December 15th, 2021
Supply chain issues have become one of the dominant business news stories, holding back our economic recovery while driving up inflation.
On the simplistic end, it’s a perfect storm of demand greatly outpacing supply. Of course, it’s much more complicated that that.
Like many issues, it’s one that has been building for some time before COVID-19 became the catalyst that drove it to a breaking point. We’ve come more and more to rely on the timely delivery of goods from just-in-time buying for manufacturing and agriculture to home delivery of consumer goods. We’ve not only increased demand, but also the timeliness and personalization of the service.
Globalization has also led to a world-wide diversification of the supply chain. Raw
materials from various countries are sent to manufacturing facilities, who in turn send their products to the assembly plants, before eventually getting products to market. A delay at one part of the chain has impacts all the way down to the consumer.
Though personal spending dropped as people remained cautious, it shifted away from services to buying more goods — which requires more of our supply chain.
We’ve been increasing our dependency on speedy delivery of goods, so when COVID-19 hit, various delays around the world were compounded into an issue that has crippled some sectors and industries.
This perfect storm brought the human factor to the forefront as facilities had to restrict output or shut down all together to manage the impact of the virus, putting more and more pressure on the people still running our supply chain. This has led to burnout, sickness and labour action. This is impacting port workers, truck drivers, and warehouse staff.
Our transportation networks are struggling to keep up, with widely reported backlogs at ports and shortages of trucks and drivers around the world.
Further adding to this have been extreme weather events, including the flooding in British Columbia knocking out rail and highway access to the Port of Vancouver.
Factory shutdowns and an increase or shift in demand have driven up demand for raw materials. Earlier this year it was widely reported that the increase in homebuying as well as reconstruction from catastrophic weather events had contributed to a wide-reaching shortage of foam used in furniture.
While the hindsight view of how we got into this mess is pretty clear, getting out isn’t going to be easy or quick. Current estimates don’t put a return to normal access to goods and materials for another year or two.
Part of the solution involves investment in infrastructure, both by the private and public sector on assets including ports, warehouses, roads, and rail. Another part involves wages, labour conditions, and training programs.
All of this comes at a price — but so do the delays.
Like many things impacted by COVID-19, a return to normal is a moving target. Businesses have turned local wherever possible to supply the goods and materials they need. Lower labour, material and production costs in foreign markets are offset by high transportation costs and lagging delivery times.
Localization is a way to compress the supply chain, managing risks and costs. The term “nearshoring” is coming up as businesses focus more on the resilience of their supply chain, focusing on access to goods and materials closer to their facilities.
This movement should help alleviate some of the strain on the global networks and reduce greenhouse gas
emissions on top of the benefits to local communities receiving increased investment.
The cost of doing business was identified by the Ontario Chamber of Commerce as the single biggest issue facing businesses at the moment, with supply costs being a significant driver of that. Prices aren’t likely to drop soon, but the more we invest locally in sourcing what we buy, the stronger we’ll be positioned as a community, a region, and a province to handle what comes our way.
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