COVID-19 and the effect on the manufacturing sector
Canadian manufacturers have faced unprecedented disruptions to the supply chain and shifting demand due to the COVID-19 pandemic. We look at the trends that have emerged and how manufacturers can respond successfully.
The COVID-19 pandemic has hit many industries hard, including manufacturing. Strongly reliant on their workforce, manufacturers faced a rapid adjustment to the health and safety requirements posed by COVID-19 while also subject to considerable disruptions in the global supply chain and changing demand.
As Canada cautiously reopens, you may be wondering what a post-pandemic world looks like for the manufacturing industry. Let’s take a look at four trends that have emerged.
Changes in demand
A Canadian Manufacturers & Exporters (CME) survey asked over 300 Canadian manufacturers about the impact of the pandemic on their businesses. It revealed that 65% of respondents had had a decreased level of output during the pandemic, with decreases in both domestic and foreign demand as major reasons for an inability to increase production.
Job losses and falling household confidence have caused a contraction in overall demand for products, with major shifts in consumer spending affecting demand predictions. Causing a further ripple effect for Canadian manufacturers have been disruptions in global supply chains. Facility closures, labour shortages and export restrictions have affected both the availability of inputs and further changes in demand. In all, manufacturing goods in Canada during the COVID-19 pandemic has become a much more unpredictable endeavour.
In terms of short-term recovery, Canada’s loosening of lockdown restrictions has allowed many manufacturers to re-open or increase capacity, and consumers to increase demand for products. TD Bank notes that manufacturing sales in May seemed to represent a turning point, with sales up in many of the major industries and 8 of 10 provinces. When it comes to long-term recovery, however, predictions are more cautious. BMO’s recent report on a post-pandemic recovery notes that the proportion of Canada’s GDP attributed to manufacturing after the pandemic may very well follow the negative trend exhibited over the last 20 years.
Protectionism
A cautionary caveat on predictions of the post-pandemic recovery is that Canada’s manufacturing sector is considerably tied to the performance of the global market. After all, more than half of products manufactured in Canada are exported, with 80% of these goods going to the US. And with economic slowdowns around the world, a decline in foreign demand of Canadian products — led by auto and energy exports — has had a broad impact on the Canadian economy.
Availability of imports tell a similar story. All along the supply chain, shutdowns related to the pandemic exacerbated a pre-pandemic global decline in trade. The difficulty of obtaining PPE at the beginning of the pandemic is a stark example of this, which has turned some towards protectionism.
Japan, for example, has earmarked over $3 billion (CAD) of its stimulus package to help Japanese manufacturers get production out of China, amid ongoing supply chain disruptions.
In Canada, protectionist measures might present an opportunity for domestic manufacturers. Canada lags behind other OECD nations in investment in innovation, argues Alan Winter, British Columbia’s former innovation commissioner. And that has led to an over-emphasis on exporting raw materials and room for much improvement in the manufacturing capabilities of Canadian organizations to alleviate our reliance on goods manufactured in other countries.
Hiring expectations
There is cause for cautious optimism when it comes to hiring statistics. StatsCan reports that gains in employment throughout May and June put employment in the manufacturing industry at 91.9% of its February level.
Plus, an internal survey conducted by Adecco indicates that the majority of organizations surveyed in the manufacturing, warehouse and distribution sectors expect hiring to go back to normal within the next 3 months.
These are positive signs amidst a slow re-opening.
What can you do?
The biggest outcome of the pandemic has been a careful look at ways manufacturers can improve processes to stave off shocks like the ones we’ve just seen. Once you’ve welcomed your workforce back safely, consider these ways to strengthen your organization.
Improve predictive powers
Making your supply chain more resilient should be your priority.
Do this by improving your predictive powers. Digital supply chain mapping systems can help your organization make informed, coordinated decisions by giving you insight into the entire supply chain. With more transparency, understanding where bottlenecks in your supply chain might occur gives you the ability to make adjustments ahead of supply issues, ensuring that shocks to the supply chain have a much less devastating effect on production. The power of mapping your supply chain is multiplied when you also diversify suppliers to decrease reliance on any one supplier or location.
Increase your flexibility
Diversifying your supplier network can also help your organization manage inventory levels. The impact of global shortages on production has indicated that building inventory levels can help mitigate the risks of disruptions to the supply chain.
Shift production
Increasing facility capabilities can also give your organization flexibility to retool production of essential goods. As demand for consumer goods cooled, some manufacturers have shifted production towards essential goods to help combat COVID-19. With strong support from the government, flexible production options can help keep production humming while contributing to Canada’s self-sufficiency.
Skill workers
One opportunity in the chaos of COVID-19 is to take this time to evaluate what your organization can do better. Improving the emotional resilience of your workers is one way to create a stronger workforce that adjusts more quickly to changes. Another is to improve the skills of your workforce. Not only does this contribute to your organization’s ability to retool production faster to address changing needs, but skilled workers will adapt more quickly to technological innovations that can help your organization run more efficiently.
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