Importers Tell House Committee PPP Loans Helped Tremendously

Supply Chain resiliency was the topic of a House subcommittee hearing July 2, but the small business owners testifying said the larger problems were either a spike in demand beyond what their typical supply chain could deliver, or the cost of additional logistics and inventory storage because of the misalignment of production shutdowns around the world.

Christine Fagnani, co-owner and vice president of the Lynn Medical Instrumentation Company outside Detroit, told the House Small Business Committee Subcommittee on Economic Growth, Tax, and Capital Access that the doctor's offices and other customers of her medical distribution company with 30 employees suddenly were putting in three times the orders that she typically fulfills. So, Fagnani said, she had to vet new sources, and had to respond to changing guidance from FDA on Emergency Use Authorizations. In one case, she said, KN95 masks from China had to turn around on the plane and go back, because even though FDA said masks from that factory were allowed in, the labeling on the packaging was no longer allowed. That led to a six-week delay, she said.

She also found two companies, one in Michigan, and one in New Jersey, that transitioned from making other products to making protective gowns, in one case, and face shields, in the other.

She asked Congress to ask FDA to set up an alert system that would email companies when a change is made to guidance, so they know when to check the website.

She thanked Congress, however, for the Paycheck Protection Program, which she said was easy to apply for. Even though she's getting more business than ever, her customers are asking for delayed payment plans, since doctor's offices have been seeing far fewer patients and so their cash flow is not what it was. At the same time, factories are asking her to prepay for product. The PPP loan smooths that over.

Sheila Lawson, chief operating officer and vice president of supply chain for a molded rubber and plastic parts factory and distributor in Broken Arrow, Oklahoma, said that her company, RL Hudson, imports more than 400 containers from 14 countries in a year and exports 78 million units for 380 customers in 20 countries. About 30% of its revenue is from its own production, and 65% from distributing others' goods. It has 100 employees.

The way the novel coronavirus spread around the world did create major challenges for her company, which produces and distributes parts used in plumbing, heavy-duty trucks, boating, medical equipment and more. RL Hudson had to secure inventory from factories in Asia during the extended Chinese New Year shutdowns, and had to put nearly half of those goods on fast boats, which was 50% more costly than standard ocean shipping.

But then factories in the U.S. shut down, and those customers didn't want to accept any goods. RL Hudson had 18 containers in its parking lot, another 30 in storage and its inventory grew by 30%. “Payables were greater than receivables for a short time,” Hudson said, but the company kept building stock. Eventually, it asked production staff to work four days a week instead of five, but a PPP loan allowed them to get paid for full-time work.

Even now, some of Hudson's customers are only manufacturing two or three days a week, but Lawson said they have gained 10 new customers during the pandemic. Hudson said the company is looking to add suppliers for resiliency, and they have narrowed a list from 101 factories to just under 30. She said it's hard to do the final selection, because they can't do in-person inspections.