Demand is strong, but North Bay manufacturers still wrestle with hiring, supply lines

Manfacturing challenges

Here are key findings from the “Manufacturing Experience: Compensation and Labor Market Competitiveness” report released in May:

• Manufacturers continue to cite the inability of attracting and retaining a quality workforce as a top concern — a problem exacerbated by the tight labor market.

• Roughly 93% of respondents had unfilled positions within their companies for which they were struggling to find qualified applicants, and 89.5% said that they have increased compensation — including wages, salaries and benefits — to remain competitive in their pursuit and retention of employees.

• Roughly 73% of manufacturers felt that increased compensation had helped keep their company competitive in their ability to recruit and retain employees.

• While base hourly wages and salaries were cited as most important for attraction and retention, other benefits were also important, including health insurance benefits, bonuses and/or additional income opportunities, paid vacation leave, contributions to a 401(k) or retirement plan, paid sick leave, flexible work hours and dental and vision insurance benefits.

• Sign-on bonuses for new employees ranked higher than accident or disability insurance benefits, life insurance benefits or flexible spending accounts (each of which are common and relatively popular).

• The company’s culture and “being cared for” are important differentiators for manufacturers in the competition for talent.

Source: Center for Manufacturing Research

Machinery whirs and products roll off production lines, but despite continued demand, North Bay manufacturers say hiring and rising business costs remain threats to their sector.

“Primary costs — compensation, property, utilities, taxes and interest rates — in the U.S. are on average 16% higher than in the other markets,” said a report titled “The Cost of Manufacturing Operations Around the Globe” by KPMG and the Manufacturing Institute.

Just in hiring alone, companies say the bright spot of having recovered job losses due to the pandemic, is clouded by having more openings than people.

“For lower wage workers, the laborer types, we have had to significantly increase pay for those types of workers to get people,” said Dustin Mowe, CEO of Portocork in Napa.

The cork producer would not reveal the current or previous wage scales, but he did lament that it’s hard to compete when coffee and burger joints are paying $20 an hour.

His company's experiences reflect an industry dilemma — more jobs than people to fill them.

Increasing production

This comes even as companies like Loring Smart Roast in Santa Rosa are seeing strong demand. The manufacturer of specialty commercial coffee roasters has a customer base located mostly outside of the United States.

“A lot of our customers saw an increase in their business as people sheltered in place and were working from home buying better coffee,” Gordon Tredger, president, told the Business Journal.

The company saw its record revenues in 2019 (it would not disclose exact figures) plummet by 25% in 2020. Profits quickly rebounded, with 2021 surpassing 2019 numbers and 2022 on target to be another record year, according to Tredger.

Orders are coming in so fast that Loring is expanding its footprint as well as output.

While Tredger declined to reveal the exact square footage of the Sonoma County plant, he said the physical space has increased 40% since the pandemic hit.

Tredger has yet to gauge how hiring will go when he proceeds with setting up a second shift so production capacity can essentially be doubled.

Mill Valley Pasta Co. owner Tony Adams was out of work as a chef when the state shut down business for the pandemic in the spring 2020. He began making pasta as a “COVID project” for family and friends. Then they started placing orders, and he started charging them. Thus began the Mill Valley Pasta Co.

Unable to sustain the production out of his home kitchen, Adams found commercial space in San Rafael.

“I went from making four pounds of pasta an hour on a machine from the 1970s in my apartment to making between 1,000 and 1,200 pounds of pasta on four commercial machines. The latest machine makes 100 pounds an hour,” Adams said.

In 2021 he was producing and selling between 200 and 300 pounds of pasta a week. This year he is selling 1,200 pounds a week.

While he is still working seven days a week, it’s no longer 100-hour weeks. Helping with the production are three full-time employees and two part-timers. Adams expects to hire another person soon. He did not report any trouble finding people to work at his start-up.

He did not provide his payroll figures.

New factory added

Expansion at Portocork was planned long before anyone had heard of COVID.

“We built a new factory at the end of 2019. We expanded our footprint in Napa by 35%. We’ve never been close to filling that facility until this year,” CEO Mowe said. The cork-making company has about 50 employees. “The product comes 65% of the way done, and then we have to finish it. That includes packaging and shipping to clients.”

In addition to having a hard time finding workers and needing to pay them more, the cork maker has seen a spike in the price of containers needed for shipping.

This year a container going from the U.S. to Portugal costs about $5,000. That same container was $3,000 in 2020, according to Mowe. Portocork has paid as much as $17,000 for a container from Portugal, where the cork originates, to the States.

“What we need is for things to open up a bit more in China. These guys play a very big part in the global supply chain because so many containers come out of China,” Mowe said.

For now the company is absorbing much of the added costs of doing business. Partly, this has to do with pre-existing contracts.

“The cold hard fact is if we were to pass 100% (of added expenses) to customers, I think there would be catastrophic consequences,” Mowe said. “We are buying product in Europe and the dollar has gained strength, which has helped offset costs, but it’s a fraction.”

The big picture

Nearly 13 million people work in the manufacturing sector in the United States. According to federal data, employment in factory jobs has been growing at a 4% annual rate since April.

California manufacturing

• More than 30,000 manufacturing companies

• 1.3 million workers; 1.9 million workers expected by 2025

• Average annual pay: $87,000

• 69% of workers are men

• 64% of manufacturers have fewer than 25 employees

Source: California Manufacturing & Technology Association

In California, about 1.3 million people work at one of the more than 30,000 manufacturing companies in the state, according to the California Manufacturing & Technology Association. The trade group did not offer numbers on the growth rate of manufacturing in the state.

“Manufacturing is the tip of the spear of the economy. Without manufacturing, you don’t have an economy,” Lance Hastings, president and CEO of the association, told the Business Journal. “Manufacturing is such a vital part of everyone’s economy.”

He said today things are good, but not great. Capital investment is what’s needed to spur growth in the manufacturing sector, Hastings said.

The manufacturing trade group supported Assembly Bill 1951 that would have provided a full exemption on sales and use taxes on equipment for manufacturing, and research and development. Gov. Gavin Newsom in vetoing the bill wrote that it “would result in substantial revenue loss to local governments, which impacts essential health, safety, welfare, and transportation services.”

Adams expects a similar bill to be brought forward in the next legislative session.

Adams believes the legislation would be a revenue generator because companies would have more money for capital expenditures which in turn should allow them to produce and sell more goods, thus creating more sales tax for the state and local jurisdictions.

Cautiously optimistic

Sumbody, a small-batch skin care products maker based in Sebastopol, was also a supplier of a critical pandemic product — hand sanitizer. The company had been making hand sanitizer for more than 20 years, so this was nothing new. What was new was coping with a shortage of bottles and ingredients, and the larger distribution to hospitals.

“We had a couple containers that never came back into stock, so we went to a different container,” explained owner Deborah Burnes.

Sales are not back to pre-pandemic numbers, but they are increasing, Burnes said. She declined to disclose specific numbers,

“We are already seeing people rejiggering and seeing discretionary spending coming back,” Burnes said. “I think customers are looking for value and quality.”

Through the downturn she did not lose any wholesale clients because of the pandemic. Sumbody was also always able to have enough stock for wholesale and retail clients, even though at times it was hard to source ingredients.

At McEvoy Ranch in Petaluma, bottles have also been an issue.

“We had three failed shipments. We finally got a container load in in good condition so we will be fine for harvest (this month),” President Samantha Dorsey said.

That’s a lot of broken glass considering McEvoy bottles 5,000 gallons of olive oil a year.

While people continue to buy the high quality olive oil (and wine) that McEvoy produces, it’s the cost of doing business that worries McEvoy.

Even though she did not cite numbers, she said expenses are going up across the board. Shipping, bottles, ingredients, other goods—they all cost most. So does diesel, propane, and medical insurance.

“At this point we are absorbing the costs, but I don’t think that will be sustainable for us in the long term,” Dorsey told the Business Journal.

To help balance the spreadsheet, inventory is being monitored in order to not have a high volume of expensive goods sitting on a shelf.

“From a farming and manufacturing perspective, we have been doing just fine with labor. We had a couple positions recently filled in the Petaluma warehouse,” Dorsey said.

She focuses on employee loyalty to ward off hiring issues, by “treating employees with respect and giving them a path for growth.” This includes paying a living a wage and benefits. She declined to discuss how much she is paying her workers.

“Personally, I haven’t experienced a business climate quite like this one with inflation where it is and unemployment where it is and where the economy is on this trajectory,” said Dorsey, who has been at the company 22 years, with the last six as president. “So I’m projecting for 2023 it will be a challenge for our whole team.”

Manfacturing challenges

Here are key findings from the “Manufacturing Experience: Compensation and Labor Market Competitiveness” report released in May:

• Manufacturers continue to cite the inability of attracting and retaining a quality workforce as a top concern — a problem exacerbated by the tight labor market.

• Roughly 93% of respondents had unfilled positions within their companies for which they were struggling to find qualified applicants, and 89.5% said that they have increased compensation — including wages, salaries and benefits — to remain competitive in their pursuit and retention of employees.

• Roughly 73% of manufacturers felt that increased compensation had helped keep their company competitive in their ability to recruit and retain employees.

• While base hourly wages and salaries were cited as most important for attraction and retention, other benefits were also important, including health insurance benefits, bonuses and/or additional income opportunities, paid vacation leave, contributions to a 401(k) or retirement plan, paid sick leave, flexible work hours and dental and vision insurance benefits.

• Sign-on bonuses for new employees ranked higher than accident or disability insurance benefits, life insurance benefits or flexible spending accounts (each of which are common and relatively popular).

• The company’s culture and “being cared for” are important differentiators for manufacturers in the competition for talent.

Source: Center for Manufacturing Research

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