Supply Chain Q&A
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We look at how the pandemic has exposed supply chain issues in the Canadian manufacturing sector.
Business uncertainty resulting from volatile trade issues and global disruptions are forcing manufacturers to
examine their entire supply chain network.
PLANT: The COVID-19 pandemic, recent protests/blockades, and major world events have caused upheaval in Canada’s supply chain. How do we address the ongoing problems?
Dennis Darby, President and CEO, Canadian Manufacturers and Exporters: I wouldn’t have predicted two years ago, that at or near the end of the pandemic we would be talking about supply chain disruptions. It’s affected every part of our economy. Over 90 per cent of manufacturers had been affected in a significant way in increased costs or delays, because of the stretching of our supply chain and the disruptions that have happened (natural disasters, blockades, pandemic shortage in the cost of containers).
When we asked our members what would help, many said they don’t have enough workers, not enough skilled labour. We’ve been calling on the government to rebuild that pipeline of people, also, we need incentives
We must do a better job with our infrastructure, it is not strong and resilient enough, and governments have not invested enough in our capacity. Our members are saying they don’t even see an end to this until at least late 2023 and that’s probably appropriate, given how long it will take to rebuild.
Stephen Cherlet, National Board Chair, Supply Chain Canada: Labour shortages are a critical issue. In Quebec it’s been a long-time issue to try to find people but, labour issues are happening across the country and even with our customers in the United States. There’s more of a tendency now to work remotely and that’s more acceptable, so people are realizing they can work anywhere. Some organizations are seeing a lot of job turnover, as it was pent up.
Mike Millian, President, Private Motor Truck Council of Canada: From the trucking perspective, what we’ve seen happen since the pandemic is we now have a chronic driver shortage. The pandemic has caused a lot of drivers to leave the industry, for one reason or another, and it was already an industry that had an aging workforce.
Another issue is you can’t flood the market with drops, even if you could find drivers, because of the part shortages and other supply chain issues, there’s an 18 month wait to get trucks. Therefore, if you could get drivers to fill those trucks, you can’t get the trucks. The shortage is now on both sides, we don’t have enough trucks and we don’t have enough drivers in those trucks.
Rajiv Sujan, Senior Director, Consulting – Digital Operations, PwC: What we’ve observed with our clients is throughout the pandemic, the first couple of waves and with Omicron, we noticed that our clients went all hands-on deck and were dealing with the operational challenges.
As we’ve gone through it and when there was an ebb and flow throughout the pandemic, our clients were able to come up for air a little bit. There was increased attention on accelerating their investments, so they had projects that they didn’t attend to (digitize or improve the way their supply chain works) before the pandemic. They were taking the opportunity to accelerate these investments, so they’re better prepared as the disruption continues.
PLANT: Faced with a tight labour market and supply-chain challenges, in the future, what can businesses do to protect themselves when faced with these conditions? What happens if there is a disruption and who are the alternate suppliers?
Rajiv Sujan: On one thing that we wondered in the early days of the pandemic and repeatedly at various junctures throughout it, is whether the needs of our clients were going to change, whether they would be looking to do different things to withstand disruption in the future and to be better prepared. Interestingly, we found if you look at the companies that were able to be resilient or thrived through the pandemic and stages of disruption; the underlying capabilities that they must plan and execute their supply chains, are the same that are best practices.
A company should be thinking about a few different things, one would be their supply chain planning capabilities and how mature are their practices around forecasting demand, by using the best of cloud technologies AI machine learning to anticipate and predict demand in the near-term, medium-term and long-term, how they use that in order to plan their supply decisions around capacity production and planning inventory strategies.
Something organizations should think about is their supply chain networks and the physical footprint that they have at supplier plants. They need to ask if it the right footprint, should they be continuing to keep them in the future or are there optimization opportunities. Optimization was about customer service, but now it is resilience (it’s not simply “how do we service at the optimal cost and service level; but are we capable of responding to disruption and are we resilient for the future?”
Finally, on the execution side of supply chain (plant operations, distribution centre operations), we’re seeing organizations needing to automate more and looking to reduce their dependency on labour. Therefore, being able to drive more automated facilities, where can you scale up or down, and staying nimble and resilient to fluctuations in future evolution of the business and the environment.
Stephen Cherlet: A part of the question was around alternate suppliers and peaks in transportation costs if they stay high because if we look at the total cost of acquisition and total cost of supply chain; then it could change people’s calculation and where they’re going to look for their suppliers, as a result some organizations have been looking closer to home. Although it might be more expensive, transport is helping to offset that. We will also see new entrances into the market, such as what has happened with PPE.
Mike Millian: Automation isn’t going to help the productivity of a classical long haul or regional truck driver. Is the role going to change, yes, trucks are becoming more technological (advanced collision mitigation system, lane departure system, all the tools that are there that can help make this truck operate by itself), but they all rely on sensors and on connectivity with the infrastructure. However, the issue is with our infrastructure today and trying to maintain the pavement and opening more lanes to build redundancy, is a challenge.
PLANT: Plant magazine recently ran a poll on its web site asking visitors when they believe the current supply chain issues will end. The majority said over a year. When do you believe that the current supply chain problems will subside? And why?
Stephen Cherlet: It is going to be a year, or even longer; there’s just so much going on (long and short term), so the pandemic may be winding down, but we’ve got trends that have been started. Labour and where people want to work, and how they want to work, is going to be a hangover for quite a while. Gas and oil supplies on a global basis is going to have a huge impact for a while.
We’ve had other issues too, floods and fires on the west coast, that are going to continue and be relatively unforeseen. We’re going to have these shocks to the system on a regular basis. We may recover in a growth mode in a year or so but have recurring shocks that are going to cause ongoing turbulence.
Rajiv Sujan: The speculation around when this phase of disruption will end is anybody’s guess, but we all know that it’s not going away tomorrow or anytime soon. At the start of the pandemic, it was all about that, now it’s the pandemic, floods, blockades and protests, invasion in Ukraine, inflation skyrocketing, and more. It is important to be ready for continued uncertainty and continued phases of disruption that can be here for some time to come.
PLANT: Who supplies the suppliers, and where are they sourcing materials from? Are the suppliers geographically close to the plant?
Stephen Cherlet: Certainly, it’s a global supply chain, but people are going to be more cautious about it and they’re going to make sure that they have some redundancy in their supply chain. What companies need to do is have sit down and look at what they think their supply chain is. The number of suppliers, even just the top few materials that go into something they supply, and where they’re located, the distances involved, since that equates to time and cost. Next, you can prioritize what should I look to bring home, where should I look for redundancy, where should I look to make sure I’ve got alternate transportation channels.
Dennis Darby: Not surprisingly, about three quarters of manufacturers source most of their materials from within North America, but a quarter of it comes from outside. It’s often the stuff that comes from a longer distance, which is where issues come.
When we surveyed those who serve just in North America, they’ve experienced the fewest delays. One group said “it’s only 25 per cent outside of North America, no big deal”; however, this 25 per cent is what you need right now for that product.
Stephen Cherlet: It might be a smaller portion that’s at risk because of the distance and maybe the geographical risk. However, even if when you’re sourcing from within, North America, where are they sourcing it from? Therefore, we get it from you, but where do you order from, where does that supplier order from. If you go back a couple levels, you might be quite shocked a lot of material are moving back from a further distance or higher risk area.
Mike Millian: When we look at vehicles right now, semi-trucks have 18-month backlogs, car dealerships have no vehicles. Assembly plant lots have trucks that are 95 per cent built but are waiting on a shipment of a part that is needed for the truck. Most of the truck might be assembled, but it can’t be shipped out until it’s finished and it’s missing one or two parts that are coming from somewhere else. The truck or car could be sitting mostly completed for six months before it ever leaves.
Therefore, maybe we need to look at making sure all components that we need, we bring more back home or build redundancy. We all know that if you bring everything back to Canada, the price will skyrocket, and you’ll have a surplus; so, it’s a fine line.
PLANT: Should Canadian manufacturers be looking at reshoring as a solution?
Dennis Darby: We asked members, how do you approach the shortages, most didn’t choose to reshore. We don’t have the labour, we need to be able to put more capacity here and Canada regrettably is a very expensive and complicated place to put capacity, we’ve been under invested for years. We need to make sure the US or international businesses see Canada as a cost competitive, reliable supplier. Many companies are not going to reshore their Canadian production since it is difficult and slow.
Mike Millian: Bringing it here, just to serve a Canadian market would be a humongous challenge. We’re are small; however, we have a very huge trading partner in the US. Therefore, we have to bring production back to North America and hope to convince the US that some production needs to be brought to Canada.
Stephen Cherlet: If you’re reshoring, it’s not just for your specific local geography but the bigger region. Therefore, a large American company is not going close an operation in China and try to build everything for the world back in North America. They’re going to keep operations in the region to support sales in that region. They may repatriate back to their home geography what they’re going to sell in that geography. Canadian manufacturers, we have to look to expand capacity and to bring work back home but have to look at the broader market (i.e. North America).
Watch the roundtable below.