Business·Analysis

Canadian supply delays come as a warning that future interruptions could be worse

As some goods disappear from shelves, Canadians are realizing how dependent our economy is on producers far away. Advocates say economics — and national security — depend on finding ways to make the supply chain more resilient.

Economic and security concerns prompt calls for increased Canadian supply chain resilience

While some Christmas gifts may be stuck on a container somewhere, nightshirts made in Sault Ste. Marie, Ont., with Canadian labour are still available. (49th Apparel)

Despite a growing income from his own business, Daryl Wier and his spouse have been trying and failing to spend their money on new kitchen appliances that now face a back order delay of many months.

Wier's income and his inability to spend it may be connected. For Wier, who runs 49th Apparel in Sault Ste. Marie, an Ontario city of about 70,000 where Lake Superior meets Lake Huron, his business of making nightshirts and selling them by mail order has never been better.

"Should I really say my sales are up by 360 per cent?" Wier said over the phone last week, as if afraid of courting bad luck by being too boastful.

Within the discipline of supply chain management, Wier's business, unlike those of appliance and automakers and many others, is considered "resilient."

Because his labour supply is local and his stockpile of imported cloth is enough to see him through his busiest season, Wier can keep making and selling his product while many others who are waiting for goods or essential components trapped in a container far away have no product to offer.

According to supply chain experts, the bright side of the current breakdown in the exchange of labour, components and ingredients is that it comes as a warning to Canadian businesses to become more supply-resilient.

WATCH | A surge in imports is straining Canada's supply chain:

Import surge straining Canada’s supply chain

2 months ago
2:31
Hundreds of empty shipping containers are stacked in Vancouver’s port and it’s straining the supply chain because there’s a larger demand for imports to Canada than exports. The backlog is hurting truckers and could mean longer waits and higher prices for consumers. 2:31

Not only is resilience crucial to keeping the Canadian and North American economy ticking when foreign supplies of essential components are cut off by pandemics or bottlenecks, but a growing number of advocates also say techniques such as stockpiling, making more of what we need at home, controlling transportation links and having multiple sources for crucial manufacturing inputs are a vital security concern.

Those who accidentally — like Wier — or intentionally — such as Winnipeg's Precision ADM or Waterloo's Eclipse Automation — have made themselves more supply-resilient are now reaping the rewards.

The crisis in supply chains — a term seldom uttered outside specialist circles before the pandemic — has launched a flurry of deliberation and debate in Canada, including at a conference last week, over how to deal with similar predicaments in the future.

Bringing the supply chain home

According to a report from Thomas Insights, a firm that helps companies track down suppliers of the components they need, 83 per cent of North American manufacturers are looking for ways to source their inputs from closer to home, compared to 54 per cent in 2020. 

"Nobody ever understood what a supply chain was until the pandemic," Pat Campbell said in a few minutes snatched away from helping to run a week-long Supply Chain Canada conference that ended Friday. Campbell, whose duties included booking speakers for the conference, lives and breathes supply chains but said most people were like her grandchildren and really didn't get it.

"I used to say that it was from the time the farmer picked the tomato in the field and puts it on the truck to go to market to the time my grandchildren pick up the bottle of ketchup off the retail store shelf, everything that happens along that path is part of the supply chain," said Campbell.

Canadian Tire shipping containers sit in Shanghai, China. One move toward greater supply chain resillence used by larger companies is to take greater control of the transportation network. (Carlos Garcia Rawlins/Reuters)

Of course, it is more complicated than that because a detailed look at a supply chain would have to go back to examine the equipment used to farm the tomatoes, the fertilizers, the pesticides and the temporary foreign workers who picked them.

Johnny Rungtusantham, Canada Research Chair in supply management at York University's Schulich School of Business in Toronto, points out that after years of sourcing products from wherever labour is the cheapest, recent disruptions have come as a shock to many businesses.

Rungtusantham said it is a reminder that when businesses choose the cheapest price or the cheapest labour when looking for components or places to manufacture without considering the total cost to the economy, it can have unexpected costs down the road. 

"You may end up making the wrong decision." 

National security concerns

Another speaker at this week's conference was Tony Clement, the former federal Conservative cabinet minister, who, along with former Ontario Liberal minister Sandra Pupatello, co-chairs Reshoring Canada. The two are part of a private lobbying effort to do a bigger portion of global manufacturing in Canada for the sake of the economy — and for the sake of national security.

Clement suggests the current disruption of the supply chain is a symptom of a growing problem as more manufacturing has moved overseas.

"It really is becoming a tipping point," Clement said in a phone conversation, noting that while current disruptions are bad, they could be much worse if China and the U.S. had a falling out.

"The supply chain challenges that are happening now, we believe are just the tip of the iceberg, that this is going to be a continuing trend, particularly as the geopolitical situation deteriorates and the U.S. seeks to decouple some of its supply chain from China." 

Clement said that not only the need for national security, but also a growing need for lower-carbon manufactured goods, mean the Canadian government must think of ways to shorten supply lines and make more things at home.

The on-site pharmacy at a vaccine clinic at the MaRS Centre in Toronto was established to support domestic medical innovation and businesses, but experts say that kind of effort takes time and government commitment. (Kate Cornick/CBC)

Whether or not North America will someday have to survive while supplies are cut off from a hostile foreign power, Shauna Brail, from the University of Toronto's Institute for Management and Innovation, insists that the current crisis should not be wasted.

In the past, Brail has studied path-dependency, the idea that decisions you made previously lock you into the decisions you can make now. An example is the rush for North American businesses to use less expensive Chinese labour decades ago that means Chinese factories continue to make essential products despite the fact that rising labour costs in China mean many workers have been replaced by robots.

Path-dependency tells us that process is hard to reverse. But it is not impossible.

Brail said that while not everything can be made in Canada, emphasising existing specialities such as the automotive sector, mining and resources and medical technology can create concentrations of expertise that offer a greater chance of finding essential skills and products closer to home. But it takes time and commitment.

"There is an opening for Canada now to change direction, to do better," said Brail. "And if we don't take it, another country will and Canada will be left out."

Follow Don Pittis on Twitter @don_pittis

ABOUT THE AUTHOR

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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