Supply chain resiliency

From the February 2024 print issue

During the COVID-19 pandemic, the term “supply chain resilience” became ubiquitous.

People who had never heard of, or cared about, supply chains suddenly became aware of how quickly a system failure can impact the simplest aspects of life. Companies were willing to acknowledge that they “don’t know what they don’t know” about supply chains, because there was no shame in admitting to the same challenges as everyone else. While circumstances were obviously not beneficial, the increased awareness around supply chain risk and resilience was.

Matt Weller, CPIM, CSCP is a 23-year supply chain veteran, and founder of Naviga Supply Chain.

Supply chain resilience is a measure of how quickly your supply chain operations (and operations they support) can resume previous performance levels after an adverse event. While it is impossible to anticipate risks and avoid such events entirely, if your supply chain systems are resilient, your bounce-back time and cost will be minimal. That’s especially important if your competitor can recover faster than you.

A lack of strategic system thinking in supply chain management and comprehensive risk planning for decades preceding the pandemic was the real culprit in 2020. As was the failure to see supply chain management as a strategic asset over an administrative cost. Though these conditions still exist, more companies are working to improve upon them.

Why it matters
These problems impact more than just the supply and demand of materials, services, or resources. The interconnected nature of supply chains also impacts employment. Managing supply chains requires decentralized, distributed operations and decision making, which support and inform separate functions like marketing, sales, finance, engineering, R&D, service, and production. If your supply chain is impacted or stops, so too will these roles. If your supply chain is resilient, these functions (and your company) will benefit. Employment is an impact that passes beyond the factory walls into local and global economies.

According to Innovation, Science and Economic Development Canada, as of 2020, $90.5 billion in wages came from manufacturing, which happened to be down from the previous year by $6.7 billion, and 93.2 per cent of these manufacturers have 99 employees or less. 6.2 per cent have 100 to 499 employees, and only 0.6 per cent have more than 500 employees. Total revenues for 2020 were $678.4 billion, down from $748.2 billion just a year before. As well, 4.5 per cent of our GDP comes from manufacturers. These numbers illustrate that nearly all of them are small to medium in size.
Few companies in Canada’s manufacturing sector are large to global in size – but likely contribute disproportionately more to GDP than the majority of small companies. So making these small- and medium-sized manufacturers more resilient should be a concern. These firms are the least able to adapt quickly to changing business environments due to limited resources and capacity. The result is, they stagnate or fail. The “winners” are those that pivot faster than the competition, with the least increase in fixed or variable costs. In other words, it’s a competitive advantage to have supply chain resilience that’s effective and affordable within a business’s specific operating realities.

Aren’t our larger manufacturers the best place to focus on resilience, due to their economic contributions? From my experience, in the long-term the answer is no. The reasons are simple. What happens when a major manufacturing firm, which generates such a large economic contribution, decides to pull up stakes, for any of a number of possible reasons? The results are devastating on local communities, and long-term. Furthermore, Canada’s manufacturing is predominantly low volume, high value/mix/customization goods. Unlike any volume manufacturing (think consumer goods), these products have their own supply chain challenges that are often overlooked by the volume-based best practices of the large manufacturing firms. The future landscape of Canada’s manufacturers includes far more small and medium firms and fewer large ones because needs will be decentralized, with local specializations and requirements.

Redefining Canada’s place
Geopolitically, the world is changing fast. In North America, a large portion of the population is retiring, and they are pulling in their own capital to fund it. This means declining capital for R&D, funding for new companies and other longer-term investments. Several parts of the world are entering a population implosion, meaning that political and trade challenges aside, some key supply partner nations will soon no longer be able to produce our goods competitively. We will return (more-or-less) to the pre-Second World War era where countries will survive or fail based on their own natural and internal resources, their abilities to process those resources, and their ability to produce the goods they need to maintain their living standards. In Canada, we have outsourced (or retired) most of our processing capability and knowledge. Now, the long-term survival of our nation’s independence falls on a rapid reacquisition and scaling of these capabilities. More broadly, finding effective solutions to climate change, poverty, and economic instability depends on the integrated system thinking inherent in supply chain resilience principles. Beyond re-shoring, we need a reindustrialization.

We have the natural resources, but we must build on our processing capacity and make it resilient. Our small and medium manufacturers can be the foundation for this reindustrialization. And why not? Besides our natural resources, we are well positioned to do this with methods that are more sustainable and efficient than before. After all, cost effectiveness and sustainability are natural outputs of resilient supply chains.

We will always need goods and resources. Our ability to produce them will depend on our supply chain resilience, or we will be at the mercy of someone else’s. Our small and medium manufacturers should be the foundation on which to secure our future prosperity.