The trade protectionism and export-restriction approach the world was seeing pre-COVID has to change to a cooperative one to restore trust in global supply chains and maintain the benefits global trade growth has brought over the last two decades, a Conference Board of Canada report said.
A further shift to digital tools could be a key to that.
Conference board senior economist Julie Adès said in an interview the digital shift was happening before the outbreak.
“What we have been experiencing over the last few weeks may be a catalyst that would accelerate that trend. It may be a wake up call to some business to re-evaluate the way they operate with their supply chains and to invest in those technologies that would allow them to be more resilient in terms of facing future shocks.”
Further, the April 27 report suggested, containment measures imposed to halt COVID-19 give businesses a post-pandemic opportunity to re-skill laid off or cut-back workers so they are in a better position to tackle the new business, employment, and technological realities that will be more mainstream once the crisis ends.
The situation, the report said, has accelerated changes already underway before COVID-19 hit.
Overall, the report found, demand and supply shocks to Canada’s key trading partners—the United States, China, the EU, and the U.K.—are severely disrupting global supply chains and battering Canada’s export sector.
Depressed U.S. economic activity will have a profound impact on Canada’s export sector, with raw materials such as crude oil and durable goods such as motor vehicles and machinery and equipment taking the brunt of hits on the goods side. On the service side, exports of travel and transportation services will be hit hardest, it said.
Data collected suggested those businesses that relied on just-in-time value chain and delivery systems quickly found themselves with a lack of system inputs with a subsequent increase in production losses.
“However, businesses that had invested in digital supply-chain mapping systems were able to make more strategic and pre-emptive decisions,” the report said. “These systems allow businesses to see the entire supply chain and identify exactly which suppliers, sites, parts, and products are at risk and then make the appropriate corrective actions.14 Thanks to such systems, businesses are able to foster collaboration, agility, and optimization with their suppliers and secure the required inventory and capacity at alternate sites.”
Adès said the outbreak has illustrated where slow points can exist in supply chains.
“The problem that we have seen recently is that when there is an interruption or slowdown at one of those supply chain stages, well, the impact is spread very quickly across the rest of the supply chain,” she said. “There are some new models that were existing even before the outbreak that would allow us to map a supply chain network and to be more proactive when there is an interruption in one supplier. It would allow a business to change more easily to another supplier where the supply is smoother and continues to flow.”
“This may be a direction we will likely see more often in the future,” Adès said.
The report said the current situation could prompt businesses to adopt more agile ways of modelling supply and demand and sourcing components.
“This would allow them to respond more effectively to future disruptions— whether caused by a pandemic, a trade war, a natural disaster, or something else,” the report said.
And, as many sectors of society have found in recent months, that’s where the digital community comes in.
“Research has shown that digital technologies can reduce costs for businesses,” the report said. “Adopting digital technologies reduces information search costs, facilitates exchanges, and provides businesses with new marketing, finance, and networking opportunities.
“Furthermore, thanks to e-commerce platforms, smaller firms can more easily access global markets, both for buying and selling products.”
The report said global value chains could be enhanced with new supply management techniques and technological developments including the Internet of Things, big data, and cloud computing. Such changes could strengthen the current global value chain structure by reducing tracking costs and monitoring components of production over the long run.