Supply chains have undergone their fair share of disruptions in the wake of the COVID-19 pandemic. Despite the challenges, the current situation is an opportunity to rethink how they work in order to increase the benefits to businesses and their products.

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Three years ago, no one would have thought that supply chains would be going through an identity crisis, when everything seemed to run like clockwork. After the impact of the pandemic, they have recovered from the worst upheavals, such as inventory shortages and skyrocketing container costs. But there have been other difficulties, too. Production costs have dramatically increased with inflation, while labour problems and rising interest rates add to the equation.

Despite all this, businesses must continue to meet the same quality standards while aligning themselves with consumer concerns about where their food comes from and its carbon footprint. They also have to comply with the demands of creditors and customers.

“While the challenges can sometimes seem insurmountable, there are ways to both satisfy consumer expectations and become a more responsible company,” says Éric Waterman, Vice-President, Agri-food, at Inno-centre.

New realities

If we compare the prevailing situation in supply chains before and after the pandemic, the obvious conclusion is that the level of risk to which companies are exposed is no longer the same and they will have to get used to it. “There’s been a major disruption in the structure of supply chains and they’re not going to return to the way they were,” says Benoit Larouche, Senior Business Advisor at Inno-centre and a specialist in supply chain management.

In his view, supply chains have broken down at two levels. The first is when inventory shortages called into question the way in which supply is managed, the so-called “when, what and how.” “We realized that doing business internationally could generate all kinds of problems, such as with working capital.” The chain also broke when the importance of logistics was brought back to the fore, whether for the management of expiry dates or inventory. “These are costs that have consequences for a company,” says Larouche.

In addition to the uncertainties about supply chains, new challenges are being added, such as the geopolitical situation, which increases business uncertainty. The war in Ukraine, for example, has caused major upheavals in the prices of certain staples such as grain and vegetable oil. Political tensions between Canada and India in recent weeks are another example. “We’re realizing that offshoring as we’ve known it for the past 40 years has its limits,” says Ghislain Ouimet, Senior Business Advisor at Inno-centre and an expert in operations management.

In addition, financial backers such as the ministère de l’Agriculture, des Pêcheries et de l’Alimentation du Québec (MAPAQ), Investissement Québec and financial institutions are imposing new requirements related to environmental standards. Their purpose is to generate concrete actions to limit climate change, which will impact all players in society. “Is Quebec’s manufacturing sector ready to face such requirements? I’m not sure,” adds Ouimet. With a business community made up in part of very small companies, these businesses do not necessarily have the skills or knowledge to deal with these changes, a reality that accentuates the need for support.

Reversing a historic trend

Nevertheless, solutions are within reach. Ouimet believes that SMEs will have to thoroughly review how they do business, which is now at odds with pre-pandemic practices, if they are going to weather the turbulence in the coming years. “We’re facing a paradigm shift,” he says.

Benoit Larouche thinks there are many opportunities to explore. In his view, manufacturing companies can kill two birds, or even more, with one stone.

Before the pandemic, Quebec SMEs were doing businesses internationally, but without being fully aware of the costs involved. The reverse trend – regionalization – has many advantages, according to Larouche. By abandoning foreign suppliers in favour of local ones, companies are regaining control over certain products, whether it be distance-related delivery times or variations in product quality. There is also a shared business culture with local suppliers. The disappearance of certain administrative headaches is another factor that weighs in the balance.

“Regionalization adds value, is more agile and enables businesses to build good relationships with customers. In short, it minimizes the level of risk while creating a more resilient supply chain,” says Larouche.

In addition, it is much easier to ensure better product quality when suppliers are close by. Implementing traceability measures, for example, is a far simpler process.

A key change of philosophy for companies

Ghislain Ouimet would like to see a more benevolent business environment that puts aside turf wars benefitting no one. Businesses in the same sector could pool their purchases of certain products to take advantage of reduced prices without compromising the quality or processing of their products.

As an example, the advisor mentions glass jars used by Quebec companies, all of which come from China and are a standard size. Shared delivery could be another solution, giving customers access to fresher products by increasing the frequency of deliveries. The same logic could apply to human resources, a rare commodity in these times, especially when we consider people with specialized skills such as those with expertise in supply chain logistics, an important factor when it comes to establishing or maintaining quality standards.

In short, the traditional vertical business model is becoming horizontal. “What we’re pooling are resources, not know-how. The Association des microbrasseries du Québec is a good example. Microbreweries have banded together to join forces while remaining distinctive from one another. This allows them to balance the strengths between the big and small players,” says Ouimet. In his view, it is better to have a sector with many players than to go it alone. This type of business environment also favours the creation of local suppliers, often a guarantee of quality.

Bringing together the strengths of a sector or region also allows businesses to work toward a general trend, the farm-to-table concept. Instead of producers that are anonymous, they are identified and publicized. This model, which focuses on proximity between production and consumption, helps reduce greenhouse gas (GHG) emissions. It also promotes animal welfare and exemplary production practices. Consumers are demanding greater transparency, asking more questions, and inquiring about procurement practices and approaches due to a heightened awareness of climate change. “Community involvement is becoming increasingly important. We’re even moving toward a microlocal model,” explains Ouimet.

Developing a knack for finance

In a difficult financial climate, there are other very concrete steps that can be taken. Often, they include reviewing certain well-established habits to improve a company’s trade balance, such as favouring low-cost purchasing. A thorough examination of operations and purchasing yields better results, as does the verification of production costs . Too many small Quebec companies neglect to carry out this kind of exercise as they grow, according to Larouche. “They need to target strategic suppliers and implement concrete actions such as quality assurance, which should be done four times a year. Very often, SMEs have no indicators to monitor their performance and maintain standards throughout the year,” he says.

Along the same lines, Ouimet suggests defining business relationships . “The addition of specifications, requests for certificates of analysis for batches received, and supplier selection and certification processes, are essential. SMEs often don’t take the time to frame agreements.”

It is important to remember that management tools make a difference, and cost should not be a reason for not using them, according to Ouimet.

Adjusting to a less predictable environment

With a changing supply chain and business environment, the risks will only increase, especially if interest rates are slow to come down in the short term. This new normal represents an opportunity to be in step with developing trends while reviewing the company’s business decisions according to the best standards.

Some thought needs to go into the network surrounding the supply chain and the current risks. Larouche believes that companies should take the opportunity to reflect on business decisions and their consequences for the bottom line. “They need to understand the importance of the supply chain for the entire company,” he says.

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