Risks and Trends in Supply Chain Management

Editor’s Note: Tracy McLean, senior vice president of global logistics at NFP, based in Toronto.

Supply chains around North America began to see a change starting July 1 with the shift from the North American Free Trade Agreement to the Canada-United States-Mexico Agreement (CUSMA).

From agriculture to energy to automobiles, the new regulation effects companies from many sectors. But the good news from a Canadian perspective is supply chain management has been preserved, allowing exporters to expand.

The supply chain is already dealing with many disruptions, and re-evaluating planning and forecasting. The positive and negative effects of the changes will depend on your industry segment and the products you manufacturer. Understanding the new tariff landscape will be another distraction to manage while coping with new health and safety standards in a different environment that changed overnight.
While there are still unanswered questions around CUSMA – which will be addressed over time – the focus will be to keep goods moving to support economies.

Risk managers need to know their market and learn about the new agreement along with the tariffs and sanctions that apply to their products or services. It’s important to do your research and understand you’re dealing with multiple regional markets. Building your US strategy requires a plan to address all opportunities and challenges.

FEMA released new rules around the exportation of specific products and procurement, creating challenges for Canadian or international companies who have contracts for services they provide, reducing or restricting products they source from US manufacturers. These companies will need to find new sources to meet their service obligations. As a result of unexpected events, further strains and difficulties to the supply chain are emerging. Vulnerabilities in various parts of the supply chain will force a re-evaluation of “weakness” in the chain and address contingency planning.

Canada is responding by shifting to source local materials and convert local manufacturing facilities to create jobs. They are also seizing opportunities to reuse materials to accelerate the production of essential products and supplies, while ensuring safety is the top priority. Our ideals towards supply chain will likely change as a result. Awareness of the widespread effects of trade – both exporting and importing products – has increased across communities. Disruption addresses leadership, public and private policy, bottlenecks, performance, and vulnerabilities in the movement of people and goods.

Since NAFTA was introduced in 1994, the North American market value has tripled in size to US$25 trillion annually. The effects of CUSMA remain to be seen, but the real impact lies in its future because of the agreement’s ability to recognize new commercial realities and establish frameworks for continued discussions to lead progress.

Realizing new supply chain management opportunities is nothing new as COVID-19 caused a big disruption to most industries. Thinking of new and innovative ways of managing your supply chain has become essential and people have been exposed to it more than ever before. They understand what it is, how it works and its vital role in the economy, and they see that the function has evolved to a point where it touches almost every part of the activities of most organizations. Governments and corporations – private and public – rely on the supply chain to procure the goods and services they need at the right time, place and price.

Procurement, transport, distribution, customs compliance, technology, security export finance and contract management are some of the components of supply chain management. Each of these functions has been tested by COVID-19 and we are experiencing risks and trends that even the best supply chain managers couldn’t have predicted. Many of these components will be tested again by CUSMA.

The unforeseen ripple effect has exposed vulnerabilities in the global movement of people and goods that may become the new reality. A virus has shut down economies, impacting every aspect of the supply chain and we have yet to realize the long-term effects. This has caused various companies, including in the automotive industry in both the U.S. and Canada to urgently manufacture medical supplies in lieu of their normal business activities.

These manufacturers may not be as focused on the implementation of CUSMA and could have to analyze and revise their current supply chain suppliers for parts and raw materials to comply. CUSMA requires more North American content in the automotive industry to incentivize production and sourcing in the region.

The US will have more access to Canada’s dairy industry as a result of the new trade deal, although the Canadian dairy sector has asked for delays in the implementation of the deal until 2021, which would help farmers financially. The industry has prepared a list of recommendations, including compensation for farmers, should the new deal create further financial hardships.

We are learning lessons about the impact on supply chain and what we need to change or correct. Disruption of the supply chain showed the importance of being adaptable to unexpected changes in the market, while identifying emerging risks.

Emerging risks require a different approach. History tells us that events trigger a change and correction. COVID-19 is no exception. Almost overnight companies started to feel the effects in their supply chain, including:

• - Too much concentration in a specific geographic region with no alternative sourcing options
• Too much reliance on any one supplier
• No inventory strategy
• No continuity planning
• No flexible logistics networks or service providers
• No investment in infrastructure to better understand risks – staffing shortages, flexible working arrangements, IT legacy systems
• Technology issues including data security, system stability and network sustainability
• Cash flow management disrupting financial stability

Emerging trends will evolve from the post-mortem and accelerate digital supply network capabilities and opportunities. Government and corporations can expect to see regulatory changes for customized products, artificial intelligence applications, block chain utilization. There will also be a re-evaluation of talent and skills, a shift in consumer expectations, adapting delivery models, and pivoting merger and acquisition strategies.

USMCA maintains the vast majority of North American trade will continue duty free. Much of the new agreement has been to standardize and modernize customs procedures throughout North America to facilitate the free flow of goods. There are important improvements to disciplines on technical barriers to trade that will make it easier for Canadian businesses to export goods within the CUSMA region. The agreement requires a formal review every six years and will ensure it remains relevant for years to come.
We will all need to prepare for the new normal and accept things will not be the same.

SC
MR