Supply Chain Resiliency (House Small Business subcommittee hearing, July 2, 2020)
Summary
The printed record of a hearing, Supply Chain Resiliency, held July 2, 2020 by the Subcommittee on Economic Growth, Tax, and Capital Access of the House Committee on Small Business, Small Business Committee Document Number 116–085, printed in 2021. The subcommittee met at 9:00 a.m. via Webex as a hybrid hearing with Hon. Brad Schneider presiding; Schneider and Hon. Kevin Hern gave opening statements. Four witnesses testified: Dr. Eswar Prasad, Professor of Trade Policy at Cornell University and Senior Fellow at the Brookings Institution; Christine Fagnani, Co-Owner and Vice President of Lynn Medical Instrumentation Company, Wixom, MI; David Billstrom, CEO of Kitsbow Cycling Apparel, Old Fort, NC; and Sheila Lawson, Chief Operations Officer and Vice President of Supply Chain at RL Hudson, Broken Arrow, OK.
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“Supply Chain Resiliency (House Small Business subcommittee hearing, July 2, 2020).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/supply-chain-resiliency-house-small-business-subcommittee-hearing-july-d9c4443431/
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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
Small Business Committee Document Number 116–085
Available via the GPO Website: www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
41–296 WASHINGTON : 2021
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELÁZQUEZ, 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
(II)
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CONTENTS
OPENING STATEMENTS
Page
Hon. Brad Schneider ............................................................................................... 1
Hon. Kevin Hern ...................................................................................................... 3
WITNESSES
Dr. Eswar Prasad, Professor of Trade Policy, Cornell University, Senior Fel-
low, Brookings Institution, Ithaca, NY .............................................................. 6
Ms. Christine Fagnani, Co-Owner and Vice President, Lynn Medical Instru-
mentation 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 In-
strumentation 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 Sup-
ply Chain, RL Hudson, Broken Arrow, OK ................................................ 64
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
(III)
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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 re-
quires us to make some small modifications to ensure that mem-
bers 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 sub-
sequent guidance from the Rules Committee in a manner that re-
spects the rights of all members to participate. House regulations
require members to be visible through a video connection through-
out 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 re-
turned 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 remain-
der 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.
(1)
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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 fol-
lowing 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 commit-
ment 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 serv-
ices that have been able to remain open face shortages for high-de-
mand products, higher costs for production materials, and an in-
ability 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 commu-
nities, 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 proc-
essing 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 sup-
ply 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 manufac-
turing 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 na-
tionalize 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, re-
sourcefulness, and ingenious flexibility shifting product lines, mov-
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ing to more ecommerce and utilizing alternative supplies and modi-
fied distribution chains. Some shirted to making PPE and hand
sanitizer in a matter of days. Others came up with new and inno-
vative ways to source their products while they are still discovering
new delivery channels in entirely new markets. We will hear in-
spiring 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 hear-
ing will focus on how we can help sustain our Nation’s small busi-
nesses 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 vast-
ly interconnected, yet can vary significantly from industry to indus-
try, product to product.
We must also recognize that trade is an essential part of sup-
porting small business in a modern economy. Ninety-five percent of
the world’s population reside outside the United States, and export-
ing provides small businesses with literally billions of new cus-
tomers. 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 strong-
er 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 unfore-
seen 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 lead-
ers to rethink current operating models, questioning their oper-
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ation’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 discrim-
inately 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 poten-
tially saving countless lives.
COVID-19 also rattled the agricultural foodservice industry, dis-
rupting 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 Presi-
dent’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 tra-
ditional 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 (in-
audible) to the rippling effects of the coronavirus.
Where a big company might have a contingency plan and a larg-
er network built into their supply chain, many small businesses op-
erate 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 state-
ment, and each Committee member will have 5 minutes for ques-
tions. 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.
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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 Mone-
tary 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 John-
son 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 Dis-
ney, 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 re-
cently 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 manu-
facturing 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 As-
sociation 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 in-
formed as the landscape in her profession evolves. Thank you or
your participation today, and I look forward to hearing your testi-
mony.
Mr. Chairman, I yield back.
Mr. SCHNEIDER. Thank you, Mr. Hern.
We will now recognize the witnesses. Dr. Prasad, you are recog-
nized for 5 minutes.
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STATEMENTS OF ESWAR PRASAD, PROFESSOR OF TRADE POL-
ICY, CORNELL UNIVERSITY, SENIOR FELLOW, BROOKINGS
INSTITUTION; CHRISTINE FAGNANI, CO-OWNER AND VICE
PRESIDENT, LYNN MEDICAL INSTRUMENTATION COMPANY;
DAVID BILLSTROM, CEO, KITSBOW CYCLING APPAREL; SHEI-
LA LAWSON, CHIEF OPERATIONS OFFICER AND VICE PRESI-
DENT 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 busi-
nesses 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 speak-
ing about.
Now, global supply chains have been a boom for small businesses
in many ways. One of the reasons the supply chains have pro-
liferated (phonetic) is that (inaudible) leadership over many dec-
ades, 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, in-
crease efficiencies, and even expand into broader aspects of busi-
ness that they might not have been able to do in other cir-
cumstances because for small businesses the option of vertical inte-
gration, that is basically trying to integrate all parts of the produc-
tion 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 inte-
gration 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 sup-
ply chains, and trade tensions among the major economics, for in-
stance, the U.S.-China trade relationship or even the North Amer-
ican trade relationships which are both very important for small
business supply chains have certainly had their fair share of ten-
sions 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
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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 coun-
tries, 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 effi-
ciency. 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 play-
ing field that would help small businesses, but uncertainty in trad-
ing relationships and trade frictions suddenly do not help. Pro-
viding 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
Velázquez, 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-
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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 hos-
pitals, 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 tradi-
tional 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 aware-
ness of the shifting guidance from the FDA.
As a small business, we do not have a legal department or a reg-
ulatory 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 navi-
gate 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 im-
portant 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, sub-
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sequent 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 environ-
ment was confusing, we utilized the flexibility and agility small
business has to become adept at vetting new suppliers and becom-
ing 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 col-
laborated 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 re-
tooled to make face shields. We found in the small business com-
munity 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 opportuni-
ties 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 min-
utes.
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.
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Our story is also remarkable because we are not an old-school es-
tablished 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 be-
cause of our supply chain. You see, we make premium clothes, very
expensive, designed very carefully. We use the latest technical fab-
ric 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 re-
sponders 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 ex-
perts in locating suppliers, designing products, and then moving
them immediately into production.
Third, we had the support of other businesses in the region, sup-
plies 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
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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 need-
ed 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 Cali-
fornia 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 con-
cern 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 mate-
rials. 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 dis-
appointments, we now source almost 100 percent of the raw mate-
rials 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 re-
quirement for any buyer in a large organization because their in-
ternal 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 ad-
dress 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.
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We will now turn to Ms. Lawson. You are recognized for 5 min-
utes.
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 mem-
bers. 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 de-
sign 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. Al-
though 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 chal-
lenges 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 re-
spond 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) ex-
pedited containers began arriving to RL Hudson. With the U.S. im-
plementing stay-at-home orders, and with many customers halting
production, we needed to find a place to store the inbound inven-
tory. We had had 18 containers lining our parking lot with an addi-
tional 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 in-
ventory 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 re-
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ceivables 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 can-
celed 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 cus-
tomer 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 en-
sure 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 re-
sponded 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 produc-
tion 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 part-
ners and realize we need them for certain components which only
frees up our expertise for items where we can excel in manufac-
turing domestically.
Just as our society is trying to learn how to better celebrate di-
versity 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 testi-
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mony 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 dis-
aster. This could have been recognized and the appropriate mate-
rial secured by a central authority.’’
I want to explore that idea. I have been searching for a central-
ized supply chain czar because this is so critical. We see it for our
small businesses in their need to get everything from raw mate-
rials and supplies to manufacture their goods, one leading to an-
other 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 com-
panies. 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 (inaudi-
ble).
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 regu-
latory certainty to make the point that the experiences that my fel-
low 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 govern-
ment 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 fin-
ished 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 re-
placed any other way are identified, we need some way of orga-
nizing 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 busi-
ness, is that to the extent we can have a centralized authority who
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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 op-
portunity. 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 manufac-
turing. 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 (in-
audible) ejected part out of the machine (inaudible) secondary oper-
ations. 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 else-
where 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 (inaudi-
ble) to be left where they are, and we do see concern from our man-
ufacturing partners that we worked with. And if they want as busi-
nessmen 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
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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 accelera-
tion 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 regionaliza-
tion 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 en-
forced by that because the very limited supply chains here in a cer-
tain 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. Some-
times 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 busi-
ness. There are huge benefits to be trained from a much broader
supply chains, especially if you think about the sort of diversifica-
tion 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 under-
stand that my connection may have some challenges here, so hope-
fully 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 manu-
facturing 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 in-
crease, we are going to face challenges for those products that must
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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 (in-
audible) COVID-19, and what would you say was your biggest chal-
lenge?
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 con-
ference 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 thank-
ful 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 accord-
ingly.
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 ques-
tion, 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 chal-
lenge. And it was helpful to hear how you all are dealing with it
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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 min-
utes.
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, pharma-
ceuticals, 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 min-
erals 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 com-
munist 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 pharma-
ceutical ingredients, which are the basic components of antibiotics
and other prescription drugs. And because of their poor environ-
mental 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 per-
cent—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 chil-
dren 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 re-
serve 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 intro-
duced 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-
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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 oppor-
tunity 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 Min-
nesota stands ready to secure our supply chain, both pharma-
ceuticals 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 in-
formation source for small businesses.
Having had my own small business in a prior career before com-
ing 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 applica-
tions 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 busi-
nesses?
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 cor-
rectly 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 per-
haps the product that they had bought can no longer be bought or,
you know, just why things were changing. There was a lot of infor-
mation about bad product being distributed, and so a lot of skep-
ticism as there should have been. And just it was critical to us to
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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 help-
ful. 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 regu-
latory policies to providing greater certainty with our trade rela-
tionships 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 inter-
mediate 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 rela-
tionships 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 be-
comes 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 be-
come 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 on-
board 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 prac-
tices. 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 Chi-
na’s introduction into the World Trade Organization, some would
argue there have been books written on it. Maybe you have written
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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 men-
tioned 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 diver-
sification process. Certainly, one does not want to leave American
manufacturers, either small or large vulnerable to geopolitical ten-
sions. 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 recog-
nize that small businesses are very important exporters as well. So
I think a far better solution might be to think about how in addi-
tion 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 (in-
audible) 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 pro-
viders, 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 be-
tween 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
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vast verse engineering of our products, all these things are para-
mount 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 yes-
terday 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 dif-
ferently 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 sub-
mit 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 dis-
tricts. But I can assure you they will follow the testimony. I appre-
ciate 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 vulner-
able 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 al-
lows 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.
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[Whereupon, at 10:12 a.m., the Subcommittee was adjourned.]
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APPENDIX
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Æ
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