Just-in-time production may not survive current disruptions

MONTREAL –

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Manufacturing accounts for more than 10 percent of Canada’s gross domestic product and $ 354 billion in annual exports, or 68 percent of all goods exported, according to the federal Department of Industry. This means that a wrench in the gears has major repercussions.

The shortage of semiconductor chips caused by the pandemic has hit producers of vehicles particularly hard, as well as manufacturers of items ranging from smartphones to refrigerators.

The Canadian auto industry was hit harder than most, as producers tended to funnel the semiconductors they had into their bigger, more expensive models rather than compact models like the Honda Civic or the Chevy Equinox. , said Darby. “And Canada tends to produce more economical models.

In addition to driving up prices for consumers, the semiconductor shortage is likely to cost the global auto industry $ 210 billion in revenue, according to consulting firm AlixPartners. Some 7.7 million vehicles will not be manufactured in 2021, he predicted in September.

The situation has prompted builders to consider putting in place early warning systems in the event of a shortage as well as more transparency and communication between actors, said Brian Kingston, who heads the Canadian Association of Vehicle Builders. vehicles.

“Instead of relying on a third-tier supplier who has a relationship with the semiconductor company, there would be a closer relationship between the OEM (original equipment manufacturer) and the producer,” did he declare.

Kingston doubts that a fundamental shift towards a complex production system woven over decades and continents is about to collapse quickly.

But the relocation is already underway. US President Joe Biden’s $ 2 trillion infrastructure plan includes $ 300 billion to strengthen America’s manufacturing sector, setting aside $ 50 billion for semiconductor production and research.

The Ottawa Strategic Investment Fund, including $ 5 billion over seven years for the “net zero accelerator” introduced in the April budget, aims to stimulate research and development in all sectors, such as green economy and the emerging field of biofabrication.

Analysts also predict that demand for rare earth metals will skyrocket, as auto giants will need batteries to electrify their fleets.

“The greatest opportunity for Canada is unquestionably in critical minerals and rare earths,” said Kingston, citing the country’s “very large endowment” of cobalt, graphite, lithium and other elements and metals.

But the field is already dominated by China, which accounted for 81% of global rare earth production in 2017, according to the US Geological Survey.

“We have to act quickly because this is a very fast-paced and extremely competitive space,” said Kingston.

Relocating production could be attractive – especially for industries such as vehicle manufacturing that rely on automation – if factories can be built on cheap land at home, said Anming Zhang, business professor. majoring in transportation at the University of British Columbia.

“Asia is densely populated, so land is really not as plentiful as what we have in North America. If this automation movement continues, thenâ€Â¦ relocation may be reasonable and quite natural.” , did he declare.

Scale and flexibility offer other avenues around erased supply chains.

The Semiconductor Council of Canada released a report last month recommending that the country form a government-led consortium of chip buyers by 2025 to strengthen its bargaining power.

Online platforms like Flexe, which allow companies to share warehouse space and distribution capacity, present a cheaper way to save inventory, said Maria Jesus Saenz of the Center for Transportation and Logistics. from the Massachusetts Institute of Technology.

Meanwhile, recent floods and landslides that cut vital road and rail links in southern British Columbia further exposed the vulnerability of Canada’s supply chain and the need for stronger infrastructure, she declared.

Dredged ports, twin rail lines and new retaining walls offer a limited solution. But new supply channels are difficult to create, given the limited number of major North American ports – with even fewer alternatives if extreme weather or labor issues disrupt service to these hubs. maritime, as happened this fall in Vancouver and Los Angeles, respectively.

“Why did we organize these systems – just-in-time or lean engineering and all that stuff – when the system has proven to be very unreliable?” Asked Brian Slack, professor emeritus of geography specializing in shipping.

“There are going to be changes” – the only question is how fundamental and far-reaching they are.

This report by The Canadian Press was first published on December 12, 2021.