[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
SUPPLY CHAIN RESILIENCY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JULY 2, 2020
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-085
Available via the GPO Website: www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
41-296 WASHINGTON : 2021
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
DAN BISHOP, North Carolina
Melissa Jung, Majority Staff Director
Justin Pelletier, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Brad Schneider.............................................. 1
Hon. Kevin Hern.................................................. 3
WITNESSES
Dr. Eswar Prasad, Professor of Trade Policy, Cornell University,
Senior Fellow, Brookings Institution, Ithaca, NY............... 6
Ms. Christine Fagnani, Co-Owner and Vice President, Lynn Medical
Instrumentation Company, Wixom, MI............................. 7
Mr. David Billstrom, CEO, Kitsbow Cycling Apparel, Old Fort, NC.. 9
Ms. Sheila Lawson, Chief Operations Officer and Vice President of
Supply Chain, RL Hudson, Broken Arrow, OK...................... 12
APPENDIX
Prepared Statements:
Dr. Eswar Prasad, Professor of Trade Policy, Cornell
University, Senior Fellow, Brookings Institution, Ithaca,
NY......................................................... 24
Ms. Christine Fagnani, Co-Owner and Vice President, Lynn
Medical Instrumentation Company, Wixom, MI................. 32
Mr. David Billstrom, CEO, Kitsbow Cycling Apparel, Old Fort,
NC......................................................... 38
Ms. Sheila Lawson, Chief Operations Officer and Vice
President of Supply Chain, RL Hudson, Broken Arrow, OK..... 64
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
SUPPLY CHAIN RESILIENCY
----------
THURSDAY, JULY 2, 2020
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 9:00 a.m., via
Webex, Rayburn House Office Building. Hon. Brad Schneider
[member of the Committee] presiding.
Present: Representatives Schneider, Davids, Delgado,
Chabot, Hern, Stauber, and Spano.
Mr. SCHNEIDER. Well, I thank everyone for joining us today
for our Committee's Hybrid Hearing. I want to make sure to note
some important requirements.
Let me begin by saying that standing House and Committee
rules and practice will continue to apply during hybrid
proceedings. All members are reminded that they are expected to
adhere to these standing rules, including decorum.
With that said, the technology that we are utilizing today
requires us to make some small modifications to ensure that
members can fully participate in these proceedings.
During the covered as designated by the speaker, the
Committee will operate in accordance with House Resolution 965
and the subsequent guidance from the Rules Committee in a
manner that respects the rights of all members to participate.
House regulations require members to be visible through a video
connection throughout the proceeding, so please keep your
cameras on. Also, if you have to participate in another
proceeding, please exit this one and log back in later.
In the event a member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available member of the same party and I
will recognize that member at the next appropriate time slot
provided they have returned to the proceeding.
Should a member's time be interrupted by technical issues,
I will recognize that member at the next appropriate spot for
the remainder of their time once their issue has been resolved.
In the event a witness loses connectivity during the
testimony or questioning, I will preserve their time as staff
address the technical issue. I may need to recess the
proceedings to provide time for the witness to reconnect.
And finally, remember to remain muted until you are
recognized to minimize background noise.
In accordance with the rules established under House
Resolution 965, staff has been advised to mute participants
only in the event there is inadvertent background noise. Should
a member wish to be recognized, they must unmute themselves and
seek recognition at the appropriate time.
For those members here in the room today, we will also be
following the health and safety guidelines issued by the
attending physician. That includes social distancing and
especially the use of masks. I urge members and staff to wear
masks at all times while in the hearing room, and I thank you
in advance for your commitment to a safe environment for all of
us here today.
Again, good morning, and thank you all for being here. I
would especially like to thank the witnesses for taking time
out of their busy schedule to be with us this morning. I want
to also thank the Small Business Committee staff for their
extremely diligent work during this unique time.
It is no secret that small businesses are reeling from the
ongoing coronavirus pandemic which brought entire sectors of
the U.S. economy to a standstill. Unemployment is at its
highest level since the 1930s. Many businesses have been forced
to shut their doors to comply with stay-at-home orders.
Businesses and essential services that have been able to remain
open face shortages for high-demand products, higher costs for
production materials, and an inability to get finished goods to
market.
The COVID-19 pandemic has exposed many weaknesses in our
supply chains, both global and domestic, affecting virtually
every industry. Most notably, we have seen hospitals, states,
and local governments scramble to ensure the integrity and
continued flow of desperately needed personal protective
equipment (PPE) and medical devices such as ventilators. Too
many times our communities, healthcare systems, and businesses
were competing with each other, bidding up prices and creating
supply dislocations across the country. As well, severe COVID
outbreaks at food processing facilities made consumers also
experience the heavy costs of the pandemic on our food supply
chain.
Small firms can be particularly vulnerable to disruption in
supply chains. Many spent years refining just in time supply
systems, maintaining only a few days or a few weeks of
inventory. Many others have limited control of their supply
chain and depend on lower priced suppliers from overseas to
support razor thin margins here at home. An overreliance on
foreign countries for manufacturing components was already an
issue before the pandemic hit. As the health crisis spread,
Americans realize that too much of our medical supply and
personal protective equipment sourcing was in China and other
countries hit by COVID. As these countries nationalize their
manufacturing capacities, shipments to the United States
started to dry up. Initially the crisis was with PPE, than
other finished products, but quickly moved to raw materials and
components U.S. manufacturers depend upon to produce their
goods for market. These supply disruptions affected businesses
large and small in every state.
However, as they so often do, American small businesses
across a variety of industries have demonstrated incredible
resiliency, resourcefulness, and ingenious flexibility shifting
product lines, moving to more ecommerce and utilizing
alternative supplies and modified distribution chains. Some
shirted to making PPE and hand sanitizer in a matter of days.
Others came up with new and innovative ways to source their
products while they are still discovering new delivery channels
in entirely new markets. We will hear inspiring stories of this
adaptability today.
So why are we here? Small businesses are the heart and soul
of our local communities. They represent more than 40 percent
of our national GDP and more than half our country's jobs.
Today's hearing will focus on how we can help sustain our
Nation's small businesses and explore potential solutions to
establish more resilient supply chains through this crisis and
into the future. Improving our Nation's supply chain resiliency
will require an ``all hands on deck'' approach as both domestic
and global supply chains are vastly interconnected, yet can
vary significantly from industry to industry, product to
product.
We must also recognize that trade is an essential part of
supporting small business in a modern economy. Ninety-five
percent of the world's population reside outside the United
States, and exporting provides small businesses with literally
billions of new customers. However, it is important that we
prioritize making things here at home to protect our national
security and public health. Doing so will also create jobs and
ultimately help us build a stronger economy and a better future
for all of us.
Second, to enhance our economy's resiliency, we can do
better utilizing the distinct strengths and greater
adaptability of small companies. In many ways, smaller firms
are more nimble than larger ones and can quickly shift their
manufacturing, distribution, and sales capacities to meet
increased demands for certain goods.
Third, much of the disruptions we are experiencing
currently were both predictable and preventable. We need to
establish better lines of communication and develop better
coordination so that we can anticipate shortages, identify
additional and alternative sources, and get critical goods and
products where they are needed in the most timely, efficient,
and cost-effective way.
And finally, we need to help small companies be ale to
diversify, reinforce, and scale their supply chains to better
deal with unforeseen surges.
I look forward to hearing from all of our witnesses today
about their experiences and their ideas for charting a path so
we avoid future crises. Hopefully this hearing can help us
establish best practices for our small firms and some
principles for our Federal government as the economy recovers.
Thank you to everyone for being here today.
I now recognize the Ranking Member, Mr. Hern, for his
opening statement.
Mr. Hern, I think you may still be on mute.
Now we have you.
Mr. HERN. All right, thank you.
I would like to thank my colleague for sitting in the chair
today and leading our Committee.
You know, there is no question that this black swan event
has sent a shock wave through the world and forcing supply
chain leaders to rethink current operating models, questioning
their operation's emergency preparedness and dependencies on
primary sources. Industries of all kinds from medical to
agricultural to automotive, retail, and manufacturing and more
have been discriminately harmed by cascading effects of the
novel coronavirus.
In the medical industry, the pandemic created an
international shortage of personal protection equipment
necessary to protect healthcare workers and to heal patients.
The flow of lifesaving pharmaceuticals in the United States has
also choked disrupted the supply chains across the Nation.
However, small businesses were able to quickly fill the gaps in
supply chains pivoting from their operations to quickly produce
critical medical supplies potentially saving countless lives.
COVID-19 also rattled the agricultural foodservice
industry, disrupting all parts of supply chain from farmers to
processing plants and distributors with significant uncertainty
still on the horizon. However, many farmers are rising to the
challenges of the moment, adjusting the way Americans now shop
and eat by experimenting with direct customer sales and
deliveries. Additionally, the President's Executive Order 13917
takes one step towards keeping food supply chains intact.
In the manufacturing sector, businesses face several
logistical hurdles trying to regulate their accounts payable
and receivables. Having to reassess market demand (inaudible)
output, tremendous hurdles exist in trying to manage the
workforce, move inventory from one place to another, and keep
customer relationships intact during the trying times.
As we have seen in a number of other industries, small and
local businesses have stepped into the breach, filling the void
where traditional suppliers and distributors (inaudible).
Unfortunately, for every small business success story that
comes out of this pandemic, we also see mom and pop shops
shutting down. Long unemployment lines (inaudible) country and
other (inaudible) to the rippling effects of the coronavirus.
Where a big company might have a contingency plan and a
larger network built into their supply chain, many small
businesses operate on a more linear path leaving them at a
greater risk when disruptions occur.
Even though the overall picture may seem bleak, the silver
lining (inaudible) to reshape the supply chain (inaudible).
(inaudible) with the local and small businesses to fit in
anywhere along their supply chain.
My hope today is that we can learn more about what we can
do to help small businesses affected by the COVID-19 outbreak
and how we can leverage the power of small businesses to
fortify our national supply chain.
With that, Mr. Chairman, I yield back.
Mr. SCHNEIDER. Thank you, Mr. Hern.
I would now like to take a moment to explain how this
hearing will proceed. Each witness will have 5 minutes to
provide a statement, and each Committee member will have 5
minutes for questions. Please ensure that your microphone is on
when you begin speaking and then that you return to mute when
you are finished.
With that, I would like to introduce our witnesses.
Our first witness is Dr. Eswar Prasad. Dr. Prasad is the
Tolani senior professor of trade policy at Cornell University.
He is also a senior fellow with the Brookings Institution. He
was previously chief of the Financial Studies division in the
International Monetary Fund's research department, and before
that he was head of the IMF's China division.
Thank you, Dr. Prasad for being here today.
Our second witness is Christine Fagnani. Ms. Fagnani is the
co-owner and acting vice president of sales and marketing for
Lynn Medical. She has held this position for the past 18 years.
Prior to working at Lynn Medical, Christine worked for Johnson
and Johnson for 16 years in their pharmaceutical division.
Christine is also active with the Health Industry and
Distribution Association, the leading trade association
representing medical distributors.
Thank you, Ms. Fagnani, for being here as well.
Our third witness is David Billstrom. Mr. Billstrom leads
Kitsbow Consulting Apparel in Old Fort, North Carolina. Along
with a 39 year career that includes Intel Corporation and Walt
Disney, he founded an Internet search engine company, helped
build the Clover Coffee Company acquired by Starbucks, and 2
years ago became the leader of Kitsbow, a cycling apparel
company that recently moved from California to North Carolina.
Thank you, Mr. Billstrom, for being here today as well.
I now would like to yield to our Ranking Member, MR. Hern,
to introduce our final witness.
Mr. HERN. Thank you, Mr. Chairman.
I would like to welcome our final witness who is from my
district, Ms. Sheila Lawson. Good morning, Sheila.
Ms. Lawson is the chief operations officer for RL Hudson
and Company located in Broken Arrow, Oklahoma. RL Hudson and
Company was founded in 1980, and founder Rick Hudson was at the
tip of the sphere organizing the coming trend of Asian
manufacturing where he began establishing relationships abroad.
Soon, the small company that started out as a distributor of
rubber O-ring sales became a booming success story with the
capability to research, design, and test unique and patentable
rubber compound.
In 2017, the company launched a new in-house capability and
continues to expand (inaudible) competitive industrial
landscape. Ms. Lawson brings with her a deep well of experience
having lived in the supply chain and operations world for 30
years. She has been with RL Hudson for the past 14 years
serving as COO for the past two. She is currently in her third
term as president of the Association for Operations Management,
previously known as the American Production and Inventory
Control Society, where she has also been on the board of
directors since 2004. Ms. Lawson is a thoughtful and
intelligent leader continuously striving to stay informed as
the landscape in her profession evolves. Thank you or your
participation today, and I look forward to hearing your
testimony.
Mr. Chairman, I yield back.
Mr. SCHNEIDER. Thank you, Mr. Hern.
We will now recognize the witnesses. Dr. Prasad, you are
recognized for 5 minutes.
STATEMENTS OF ESWAR PRASAD, PROFESSOR OF TRADE POLICY, CORNELL
UNIVERSITY, SENIOR FELLOW, BROOKINGS INSTITUTION; CHRISTINE
FAGNANI, CO-OWNER AND VICE PRESIDENT, LYNN MEDICAL
INSTRUMENTATION COMPANY; DAVID BILLSTROM, CEO, KITSBOW CYCLING
APPAREL; SHEILA LAWSON, CHIEF OPERATIONS OFFICER AND VICE
PRESIDENT OF SUPPLY CHAIN, RL HUDSON
STATEMENT OF ESWAR PRASAD
Mr. PRASAD. Small businesses are indeed the bulwark of the
American economy, and in this very trying time when the COVID-
19 pandemic has ravaged the entire American economy, small
businesses have taken the brunt of the burden. They have
smaller tax buffers and smaller other sorts of buffers to deal
with the shock of this sort. But the (inaudible) recognized
factor that is affecting small businesses is, of course, the
disruption of supply chains. So I commend the Committee for
holding this hearing, and thank you, Chairman Kim and Ranking
Member Hern, for allowing me to share my views with the focus
especially on global supply chains which many of my
distinguished fellow panelists will also be speaking about.
Now, global supply chains have been a boom for small
businesses in many ways. One of the reasons the supply chains
have proliferated (phonetic) is that (inaudible) leadership
over many decades, both tariff and nontariff barriers to trade
have fallen around the world and transportation costs have
declined. Small businesses have taken full advantage of these
supply chain possibilities around the world and this has
allowed them to reduce costs, increase efficiencies, and even
expand into broader aspects of business that they might not
have been able to do in other circumstances because for small
businesses the option of vertical integration, that is
basically trying to integrate all parts of the production
process within one firm is not really a viable option. So I
think the vitality of small businesses in the U.S. (inaudible)
to the integration of supply chains.
Now, supply chains are subjected to (inaudible) for a
variety of reasons. One reason, of course, is health and
natural disasters, such as the COVID-19 pandemic that we are
experiencing right now. But there are other factors as well.
Trade relationships are very important in terms of maintaining
the viability of these supply chains, and trade tensions among
the major economics, for instance, the U.S.-China trade
relationship or even the North American trade relationships
which are both very important for small business supply chains
have certainly had their fair share of tensions in recent
years.
Geopolitical tensions in other parts of the world and
weaknesses in other countries which are very important, export
markets for small businesses, in addition to being part of
supply chains also create vulnerabilities.
So what can small businesses do to increase the resiliency
of the supply chains? One potential strategy, of course, is
onshoring. That certainly reduces vulnerability to global
supply chains, but it also takes away many of the advantages of
global supply chains that small businesses have benefitted
from. So it is not clear that that is the optimal strategy.
Another possible strategy is diversification. That is not
relying just on one source of suppliers but trying to diversify
across countries, across suppliers.
Now, this has both advantages and costs. Certainly having a
more diversified supply chain is going to create more
resiliency, more redundancy, but it comes at a cost, especially
in terms of efficiency. And for small businesses, cost is
clearly a very important consideration.
Small businesses can, of course, also increase the
resiliency of the supply chains through using technology that
can improve the logistics and other parts of their management.
So there are many strategies that small businesses can
employ but government has a crucial role to play as well. So
what can the government do? In the short term it is very clear;
small businesses are hurting as we will hear from my fellow
panelists, and the sort of assistance the government has
provided so far, both through the Paycheck Protection Program
and also the Main Street Lending Program of the Federal Reserve
have been very important and it is crucial that this assistance
be continued, and more importantly, that congressional
oversight, including by your Committee, make sure that this
assistance does reach these firms and reaches them in a timely
manner.
In addition, the government can also play a useful role in
terms of tapping (phonetic) down the uncertainty that is
created by trade tensions around the world. Certainly, there is
a case to be made, but effective negotiations by the U.S. would
help to level the playing field that would help small
businesses, but uncertainty in trading relationships and trade
frictions suddenly do not help. Providing more assistance to
the Export Import Bank for exporting drugs can certainly help
as well, and America's support for the multinational
institutions such as the International Monetary Fund and the
World Bank, which in turn can help other countries of the
export markets of the U.S. is a crucial factor as well.
So between small businesses themselves and the government,
I think this very difficult patch can be gone through. This is
my hope, that working together, governments, the Federal
government, local governments, and small businesses themselves
can maintain the resiliency that they have shown in many times
in the past and continue to remain very important bulwarks of
the U.S. economy, especially as we start, as I hope we will,
getting into the economic recovery. Thank you.
Mr. SCHNEIDER. Thank you, Dr. Prasad.
I would now like to turn to Ms. Fagnani. You are recognized
for 5 minutes.
STATEMENT OF CHRISTINE FAGNANI
Ms. FAGNANI. Yes, good morning. Thank you, Chairwoman
Velazquez, Chairman Kim, Ranking Member Chabot, Ranking Member
Hern, and distinguished members of the Committee for the
opportunity to testify today.
My name is Chris Fagnani, and I am the owner of Lynn
Medical. Established in 1966, my company is a second
generation, family-owned medical products distributor. We have
30 employees and we are located in the suburb of Detroit,
Michigan. We represent over 100 medical manufacturers, and we
distribute nationally to hospitals, doctors' offices, and
clinics.
For this hearing, it is important to know the significant
part of our customer base is also small businesses, practices
owned by the physicians themselves. I also have the pleasure of
appearing before you today as the Board Chair of the Health
Industry Distributors Association (HIDA), the association that
represents 100 distributor companies operating 500 distribution
centers across the country, providing services to virtually
every provider in the country. Small business is a significant
part of our industry as 73 percent of HIDA members are small
businesses.
COVID-19 created several challenges and also opportunities
for Lynn Medical, both as a small business and as a distributor
in the healthcare market. The main challenge we had to deal
with was the significant product shortage and disruptions to
the healthcare supply chain.
Representing quality products is a pillar of our
organization. As demand was in many cases three times the
capacity from our traditional manufacturer partners, we found
ourselves having to vet new sources, something we were not used
to doing as we had a very solid stream of manufacturer
partners.
We are also used to operating in a very black and white
world. Products were either FDA approved and we distributed
them, or they were not FDA approved and we did not distribute
them. We now had to include understanding the FDA's guidance on
products approved under Emergency Use Authorization and timely
awareness of the shifting guidance from the FDA.
As a small business, we do not have a legal department or a
regulatory department or a very large purchasing department
whose role it is to navigate through these complex issues. We
found this a critical task we had to take on but very important
that we navigate and very difficult to navigate through.
I have two examples of how shifting EAU guidance affected
Lynn Medical. The first is KN95 masks. KN95 masks were allowed
under EAU due to the shortage of N95 masks in the United
States. Guidance on what factories were approved to provide the
KN95 masks and the labeling on the packages, the guidance from
the FDA has shifted throughout this pandemic. We had product
that had left China. When it left China it was on the approved
list and it was labeled properly. Hours later when it reached
the United States, the guidance had shifted. Our product was
still allowable and approved, but the labeling on the box was
not, so the product had to be flown back to China, the boxes
needed to be relabeled, and then flown back to the United
States. The product was already sold. We had already prepaid
for the product. Our customers were faced with a 6-week delay
in receiving product that was very important to them.
Another example that highlights the challenge is the COVID-
19 antibody test. We had shipped product that was allowable as
the manufacturer had filed for an EAU and the EAU was pending
based on a March 16, 2020 FDA guidance document that deemed
product allowable while EAU approval was pending. However,
subsequent FDA guidance on May 4th stated it was not allowable
to ship the product until the EAU was formally granted. It was
very difficult to obtain clear answers from regulatory agencies
and very difficult to explain to medical facilities why
allowable product was now not allowable. There were significant
hardships in searching for clear documentation to assure we
were complaint.
Currently, we are very concerned about payables from our
healthcare customers. Many facilities closed or reduced
operations while at the same time had large expenditures to
procure PPE that was not budgeted for. Their cash flows are not
at normal levels and they are asking for delayed payment plans.
And with the shortage in product, we are being asked for
prepayment of product.
My company did apply and received approval for the Paycheck
Protection Program. It was an easy and painless process for us,
and I want to thank you for including this program in the CARES
Act. This assistance is critical to Lynn Medical's financial
health. It allowed us to stay whole and maintain our commitment
to both our employees and our customers. While the regulatory
environment was confusing, we utilized the flexibility and
agility small business has to become adept at vetting new
suppliers and becoming a resource for our customers. We found
our biggest success in dealing with other small businesses
domestically. We partnered with small manufacturing businesses
whose primary product was deemed non-essential but wanted to
keep their employees working and also assist in the COVID-19
response.
Two examples. We partnered with a family-owned business in
Michigan that was primarily a cut-and-sew shop for the
automotive industry. They made seat coverings and arm rests for
cars. We collaborated with them, so they could transition to
isolation gowns and fill a critical need in the COVID-19
response. We also partnered with a drum-making company in New
Jersey who retooled to make face shields. We found in the small
business community innovation, a willingness to shift
priorities and take risks to keep their businesses relevant and
employees working.
I would like to thank this Committee for its leadership on
small business issues and the policies Congress has included in
previous stimulus packages. As the Committee considers future
opportunities to support small business----
Mr. SCHNEIDER. Ms. Fagnani, your time has expired. If I can
ask you just to wrap up.
Ms. FAGNANI. Thank you. All right, thank you.
Mr. SCHNEIDER. I am sorry. Thank you very much.
We will now turn to Mr. Billstrom. You are recognized for 5
minutes.
STATEMENT OF DAVID BILLSTROM
Mr. BILLSTROM. Good morning, Chairman Kim, and Ranking
Member Hern and all of the members. Thank you for having me
here today. It is an honor to testify alongside these
thoughtful and passionate witnesses.
I am speaking to you this morning from North Carolina about
a journey a bicycle clothing company took to respond to a
national crisis and what we learned. It is an incredible story
and one we never could have imagined.
Our story is also remarkable because we are not an old-
school established apparel company in the South. In fact, we
just got here. After 7 years in California, we moved to Old
Fort, North Carolina in October to create a modern, made-to-
order clothing factory. Only one of our employees relocated
from California, so nearly everyone at Kitsbow is a local.
And for us, the COVID arrived in February. I say this with
some irony because knew the situation in China was real in
February because of our supply chain. You see, we make premium
clothes, very expensive, designed very carefully. We use the
latest technical fabric and every detail is considered. We use
snaps, not buttons, for example, and the best snaps in the
world are made in Japan. So, when our Asian suppliers of
fabrics and snaps would not return emails and phone calls in
February, we knew it was real. We took immediate precautious,
established social distancing. We cleaned doorknobs. We stopped
sharing tools and we even canceled events. By mid-March, we
were considering layoffs or furloughs. But on the same day, our
founder in California showed us how we could start making PPE.
We elected to keep everyone and do our part to help first
responders and medical.
Now, the full story of we launched into PPE would take more
time than we have today, but suffice to say that on the first
day we showed the world that we were making PPE, the orders
came pouring in. In fact, at the end of that first day we had
orders for more than 25,000 units. It is the biggest shift in
customer demand I have seen in 40 years in business and it
happened in one day. We also knew that our community needed
what we could do, so we made the pivot.
We are now on day 104 in making PPE and we have shipped
nearly 90,000 units in those 100 days from a cold start. We
still cannot make enough, and it would be months before we
could sell to the public. All of our output initially was
reserved for first responders and medical professionals.
Now, there are several reasons why a small business like
ours can make this pivot. First of all, we have a modern,
flexible factory. We can reconfigure the sewing machines and
equipment in a few hours. We do this all the time.
Second, we have an awesome product team. These leaders are
experts in locating suppliers, designing products, and then
moving them immediately into production.
Third, we had the support of other businesses in the
region, supplies and suggestions. We helped each other making
PPE just as you heard a few moments ago from Lynn Medical.
Fourth, and most importantly, we knew where our products
would be going. I had connections in the public safety
community, and we had a distribution partner.
It is one thing to make PPE for the good of your community.
It is another thing to get paid for it so the business can
survive and so that you can pay your employees.
Our distribution partner is a private foundation in our
region called the Dogwood Health Trust. Dogwood is focused on
health and the wellness of 18 counties in the far western
portion of North Carolina where Kitsbow is located. The team at
Dogwood heard about what we were doing and made contact
literally on that first day.
They apparently recognized our capabilities and commitment
and immediately made an order, paying for it in advance to help
our cashflow. They would, in turn, share our PPE with those who
needed it.
Now, I want to take you back in time. This is March 21.
North Carolina had its first confirmed case just 2 days
earlier, and California had issued the stay-at-home order just
the day before. So this was early, and it was strategic.
Dogwood's CEO, Antony Chiang shared with me that their
concern was lack of enough PPE for the region should we
experience a surge. His hope was that Kitsbow would become one
of several local manufacturers of PPE.
It was time to act, so we did. And together we created a
local supply of PPE, and for bonus points, eventually most of
our supply chain was in the U.S.
Now, as the other people testifying here today already
know, a manufacturing operation has two big knobs you can turn
if you want to crank up the volume--the labor force and the raw
materials. Word went out that we were looking for help, and
within 2 days we doubled the number of employees to over 50. We
had turned up that knob, so we went for the raw material. Our
product design team hit the phones and the Internet. They
worked 10 hours a day for weeks to source material.
It is hard to describe the frustration after you have
turned your entire workforce to making PPE only to find out
that all the elastic in the United States has been purchased in
the last 4 days. We were competing with hundreds of other
businesses.
Now, after 2 months of work by our product team and many
disappointments, we now source almost 100 percent of the raw
materials for our PPE here in the United States. It was a very
heavy lift for a small business, just as you heard about Lynn
Medical. Our team came in every day for months despite orders
to shelter in place which, frankly, would have been the smart
thing to do.
In closing, we have a couple of requests for your
consideration. First, we cannot overstate how appreciative we
are of the FDA and their efforts to make it easy for small
businesses to sell face shields. An emergency use authorization
on April 13th allows Kitsbow to tell buyers that our shields
are FDA authorized, that black and white that you just heard
about. This is an absolute requirement for any buyer in a large
organization because their internal policies require PPE to be
FDA approved.
Second, now we need the same thing for fabric masks. We are
busy making thousands a week, but very few large organizations
are allowed to buy them because of the lack of FDA guidance or
an emergency use authorization.
Third, we agree with HIDA that a streamlined information
source for small businesses would be a huge help. Small
businesses rarely have even one full-time administrative person
able to address Federal requirements----
Mr. SCHNEIDER. Mr. Billstrom, your time has expired.
Mr. BILLSTROM. Thanks for the invitation to speak today.
Mr. SCHNEIDER. Thank you very much, Mr. Billstrom.
We will now turn to Ms. Lawson. You are recognized for 5
minutes.
Ms. Lawson, I think you may still be on mute.
STATEMENT OF SHEILA LAWSON
Ms. LAWSON. Sorry for that.
Good morning, Congressman Hern and other congressmen
members. I am honored to be speaking with you today.
Over RL Hudson's 40-year history, we have made the
progression from distributor to custom molded part manufacturer
by beginning (inaudible) plastic injection molding in 2017. The
link between that chasm was superior supply chain management
and engineering design support which is still heavily relied
upon today by our OEM customers. Our primary products were
molded rubber and plastic parts, extruded and formed hoses,
shock and vibration isolation products, and sealing devices.
Industry served our medium and heavy-duty trucks,
agriculture, medical, power sports, recreational marine,
hunting, and others.
As an essential manufacturing company, it has been
important for us to think safety first for our team members.
Our leadership team took quick actions to augment our safety
culture, including hospital drape cleaner, PPE, remote work and
meeting options. Although we did have a few momentary concerns,
we are thrilled to say we are all healthy.
External supply versus demand has been a key challenge.
Importing from 14 countries (over 400 containers and 92
million units annually) and exporting to 20 countries (380
customers and 78 million units annually) across the globe
brought a list of challenges from the very onset of the COVID-
19 pandemic.
As the Chinese New Year was being extended, customer
forecast indicated inventories would be consumed soon if we did
not respond with swift and creative action. Through strong
relationships with our external partners and many conference
calls, we were able to secure inventory availability details
along with more challenging tasks and finding space on vessels
sometimes, talking to new ports in order to get faster boats
which allowed 2 additional weeks for production. Forty percent
of production during March and April moved in this mode adding
50 percent to our transit cost. All the while, customers were
asking for daily meetings to ensure product availability.
When COVID-19 reached the balance of the world, (inaudible)
expedited containers began arriving to RL Hudson. With the U.S.
implementing stay-at-home orders, and with many customers
halting production, we needed to find a place to store the
inbound inventory. We had had 18 containers lining our parking
lot with an additional 30 moved to offsite storage. Both came
with challenges and increased costs.
Predicting future customer consumption required new tools.
The customers had no way of predicting how they would be
impacted. Our inventory dollars grew by 30 percent. Today, our
in-transit inventory has been controlled and reduced by 50
percent on average.
Needless to say, this has placed a strain on our
manufacturing partners. The events resulted in payables being
greater than receivables for a short time which was a first
during my 14 years with the company.
As customers reopened their doors, we were forced to change
company policies to not allow for ship dates on orders to be
canceled or pushed out. Our company prides itself on
flexibility, so this change has been challenging for both our
team and the customer. We have allowed the policy to continue,
however, should the customer factory be nonoperational.
Our key customers provided a mountain of support by
accepting earlier ship dates to make up for loss consumption in
April. We are thankful for the true partnerships and support
they have provided.
Internal workforce versus demand has proven to have its own
set of challenges. Late raw material arrival in Q1 forecasting
need to remain strong. Our manufacturing team (inaudible)
action to ensure product availability. As demand decreased due
to the stay-at-home orders and factory closures, we kept our
teams in production by building stock for products that are
higher volume but with zero firm orders.
With machine utilization in our injection molding dipping
to 30 percent in April and finished goods filling the
warehouse, we did move to a 4-day work week during May for all
team members. We were thankful that the PPP loan allowed us to
avoid layoffs and furloughing our team members. In addition,
although our work hours were reduced in May, we were able to
pay employees for that full 40 hours of work.
Due to our flexible supply chain, RL Hudson has been able
to gain 10 new customers during the pandemic. While we have
responded very well, we would like to point out that we had
begun a process of diversification long before this event.
Using in-house manufacturing as an example, we have been taking
more production in-house.
We have a new strategy to diversify our global production
even more, and while not yet fully implemented, this crisis
revealed the wisdom of the strategy. We still appreciate our
international partners and realize we need them for certain
components which only frees up our expertise for items where we
can excel in manufacturing domestically.
Just as our society is trying to learn how to better
celebrate diversity and the blessings it can bring, we believe
diversity to be a principle that works well for business, even
supply chains. Making America strong as a manufacturing leader
will require diverse partnership with factories worldwide.
Thank you very much.
Mr. SCHNEIDER. Thank you, Ms. Lawson.
And again, I want to thank all of our witnesses for joining
us and sharing their experiences.
I will begin now with the questioning and recognizes myself
for 5 minutes.
So I will start with something Ms. Lawson said in her
comments. Customers are asking for daily meetings because there
is so much uncertainty. This pandemic and the uncertainty in
our supply chain has created extra costs, more uncertainty,
higher risk, and certainly more frustration. As we heard from
Mr. Billstrom, the level of frustration trying to figure this
out in a very difficult world. And Mr. Billstrom, I am going to
quote from your submitted testimony which I thought was
fascinating, the full story, I wish we had time to hear it all,
but on page 25 you say, ``Kitsbow was competing with dozens,
hundreds, of other manufacturers for the same key material--
plastic, elastic, HEPA filter media, et cetera, all of which
was obviously critical and essential supplies in a worldwide
disaster. This could have been recognized and the appropriate
material secured by a central authority.''
I want to explore that idea. I have been searching for a
centralized supply chain czar because this is so critical. We
see it for our small businesses in their need to get everything
from raw materials and supplies to manufacture their goods, one
leading to another as small businesses rely on each other as we
have heard from the witnesses, but also the fact that if we
compete with each other prices are going up and it is making it
very difficult for small companies. In particular, we have seen
this with the PPE, the personal protective equipment--gloves,
masks, gowns, et cetera.
So I would like to start with Dr. Prasad. When you are
looking at essential goods like PPE, medical devices, the food
supply, et cetera, where do you see the Federal government has
fallen short in the early months of this pandemic, in the
spring, and what can we be doing to make sure that we do not
fall short in the months ahead of us?
Dr. Prasad, you are still muted.
Mr. PRASAD. Sorry, Mr. Chairman.
Your question is a very pertinent one, and as I think my
fellow panelists have indicated, regulatory certainty is
certainly one of the most critical aspects that small
businesses seem to be contending with. Certainly, there are
facts changing on the ground by (inaudible).
Mr. SCHNEIDER. I think we lost the signal again, Dr.
Prasad. You may be muted.
Mr. PRASAD. Sorry. I think I was emphasizing the issue of
regulatory certainty to make the point that the experiences
that my fellow panelists suggest that while the FDA and other
regulatory agencies have been flexible (inaudible) very
welcome, the lack of certainty (inaudible) ultimately
challenging for them. And that I think needs to be (inaudible)
a critical element that the government can help with, in
addition to providing more (inaudible) such programs.
Mr. SCHNEIDER. Great. Thank you, Dr. Prasad.
And let me turn to Mr. Billstrom because I quoted you. How
would you see a centralized authority for supply chain possibly
making a difference in the work you were trying to do as you
touched on getting the raw materials and ultimately getting
finished product to your customers?
Mr. BILLSTROM. You know, I hate to say this, but I do not
know. That is not my area of expertise. So I can explain the
need, which is as scarce materials that are essential and
cannot be replaced any other way are identified, we need some
way of organizing it but I do not have a specific proposal on
it.
Mr. SCHNEIDER. And I appreciate you not wading in where you
did not feel confident.
One of the things I think, and just from my experience in
business, is that to the extent we can have a centralized
authority who understands where there are opportunities, as you
touched on in your company, Kitsbow did a pivot and then you
mentioned in your testimony, a pivot within a pivot within a
very short period of time. Helping coordinate that in a
centralized authority, understanding what is happening, the
needs across the Nation, the resources across the Nation and
trying to match those I think is a good opportunity. But I have
used my time.
I will now turn to my colleague, Mr. Hern, to ask his
questions.
Mr. HERN. Thank you, Mr. Schneider. I really appreciate it.
Again, thanks for all the testimony that we just heard
regarding supply chain.
Ms. Lawson, I have had an opportunity to tour your
manufacturing. Can you tell us more about how doing in-house
productions is fair compared to working with outside
manufacturing partners outsourcing?
Ms. LAWSON. Sure. As we insourced, we had our own set of
challenges. As we began pulling in from outside, we found that,
you know, they had secondary operations and we needed to learn
to (inaudible) ejected part out of the machine (inaudible)
secondary operations. And we were able to control that, the
quality of that much better because as it came out there were
new additional trimming operations and such which can create
gouges (inaudible) and those type of things. So, controlling
that has been great.
However, we do believe that there are sectors where we will
need (inaudible) useful location for the means of production
because there are some items that are better suited to be
produced elsewhere and it frees our expertise for items that we
can excel in manufacturing domestically. So we see (inaudible).
We do and our customers do appreciate the additional control
(inaudible) as we bring product in-house.
Mr. HERN. I have got a series of questions. One question I
am going to ask for all of you, and I will start with you.
There has been a lot talked about across multiple industries--
pharmaceutical (inaudible) PPE and others that relate to
bringing things in from Asia, and more specifically, China and
Taiwan and places like that. What do you see (inaudible) Asian
community and importing and exporting to them as well, what do
you see changing right now among the perception of the American
people, even if we talk buy American, how practical is that to
bring what some would like 100 percent of all sourcing back to
the United States? Or certainly to North America?
Ms. LAWSON. RL Hudson has more than 5,000 parts numbers
which we procure abroad in the Asian factories. And to bring
all those back, the dollars for tooling, even if you are moving
the tools, in some cases you can build new ones for the same
cost as the other ones. There is testing. (inaudible) they have
product that has good quality which requires testing. So the
cost associated with that would really be (inaudible) for us.
New product and where it makes sense to move them from critical
parts, we support that and believe that (inaudible) parts will
be great. But there is a (inaudible) to be left where they are,
and we do see concern from our manufacturing partners that we
worked with. And if they want as businessmen their selves and
women, they want to provide good quality service to us, so it
is a bit of a strain on a relationship and we want to make sure
that we are able to provide product as promised to customers
throughout the U.S.
Mr. HERN. Thank you.
Professor Prasad, just from a policy standpoint, when you
are looking at what you are seeing the movement across the
United States because of the pandemic, this bringing back, this
acceleration and bringing back manufacturing from specifically
China back to North America, yesterday was the first day of the
USMCA bill, how do you see that opportunity that confluence of
opportunity from China to now USMCA with free trade, lower
labor costs in Mexico, how that would soften the blow of price
increases and might affect the willingness to buy?
Mr. PRASAD. Certainly, the onshoring and also the
regionalization of supply chains as opposed to using global
supply chains is going to have some positive benefits in the
short term in terms of employment in the U.S. and on the North
American continent. But I think with small businesses there are
some real constraints enforced by that because the very limited
supply chains here in a certain place, many of which are going
through Asia as was the case for Hudson Manufacturing, has left
enormous gains in efficiency, and frankly, it has allowed them
to create certain products. Sometimes it might not be possible
if you had much or regional supply chains. So I think it is
going to be a tradeoff for every small business. There are huge
benefits to be trained from a much broader supply chains,
especially if you think about the sort of diversification that
the lady from Hudson Manufacturing talked about. And that has
to be offset against the fact that there are going to be job
gains certainly if you have more onshoring. But from a longer-
term
Perspective, I think the broader diversification of the
supply chain is certainly going to be better for small
businesses.
Mr. HERN. Thank you.
Mr. Chairman, I yield back.
Mr. SCHNEIDER. Thank you, Mr. Hern. And I would now like to
recognize the gentleman from Ohio, the Ranking Member of the
Small Business Committee, Steve Chabot.
Mr. CHABOT. Thank you very much, Mr. Chairman. I understand
that my connection may have some challenges here, so hopefully
you can hear me okay. If not, let me know.
I will start with Ms. Lawson if I can.
I want to thank all the witnesses for being with us today.
You alluded to this in your testimony, but could you
describe in a little greater detail some of the more
significant tradeoffs that your company had to navigate in
order to keep your supply chain intact, and do you think these
tradeoffs could result in any long-term damages or challenges
or disadvantages for your company?
Ms. LAWSON. Sure. Some of the biggest challenges we are
going to face as we go forward is that we have really strained
your manufacturing partners. One of the keys to our success is
making sure that we are an important customer to our partners,
so we want to make sure that we are in that top one, two, three
on their customer list. That we are a big percentage of their
business. But we have some manufacturing partners who are only
manufacturing 2 or maybe 3 days a week at this time. So as
business begins to increase, we are going to face challenges
for those products that must come from them because everything
that we purchase is a one-one relationship between the
customer. There is nothing that we can sell to another customer
nor can it be produced by anyone else without additional
tooling being built. So we are going to need to support these
factories as they begin bringing up their production, maybe in
some cases rehiring on their own and building back up their
timelines to be able to manufacture. So it is going to be a big
challenge. I also said in my statement we are looking to
diversify, and we have already began through that process. We
went through 101 different manufacturing companies. We have
narrowed it down to almost 30. And due to the pandemic, we are
a little bit strained opening up new factories as we cannot put
boots on the ground to make sure that we do those full-scope
audits to ensure the qualities are in place that our products
require.
Mr. CHABOT. Okay. Thank you very much.
I will stick with Ms. Lawson at this point. What would you
say was your greatest asset in weathering the disruptions in
your (inaudible) COVID-19, and what would you say was your
biggest challenge?
Ms. LAWSON. Okay. I would say that we have built very
strong relationships, and we communicate very well with our
supply chain all the way from the supply chain being our
factories and also being our customers. So communication has
been key. And being very open with what we are being faced
with. So we have had conference call after conference call. You
know, 10, 11 o'clock at night followed by 7 a.m. conference
calls with other countries in the morning. It is very important
that we are communicating and that everyone knows what is the
situation. And that includes our freight-forwarding teams.
On the other side, the biggest challenge has really for us
been where will we place this inventory and our payables have
also, I forgot which one of my colleagues talked about
payables, but it is a strain because we have seen some
customers close their doors throughout this process, and that
is concerning with our payables. And for the first time we had
our receivables less than our payables. And it was a strain and
a concern. But I am very thankful that our team members who
have had long-term stability with our factories have been able
to move from one side of our business to the other, so we have
been fluid in being able to keep our headcount where it needs
to be and manage our expenses accordingly.
Mr. CHABOT. Thank you. Thank you very much.
Mr. Chairman, on my screen the time clock is frozen, so I
have no idea how much time I have left. Could somebody educate
me on that?
Mr. SCHNEIDER. You have 30 seconds.
Mr. CHABOT. Okay. All right. Well, at this point, probably
not having sufficient time to really get into, you know,
another question, have the answer, to be fair to my colleagues
I will yield back in a second.
But I just once again want to thank all the witnesses for
their testimony today. I think it has been very helpful. Supply
chain is absolutely critical, and during these times, you know,
a clear challenge. And it was helpful to hear how you all are
dealing with it and recommendations that we can work as we are
moving forward for potential legislation or other things that
we are involved in. So thank you very much. I appreciate it,
and I yield back.
Mr. SCHNEIDER. Thank you, Mr. Chabot. And we will have a
chance to go to a second round of questions if you want to stay
on. But the gentleman's time has expired and yields back.
I would now like to recognize the gentleman from Minnesota,
Mr. Stauber. Mr. Stauber is the Ranking Member of the
Subcommittee on Contracting and Infrastructure. He is now
recognized for 5 minutes.
Mr. STAUBER. Thank you very much, Mr. Chair. And thanks for
the witnesses for being here.
You know, since the beginning of the COVID-19 crisis, we
have seen over 70 countries impose some sort of export
restrictions on an array of different products, including
medical supplies, pharmaceuticals, and food products.
Can any of the witnesses tell me what would happen if
tomorrow the communist country of China chose to implement an
export ban on active pharmaceutical ingredients, medicines, and
critical minerals that power our renewable energy? Anybody?
Well, I can tell you what would happen. We would be in deep
trouble. You know, currently, the United States relies on
communist China and other foreign actors who do not have our
best interests in mind for too many of our goods and services.
China, for example, is one of the top producers of API active
pharmaceutical ingredients, which are the basic components of
antibiotics and other prescription drugs. And because of their
poor environmental and labor standards, China manufacturers and
exports many of the minerals critical to our national security.
The Democratic Republic of the Congo exports about 60
percent--60 percent of the world's cobalt supplies. Cobalt is
used in batteries, computers, and yes, renewable energies.
According to Amnesty International, this cobalt is mined by
children in appalling conditions. These kids do not go to
school. They do not get any protective equipment. They do not
have a minimum wage or a limit on the hours worked. These kids
mine cobalt for our renewable energy and our cell phones and
our technology.
Most of the United States, estimated 1 million tons of
cobalt reserve are in my district and could be safely and
responsibly mined with strong environmental standards and
union-protected jobs.
You know, during this pandemic it has become apparent more
than ever, we must improve our domestic supply chain. We can no
longer rely on our adversaries, like the Congo, Russia, and
China, for resources that are critical to our economy, our
national security, and our health.
For these reasons, I recently introduced two pieces of
legislation to bolster self-reliance on our own supply chain.
First, I introduced Securing America's Critical Mineral Supply
Chain Act, a bill that would incentivize manufacturers to
purchase domestic minerals, like those mined in Northeastern
Minnesota. And second, I introduced the Securing America's
Pharmaceutical Supply Chain Act, a bill that would require our
Federal agencies to purchase drugs made in the United States.
And by incentivizing investments into America's supply chain, I
am confident we can become a more self-reliant and resilient
Nation. We have the opportunity. We now know the deficiencies
in our Supply Chain Act. And I will state this to you all: The
state of Minnesota is ready to help our Nation with its supply
chain issues. We can supply the critical minerals for our
national defense, our national security, to build our
pharmaceutical instruments, to build ventilators. And we must
take this opportunity and not falter. The supply chain is
broken. We have relied, and we cannot rely any longer on
nations that do not have our best interest at hand. The state
of Minnesota played a big role in World War II with mining the
iron ore that makes our steel, built our tanks, our ships, our
airplanes, our weapons. And Northern Minnesota stands ready to
secure our supply chain, both pharmaceuticals and our critical
minerals. And I yield back.
Mr. SCHNEIDER. Thank you so much.
With that, that wraps up our first round of questioning. I
would like to go to a second round if that is okay with the
witnesses. And I will start by recognizing myself for 5
minutes.
And I want to turn to Ms. Fagnani. And I hope I am
pronouncing your name right. I have a feeling I am close but
not quite on. But you described in your written testimony some
of the challenges you face but also shared some ideas. One of
them was streamlined information source for small businesses.
Having had my own small business in a prior career before
coming to Congress, I know how important information is and how
hard it is for small companies to get that information,
especially because oftentimes there is not a dedicated
resource, whether it is for compliance or for human resources,
et cetera. People wear many, many different hats. And I also
know that through the first few months of this pandemic, from
the SBA, from Treasury, there has been fits and starts, changes
in direction, whether it is applications for the IDA program or
guidance on the forgiveness process for the PPP.
So my question to you is, how important is that clear and
simple communication? And what would be the impact of
streamlining that communication and reducing the complexity for
small businesses?
Ms. FAGNANI. Well, thank you for the question.
It is critical. We are selling medical supplies, medical
equipment that are either going to protect our frontline
workers or be used on patients. And it is critical that we
understand what the FDA's guidance is.
I mentioned in our old world it was very black and white.
Things were FDA approved. They went through long laborious
processes. But in an effort to get more product available, the
FDA did enact emergency authorization use for many products. So
our ability to understand guidance, guidance changing so that
we are buying correctly is critical, that we are not
distributing product that we should not be distributing.
And then the other complication, and it was just explaining
to our medical customers why guidance had changed and why
perhaps the product that they had bought can no longer be
bought or, you know, just why things were changing. There was a
lot of information about bad product being distributed, and so
a lot of skepticism as there should have been. And just it was
critical to us to make sure that we were supplying the right
product and we were able to communicate accurately with our
customers. So the FDA website is a tremendous resource, but it
is difficult to navigate through. And it became very
cumbersome. So streamlining that for small business, some type
of alert, letting us know that there has been a change in
guidance so that we know to look would be helpful. But that
would really be critical for us at this point.
Mr. SCHNEIDER. Thank you. Thank you for sharing your
thoughts on that.
I want to shift gears and turn to Dr. Prasad for a moment.
In your testimony, you talked about things that the government
could do, you know, from developing consistently enforced
domestic regulatory policies to providing greater certainty
with our trade relationships around the world, including
deescalating trade wars, your words, but you also talked about
the advantages of multilateral versus bilateral approaches to
our trading partners. I would ask you to expand on that a
little bit.
Mr. PRASAD. So one issue is, first, access to export
markets in other countries. And second, access to reliable
sources of intermediate goods, imports, and so on.
As the previous congressman made a statement about China
pointed out, one needs consistent standards and the ability to
rely on trading partners around the world. And bilateral
trading relationships do create complications in particular for
small businesses because it creates an array of different types
of regulations that small businesses (inaudible) as they look
to diversify.
For instance, Ms. Lawson spoke about trying to diversify
her suppliers and sources across a number of countries, and
that becomes difficult if you are dealing with individual
trading partners and their old requirements and provisions of
an individual trade beam (phonetic). So if you think about
something like the Trans-Pacific Partnership that the U.S.
stepped back from, the other 11 countries went ahead, and what
they did was institute a common set of regulations, a common
set of neighbor, environmental, and other standards that now
all those countries can use and they become benchmarks for
further trading relationships. So these sorts of multi-lateral
approaches I think would be good to be with the trading
partners of the U.S. and could also be used to bring onboard
countries like China because then they will be forced as well
to take onboard those standards that the U.S. has negotiated
with many of its trading partners. And frankly, many countries
around the world have concerns about China's economic and
trading practices. And rather than going it alone, I think if
the U.S. joined forces with other trading partners it would
certainly get a lot more of China than we have seen so far.
Mr. SCHNEIDER. Great. Thank you. And my time has expired.
I would like to turn now to the Ranking Member, Mr. Hern,
for 5 minutes if he would like.
Mr. HERN. Thank you.
Professor, let us just continue on with that thought since
we are on this train of thought. You talk about a standardized
approach. I will just say for the last 20 years, certainly
since 2001 and China's introduction into the World Trade
Organization, some would argue there have been books written on
it. Maybe you have written books on it. I am not sure. I would
love to read them if you have. About China's just methodical
move through tackling and taking over columns of industry to be
able to take over that supply chain with low cost, very broad
acceptance across the world.
I want to go back to the onshore piece of this as well. You
mentioned that I guess on the margin that it would be very
difficult for businesses to realize the same cost of goods
cost, if you will, as they would with China, and probably the
breadth of the source as well. But do you not see that it is a
possibility as we are all looking at USMCA, most people do not
realize that Mexico is our largest trading partner second to
Canada, and third China? And again, with the push for Buy USA,
Buy North America, whatever, that we are going to see some of
these more easily stood up industries come to Mexico so that
more of the Western Hemisphere can join us without the
geopolitical constraints (inaudible) of what China is trying to
do?
Mr. PRASAD. Congressman Hern, I think you have a legitimate
point, that one could think about re-onshoring as part of a
diversification process. Certainly, one does not want to leave
American manufacturers, either small or large vulnerable to
geopolitical tensions. And we have been vulnerable to single
sources and suppliers that could be disruptive even by
bilateral tensions or by conflicts that those countries might
be engaged in that create disruptions within their own
economies. So certainly it could be an effective part of
onshoring.
But I think one has to think about the other aspect as
well. While we try to move jobs back to the U.S., one also
needs to recognize that small businesses are very important
exporters as well. So I think a far better solution might be to
think about how in addition to using onshoring as a
diversification strategy one tries to level the playing field
in terms of creating relationships with all of our trading
partners so that small businesses have diversified sources of
production, but also diversify export markets which I think are
equally important.
Mr. HERN. And I guess to piggyback off of that, too, since
we are on the policy conversation, that most of this is driven
by (inaudible) markets' ability to grow your small business on
the export side, but on the import side it is to drive down
cost. We are a free enterprise society that we are looking at
seeking for low cost providers, as well as to Mr. Billstrom's
conversation earlier, just being able to find the product, or
sourcing that from the Asian continent so that what China has
done to deflect a lot of geopolitical issues is to disburse
manufacturing across some of their allies in the Asian
continent.
Mr. Chairman, I think we can spend, probably I encourage
Mr. Prasad to write a book. If you have one, I would love to
read it about this whole concept because I think all of us
here, we heard Ms. Fagnani talk about what happened with the
discrepancy between the appropriate labeling of boxes of the
KN95 masks and other PPE that had to go back in delays. And I
think, you know, when we have these geopolitical problems, as
we know, we are talking about supply chain here but there are
other columns of air that stand up here from military,
intellectual property issues, a vast verse engineering of our
products, all these things are paramount for us to all
understand and get our arms around.
And I just want to again thank the witnesses for being
experts in your areas and sharing with us your thoughts. This
will go a long way to formulating our policies as we go
forward. It is great to hear people that deal directly with the
supply chains and also use them as an export market in many
cases. I think as I said yesterday in a Small Business
Committee hearing that we all need to learn from this pandemic,
put together a pandemic playbook, and as just one column again
of thought was with the IDA loans is to capture all these
different communication breakdowns, these issues with labeling,
all these things we could put into a nice book and be able to
step away into legislation or to have. Hopefully, all of us
will never have to experience another pandemic, but our country
will, and that we have the playbook on the shelf to do things
differently and better so that we do not have disruptions like
we did this time. Thank each of you for being on this call.
Mr. SCHNEIDER. Thank you, Mr. Hern. And I could not agree
more. May we never experience anything like this again.
Before I wrap up I would like to ask unanimous consent to
submit to the record a letter from 14 associations, including
the AICPA, the National Retail Federation, and others, calling
for the Fed to create a short-term lending facility to help
companies bridge supply chain disruptions.
Without hearing objection, so ordered.
Thank you. And let me now take a moment to close.
And in closing, I want to thank our witnesses. Thank you
for sharing your experiences, your perspectives, your insights.
I know there were more members who would have liked to have
joined us today. Unfortunately for many, it is a travel day. We
have been in session this week and many are traveling back to
their home districts. But I can assure you they will follow the
testimony. I appreciate everything you said, for all that you
have done.
Before the COVID-19 pandemic, global supply chains were
built to be linear and efficient, maximizing profits but
leaving as vulnerable to disruptions. The pandemic has made
clear the need to build a more resilient supply chain because
we know future disruptions will occur.
We heard today from experts and entrepreneurs that took the
initiative early on to make their supply chains more resilient
and establish some best practices we can employ at the Federal
level as we move forward. I hope this is a wakeup call to our
business community and our Federal policymakers to support
policy that allows small businesses to survive and bounce back
after a large-scale disruption like the COVID-19 pandemic.
Doing so will allow our Nation's small businesses to
successfully confront unforeseen circumstances and it will be
critical to building a strong domestic economy.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
And if there is no further business before this Committee,
I ask everyone to stay safe, stay healthy. I ask our small
businesses to stay nimble, and this meeting is adjourned.
[Whereupon, at 10:12 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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