Manufacturers considering early warning systems, reshoring and infrastructure upgrades amid supply chain issues

For much of the past 21 months, Rami Aroosi has struggled to procure enough bikes to fill the racks of his downtown Ottawa cycle shop.

Shipping rates have skyrocketed amid a backed-up global supply chain caused by the COVID-19 pandemic, pushing up prices. And the absence of just one part in a vast manufacturing network that originates in Asia can put the brakes on entire shipments.

“For example, Shimano — almost every second bike on the planet has Shimano parts,” says Aroosi, who has run Foster’s Sports Centre for three decades. “The companies manage to get the frames, but they cannot get the parts to assemble it.”

“It’s like a chain: One thing triggers another and makes it really worse.”

Aroosi is among thousands of retailers across the country whose sparsely filled stockrooms have run short of products ranging from electronics to lumber and liquor.

The shortages and price hikes highlight the vulnerabilities of a just-in-time delivery model, prompting stakeholders and experts to rethink the fine-tuned approach with an eye to early warning systems, reshoring and infrastructure upgrades.

Originating in the automotive industry in the 1950s and honed across a globalizing supply chain, just-in-time manufacturing aims to precisely calibrate assembly lines and shipments while minimizing stockpiles that weigh on efficiency. Rather than spending time and money to warehouse parts, producers receive goods as needed.

“Fifty years ago you would buy six months’ worth of material and run it out. Now you call your supplier saying you need it for Tuesday and it shows up on Monday night. We went from just in case to just in time,” said Dennis Darby, CEO of the Canadian Manufacturers and Exporters trade group.

“It’s a very efficient supply chain, but it’s really not very resilient.”

Manufacturing amounts to more than 10 per cent of Canada’s gross domestic product and $354 billion in annual exports — 68 per cent of all exported merchandise — according to the federal Industry Department. That means a wrench in the gears has major repercussions.

The pandemic-driven shortage of semiconductor chips has hurt vehicle producers particularly hard, along with makers of items from smartphones to fridges.

Canada’s auto industry felt the pinch more than most, as producers tended to funnel what semiconductors they had to their bigger, pricier models rather than compact ones such as the Honda Civic or Chevy Equinox, Darby said. “And Canada tends to produce more economical models.”

On top of driving up the price for consumers, the dearth of semiconductors will likely cost the global auto sector US$210 billion in revenue, according to consulting firm AlixPartners. Some 7.7 million vehicles will not be made in 2021, it forecasted in September.

The situation has pushed manufacturers to consider baking in early warning systems for shortages along with more transparency and communication between players, said Brian Kingston, who heads the Canadian Vehicle Manufacturers’ Association.

Reshoring is already in motion. U.S. President Joe Biden’s $US2-trillion infrastructure plan includes US$300 billion to bolster the American manufacturing sector, setting aside US$50 billion for semiconductor production and research.

Ottawa’s strategic investment fund, including $5 billion over seven years for the “net zero accelerator” laid out in the April budget, aims to boost research and development across sectors, such as the green economy and the fledgling biomanufacturing field.

Reshoring production could be appealing — particularly for industries such as vehicle manufacturing that rely on automation — if plants can be built on cheap land at home, said Anming Zhang, a business professor specializing in transport at the University of British Columbia.