Outlook

Photo courtesy of Sperry & Rice

Stress Testing on a Loop: When the Hits Just Keep on Coming

By Liz Stevens, writer, Inside Rubber

Every manufacturer does disaster planning, which, by definition, is designed to address the unusual, the unexpected and the unpredictable. When circumstances cause a manufacturer to roll out the disaster plan, both the plan and the company undergo a stress test. Did the plan hold up under pressure? What aspects should be rewritten for a better response next time? Did the company’s collective action support the operation through the crisis? What could management and staff have done differently, to greater effect?

Each company faces an occasional calamity and learns lessons from the experience. But what happens when companies must implement disaster plan after disaster plan because before one disastrous episode ends, a new and different one rolls in to swamp the operation? That predicament – a series of episodic complications, setbacks and reversals – is what industry has faced for the last couple of years.

Take an industry sector and hit it with a global pandemic, then either shut down production entirely or turn it up to full blast for old or brand new “essential” items, and then complicate it all with an employee exodus. Just as the industry settles slightly toward normalcy, throw in an avalanche of new orders for commodity goods, toss in a new virus variant outbreak, and then factor in a global supply chain meltdown and record inflation. When things are nominally back under control, it’s time for a double whammy – a humanitarian catastrophe caused by a war and another wallop to the global supply chain.

For the rubber industry, there was more. Polymers and other ingredients fell into short supply but at premium prices, and domestic and international deliveries were drastically delayed while shipping costs skyrocketed. Semiconductor chip shortages delayed the production of new manufacturing equipment as well as auto industry production, and the labor shortage/drain hit rubber manufacturing hard. This has been a series of stressors to test even the most resilient company.

So, how have some rubber manufacturers passed the test and come away with lessons learned that will make whatever stressor hits next more manageable? Inside Rubber spoke with two rubber manufacturers to hear how they met the challenges of the ongoing multi-episode stress test, and how their experiences have prepared them for future stressors. Randy Dobbs is president and CEO of Sperry & Rice, LLC, a Brookville, Indiana, maker of custom extruded

rubber products for the appliance, automotive, HVAC and truck and bus industries. Rob Pruyn is president of the transfer, compression and injection molding company The Rubber Group, Rochester, New Hampshire, which serves the industrial, transportation, medical and consumer products markets.

Manage the finances

Dobbs told Inside Rubber that the pandemic and the subsequent business disruptions did not cause significant financial problems for Sperry & Rice. The company did not have to make changes to its existing loan agreements, but it did participate in the federal Paycheck Protection Program, designed to keep workers on the payroll. “This program was vital to allow our business to remain open,” said Dobbs, “and keep as many employees as possible in place.” Pruyn and The Rubber Group were fortunate to have a limited amount of debt and be in a good financial position with cash reserves at the start of 2020, although the company did participate in the Paycheck Protection Program. “These programs were instrumental on being able to retain team members,” said Pruyn. His company also made changes to its planned capital expenditures. “We had a number of things planned for 2020,” Pruyn said. “One of the things on the table was an expansion to our building. We stopped almost all capital investments unless they were essential, starting in April of 2020, and we didn’t resume the other investments until early 2021.” At Sperry & Rice, said Dobbs, “Most non-essential capital spending has been reduced until business can return to more normal levels. One area of investigation that we have started, though, is around automation. We would like to add some automation and reduce the need for labor since it is very difficult to find the number of employees we need to satisfy our customers’ demands.”

Dobbs’ company remained open throughout the entire pandemic, with no layoffs. “In the early part of the pandemic, we allowed our workforce to contract through normal attrition,” Dobbs said. “Then, within a few months, when business rebounded to close to normal levels, we attempted to hire replacement employees. It has been impossible to find enough people.” During the worst of the crunch, he said, Sperry & Rice made numerous changes to employee management. “We changed pay rates twice and added a new employee referral program,” said Dobbs. “We changed our attendance policy to be more accommodating and modified our vacation policy to allow new employees to earn vacation time more quickly.” The company added part-time positions to allow more flexibility among the available workers and brought in meals on various occasions to show employee appreciation. Dobbs said that it took over a year to re-staff and that the company is still about 10% short of the employee level needed, hence his current exploration of automation to supplement the workforce. For The Rubber Group, the summer of 2020 saw a significant reduction in revenue across a large swath of its diverse marketplace. “It was a pretty tough year overall,” said Pruyn. The company had been proactive about keeping its workforce healthy during the pandemic – and avoided closures or interruptions due to illness – but it had to make layoffs in response to the revenue dip. “Then,” said Pruyn, “our business levels bounced back in early 2021.” The company now is a little bit over its pre-pandemic head count and is aggressively trying to hire to meet significantly increased business. “We have been having a difficult time scaling up to meet those production requirements,” Pruyn said, “because we are having a hard time getting the right number of folks in the factory.”

As companies that need to manage inventories wisely, these rubber manufacturers faced whiplash in their inventory handling as demand for products cratered and then abruptly skyrocketed. “In 2020, when things looked pretty bleak,” said Pruyn, “we were conscious of overall inventory value. We worked to drive those values down because it seemed like demand was going to be low for a while.” The Rubber Group now is in the opposite inventory position. “We have become much more willing to increase our inventory value and have built more inventory as a way to mitigate supply chain risks,” he said. “Right now, we are probably at our highest raw material inventory levels. Part of that is to support increased business, but it is outpacing even that because we are building larger safety stocks as a hedge against the ongoing uncertainty.”

At Sperry & Rice, inventory posed different problems. “A combination of returned customer orders and limited labor caused an explosion of our order backlog,” said Dobbs. “The backlog increased to more than twice the normal level. Dealing with this required excessive overtime for workers and extended our lead times for new orders. We are still working to get the backlog and lead times back to normal levels.”

Keep the lines of communication open

Dobbs hit the nail on the head when he said, “Communication has always been vital to running a successful business.” And he was just as on point when he said that the pandemic magnified the need to communicate well in all avenues – with employees, with customers and with suppliers.

Being open and honest with employees – about pandemic issues, supply chain snags or production peaks and valleys – served the manufacturers well. “It was vital to keep employees abreast of the business outlook, so they felt secure and valued,” said Dobbs. In addition to talking to workers, Dobbs’ company listened to its employees about

t page 11

their needs and concerns, and responded with pay increases, a more accommodating attendance policy and new part-time positions to offer flexibility to workers.

Pruyn reported a similar atmosphere of open communication with his company’s workforce. “We try to do regular ‘State of The Rubber Group’ updates,” said Pruyn, “so that our team knows how things are going.” Pruyn also emphasized to workers that their behaviors can impact the company’s relationships with customers. “We probably reinforced that more than ever,” he said, “to make them understand that if, for whatever reason, we had a significant COVID outbreak in the facility and had to close down, that would seriously impact the customers. It was a reminder that customers are really the folks that support all of us financially.”

“Overall, though,” said Pruyn, “there was not a big shift in our messaging. We may have communicated more frequently. We may have used vehicles like email and communication boards when it became difficult to do company-wide meetings amid the social distancing requirements that we implemented.” The company got creative to fashion a good spot for everyone to gather for meetings by setting up sticker dots in the parking lot at six-foot intervals so meetings could take place outdoors.

Pruyn’s communication with customers and suppliers was similarly beefed up. “We worked with our main suppliers,” he said, “to develop more regular and more structured communication surrounding risk associated with all of the supply chain craziness.”

Pruyn called this increase in communication just a natural expansion of the company’s normal operating procedure. “We always are striving with both customers and suppliers to create life-long relationships,” he said, “A key to maintaining those relationships is solid, regular communication. Our culture and our desire to treat others the way we would like to be treated helped us a lot through the last couple years.”

The sentiment at Sperry & Rice is similar. “Customers are the lifeline of any business,” said Dobbs, “With our unusually high backlogs and long lead times, we were not always able to make and ship the orders our customers needed. Keeping them informed about delays was very important so they could adjust their processes or inform their own customers.”

Deal with the rising cost of … everything

As the cost of materials and parts has spiked, so has the cost of labor and shipping. Rising costs, along with frequent shipping delays and scarcity of items, make it more important than ever to have clear agreements with customers and suppliers, as well as backup plans for sourcing materials and transporting goods. Dobbs noted that his company does not hold long-term contracts with its suppliers, but it does have backup plans. “In our business, we have qualified second and sometimes third suppliers for most of the important materials that we use,” said Dobbs. “There have been lots of delays in deliveries and, in a few cases, a material was not available and so adjustments had to be made. We have a chemist on staff, and this allows us to offer alternative materials to our customers and to adjust critical components.”

Pricing volatility and material availability also tested The Rubber Group. “We didn’t have a lot of formal long-term agreements with either customers or suppliers,” said Pruyn. “There have been regular price increases from suppliers and to customers, much more so than we typically see.” Pruyn’s company had worked to keep its pricing stable over the years, but during the pandemic supply chain chaos it had to deal with big price increases for customers twice in a matter of months. “We do our best to announce predictable price changes as far in advance as possible but if the price increases are abrupt and significant, we have to pass those along immediately.” Pruyn noted that it takes a lot of resources to requote pricing frequently to keep up with cost changes. “We do not like to do this to our customer base,” he said, “but we were forced to react immediately because the increases were so impactful to our cost structure.”

The big takeaways

As the manufacturers looked to the future, they reflected on the last two-plus years and cited the most valuable lessons learned. A commitment to honest, frequent communication was a biggie, as was the realization that healthy cash reserves really can solve many a problem. Keeping the employee head count at its optimal level was another important consideration, even if it means taking a leap of faith and/or stretching the budget. Keeping employees happy and keeping the pipeline of new candidates flowing by being an attractive employer was another lesson learned. Having flexibility with one’s workforce, to match the ever-changing operational demands, was another important lesson.

Tips from The Rubber Group

Pruyn summed up the key lessons learned at The Rubber Group. “We were in a really decent financial position to weather the initial storm,” he said. “Our experience illustrates that having significant cash reserves is a good way to be prepared for this kind of uncertainty. We are consciously preparing for the next possible situation by ensuring that we have a solid, significant cash reserve in place.”

Pruyn learned a lesson from his company’s difficulty in staffing back up after the layoff that was required during those bleak early months of the pandemic. “In terms of

t page 13

downsizing and upsizing,” said Pruyn, “if I were to face that situation again, I would try to maintain employment levels for a longer period than we did in 2020, because having to cut the workforce drastically and then scale back up was very difficult.” Pruyn said that ramping back up in nearly a “from scratch” hiring process – bringing in a lot of people to interview, to hire and to train – was a tough experience. “In hindsight, we would not do that again.”

“And finally,” said Pruyn, “I would reinforce that communication with customers and suppliers and team members is probably the most important thing. Even when things were difficult for us, maintaining those relationships was really key to remaining successful.”

Photo courtesy of Sperry & Rice

Lessons from Sperry & Rice

Dobbs echoed some of Pruyn’s takeaways regarding communicating and dealing with customers. “We always thought of ourselves as a supplier who stayed connected to our customers,” he said, “but these last two years put that even more into focus.” Getting and staying close to the customer is critical for showing that a manufacturer cares and is interested in a customer’s business and issues. When the relationship is mutual, customers learn about the manufacturer and develop a vested interest. This kind of familiarity allows a manufacturer like Sperry & Rice to anticipate the customer’s most crucial needs and go the extra mile to supply product to keep the customer’s own production line running smoothly. “Many times, we broke in to get them something even if not the entire order,” Dobbs explained. “In most cases, that was enough to get them over their immediate hump, and we could go back in later to get them the rest of that order.” That approach, said Dobbs, is a big factor in why incoming orders have remained very strong even when his company was not always delivering in as timely a manner as he and the customers would have wanted.

Dobbs’ experience with his workforce yielded another important lesson. “Prior to the pandemic,” he said, “we had a pretty steady work force. There were occasionally some retirees that we would need to replace but the pool of candidates was relatively large and finding people was not too difficult. That all changed coming out of this challenging time.” Like so many employers, Dobbs found that new employees are different now. “They are choosier about where and how they want to work,” he said. To remain competitive in the market, Sperry & Rice had to make several pay increases. With some new employees, extra time was required to help newbies become familiar with rubber manufacturing. Dobbs found that flexibility – about positions and about work hours – was even more important than pre-pandemic, as were updates to the company’s attendance, vacation and employee referral policies. “Our new employee referral program was very successful,” said Dobbs, “and we also found success in reengaging with a select group of ex-employees.” Overall, he said, “the work/life balance is something many employees think much more about than in the past. There is a greater level of turnover as new employees come and go based on what is driving them personally, so keeping a steady flow of new applicants is critical for now and for whatever comes next.”

Flexibility, said Dobbs, has always been one of his company’s strong suits. “But the last two years,” he said, “has put that into overdrive.” With labor issues and strong customer demand, Dobbs and company had to shift the workforce it had to where it was most needed. “This need for flexibility went well beyond the normal cross training that everyone has done for years,” he said. “It often meant shutting down entire departments so those workers could be redeployed to other areas so that customer orders could be completed and shipped. Each day, it required an assessment of the most critical customer needs compared to the work force at hand for that day.” This level of flexibility had pros and cons. It was not easy, especially for many long-time employees. Even some managers and supervisors struggled with an approach that often seemed chaotic. “It did provide the avenue,” said Dobbs, “for some employees to step up and really show what they are capable of delivering. As I like to say, the work has changed, and we must change with it. There is no longer a need for a ‘left, rear, wheel, lug nut, tightened’ position. For today and the unknowable tomorrow, we need utility players who can perform well in all kinds of positions and environments.”

COVID-19, the supply chain quagmire, extreme weather, wild swings in product demand and the Great Retirement really put manufacturers to the test in 2020, 2021 and 2022. What’s next? Will inflation abate? Will another virus variant shut down production of key items in China? Will another container ship run aground on the way to the US? Those questions cannot be answered, nor even guesstimated. So, learn from the last two years and stay prepared for whatever might be around the next corner. u