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Economic nationalism is not a new phenomenon, but COVID-19 has fuelled its growth. The pandemic has created more disruptions in the networks between suppliers and customers accelerating the trend for global supply chains to transition to more regional or local settings.

Historically, global supply chains have been built on international interdependencies, such as manufacturing in lower labour-cost jurisdictions, and practices like keeping inventory and working capital to a minimum. They have relied on both low-tax trade agreements that allow free-flowing international trade and on stable demand predicted using historical data. This no longer works in our pandemic-hit reality.

In our current environment, consumers' expectations and preferences are also evolving and shaping business models and supply chains. Consumers now want more choice, more often, delivered immediately, year-round. There is increasing demand for personalized products, a shift towards more sustainable products, and our recent report Keeping up with the Canadian Consumer, indicates that 79 per cent of Canadians are willing to pay local suppliers more for some of their products.

So with this in mind, enabling your business with shorter, decentralized and agile systems that link producers to consumers in the same locality or within the country — creating micro supply chains, is very important.

Challenging global supply chains

Last year's shortage of personal protection equipment (PPE) demonstrated the challenges of existing global supply chains. Countries battled for limited supplies of PPE and even within Canada we saw provinces competing with each other, showing that economic nationalism applies within countries. Similar issues can be seen with COVID-19 vaccines, although the problems are more focused on manufacturing; when produced, 'cold chain' temperature-controlled distribution networks should be able to get vaccines to where they need to be, safely and on time.

Global supply chains were not designed for changing consumer demands and the pandemic has made meeting them next to impossible. Like the giant container ships that they currently rely on, supply chains take a long time to turn, but a change of course is in order.

Like the giant container ships that they currently rely on, supply chains take a long time to turn, but a change of course is in order.

From cost-reduction to flexibility

We think that cost-reduction, the previous focus for global supply chains, will be de-emphasized in favour of flexibility and for international trade, taxes will also become more of a factor. The idea that organizations should buy where you make and make where you sell will become stronger.

In Canada, much of what we buy at present is imported, including essentials such as food. There is an opportunity for Canadian companies to rebuild and grow these critical supply chains within the country, which would help protect citizens against future shortages.

Legislators in the United States are setting minimum levels of local production for some critical supply chains and while this is unlikely to happen in Canada, local and federal governments may well introduce incentives to produce more locally given that PPE showed the benefits of doing so. In fact, 92 percent of Canadians say they want government to create incentives to 'buy Canadian' to restart our economy and ensure we build necessary domestic capacity to supply our critical needs.

For those operating supply chains, the opportunities include:

  • Incorporating tax implications into planning
  • Examining micro supply chains
  • Looking at how much stock your supply chain should carry
  • Considering alternative suppliers
  • Starting to reduce risks, rather than costs

What to do next

Organizations have to find the right balance between staying competitive and building micro supply chains that are local and environmentally sustainable. Our KPMG CEO Outlook survey indicates that around two-thirds of CEOs believe their supply chains need a complete redesign and we are hearing the same from our clients. This includes moving retailing from physical shops to e-commerce and a narrowing of focus to fewer, more select customers.

Data and advanced analytics can not only result in efficiencies but also present new and unique business opportunities. Moving from a historical to predictive data model will help organizations understand likely future demand much better during the pandemic and its aftermath. At present, historic data is almost useless to businesses, but adopting a range of current data sources, such as road traffic volumes and the proportion of children attending schools, can help them become intelligent forecasters.

Moving from a historical to predictive data model will help organizations understand likely future demand much better during the pandemic and its aftermath.

Also, although it is a relatively new tool in supply-chain planning, artificial intelligence can help you quickly gain a better understanding of your clients and market segments by processing large data sets and uncovering key insights. Finally, by adopting 'total cost to serve' as a key performance indicator, you'll be able to measure everything involved in operating the supply chain from marketing and promotion to finance and distribution, ultimately providing you with more useful and valuable metrics to understand the implications of market changes and pivot accordingly.

We help clients transform their supply chains, increase their resilience and manage risks.
Please contact us to find out more.

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