Supply chain backlogs, tariff costs are big concerns for owner
An Iowa-based patient-care technology company that manufactures remote medical monitoring systems for the U.S. military and emergency responders is now working to put its equipment into action to help patients in New York and other hot spots of the COVID-19 pandemic. However, the company’s production efforts could be derailed due to cash-strapped suppliers and increasingly long supply-chain lead times.
Athena GTX, based in Johnston, specializes in manufacturing various types of wireless vital sign monitors and patient isolation systems for both the military and civilian markets.
The company, which has been awarded several major contracts with the U.S. government over the past several years, recently applied for an Emergency Use Authorization from the U.S. Food and Drug Administration to provide its advanced telemedicine technology with an innovative patient quarantine and isolation POD (pictured) for safely caring for and transporting COVID-19 patients.
However, supply chain constraints have recently led component suppliers to demand upfront cash payments on orders, creating a conundrum for small manufacturers such as Athena GTX that don’t have the cash to pay out hundreds of thousands or even millions of dollars for orders on backlogged parts that will take months to receive.
“Near-term, our production has probably been tenfold what it normally is, and our sales are through the roof,” said Mark Darrah, the company’s CEO and co-owner. “But now we’re running into the issue that our suppliers are backlogged and our lead times are going up drastically. We were lucky enough to have a very good production manager that foresaw some of the demand, and he’s placed a long lead on items,” Darrah said. “And for the most part, we’ve been getting our parts to make our products.”
Across the state, many member companies of the Iowa Association of Industry and Business are dependent on supply-chain inputs, said JD Davis, ABI’s vice president of public policy. The statewide business organization has more than 1,500 member companies across all industry sectors, representing about 330,000 workers.
“In Iowa fashion, these manufacturers are stepping up to meet the challenge,” Davis said. “ABI manufacturers short of inputs are alerting customers that now is the time to buy what can be delivered and moving revenue forward. Others with manufacturing capacity have converted to making essential materials needed to respond to COVID-19.” Additionally, some ABI members are seeking to manufacture products that were previously supplied by foreign markets, he said.
As ABI manufacturing members respond to the virus, their foremost concern is the health and safety of their employees and families, Davis said. Additionally, many ABI members are taking advantage of the federal loans through the new Paycheck Protection Program as a way to continue to provide support to their employees, he said.
Athena GTX has been among the fortunate manufacturers that are seeing a significant uptick in business due to their market niche.
As many companies have had to furlough workers over the past couple of weeks, the company hired three additional production workers, and will likely bring on about 10 additional workers in the coming months, including production, engineers and software developers. Darrah said. The company currently has 23 employees, who are continuing their on-site work under CDC guidelines for social distancing and other work site precautions.
The opportunity to incorporate its remote monitoring system into an isolation pod for transporting COVID-19 patients is an exciting prospect, Darrah said. The company has been testing the completed product and is nearing the stage at which it could begin production.
“It’s a portable ICU, essentially, so they can not only put it on airplanes to transport patients but also from staging areas like the Samaritan’s Purse tents in Central Park. This would be a way to isolate patients that were going to the [hospital ship] Comfort from that facility so they weren’t infecting everybody enroute,” he said. “I’m excited about that technology because it’s all telemedicine-enabled.”
In addition to supply chain issues, Darrah said that Athena GTX is being hurt by a 30% tariff on imported parts, such as the tariff it must pay on the pod component that the company is purchasing from an Austrian company for the isolation POD unit. Getting that tariff lifted would be a significant help, he said.
Like many manufacturers, Athena GTX is facing a lot of uncertainty right now.
“Here’s the conundrum,” Darrah said. “You have a demand for the product. And you have a government with a lot of money to buy the product, but you have supply chain issues and you have a lot of suppliers that are actually shutting down because of social distancing and shelter in place. So, can we get the parts to make the product? And do we have enough cash to be able to get the parts to make the product?
“If all of that can be worked out, either by the states or the federal government, I think the future looks exceedingly bright for Athena in increased revenue, products delivered and lives saved,” he said. “And if we can’t work out all that political stuff, it’s volatile at best.”
Matthew Mitchell, a partner with business consulting firm Baton Global in Des Moines and an associate professor with Drake University, said many large manufacturers have had significant challenges “just sourcing the basics” such as metals and raw materials, particularly as China shut down production earlier this year due to COVID-19. “We’re going to continue to see that, because China isn’t fully back online yet,” he said.
Additionally, “I think we see a lot of organizations in Iowa diversifying not only inputs, but also diversifying buyers and frankly, that conversation started with ag products,” he said.
The coronavirus pandemic has also turned a familiar axiom on its head, Mitchell said.
“It used to be said that ‘whenever America sneezes, the rest of the world catches pneumonia,’” he said. “Well, I think what this crisis has brought to light is that whenever China catches corona, the rest of the world’s supply chain could be put on life support.”