A Canada/United States Perspective

Industry Productivity and Competitiveness via Logistics and SCM

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 JIT and mass customisation mode.

Supply chain agility is an operational strategy focused on inducing velocity and flexibility in the supply chain. A supply chain is the process of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer.

All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured. These networks obtain supplies and components, change these materials into finished products and then distribute them to the customer. Included in this supply chain process are customer orders, order processing, inventory, scheduling, transportation, storage, and customer service.

Agile supply chains responds to market pressures that revolutionise the way goods and services are produced and delivered: 

• Customers are driving the demand and product/service levels by requesting at the same time complex customised products and lower prices, thus creating price/margin pressures.
• Competition between firms is not solely based on price/cost anymore but on the ability to bring and close product/service lines and the ability to recover rapidly from supply chain disruptions and supply/demand imbalances.
• Competition within global supply chains is creating numerous logistics and SCM critical factors such as:
• Managing a distributed operating environment with supply chain partners around the globe
• Outsourcing and off-shoring production and services into low cost countries
• Integrating a new international dynamic business model

Measurement of logistics and SCM KPI is an essential part of the agile supply chain concept. It is estimated that 37 percent of  North American firms that have put in place logistics and SCM KPI corporate wide measurement 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. NA firms that measure logistics and SCM KPI also outperformed their industry counterparts on document issues by a ratio of 3.5 times, which is a key component of Smart Border solutions in JIT¹.

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In order to take advantage of logistics and SCM KPI measurement, supply chain managers must also take into factor their sector specific focus into their strategy. As an example, the Automotive sector focuses on JIT and continuous flow of product and information under the Lean principles. Retail and Consumer product goods (CPG) sectors concentrate on total delivered cost and in-store stock-outs ratios. The Pharmaceutical sector is pushing for item level traceability and supply chain visibility for governmental requirements and product recall issues, while the Aerospace sector emphasises total supply chain quality ratios such as Six Sigma processes and standards.

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Import content has a major impact on sector logistics and SCM indicators. A high level of imported inbound goods makes the supply chain management more complex, especially if the imported content is from low cost countries such as China, versus JIT related countries such as the U.S.⁷.

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 to 25 percent decrease in logistics costs and a 15 to 40 percent increase in quality and time-to-market over competitors that fail to make these investments through 2010⁸.

Also, 90 percent of NA companies that embrace leading edge logistics and SCM collaboration applications achieved an increase of at least 15 percent of order fill rate accuracy compared to only 40 percent of low technology adopters. High technology adopters in SCM collaboration also achieved comparative advantage in logistics and SCM KPI such as total delivered cost, lead time reduction, increase in perfect orders and increase compliance to customer mandates such as RFID and JIT⁹ .

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SCM technology adoption is still at an infancy stage in Canada. Close to 54 percent of Canadian firms still have no SCM solution in place and do not plan to implement a solution shortly¹⁰.

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 increase dramatically their investments into value added distribution centers and freight terminal infrastructure¹¹ . Canadian Manufacturing and Retail annual investments in warehousing and freight terminals increased by more than 200 percent from 2001 to 2003.

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