While many of the supply chain disruptions of the pandemic are a thing of the past, labor has proven to be the most stubborn problem to smooth out.
By Steven Martinez
If you didn’t know anything about the supply chain before 2020, you most likely do now. The pandemic allowed everyone to see firsthand what happens when the finely tailored global supply network is thrown into chaos.
Fleets of container ships were parked just offshore at major U.S. ports, awaiting a chance to offload their sometimes-perishable freight. Entire categories of goods disappeared from shelves while prices and shipping times for consumer goods shot upward. A shortage in a crucial area had knock-on effects for other large industries. We all remember the semiconductor shortage that led to supply disruption of everything from gaming systems to automobiles.
Dental and orthodontic supply companies saw their own supply chain disruptions. Yes, there were the PPE shortages that left doctors scrambling to keep stock; but for companies like Boyd Industries, which makes chairs and other equipment for dental and orthodontic practices, it was foam that was in short supply. .
“There was a situation in 2021, where we couldn’t get foam of all things. Dental chairs require foam and they’re uncomfortable if you’re just sitting on the frame,” says Adrian LaTrace, CEO of Boyd Industries. “The company that we were getting the foam materials from didn’t survive because of the downturn in their business as well as the inability to get foam.”
The shortage was only exacerbated by the fact that the automotive industry is one the major buyers of the same foam for its car interiors, meaning that the comparatively small Boyd was jostling with gigantic multinational corporations for the same anemic supply.
“We had to get really creative, really fast to figure out how we were going to get foam because we had backordered product that we had to get out,” says LaTrace.
The solution, it turned out, was to buy large blocks of foam, circumventing competition for the pre-cut variety and employ people to cut it for their chairs in-house.
“It was a very scary period of time because the automotive industry was competing against us to get foam,” says LaTrace. “But it was one of those lesser-known situations in the country at the time that really required us to be agile as a company.”
The bottlenecks were infuriating for many companies and consumers and seemingly random to an outsider. Another random disruption in 2021 caused lead times for acquiring one specific color of upholstery for Boyd to balloon to 26 weeks in length.
Return to A New Normal
Fast forward to 2023 and supply chain disruptions of that magnitude have largely been smoothed out, replaced by worries about inflation and recession. LaTrace said that before the pandemic, Boyd would typically be able to ship an order within 4 weeks, in the intervening years it moved closer to 10 weeks, but, today, it’s down to 6 to 8 weeks. Not as bad as it’s been, but still not at 2019 levels.
LaTrace credits the fact that Boyd mostly sources its suppliers within the country for saving the company from having to deal with overseas shipping and sourcing problems that impacted so many businesses.
“One reason that Boyd was probably able to weather this better than many others is our supply chain is primarily here in North America. We had very little exposure to Asia and other offshore vendors,” says LaTrace. “I mentioned that lead times were extended, but there were some cases I’ve heard from others in the industry where they were quoting 9-month lead times and, frankly, they were handcuffed by the lack of the ability to get a product from offshore.”
The Labor Supply Shortage
For the orthodontics industry, supply chain issues today are less about commodities and more about people. In the dental and orthodontics industry, acquiring and holding onto staff is a constant challenge and worry—just as it is in orthodontic practices nationwide. Accompanying increasing prices has been an increase in wages. According to the US Bureau of Labor Statistics, wages and salaries increased 5% from 2022 to 2023 after having increased 4.7% the year before. Couple that with historically low unemployment rates and you have a saturated labor market where workers have more options and leverage.
While employees are not always thought of as a supply chain issue, LaTrace says that the supply chain encompasses every step in the process between raw goods and the consumer, including the staff. For Boyd, the current labor market conditions meant that they did three rounds of pay raises for his employees just to keep up with inflation.
“We also saw not only wage inflation but also turnover increase in 2022 and I think that’s also something that doctors are seeing as well,” says LaTrace.
Wage increase is a function of business costs, some of which can be offset by price increases, but turnover is more insidious. In the current labor market, where some businesses are struggling to fill positions, turnover doubles the problem, losing employees who business owners have spent time and money already training.
“We’ve got this dichotomy going on where we read in the paper about all these layoffs occurring in some tech companies but when I talk to my peers, we’re all hiring,” says LaTrace. “Small businesses across the country are really competing strongly and vigorously for labor and that puts the employee in a really good position—in a buyer’s market.”
Employees have more freedom to leave a job or an industry because so many more options are offering comparable pay. The way this affects the supply chain is that Boyd and the practices it supplies are still working off the pent-up demand from the pandemic while struggling to keep staff levels high enough to address it.
“There was some deferral of purchasing and now that pent-up demand is coming back through and a lot of companies are operating at very high capacities,” says LaTrace. “That’s also limiting the ability to get some parts and goods, not only for companies like mine, but also for our customers.”
The Double-Edged Solution
The solution to all this supply chain and labor uncertainty may unfortunately be a double-edged sword. The looming recession brings with it a lot of fear for businesses and employees alike. But recessions also have a way of righting the unaddressed problems in an economy, and while nobody wants to predict a recession, LaTrace says it looks more likely than not, we’ll get one.
“I have no doubts we’re going to run our way into a recession here. We have all the indicators I was taught to look for, at least where I went to business school,” says LaTrace. “There’s a little bit of irony in it. Not that anybody welcomes a recession, but what it will do is loosen up the labor market and one of the biggest constraints we have right now, whether it’s me as a manufacturer or a doctor trying to get staff, is the labor market.”
On the positive side, LaTrace doesn’t expect the recession to be as deep and painful as it was in 2008 because there doesn’t appear to be the same structural issues as there were back then. One of the most agonizing parts of the great recession was that it took years for the labor market to rebound, slowing every other aspect of recovery. Instead, he expects something like a more traditional recession that is akin to a course correction.
“I think we’re shaping up for a more traditional looking recession where we’ll see labor drop, and then we’ll see it come back,” says LaTrace. “There are really many strong elements of our economy. It’s 6 to 9 months of pain but it might be a healthy reset for the country.” OP