Rethinking Your Buyer-Supplier Strategy: The Supply Chain Trends Shaking Up the Industry

Over the past few years, policymakers, business owners, and industry leaders have started to rethink how best to structure global supply chains. The disruptions brought about by the COVID-19 pandemic, Russia’s invasion of Ukraine, and tariff and trade concerns with various countries have shown the incredible importance of building reliable, agile, and resilient production and distribution processes for almost every company.

It’s also given rise to several trends within the supply chain industry, namely a move toward simplification, nearshoring and reshoring, and diversification.

To help Canadian companies better prepare and build resiliency to overcome these disruptions, RBC recently held a virtual event – Networking for Tomorrow — Rethinking Your Buyer-Supplier Strategy — with industry professionals and RBC experts, including:

Andy Tanner, Treasurer at High Liner Foods

• Matt Poirer, Senior Director of National Policy and Government Relations and CME, RBC

• Lynette Gillen, Vice President of Commercial Solutions and Trade, RBC

• Riaan Meyer, Director of Global Solutions, RBC

Here are some key takeaways from the discussion.

Start with simplifying supply chains

The move toward simplifying production and distribution processes began in earnest at the beginning of the COVID-19 pandemic when, as Riaan pointed out, periodic shutdowns of entire cities in China “threw a wrench in the global flow of goods.”

To mitigate risk, he said companies have been building or bringing in new management systems to help better oversee their supply chain.

“We’ve heard of some companies hiring new staff dedicated exclusively to managing relationships with suppliers and making sure they have prompt access to all the goods they need to produce, and then to allay the fears of customers who are waiting an inordinate amount of time,” he noted.

Those early pandemic disruptions also caused cash flow challenges for many organizations. Since longer cash conversion cycles made it harder to manage their books, many decided to simplify their supplier procurement processes. Andy noted they’ve established “standard clauses” in place from the beginning of discussions with any new partner, making it easier for the supplier to review paperwork and terms with their bank.

“[With] instruments like letters of credit … you can essentially set the payment terms so that there’s relative consistency with your own cash flow,” he said. “It can enable the supplier to go to their financial institution — or even the institution that you deal with — to get paid early for the goods. It helps to mitigate some of the risk associated.”

Should companies nearshore and/or reshore?

The panellists all agreed that most organizations are re-examining how to manage certain risks, which has opened discussions about nearshoring and reshoring.

Riaan can see “emerging global trading blocs where major powers try to form alliances that will secure their supplies, secure markets that they sell into.” He added that this trend probably won’t go away.

But it’s important that organizations understand any move away from offshoring will take time and have cost implications.

“China spent decades building up very sophisticated manufacturing and logistics capabilities. It would be, in some cases, challenging to replace those or even supplement them with additional sources [immediately],” he said.

Matt agreed, noting the feasibility of nearshoring should be in question.

“As the advocates for the manufacturing industry [at CME], we’re pushing for it — it’s something we should have done a long time ago,” he said. “But to the extent that it’s going to happen, Riaan’s right, nearshoring and reshoring will take a long time. We’re seeing a lot of goodwill and interest in it, but are the facts on the ground showing that the trend is happening in a significant way? That remains to be seen.”

Trade infrastructure is one of the biggest challenges Matt sees with nearshoring and reshoring. “If we’re going to be a serious player … we need to have first-class infrastructure … and delays because of labour disputes or blockades … these don’t help — they make it worse. They make investing in Canada unpredictable,” Matt said.

For Andy Tanner of High Liner Foods, the uncertainty of the economic and geopolitical state of the world makes it difficult to say whether nearshoring or reshoring is the right long-term move for all businesses.

“Does the business case still hold true if transportation costs decline further? Can you actually find the labour necessary for your operations in North America — whether it’s in Canada or the U.S.? Is there available technology that could be leveraged at this point in time to manage production costs to maintain your competitiveness?” Andy said.

“It doesn’t need to be an all or nothing option. I think companies can consider starting small with the option of future expansion, but just like an investment advisor would recommend having a diversified portfolio to manage the risk of your retirement savings, I think nearshoring or reshoring could be a component of a company’s overall diversification efforts to manage supply chain risks.”

Diversification needs to be strategic

Since no one can predict what the future looks like geopolitically, Lynette noted it’s critical companies diversify their supplier network to ensure they can deliver on client needs.

“Buyer and supplier diversification have to be constant. There have to be people looking at what all of the options are all of the time,” she noted. “Gone are the days when you can have a trusted long-term relationship and not have a plan B that’s ready to go.”

When it comes to how to diversify, Andy noted it’s not as easy as finding a new supplier and then agreeing to work with them. Companies have to think strategically about who to sign contracts with. “Some suppliers,” he noted, “may not be able to satisfy your volume requirements.”

Research, then, is key. So, as Riaan noted, is also trying to find highly reputable suppliers that other organizations may not be using. He gave the example of Taiwan’s TSMC, a semiconductor manufacturing company that produces chips for everything from phones to solar panels. Because of sheer demand, the global supply chain is impacted whenever TSMC experiences production disruptions.

Lynette added that organizations must check their trade documentation early to ensure their contracts allow for early payment. RBC does this for most clients and ensures an organization is protected if anything goes wrong on the supplier’s end.

“The biggest risk — no matter the size of the company — is being too slow to adapt to a changing environment,” she said. “We have specialists who will walk you through all of this … even if it’s the first time that you’re hearing about this.”

Share This Article