Canada/United States Perspective

Executive Summary

As competition becomes more global, innovation is moving from a firm-to-firm level to a supply chain versus supply chain perspective. In order to compete against low cost countries (such as China), Canadian firms must develop supply chain agility in a Just-In-Time (JIT) and mass customisation mode.

Measurement of logistics and supply chain management (SCM) key performance indicators (KPI)  is an essential part of the agile supply chain concept. It is estimated that 37 percent of North American (NA) firms that have put in place logistics and SCM KPI corporate wide measurement applications have achieved a decrease of 15 percent or more in shipment delays compared to only 7 percent of firms that do not measure those KPI consistently ¹.

While inventory turns is the main KPI for evaluating supply chain agility, logistics cost KPI allow firms to evaluate the efficiency of their logistics and SCM operations. The combination of supply chain agility and efficient SCM practices is key to long term competitiveness and prosperity of Canadian firms in a  global supply chain (GSC) context.

In terms of productivity and competitiveness KPI, Canada is not as efficient as the U.S. in most inventory turns KPI sub groups, and in all key sectors in terms of total logistics cost. For the Manufacturing, Wholesale and Retail sectors, the average logistics cost gap with the U.S. is 11 percent².

Inventory Turns

In terms of supply chain agility KPI, Canada’s 2005 raw material inventory turns ratio was still below the United States level of 1992, although it increased 20.77 percent during the 1992-2005 period. Canada has a productivity gap of 35 percent in that specific KPI.

For the same period, the finished goods inventory turns ratio increased 23.91 percent in Canada.  Both countries started at about the same level in 1992, and the U.S. is currently only about 4.3 percent behind Canada in terms of finished goods inventory turns.

The wholesale and retail sectors also have a supply chain agility gap. Their respective inventory turns remained 17 to 41 percent behind their U.S. counterparts.

In regards to productivity growth, the fact that the retail and wholesale inventory turns were levelled or growing for the 1992-2005 period means that in the whole supply chain the inventory was not solely transferred from the manufacturers to the wholesaler or from the wholesalers to the retailers; there was a real productivity growth in inventory management in Canada and in the U.S. for that specific period².

Logistics Costs

Canadian Manufacturing, Wholesale and Retail sectors have logistics costs 2 percent, 22 percent and 16 percent higher respectively than in the U.S.. Comparing the manufacturing sector for Canada and the U.S. shows that costs related to logistics outsourcing are higher in the U.S. than in Canada and that in the retail sector, costs associated  with logistics outsourcing are higher in the U.S.. In the case of the wholesale sector, internal logistics costs are slightly  lower in Canada as a percentage of total logistics costs².

There is not much difference between Canada and the U.S. with respect to internal logistics costs in the wholesale and retail sectors. Nevertheless, Canada has an internal logistics cost in manufacturing that is higher than that of the U.S.

Canada’s inventory carrying costs are slightly higher for manufacturing and wholesale (11 percent and 17 percent respectively). However, inventory carrying costs for retail in Canada are 31 percent higher than in the US² .

Technology

In order for firms to achieve the benefits of their respective logistics and SCM business drivers, the adoption of logistics and SCM technology across supply chains is a key component for developing efficient collaboration networks.

It is estimated that North American Small and Medium Sized Enterprises (SMEs) that will deploy logistics and SCM collaboration applications will enjoy a 5 percent to 25 percent decrease in logistics costs and a 15 percent to 40 percent increase in quality and time-to-market over competitors that fail to make these investments through 2010³.

As an example, 90 percent of NA companies that embrace leading edge logistics and SCM collaboration applications achieve an increase of at least 15 percent of order fill rate accuracy compared to only 40 percent of low technology adopters⁴.

SCM technology adoption is still at an infancy stage in Canada. Close to 54 percent of Canadian firms still have no SCM solutions in place and do not plan to implement a solution shortly⁵ .

Although the logistics and SCM technology investment level has been low in Canada, all key sectors are starting to respond to the increase in complexity of logistics and SCM by starting to dramatically increase their investment into value added distribution centers and freight terminal infrastructure⁶. Canadian Manufacturing and retail annual investments in warehousing and freight terminals increased by more than 200 percent from 2001 to 2003⁶.

In order to benefit from the productivity of logistics and SCM, individual firms must develop their own personal roadmap. It would consist of documenting the long-term perspective into specific action items linked to deliverables, performance indicators objectives, return on investment and a project time frame.