From Rea & Associates studio, this is unsuitable, a management and financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful measurable results. I'm Doug Houser. On this weekly podcast, thought leaders and business professionals break down complicated and mundane topics and give you the tips and insight you actually need to grow your business. If you haven't already, hit the subscribe button, so you don't miss future episodes. If you want access to even more information, show notes and exclusive content, please visit our website at www.reacpa.com/podcast to sign up for updates. Doug: As COVID-19 cases continue to climb, it's clear our pandemic woes aren't going anywhere for a while and neither are the issues it has left in its wake. For key industries like manufacturing, many have been left to wonder, what do we do now and what happens next? CPA and Senior Manager here at Rea, Andrew Geiser is joining us today to unpack some of the issues businesses and manufacturing are facing, and provide some insights into what comes next for the sector. Welcome back to unsuitable, Andrew. Andrew: Thanks, Doug. It's good to be back. Always good to come on here and chat with you a little bit and thanks for having me. Doug: Yeah, absolutely. So you are our manufacturing expert, obviously you've got time, which I think folks should know you spent a fair amount of time in the manufacturing industry, in the private sector itself, in working in various plants, etc. So, you've seen the inside and outside of all of it, right? Andrew: Yeah, no. Yeah. I did. I spent several years in manufacturing plant doing a lot of cost accounting, cost analysis, loss analysis, and just a lot of supporting operations from that standpoint. So it's different being on the other side, but I really like it, but it does allow me to have a little bit of a different perspective, than maybe more of your traditional CPA, public accounting profession. Doug: And I think that's great. I know you and I have had a couple of occasions, where we've been able to, even though I'm not certainly a manufacturing expert by any means, I've got a few connections in that area and get you out to do some plant tours with a senior management of some clients. And, I think some of the things you uncover and the questions you ask and pose are just tremendous. And, I think just goes to your expertise and your ability to just point things out, and notice things and ask those pertinent questions of clients. And I think that's something that all of our manufacturing clients probably ought to do themselves every day, is just get out there in their facility and ask questions of the people that are there. Andrew: Yeah, no, I would agree with that. In fact, I mean, I definitely wasn't successful at doing it every day when I was out of the plants, but I would say there weren't many weeks that went by, even being a financial analyst at the time. Really didn't have a requirement to be out on the floor, but try to be out there fairly often, to be visible, get to know the folks out on the floor, get to know the process and understand what was going on. Andrew: And really, that was something that the corporate controller of the company that I worked at, before I had relocated down to the plant, was very adamant about, he said, "Get out, get out of your office, get out there, see what's going on, build those relationships because it'll make your life a lot easier as you're trying to do your actual job," then so definitely listened to that. Was glad I got that advice and it's something that I would recommend to anyone in that situation. Doug: Yeah. Absolutely. And you just, of course, learned so much. But in terms of where the industry, the sector is right now, obviously COVID has thrown everybody for a loop, but I think more than anything, manufacturers really had to adjust quickly. Because obviously largely, they're indoors, you're in a kind of a fixed environment. And then, all of a sudden, we're thrown into this pandemic. How did you see the client base deal with it? And now, that we're 18 months or so into it, what are some of the key issues that you see they're facing now as a result of that? Andrew: So I think initially, there was just a lot of, everybody's pretty cautious, what do we need to do from a sanitization standpoint. Making sure people, if we can keep them the six feet apart. Some people were out there retooling their floors a little bit, to do that, but that's not always a viable and cost-effective option with some of the equipment that's out there today. But after that initial, I don't know, what you call wave or initial process of figuring that out, I think most people kind of went back to business as normal, just with the different protocols and precautions to try and mitigate the risk and the spread of everything. Because I think especially here in Ohio, most of our manufacturers were deemed essential, and so they were allowed to keep running and stay open. Andrew: And I think in general, that's what employees wanted. They wanted to keep working, and as well as management and ownership as well. Nobody wants to see a facility sit idle. So, that was good. Definitely, it was very, very good to see the ingenuity from manufacturers with that pivoted to make PPE, as well as just the resiliency to come through and basically get the job done when we needed to. So, that was good to see, it's good to work with. Makes me kind of proud to to be working in that area. Doug: Absolutely. Andrew: As far as right now, I would say most of our clients, when we're talking to them, two biggest issues right now are supply chain and labor. I mean, there's other things that are definitely hard to deal with as always, but supply chain and just getting materials that are needed when they need them is an issue, as I'm sure anybody who is involved in the industry has probably read about with the chip shortage and what it's doing to some of the automotive plants. Andrew: And it's just really interesting and it's really sad to see some of that capital just tied up sitting there and unfinished inventory and web, because they need one little part and they just can't get it. But it's trickling down, all the way down to other industries as well. I know one of my clients specifically was really struggling to get a certain screw that they've been able to get like clockwork for years on end. And all of a sudden, they couldn't get that screw and it was preventing them from shipping fairly large products. So just working through that, and evaluating what can they do, what can be done, so. Doug: Yeah. It's crazy, we see that certainly with construction materials too, there might be a certain piece that's just related to, say windows, or glazing, or roofing materials or whatever it might be with regard to either commercial, residential construction. And it seems like a lot of this stuff we're hearing about, well, it's tied up in shipping. Now when we're talking about supply chain issues, a lot of it is there are shipping issues. In fact, there's an article in the Wall Street Journal here recently about just that very fact. So, is that some of what you're seeing as well? We hear a lot about ports being, just not operating at full capacity, and inefficient and shipping container shortages, all these things are causing issues as well. Andrew: Yeah, no, we're seeing that as well, both on the more international side with containers, and the issues that the ports and containers just getting lost. We've had stories of folks that had two containers coming over, sitting side-by-side on a ship and they got one and they didn't get the other. And, there's really no rhyme or reason why. So, that's been really, really interesting and a challenge as well. And in addition to that, just the cost of that has gone way up. But we're also seeing it in trucking right now, in freight here in the U.S. domestically. There's massive driver shortage there, and so, it's been a challenge. Even if you can get your product out the door, out your door, it's been a challenge to find the transportation needed to get it where it needs to go. So, that's a good point and it's definitely something that we're seeing. Doug: What are some of the things that companies can do to help mitigate some of those factors, whether it's supply chain issues or to your point, distribution of their own product out the door? What are you seeing some folks do to try to overcome and mitigate some of that? Andrew: Yeah. So some of the things that we're seeing is on the supplier side is, it's just taking a hard look at their supplier base, and doing everything they can to try to diversify that and find different suppliers. But we've heard quite a few people as well, that are really going all the way down into the engineering and the makeup of their product to see if there's a certain way they can either re-engineer or hopefully, maybe not, they wouldn't have to do a whole lot, but change something in their product to be able to use a supplier to provide a certain piece or a certain component that they couldn't before. Andrew: So, that's been something we've seen people do as well. And on the distribution side, it's been basically just trying to do whatever they can to find logistics and find those transportation companies. We've also seen a lot of larger manufacturers continued that maybe had put off looking at doing their own shipping and buying their own trucks, seriously consider that as well. But I know there's also been, I don't know, I haven't really read up as much on this, but I've just heard grumblings that there's a truck shortage as well. And, we've had a couple of clients that are just straight up out looking for trucks, they just want to buy trucks, so. Doug: Yeah. We've heard that as well, as it relates to construction materials. So it runs through everything, doesn't it? Andrew: Yeah, it's crazy, but it's the world we live in, I guess, so. Doug: We can't get those as electric self-driving trucks on the road fast enough, apparently. Andrew: Yeah. So actually, funny story about that. I don't know this individual directly, it was relayed from another Rea team member. One of our clients, several years ago when kind of the whole self-driving truck thing came out, he was very skeptical of it, as I would probably be too, if I was in his shoes as a owner of [inaudible 00:10:55] company. Now, he wants to buy as many as he possibly can, as fast as he can, just because of the driver issue. So, it's just crazy to see how something like this can change your perception and what you think of things real quick, so. Doug: Yeah, I mean it is interesting. And I think we all have to try to evolve and adapt as quickly as we can to these types of constraints, whether it's distribution and supply chain, such as we've discussed or, and you touched on it briefly, the labor shortage. Now, I'm curious to hear your perspective there, and I mean initially I would hear clients say, "Well, if we get rid of this extra unemployment compensation, then it will be fine." Doug: Well, we've gotten rid of all that and it's still not fine. So, the perspective on the labor shortage and what we do there, and what are you seeing in terms of cost impact, some of those things? Andrew: Yeah. So, I mean, really to be honest, labor was beginning to become an issue even before COVID, just with the way the economy was going so strong. Business were hiring, seemed like. Even at that point, at least here in Rea where I'm at, Central Ohio, businesses were looking for people and couldn't find them. And then, COVID definitely exacerbated that. I think in general, there was that feeling that if you had to get rid of some of those programs, hopefully folks will come back into the labor force. I think there maybe was some higher degree of optimism at the beginning that some of the labor force that maybe was forced to not be working. And more in the hospitality industry, some of those that really got hit hard could translate over to manufacturing and construction. Andrew: And I just don't think that happened, like maybe we thought it did at first or we thought it could. As far as the other thing that I think we're seeing is, for anyone who was maybe near retirement leading up to this, there's a lot of folks I think it just maybe set over the edge. They said, "They've had enough, they're just going to go in and retire." So I think you had an exit there, and then there's a lot of holes from that standpoint. Really what we're seeing now is, it's becoming an issue so much so that companies are really strapped from a growth standpoint, if they don't either start paying people a significant amount more, or look at automating or some type of process, re-investment for what they're doing. Because, it's just not realistic to go out and hire folks that you might have been able to buy 10 years ago. Doug: Yeah. I wholeheartedly agree. And it's interesting you bring up that concept of kind of re-engineering or rethinking all of your process in whatever business you're in. I think we're seeing more and more of that. I know, for example, in construction and I'm interested to get your perspective here, we're seeing more work done off site. In other words, prefabricated or in essence, kind of manufactured offsite and not built onsite, because they just don't have the people to do it. I wonder if that's peeling away some folks from the manufacturing sector itself. Andrew: Yeah. I mean, I definitely think it could be, because that that's an interesting point and I could see where, as a construction company, obviously there's a wide array of those. Where if you move something off-site, you can probably put it into a more of a controlled, repeatable process and gain some efficiency there. So I mean, to me, just from hearing about it, that sounds like a great idea. And I'm sure ones that are doing that, companies that are doing that are seeing some benefits from that. Really, we've had several clients, myself and some of us that work in manufacturing literally call us and be like, "I can't find people, I need to automate." "What do I do?" Andrew: So, we're trying to figure out how we can help them, what they need to do, what are even their options. A lot of folks just don't know where to start from that standpoint. And so, it's really, really challenging and definitely something that we're going to have to work through. Doug: Yeah. It's interesting that, I have a client that actually hired an engineer from Honda, from the manufacturing sector. He's in the construction business to essentially manufacture a portion of what they do off-site, so that they can just be much more efficient and use less people, because they couldn't find people. Now, they do some interior finish, type of commercial construction work. So they're right there, it's peeling somebody away from the auto manufacturing industry. And then, that individual is in-turn hired several additional people. So, peel them away from, "Manufacturing industry to construction," which I just... It's stuff like that I never would've thought of. And you mentioned automation too. I know, again, anecdotally a client, a construction client that said, "Look, I'm going to do some something very similar to that, couldn't find enough people." Instead, they're going to go invest in a million dollar piece of equipment to more automate what they are able to do. Doug: Now of course, you have to have significant capital to be able to do that. Right? Andrew: Yep. Doug: But the good thing is right now, there's plenty of capital out there, but that requires a rethinking of your business. And as you encounter business owners and things like that, do you sense any reluctance or ability to adapt with some of them, or is that largely washing away? Andrew: I think in general, a lot of it is just, there's an unknown, just with process and stuff. For the most part, for a lot of manufacturers have been the way they were, have been for a long time. If they were already on more of a technological, advanced side of things, I guess. One of the things that I think is changing is the whole analysis of, what is the return on a piece of equipment? Historically, you invest a million dollars, here's your annual cost savings, here's your payback, your ROI, those types of things. Fairly straightforward and made sense, and I think a lot of people... You could really make a lot of decisions based on that. Now, I think it's not so much about the savings, it's about the output. And you may not necessarily have any labor savings, because you're probably not going to lay off any good workers, because that's just honestly not smart in this market. But what's your additional output you could gain? And, how do we factor that into doing analysis? Andrew: Can we predict it based on our cost structure? What can we expect from, lets say 15% gain and output? How much of that can we expect to drop to the bottom line? So from what I'm seeing, it's the analysis on some of those investments is changing a little bit, just because of where we're at. And it's to the point, where a lot of those pieces of equipment are required for growth, to be honest, so. Doug: That's interesting. So, really even beyond just rethinking or re-engineering their own business or product, it's thinking differently about the investments they make too, in that. Wow, that's fascinating. Very, very cool stuff. So speaking of cool stuff, we've got an upcoming event later in October around... Is it around National Manufacturing Day or that timeframe? What what's going on? Andrew: Yeah, so historically, we've always done an event on National Manufacturing Day, which is the first Friday in October. So I think it's October 2nd this year, or somewhere around there. This year, we're switching it up a little bit, because we wanted to host it at our new Wooster office location. And given, because of a lot of the challenges we've just discussed, that office has been delayed a little bit in being opened. And so, we decided to push back our event to October 29th, in order to give them time, make sure the office is going to be ready for us, so. We're really excited about it, should be a good event. I think, we've got good speakers hitting on quite a bit of these exact issues that we're talking about here, and we've got a panel discussion of some folks, from manufacturers that have dealt with these exact things and just to hear about what they've done, what they're doing and how they're looking at things. So, it should be good event. Doug: Oh, excellent. I can't wait to hear more about it. And I always love to get a... It sounds like we've got multiple perspectives that we're going to get, as it relates to some of these issues and that should be exciting. What about moving forward? As we move ahead, it's hard to believe, but we're going to be thinking about 2022 here shortly. I mean, using your magic crystal ball, what are some of the things beyond these issues we've discussed that maybe folks should be paying attention to for next year? Andrew: So I know one of the big things that I think kind of out there on everyone's mind is tax reform and what could be coming there. I follow it. I wouldn't say I follow it closely at this point, because we don't really know yet, but I know there's proposals out there. I think in general, the feeling is, probably starting next year, there's a good chance tax rates are going to go up and taxes are going to go up, just how it's structured and what ends up happening. We don't have a whole of details yet. So, I think everyone's keeping a pace on that, as well as from an estate tax standpoint, working with privately held businesses, that's a big area as well, seeing once what's going to happen there, is I think, once again, change is eminent, but we just don't know what yet. Andrew: So, I think that's weighing on a lot of people's minds. I think right now, we're in this kind of a weird waiting period, because we don't know what changes are, when they're going to take effect. So I'm sure as soon as we get a better sense, there's going to be a flurry of activity towards the end of 2021 here. As far as everything else, I think, I don't know that I see the labor issue correcting itself anytime soon, supply chain wise. In some areas, we've heard prices coming back down a little bit, on the lumber side. But even then, I just don't know. I think, love to see once what this second wave does here. If it sets us back on some of these areas or if we're able to get through it like the first time. Andrew: So unfortunately, I think there's a lot of unknowns right now, but I think in general, manufacturing, the outlook, I think is strong. If there's anything, there's, I guess, an overarching theme that I think COVID unveiled the importance of manufacturing in the U.S. And, that we have to be able to be self-sufficient in many different areas. And then a lot of areas, where we're probably not self-sufficient right now. So I think in general, the outlook is very, very good. For manufacturing, it's working through the supply chain, and the labor issue and getting the right skills where we need them. Doug: Yeah. And unfortunately, it takes time to kind of build that infrastructure and get it in place. I mean, I know obviously for years and years, you'd hear about, "Okay, just-in-time inventory, I don't want to hold any inventory, because it's costly." Well then, COVID kind of flipped that on its ear, didn't it, like a complete 180? Andrew: Yeah, no, I would agree with that. And so, I think you're going to see people, if they haven't already, evaluating those types of strategies and realizing, "Hey, maybe it's worth it to make the investment and hold a little extra inventory for when that shipment doesn't show up on time, because of who knows what." So yeah, it's been interesting. I think it's definitely forced a lot of people to rethink things in a lot of areas. And so, but I think overall, just because of the necessity to do and manufacturer stuff here in the U.S., I think the outlook is pretty good. It's just working through these challenges. Doug: Yeah. Good stuff. Good to hear. Well, thanks again, Andrew and we certainly look forward to the event on October 29th. And please reach out to any of your friends at Rea via Andrew, or myself or anyone else. And if you want to attend that event, I'm sure invites will be forthcoming here soon, look forward to that. So, thanks again. Andrew: Thanks for having me. Doug: And if you want more business tips and insight, or to hear previous episodes of unsuitable, please 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 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 from an industry professional.
