Box 1: Flexible logistics solutions are helping manage supply chain challenges
To better understand the impact of the pandemic on supply chains and the response of firms that support them, the Bank conducted consultations with a small, targeted sample of Canadian businesses and associations in the logistics industry.
Supply chain challenges
Most firms reported that their operations were immediately and adversely affected at the onset of the pandemic by:
- changing consumer demands
- temporary closures of customer businesses and suppliers domestically and internationally
- capacity constraints related to transportation, sometimes tied to health guidelines
Overall, many businesses experienced significant slowdowns in sourcing inputs and in finding transportation and warehousing options, among other issues.
Mitigating measures and price pressures
The firms consulted noted that, after the shutdown phase early in the pandemic, they began working closely with suppliers and customers to address these challenges. Some suppliers reduced their number of product lines and focused on producing basic items. Large retailers and wholesalers temporarily sourced products from different suppliers and identified new delivery options. Transportation companies adjusted their capacity and schedules. Firms also mentioned they have started to hold higher inventories as a precaution against further supply chain disruptions. In some regions, this is straining warehouse capacity that was already tight before the pandemic.
These findings provide evidence that logistics-related processes and supply chain networks have been flexible in response to the challenges of the pandemic. This suggests that some of the supply chain issues reported by firms in the Business Outlook Survey may be temporary. Mitigating measures will remain in place indefinitely but are continually being adjusted and are less extensive now than at the onset of the pandemic.
Most businesses indicated additional costs throughout the supply chain tied to personal protective equipment, enhanced cleaning and sanitation, and physical distancing requirements. Retailers also noted increased costs associated with curbside pickup and direct-to-home delivery related to the surge in e‑commerce demand. Most firms indicated they partly pass these costs on to their customers but are limited by competitive pressures.
The evolution of supply chains
Several businesses said having shorter supply chains with localized parts closer to Canada is an ongoing topic of discussion. However, in the near term, most firms do not expect to pivot away from their existing processes or relationships. Nor do they expect to make major changes in their investment strategies. Instead, several firms reported accelerating their adoption of digital technologies in the near term to stay competitive and to help further mitigate some of the pandemic-induced challenges. These technologies will, for example, allow firms to improve their e‑commerce capabilities, enhance data sharing across supply chains and increase automation.