Diversification, Adaptation and Flexibility: How to Sustain Your Business’ Supply Chain

As global trade becomes less stable, Canadian businesses may feel the need to secure their supply chains.

This reality first came into focus for CEC Mining Systems, a Vancouver-based mining equipment and engineering solutions provider, after the outbreak of the COVID-19 pandemic.

Like many Canadian companies, CECMS was largely dependent on China for manufacturing the equipment it engineers for mining projects around the world.

“In the facility where we had been manufacturing the products, the workers got locked out by the Chinese government,” says CECMS’s managing director, Cameron Stockman. “They just showed up on-site and put a padlock on the front gate.”

The experience, which resulted in project delays and challenges, inspired CECMS to bring more of its operations closer to home.

“We brought a variety of fabrication packages back to Canada and the United States throughout that period,” he says. “We were concerned about the risk of ongoing pandemic restrictions in mainland China and the rest of the region, as well as—at that time—escalating rhetoric between Canada and China.”

The 50-person company—which designs and licenses equipment used in the extraction of base metals, precious metals and iron ore, then packages it along with its engineering services—doesn’t own and operate its own fabrication beyond the production of its proprietary ceramic membranes. Instead, it relies on fabricators to do the cutting, welding and assembly of parts received from manufacturers abroad.

“We subcontract that to partners, and diversifying those partners across oceans, time zones and geopolitics, we believe, is the best way to de-risk our business,” Stockman says.

Ongoing political shifts continue to drive change

Though the solution helped CECMS overcome the challenges of doing business with China in the aftermath of the pandemic, Stockman says it wasn’t long before new potential risks began to emerge in his home continent, necessitating another supply chain review.

“The day after Mr. Trump was elected, I called an all-hands executive committee meeting, and we immediately began evaluating localized domestic manufacturing in the United States in order to mitigate the risk of increased tariffs on our products,” he says. “Despite any perceived trade talks and settlement between the Canadian and American governments, these sorts of risks are not diminishing; they are only going to manifest in different ways, and we expect the next 50 years to look very different than the last 50.”

Though it may be a tough pill to swallow, Stockman emphasizes that Canadian businesses cannot afford to assume the recent period of instability is a temporary detour before a return to the global trade conditions they enjoyed previously.

Though he continues to hope for the best, Stockman says CECMS is preparing to operate a world in which the old rules of cooperation and free trade no longer apply, and he believes Canadian business owners of all shapes and sizes would do well to do the same.

Here are some of the strategies he recommends for fortifying global supply chains in an increasingly volatile world:

1. Diversify your supply chains

Not long ago, there was little reason for Canadian companies to question the reliability and security of suppliers and consumers markets in their established processes.  

After the disruptions of the pandemic and ongoing trade negotiations between the U.S. and Canada, it has become clear that no individual market is immune to sudden and potentially devastating shocks. Stockman, therefore, believes Canadian businesses need to take a good look at their supply chains and ensure they’re not overly reliant on any one nation or region.

“The primary mechanism to attack that with full force is diversification—to ensure that we are not over-leveraged or over-invested in one particular market,” he says. “We have made a huge effort in the past year to onboard new strategic jurisdictions that can work under subcontract for our businesses.”

2. Break the world up into manageable pieces

Building a global network of suppliers, partners, and customers can get a little complicated, which is why Stockman recommends prioritizing strategic regions.

While businesses don’t need suppliers in every corner of the world, he recommends ensuring that there are some resources on the ground within proximity of key customers.  

“Regionalizing those markets and developing centres of fabrication and technical services and warehousing has allowed us to sort of break the world into bite-sized chunks,” he says. “Over the next year or so, we’ll probably be doing one of those strategic regional projects every quarter, until we’re satisfied that we have the flexibility and latitude to make lateral moves at the pace and extent we want to.”

3. Hire employees with an international lens

Canada’s diverse population could be key to doing business internationally, especially for companies looking to expand beyond the U.S.

Stockman says that while some employers may consider a lack of Canadian work experience as a disadvantage, CECMS actively recruits those who have lived and worked in different parts of the world.

“There are a lot of great people who come to this country who are highly educated, and we have a general policy to adopt their work experience from their home country,” he says. “As a result, we get a lot of great inroads in the places they’re from, we find out about partners, distributors, agents, fabricators, we have local business contacts and government contacts, and that’s a big part of how we get into those markets.”

In fact, CECMS maintains a policy requiring all staff to speak at least two languages, and many speak more.

“At head office, we’ve got at least 16 languages represented, which cover a good chunk of the global economy,” Stockman says. “We therefore have the cultural knowledge and the language skills, to put boots on the ground with local experience.”

4. Embrace cultural differences

Businesses that want to establish an international supply chain should consider how they can demonstrate an understanding of the people and culture with which they work.

Stockman emphasizes that by not effectively fostering an appreciation for the cultures of foreign partners, businesses could struggle to maintain those relationships.

“If you don’t fundamentally respect the differences in this world, don’t try and sell internationally, and don’t try to diversify your supply chain,” says Stockman, who has visited 50 countries during his 12-year career at CECMS. “Being able to communicate and eat someone’s food and have fun doing it, you’d be shocked how far that goes.”

5. Do your due diligence to ensure standards are maintained

While a warm introduction from a native-speaking employee can go a long way in establishing trust abroad, those doing business far from home still need to check up on their partners to ensure work is being done to the agreed-upon standards.

For Stockman, there’s no greater way to evaluate a business than an unannounced visit, which CECMS conducts on a regular basis.

“Those due diligence site visits are a big part of our methodology,” he says, adding that the company looks for specific attributes among its supply chain partners. “As one example, if everybody in the workshop has been there for under five years, it’s probably not a great place to work with; we want to see people who have been on the shop floor for 15, 20 years.”

6. Prepare to play the long game

If recent disruptions to global trade are any indication, many of the biggest challenges Canadian businesses face in the coming years won’t come with much warning.

Diversifying a business’s supply chain takes time and resources, and the return on that investment can take years.

However, those efforts can help Canadian organizations better insulate themselves from future shocks, which Stockman says will only become more frequent in the years ahead.

“Any decision you make, especially in supply chain, won’t always manifest right away, and so there’s this deferred gratification that results from making decisions in this space,” he says. “We won’t see a return on our time invested from a sales and business development perspective for months.”

At the same time, their strategy of diversification lets CECMS approach prospective customers in faraway markets with established local connections, further bolstering its global sales efforts.  

“Someone in Qatar is not interested that we’re based in Vancouver; they want to know who we have on the ground locally,” he says. “Having local partners on each continent is the goal, and we’re almost there.”

Speak with an RBC Relationship Manager or Trade Finance Specialist to learn more about how RBC can assist with your international plans.