In late January 2020, executives at the Ocala, FL-based small business Veterans Trading Co., which specializes in value-added supply chain services, started to get concerned the COVID-19 virus was likely to hit their business.
At that point, George Smith, the company's chief executive, decided to expedite all of their materials. The company asked its suppliers to send everything they had so VTC would have what it needed to continue working in the coming months.
"We want it all today," Smith said the company told suppliers. "If you've got it, ship it to us."
That was just one in a series of steps Smith took that he says helped preserve his business and ensure the company's customers, including prime contractor Lockheed Martin, were able to continue to move forward, despite the pandemic.
While Smith is proud of how his company weathered the storm, there is concern among industry watchers and experts that small defense contractors will come out significantly weakened by the pandemic.
“We’re not going to know how many of these businesses survive for years,” said Karri Palmetier, an attorney for small contractors. “It’s kind of like you got cut. You don’t know if you got an infection or are going to bleed out for a period of time.”
The National Defense Industrial Association and its partner Govini are just beginning to assess the damage to small businesses as part of its annual Vital Signs report.
Tara Murphy Dougherty, Govini’s chief executive, told Inside Defense much of the attention has gone to large companies.
“This will be the first . . . report that will be able to show the COVID picture,” she said. “So, I do think it will be really interesting.”
How VTC managed
Smith, a disabled veteran who served in the Marine Corps, spent decades working at prime contractors before leading VTC.
VTC specializes in value-added supply chain services, ensuring products are modified and ready for consumption. For instance, Smith said, VTC manages communications, navigation and instrumentation product lines for Lockheed Martin’s F-35 program.
Smith said the company started sensing in January 2020 “there was something not right.”
“The whole world hears about it in mid-March,” he said. “VTC was ahead of all that, and we were making preparations” in late January and early February.
Besides asking suppliers to expedite VTC’s orders, the company was ready as soon as it was available to apply for a Paycheck Protection Program loan.
“From there, we turned out attention to the performance of our programs,” Smith said.
The company decided which employees were essential and needed to keep coming to work. According to Smith, about 40% had to come to work in person; the remaining 60% were sent home.
“All the essentials -- we paid very close attention to them,” Smith said. The company tried to create “a bubble around themselves so that they could not be influenced or contaminated by the virus.”
As the pandemic was taking hold in the United States, Palmetier’s phone was ringing constantly as her clients tried to sort out how to move forward.
There “was just a lot of confusion at that time,” she said, noting that companies with multiple locations were grappling with varied state rules. Her small-business clients are “not unsophisticated . . . but they don’t have whole departments who are helping them understand what their rules mean.”
Smith said VTC felt the pressure to ensure it didn’t disrupt its customers.
“We had to maintain that continuity or we were going to break their ability to service the programs,” he said. “Once you push that domino in the wrong direction, the whole line begins to fall on you.”
He credited the government’s PPP loan with helping as well as accelerated payments from the Pentagon flowed through prime contractors.
“We did not have any major disruptions across all of VTC,” he said. “We missed nothing.”
Still, there have been challenges. Smith said one of the company’s suppliers in Japan closed and VTC turned to Lockheed to help it find alternate sources.
Palmetier said some of her clients have not been so lucky. She said four have gone out of business and all attributed their closures to COVID-19.
“The PPP loans just weren’t enough,” she said.
Palmetier argued small businesses already face challenges and many don’t survive the first few years.
“It’s resiliency, it’s marketing, it’s knowing how to run a business,” she said. “I think that the pandemic magnified those abilities. So, if you pick a bad location for your business, if you don’t know how to run your own books, if you’re not a good businessperson or if you operate on the low margin and you’re on the seat of your pants all the time -- anyone who was at that edge . . . the pandemic sent them over the edge.”
Smith said he benefited from his experience working at large contractors and as a Marine.
“We had never experienced something like this,” he said. “I came out of tier 1 world . . . and they train you to be risk mitigators and develop risk assessments and develop recovery plans and things like that.”
“I’ve had factories burn down . . . and we’ve had programs that had to move,” Smith added. “We’ve never had one that hit the world like this.”
Assessing the damage
Now, industry analysts are beginning to try to track the damage to small defense contractors. Nick Jones, director of regulatory policy at the National Defense Industrial Association, told Inside Defense the organization is preparing to survey small businesses for Vital Signs.
“The survey we’d like to get done in late spring, early summer,” he said. “That will be our leading indicator of OK, really after a year . . . this is really what’s happened, and we will compare that to last year.”
Dougherty said this year’s Vital Signs report will offer a “more holistic view.”
She said the company is starting to see from the data “how much fragility there is around DOD’s reliance on single-source suppliers.”
“The part of the Venn diagram where you get an overlap of a small business and a single-source supplier . . . is a larger number than I think people realize,” she added.
Dougherty said Govini will also be tracking companies that go out of business.
Jones said NDIA hopes the data it collects with Govini will become part of the policymaking process.
For his part, Smith said VTC’s experience has made clear the importance of protecting the pipelines of critical national defense programs.
He said businesses are often encouraged to minimize the size of their inventories to cut costs.
“Those sound good, but when you start talking about our specialized products . . . it is not the right recipe,” Smith said. “I think we may want to reconsider our acquisition strategies for the future.”
Smith said he’d like to see the Pentagon commit to multiyear awards to provide more supply chain stability.
“If we don’t know how to learn from lessons . . . we’re just going to repeat it,” Smith added.