Editor’s Note: This story is part of a series on supply shortages locally. Look out for upcoming stories on shortages in retail and agriculture/food supply.
Like many manufacturers across southern Minnesota — and around the world — Jim Stickney’s problems are a few handshakes removed.
“Much of the issues we’re having with our suppliers are not necessarily our suppliers, but their suppliers, or their suppliers’ suppliers,” Stickney said.
Stickney is the director of operations at the south Faribault plant of Daikin Applied, a multinational air conditioning manufacturer headquartered in Osaka, Japan. Between its three plants in Faribault and Owatonna, Daikin employs about 1,200 people working to produce industrial-grade heating, ventilation and air conditioning (HVAC) units.
Daikin is struggling with the global shortage of semiconductors, or the “chip shortage,” that has plagued the automotive and other industries throughout the COVID-19 pandemic. Daikin needs semiconductors for the fans in its HVAC units. Specifically, Daikin’s fan supplier uses motors to power its fans, and the fan supplier’s motor supplier uses circuit boards to power its motors, and the motor supplier’s circuit board supplier uses semiconductors to power its circuit boards.
Without chips, the whole supply chain falls apart.
“We’re continuing to receive orders,” Stickney said, adding that the demand for HVAC among his consumers — industrial HVAC contractors — is as high as it’s ever been.
Without semiconductors, though, Daikin is left with incomplete units piling up in its yards. Stickney said he has customers who have been waiting on units since August that Daikin can’t complete until a missing component arrives.
“That is a huge problem for us,” he said.
John Makela, general manager at Creation Technologies in St. Peter, is dealing with the same problem. Creation designs and manufactures electronic assemblies for aerospace, defense, medical and tech-industrial markets.
On the bright side, Creation Technologies is growing — Makela reported 15% growth last year. Demand is also high, he said, and he’d like that growth to keep going. One of the obstacles to that growth is the difficulty of hiring new employees — they currently have 250, but Creation aims to get closer to 300 by 2023 to go along with facility expansion.
The other problem is semiconductors.
“Getting microchips out of Asia is very difficult right now,” Makela said. “There are many challenges with the global supply chain shortages.”
Where are the chips?
Macroeconomics 101 can tell you that if one country is highly efficient in making wool socks, another in making steel beams and a third in making semiconductors, it’s cheapest for all parties involved to stick to what they do best and trade with each other, rather than everybody trying to produce everything for themselves in isolation. Plus, a small number of very large factories in a few countries can produce goods much cheaper than a larger number of smaller factories spread out across many countries.
This is why the global supply chain developed — it saves everyone money.
The COVID-19 pandemic showed the weakness of that setup.
When the world locked down during the spread of the novel coronavirus, economists widely predicted demand for products would plummet, which it briefly did. Manufacturers around the world prepared for that drop in demand by shutting down. Others also shut down to stop the spread of the virus within their borders and factories.
During the pandemic, demand ticked back up sooner than expected. It went up even higher after stimulus checks were sent out by the United States federal government and has continued to climb as wages for entry-level jobs continue to increase.
As Federal Reserve Chair Jerome Powell said Aug. 27, “Booming demand for goods, and the strength and speed of the reopening have led to shortages and bottlenecks, leaving the COVID-constrained supply side unable to keep up.”
That means delays and higher prices, made worse by a shortage of truck drivers and limited supply of container ships and the containers they carry.
It also means that a trade war between the United States and China that impacts China’s biggest chip manufacturer, combined with a drought in Taiwan and an increase in microchip demand from a population stuck at home during COVID-19 can cause a chip shortage for the entire world. Which is exactly what happened.
Eric Gustafson, chief operations officer at K&G Manufacturing in Faribault, admits K&G is not immune to some of the delays and price hikes that other manufacturers are experiencing. So far, though, there’s no product they need that they can’t acquire.
As a contract manufacturer, K&G conducts custom production of aerospace, defense, marine and medical materials for Fortune 500 companies. It employs about 75 people. What sets it apart from other manufacturers of its size is the size of its supply chain.
“We don’t buy from overseas,” Gustafson said, adding that K&G mostly buys from and sells to American companies. “Right now, from a supply chain issue … it’s not affecting us much.”
Because of the industries K&G serves, Gustafon said, federal regulations require it to buy American products “because of the sometimes questionable quality of stuff overseas.” That allows them to mostly stay out of the global supply chain, a luxury many manufacturers cannot afford while still staying competitive.
The only shortage that keeps him up at night, he said, is workers.
“That is the resource that is in the tightest supply,” he said.
Precarious and interconnected
While not all manufacturers are suffering too badly now, some are worried that the worst is yet to come.
RelCore Composites, Inc. in Northfield manufactures aluminum honeycomb composite materials, or “core materials,” whose lightweight strength is used for a wide variety of purposes, including airplanes, commercial passenger trains, cruise ships and snowboards.
To manufacture its product, RelCore needs aluminum. The automotive industry, which has slowed production significantly due to the shortage of semiconductors needed for cars, also needs aluminum. Since that industry isn’t manufacturing too many cars right now, aluminum has not become an extraordinarily sought-after commodity. The demand for cars is high, though, and the semiconductor shortage will not last forever.
Paul Larkin, president of RelCore Composites, fears the day the automotive industry lurches back to full capacity to exploit that demand.
“It’s gonna drive prices crazy and lead times way out there,” he said.
As a highly automated manufacturer with fewer than 10 employees, Larkin works with a select group of customers. There are only two other American companies that do the specific type of manufacturing RelCore does, and they’re over 100 times as big. All this puts RelCore at risk.
“It’s a difficult situation, especially for a small operator like us,” he said.
Winegar, Inc. of Waseca, a contract machine parts supplier with about 80 employees, is also nervously eyeing the future, although for somewhat different reasons.
As Tim Wenzel, president of Winegar, explained, even if Winegar has everything they need to manufacture the parts needed by its customers — Fortune 500 manufacturing companies — if its customers cannot get the other parts they need for their own manufacturing process, they won’t need Winegar’s products.
In other words, if Toyota Group needs certain machine parts from Winegar and electrical glass from Company X to build a car, and Company X has no electrical glass due to global product shortages, Toyota Group will likely not be ordering machine parts from Winegar.
Wenzel’s only consolation looking forward is the extra inventory Winegar carries, which has helped significantly amid the shortages. This is against modern “just in time” manufacturing business practice, which advises against ordering or maintaining extra inventory for purposes of maximizing profit and efficiency.
“We’ve always been a little skeptical of true ‘just in time’ and have carried a little more inventory than most other customers, because it has bailed us out in the past,” Wenzel said.
Medford native and 21-year Army veteran Chris Slindee is on a mission to take a big rig through all 48 states on the mainland of the United States. He was inspired to complete this feat after his father died in February of this year.
Slindee is also a final three contestant for the Transition Trucking — Driving Excellence award. This competition is for veterans, guard members and members of the army reserve who have made a recent transition into the trucking industry following service in the military.
And he is asking for your help.
Slindee grew up in Medford and now resides in El Paso, Texas. He only has two states left to drive through before he accomplishes his goal of all 48. Ironically, the two he has left are North Dakota and his home state of Minnesota, a place Slindee says he still holds near and dear in his heart.
“My dad was a trucker and he passed away right before I retired [from the military],” Slindee said. “It was then I made up my mind that I was going to get in a truck and drive to the 48 mainland states and own my own truck, because my dad was never able to close that chapter before he died.”
Slindee also said he plans to make Minnesota his last stop and to take his truck to visit his father’s grave with a pin that his company, Knight Transportation Inc, awards to drivers who successfully drive through the mainland.
He was honored to be one of five drivers nominated by Knight for the prestigious Transition Trucking award. Of the five nominated by his company, he is the only one who has been able to make it to the final three.
A committee from within the competition chose from the deep pool of candidates who would be among the top 10. Those candidates were able to head to Ohio to visit the Kenworth factory and see first hand the process of manufacturing a truck from start to finish.
“It was eye-opening to see how quickly a truck goes from nuts and bolts to driving away,” Slindee said.
The grand prize winner, who is chosen by voting, will receive a brand new, fully loaded Kenworth T680 with a 76-inch sleeper cabin. Voting is open until Veterans Day, Nov. 11. The winner will be announced on Dec. 17 at the U.S. Chamber of Commerce in Washington, D.C.
“Winning would allow me to finish the chapter that my dad wasn’t able to before he died,” Slindee said. “If I win the truck, I intend to have his name put on the door in memory of him. Having my own truck would also open the door to a lot of opportunities and help take care of my family.”
Slindee enlisted in the United States Army upon graduation from Medford High School, stating it had always been his dream to travel. He started at the bottom as a heavy wheel equipment mechanic, but over the years and through six deployments, he worked his way up to a Master Sergeant, which was his rank upon retirement.
Slindee was first stationed in Germany, then went on to be in various bases throughout the United States and South Korea.
“I really enjoyed all of my travels, even the deployments in the middle east,” Slindee said. “I liked to see different things and I took it all in — it was amazing.”
Slindee admits that he almost didn’t re-enlist after his first term. After some thought, he decided to re-enlist with the intent to deploy. He then made it his goal to remain active for 20 years in order to gain the benefits at an E-6, which was average for retirement.
“After I made it to a Sergeant, or E-7, I decided to keep hustling, and then I made it to E-8 Master Sergeant,” Slindee said. “I am so proud of what I was able to accomplish in my time in the army.”
Daniela Ortiz, a senior at the Owatonna High School is no stranger to wearing many hats throughout her academic career.
She was a volleyball player, a member of SHOC and student council, voted president of the National Honor Society, and she sits as the student representative for the Owatonna School Board.
“I’m someone who has always been involved in community organizations, school clubs, and sports,” Ortiz said. “I’m definitely grateful to be a part of these many organizations and to make an impact.”
Ortiz heard about the student representative position on the board during her sophomore year in high school. She said she applied, but was not necessarily confident if she was qualified for the position. Her older sister reminded her of her passion for making an impact and her desire to be someone who was able to advocate for others, and this position would be the perfect opportunity to represent her fellow classmates and get more involved in the community.
Ortiz may have questioned her qualifications for the position, but the School Board certainly did not.
“Daniela was among six-to-eight applicants for student representative,” Superintendent Jeff Elstad said. “All of them were talented, but she rose to the top because of her broad array of activities she’s involved in at the high school.”
Elstad described Ortiz as an “extraordinary young woman” who has many interests, but what stood out to him was her drive and interest in listening to, and her ability to see, the many different perspectives on the topics discussed during the board meetings.
He also said that she is very well respected by her fellow students at the high school, and she has brought much to the table for the board.
Ortiz said she’s extremely grateful to have been chosen for the student representative and feels honored to be a part of the difficult conversations that have taken part during the public forum portion of the last several board meetings. Members of the community and beyond have attended meetings of late to voice their opinions on numerous topics, sometimes heatedly.
“At first, it was frustrating and overwhelming to see the differences in perspectives of the community, especially as a student who took the (Critical Race Theory) class (in 2020-21),” Ortiz said. “I’ve been able to see and understand the problems on both sides and realize it’s important to continue working toward educating each other and working together toward something we can all agree on.”
During the board meeting Aug. 30, three students participated in the public forum, speaking to their personal experiences with the Critical Race Theory class that was offered last year through Minnesota State University, Mankato. Ortiz said that she had encouraged her friends to speak at this meeting and seeing her friends muster up the courage to do so during an intense back and forth that evening was one of her proudest moments as the student representative.
“Myself and many other students are passionate about the class,” Ortiz said. “We wanted to make sure people saw this and heard stories from a first-hand perspective of the students who were able to take the class. I think it’s important for students to talk about, because there are many misconceptions about the class.”
The class is not currently offered at the high school, as there wasn’t MNSU faculty available to teach it this year. It continues to be a heavily debated topic area at the local School Board and across the country.
Elstad said Ortiz has been an incredible asset as a student representative.
“The purpose of a student rep is to keep the board grounded and remind them who we serve, and that’s the students,” Elstad said. “The student’ perspectives are important, and Daniela provides a voice for them so that the board can add that to their thinking when making decisions.”
Ortiz said she was surprised by the amount of confidence she has gained in herself through her time as student representative on the board.
“I felt really uneasy about it at first,” Ortiz said. “After a few meetings and being able to talk with the other board members, I have gained confidence in my voice as a representative, a student and an individual.”
Along with being a student representative, Ortiz is a proud member of many other school organizations.
She has been involved in SHOC, which is short for Students Helping Others Choose, since her sophomore year. The group helps to promote and lead a healthy lifestyle and encourages peers to remain drug free. Ortiz said she enjoys speaking to students in the elementary, middle, and high school about these issues.
She acts as the president of the National Honor Society, sits on the student council, is a member of the Link Crew, and has been involved in a computer science program in the community. Ortiz said she enjoys being a part of so many groups and organizations, because she has a lot of fun and likes being able to encourage other students to be the best they can.
After graduation, Ortiz hopes to attend college in the Chicago area. She has applied to Northwestern University, University of Chicago, and DePaul University.
“I’ve always wanted to live in a big city, and I love visiting my sister who lives in the area and also went to DePaul,” Ortiz said.
She’s still undecided on what type of career she wants to pursue. She said she initially was leaning toward the medical field but is now considering the field of Computer Science.
“My family and friends have been so supportive and helpful through the process of completing college applications,” Ortiz said. “I was afraid to apply to prestigious schools, but they encouraged me to shoot for the stars.”