work with clients is that you want to understand the risks that you have in your business and help mitigate those risks and all of that. And that's a big part of what you do from a consultative point of view is try to point out risks, how you can help de-risk for a business and get them in better shape. So that's great stuff.
Well, Andrew, what else are you working on? Talk a little bit about this Southeast Ohio MEP. What's that all about?
Andrew:
Yeah, so that's a project opportunity that we've been working on actually in conjunction with our cyber team. So it's kind of a joint venture here within Rea between our cyber team and the manufacturing team here. And we're working with the manufacturing extension partnership down in Southeast Ohio, trying to just help clients understand the impact that COVID has had on them and looking at areas of need that they have and whether or not there's an opportunity for those clients to get assistance with any needs that they have as a result of some of the funding that came down from the CARES Act back last spring and into the MEPs across the nation.
And so, really just trying to make connections and connect the dots between clients that have needs and are struggling as a result of COVID and with some of that funding and getting them what they need so they can thrive and move on and get past the pandemic here. So, pretty exciting opportunity. I think it's still in the early phases, but we're pretty excited about it.
Doug:
So is it a state-level program? I know it came out of the CARES Act, but is it a state-level or federal-level type program?
Andrew:
So it's more of a state-level program.
Doug:
Okay.
Andrew:
The MEPs work in conjunction with the Ohio Development Services Agency and they work together. And so a lot of the funding flows through there.
Doug:
Okay.
Andrew:
Yeah.
Doug:
So take advantage of some different incentives and things like that to assist. And you said this particular one that you're working on is the Southeast Ohio region.
Andrew:
Yep. Yeah, Southeast Ohio, that's kind of where we've been working and working with that MEP team there. OSU South Centers is where they're located.
Doug:
Oh, okay. Awesome. That's great stuff. Well, any last bit of wisdom for our business owners out there as we move forward into the remainder of '21? Any thoughts of the day?
Andrew:
So the one that I have is one that I've gotten now from a couple of clients, as we've been talking just about how they're doing, what's going on? And a couple of these, they've all had really good years. They've been able to thrive through the pandemic and their sentiment is business is still business. And a lot of things have changed with remote work and essential versus nonessential, but at the end of the day, business is still business. And so just to remember that and to remember what do you do well, and to keep doing that.
Doug:
Yeah, that's sage advice. We all need to persevere through this. So, good stuff. Well, thanks, Andrew. And if you want more business tips and insight, or to hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast. And while you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show. Be sure to subscribe to unsuitable on Apple Podcasts, Google Podcasts, or wherever you're listening to us right now, including YouTube. I'm Doug Houser. Join us next week for another unsuitable interview with an industry professional.
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