It’s said often these days that “there is no playbook” for dealing with the coronavirus pandemic that has stalled the world economy and abruptly shifted global supply chains.
Intentionally or not, Atlanta-based East West Manufacturing LLC might have created one.
The caveat for those looking to emulate it? The process took about a decade.
East West has for years been augmenting its sourcing base in China, where it operates a joint-venture factory and buys thousands of products from 300-plus vetted suppliers.
First came Vietnam, where East West-owned factories churn out a range of items, from motor components to circuit boards, injection-molded plastics and medical devices. Then came Chennai, India, where the focus is on metals. More recently, a private-equity-fueled acquisition spree has landed the company four factories in the U.S., as well as one in Costa Rica.
None of the eight factory sites have yet experienced COVID-19-related closures, as about half of East West’s customers (representing about 90 percent of revenues) continue to put in orders to fuel their “essential” businesses.
“We were really worried initially about losing customers and having to shut down facilities,” CEO Scott Ellyson told Global Atlanta in an interview. “It has been hour-to-hour. You never know what’s going to drop in your inbox next or what phone call you’re going to get. There has not been a site yet where I didn’t think it was possible. We were close, but we were able to work our way through it.”
The contract manufacturer has always aspired to “be there for the life of the product,” serving international clients with near- and off-shore capabilities. Now, it has the size to offer a greater mix of geographic arbitrage and complex engineering expertise, while benefiting from long-term shift toward higher-tech products.
East West started out with air-conditioner parts, then moved into motors, industrial controls, then parts for material-handling robots in retailers’ warehouses and beyond. It now has a strong presence in the medical sphere, making components that go into blood gas monitors, hospital air filtration systems, respirators and more.
Founded in 2001, East West’s end game has never been to exit China completely, but to hedge against rising costs while sourcing the products that China makes best or at an unrivaled scale — then, to put those synergies to work for its other factories around the world.
“There is a number of products where we have not been able to find any alternative to China,” Mr. Ellyson said.
China’s Recovery
With China still “feeding” the other plants in its system, East West’s 60-person office in Shenzhen was watching closely when the Chinese New Year holiday was extended as the virus closed the country down.
“For the first two weeks they couldn’t get into the building,” Mr. Ellyson said. Pretty soon, they were working remotely, calling up supplier factories to see how many people were making it back to work.
“By the time the second week wrapped up we were at 30 percent across the 300 factories, and I was really nervous, because I knew at 30 percent we were going to be in big trouble.”
Things picked up quickly, though.
“By the time of our fourth or fifth week we were at 70 percent, and the economy in China was so soft we were getting enough capacity out of those factories,” Mr. Ellyson said. Critical needs were being met as air freight costs tripled amid a surge of time-sensitive orders. “What we were doing with our customers was just was just triage.”
He expressed some respect for China’s response to the virus, how it shut down public transit and cordoned off much of the country to stop the spread, even during the year’s biggest travel season. After that initial clampdown, restarting stalled factories happened more quickly than he thought it might.
“They weren’t that slow coming out,” Mr. Ellyson said, noting that the holiday gave factories a bit of a cushion, even if it initially made it hard for workers to get home. “That curve instead of two weeks became a six-week curve.”
A Coronavirus Re-shoring Boom?
China still hasn’t resumed business as usual. Overcoming a supply shortage, the country now faces a demand crisis as its customers in the rest of the world hunkers down to fight the pandemic.
Blame-shifting around the virus has done nothing to mitigate U.S.-China tensions that sparked a trade war still clouding the overall outlook for bilateral relations. It has deepened already serious questions about U.S. reliance on Chinese manufacturing, especially in drugs and medical gear.
Mr. Ellyson doesn’t foresee a wholesale abandonment of globalization or a wave of factories coming back to the U.S. once the virus is tamed.
“Our memories are too short,” he said, and investors will seek production in the place where the return is greatest.
But he does see customers’ calculations shifting as a result of the pandemic; the trade war was easy enough to avert through Vietnam or India, but this shift feels more durable.
“Folks are wanting to have supply chains that can be sourced through multiple hemispheres, so it’s not just finding a second supplier in China. It’s about having, maybe, 20 percent capacity in North America.”
That dynamic was clear when quoting a customer for moving one component out of Vietnam. East West’s Costa Rican price was 20 percent higher, and the part cost twice as much when made in the U.S.
“His answer was: Maybe that’s the price we are going to have to pay to manage these risks,” Mr. Ellyson said.
East West’s Leadership Crucible
While serving their customers and a dispersed staff, the unprecedented crisis has found Mr. Ellyson and his executive team in a leadership crucible. Fortunately, the company entered it on solid financial footing: the pre-pandemic growth target was 30 percent for 2020.
But expansion has taken a back seat to preserving cash. Mr. Ellyson and co-founder and Executive Vice President Jeff Sweeney went to zero salary, while other executives accepted deferrals or temporary cuts. Cash was drawn from credit lines. Contractors, new hires, acquisitions and bonuses were put on hold — except the “patriot” bonus that rewards factory workers for showing up for 80 straight hours on the job with what amounts to an extra day of pay.
In video messages to employees, Mr. Ellyson has sought to convey transparency, highlight the critical nature of the company’s work and inject realistic optimism that East West will come out healthy on the other end of this ordeal.
Already the crisis has deepened some of collaboration across the company’s global system; staying online means that East West’s owned and partner factories, some with hundreds of workers, have had to deal with a patchwork of sanitation practices and social-distancing regulations.
“What we discovered is that there were a lot of great ideas that came out of the sites,” Mr. Ellyson said, noting that East West collated the best ideas into a set of company-wide guidelines. “Given all that input, we came up with a good list and really everybody got behind it and implemented things quite quickly.”
It’s too early to tell what changes to work will endure after the crisis is over, but Mr. Ellyson said the period of isolation here in Atlanta has in some ways been refreshing. He hopes the world may come out less materialistic, more focused on overall well-being and family, and perhaps feeling greater appreciation for our human connections — both globally and in our (literal) backyards.
“I’ve met more neighbors in the last two weeks in the last two years,” he added.
Learn more about East West’s coronavirus response here or read the March 23 letter below explaining its declaration of business activities as essential:
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