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Outsourcing Report

Tackling New Trends in the Supply Chain

by Allan Smith

Long has been the discussion of Canadian verses U.S. management of business units that service Canada for major U.S. corporations. Although Canadians are proud of our country and our way of life, it is predicated on our ability to attract international trade. In short, our lifestyle is based on our business relationship with foreign companies; primarily, but not limited to those in the United States.

Many changes in the last ten to 15 years have forced companies to totally review the way they manage their business and, increasingly, they are exploring the way we manage the supply chain to the Canadian Region.

First, let’s review the changes that have facilitated this opportunity for change in last generation. Starting back in the late 80s we had the implementation of the North American Free Trade Agreement (NAFTA), the deregulation of North American transportation and, most important, technology (E-commerce, the widespread business usage of the Internet) for real-time visibility of the complete supply chain.

Corporations focused on international product marketing and expanding their global markets are reviewing their ability to service global markets from a single streamlined supply chain.

To Canadians it means that North America is a market to be serviced by a single supply chain and Canada is a region in that chain. This means, as companies start to review their U.S. network, these corporations would be remiss if they do not include Canada in their business model. There are very few industries (possibly foods and pharmaceutical products, to name a few) that cannot be supplied from central inventories in the United States to the Canadian region with similar and, in most cases, better service levels.

The savings in the supply chain are massive and include, but are not limited to: Higher Perfect Order Ratios; Elimination of Canadian inventories; Elimination of bricks and mortar; Reduced taxes, both Corporate and GST; Lower operating cost; Higher inventory turns; Streamlines Canadian Customs; More efficient transportation services; Fewer costly expedited or emergency transactions; More Automation of process; Reduced currency issues; Eliminate high cost of Toronto Distribution Centres (DCs).

It is no secret to supply chain managers that the largest market opportunities are in the Ontario–Quebec regions, which make up an estimated 65 percent of most company’s sales. However, with 8-12 percent of their North American sales coming from Canada, it is hard to cost-justify three stocking warehouses in Canada when the United States can he serviced very well in most companies with two to four DCs.

Changes in technology and improved transportation management through specialty 3PL’s have made it impractical to have Canadian DCs. Few DC’s, no matter where they are located, deliver to their customer the same day an order is placed.

Consider the improved customer service levels that can be obtained when a company draws on inventories four to five times the size from a U.S.-based DC, and with higher accuracy and higher first time-fill rates. This has already been done by many companies with remarkable results. There was a feature story last year in LQ (December 1999) that explored how Continental General Tire (CGT) achieved this with the help of a Canadian 3PL. CGT now enjoys the best market share they ever had in Canada as well as establishing an Original Equipment Manufacturer (OEM) business with Ford and GM in Canada. All this has been accomplished without inventory in Canada.

Many companies might believe this would not apply to their operations. But if you have not given this concept serious consideration in the last three years, then you should now, before your U.S. counterparts do it for you, on their terms.

In this global context, Canada is viewed as a region of the U.S. supply chain - leaving funds to be freed up to take on other markets. Don’t be fooled by those who say it can’t be done. Instead, ask yourself how you can be one of the early companies to take advantage of this of opportunity.

Of the many companies that have engaged in this strategic approach and process during the last three years, not one has lost market share. In fact, all have seen significant increases in sales in the Canadian region.