Showcase session highlights changing industry

Sep. 2—JOHNSTOWN, Pa. — An industrial revolution for manufacturers and government contractors is accelerating, and tightening cyber security is one of a few challenges small businesses face as they adjust.

Those were themes during a morning session of Showcase for Commerce Wednesday at the Holiday Inn Johnstown-Downtown, where dozens of people representing companies in the region grappled with the future of the industry.

Eager for information, contractors listened to a presentation of Wessel & Co. accountants and advisers, which provides customized accounting services for government contractors and manufacturing companies.

"Their insight on defense contracts is very helpful," said Steve Kobal, controller of JWF Industries, a manufacturer of metal-centric products in Johnstown.

"They have a depth of knowledge about DCAA (Defense Contract Audit Agency) audits," he said.

In a presentation to companies including JWF, Kitron, CTC and many others, Wessel & Co. CPA Jared Mishler said manufacturers are estimated to be back at pre-pandemic revenue levels by the end of 2022.

He cited that information from a survey of 500 companies by BDO, an international network of public accounting and business advisory firms.

But to mitigate problems that companies faced as a result of COVID-19, manufacturers are entering a new industrial revolution defined by a cyber-physical model called "Manufacturing 4.0."

It includes augmented reality, robots and big-data software analytics that monitor quality control and details from the beginning to end of the supply chain, Mishler said.

The digital shift began within the decade but accelerated in the past year as manufacturers faced supply chain bottlenecks, demand shifts, workforce challenges and logistics issues stemming from the pandemic.

As a result of supply challenges, costs increased. The BDO survey showed manufacturing companies passed additional costs along to customers as well as reducing profit margins and reevaluating suppliers.

At JWF Industries, Kobal said the company is moving in the manufacturing 4.0 direction.

"In a lot of areas we are looking more at automation," he said. "We have robotic welders in the shop and new software systems, so we are definitely looking into that route."

Implementing the technology for a new approach can be costly, but Mishler outlined that tax credits, external funding sources and partnerships can make it affordable.

Achieving a level of cyber security to adjust to the future is a major stumbling block for contractors in manufacturing, consulting, research and development and all defense-related areas.

Small businesses trying to break into government contracting are squeezed by new cyber security regulations on contractor's business systems for accounting, estimating and purchasing, said Patrick Bearjar, Wessel & Co. CPA.

"This exposes small businesses to position of not being able to get (larger) contracts," he said.

Jim Scharrer, production support manager for Progeny Systems Corp., based in Charleroi, Washington County, said he agreed with Bearjar.

"There seems to be a growing trend of government oversight at a system level (accounting, estimating and purchasing)," he said. "And there will be challenges to achieve appropriate cyber security posturing required by the government."

Driven by recent events, the government has taken a more active posturing on cyber security, he said.

"That's a good thing, but smaller businesses have a long way to go," Scharrer said. "A lot of them are starting from ground zero."

Bearjar said contractors can expect the Defense Contract Audit Agency to check for compliance issues of companies' business systems as well as use of sources of pandemic relief in the past year — PPP loans especially.

With the United States' withdrawal from Afghanistan, fewer government dollars will be spent on contracts, Bearjar said.

"So companies can expect more government resources to be used for compliance audits," he said.