These disruptions are explained by phenomena relating to both supply and demand.
Supply – Health restrictions and factory closures, particularly in China where health measures are more severe, have accentuated the labor shortage and significantly reduced the production rate.
Demand – Large fiscal stimuli from governments have allowed many households to maintain or even increase their purchasing power, and they have significantly increased their online purchases. Global demand for consumer goods has therefore remained very strong, particularly in a context where health measures have limited spending on services, such as travel and dining out.
The combined effects of tight supply and strong demand have generated shortages of consumer goods and inputs, such as semiconductors.
Under significant stress, the transport and warehousing sector has been hit by congestion at ports and staff shortages, which has contributed to longer delivery times.
Result: we have to deal with strong inflationary pressures.
We are currently seeing annual price increases in Canada of over 5%, something not seen since the early 1990s.
Russian invasion complicates matters
The Russian invasion of Ukraine on 24 February 2022 has primarily serious humanitarian consequences. But the resulting trade sanctions and disruptions to Russian-Ukrainian economic activities are also increasing pressure on supply chains.
This is particularly the case for the supply of agricultural products such as wheat, sunflower and corn, of which Ukraine is one of the main producers. It is also the case for energy products such as oil and gas, as well as fertilizers, originating from Russia.
If the conflict persists and new COVID-19 outbreaks emerge, supply chains will continue to be challenged and inflationary surges will be on the horizon.
More and more Canadian companies are experiencing difficulties in obtaining supplies
It is in this context that we surveyed Canadian business owners about supply chains.
An initial survey conducted in November 2021 revealed that 75% of SMEs were already experiencing supply chain difficulties. The situation has since deteriorated; 85% of SMEs now report experiencing supply chain difficulties 1 .
In another sign that supply chain challenges are well entrenched in Canada, the entrepreneurs we surveyed reported a slight increase in delivery times compared to the last quarter of 2021 (63% of respondents compared to 60% in the previous survey).
Distributors, manufacturers and construction companies are particularly vulnerable to supply chain disruptions. To a lesser extent, service companies are also affected.
Medium and large SMEs are also more affected as they are more likely to have suppliers or customers abroad.
Figure 1: Percentage of companies facing supply chain problems
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Source: BDC, Supply Chain Survey, November 2021 (599 respondents) and March 2022 (650 respondents).
SMEs report rising costs
A growing number of SMEs also have to pay more for inputs and transport.
The surge in oil prices and the rise in the prices of certain metals and agricultural commodities, exacerbated by the invasion of Ukraine, largely explain this increase in costs.
For example, the price of a barrel of oil exceeded the US$100 mark at the end of February; this increase is having an impact on transportation costs as well as the production costs of a range of products and services.
The Omicron variant has also disrupted supply chains by car owner database exacerbating labor shortages due to absenteeism.
SMEs are adjusting, but are worried
Supply chain difficulties have knock-on effects on business performance.
Two out of three managers (66%) have had to increase the prices of their products to cope with the rising cost of their inputs.
39% of entrepreneurs have reduced their profit margins.
Nearly 60% of respondents also had to extend their own delivery times.
For respondents, these changes have:
caused the loss of customers;
caused a drop in their sales;
prevented their business from operating at maximum capacity or in a fully efficient manner; and
had a detrimental effect on customer satisfaction.
Finally, from inventory management to “ just-in-time ” , several respondents moved to “just-in-case” by increasing their stocks, by a proportion of 37%.
We also notice a decline in optimism among Canadian entrepreneurs.
Indeed, 29% of respondents now believe that supply problems will worsen over the next twelve months, compared to only 13% last November. A higher proportion, although slightly down (40% compared to 42% in November), nevertheless hope that the situation will improve.
What is the impact of the war in Ukraine on supply chains?
The invasion of Ukraine and sanctions by several countries against Russia are undoubtedly the main factors contributing to the darkening of the supply prospects for SMEs.
As proof, more than a third (36%) of entrepreneurs report suffering the harmful effects of these hostilities. A proportion of 61% do not feel the effects of the conflict, while 3% have been able to benefit from it.
Cost increases that were already present before the war but were exacerbated by it, particularly in energy prices, had an impact on an even greater number of businesses in the country.
More than half (54%) say they have had to adjust the cost of their products or services upwards.
Almost half (49%) are struggling with an increase in the cost of their inputs.
Unsurprisingly, 84% of SMEs that source from Ukraine and 64% of those that do so from Russia are suffering the effects of this devastating conflict 2 . It is also noted that companies with 50 employees or more, those that are more present internationally, or those that operate in the manufacturing sector are particularly affected by this war.
Although the majority of respondents say they are not affected by the war in Ukraine, businesses are apprehensive about the future. If the conflict continues, SMEs say that:
the cost of their products or services will continue to increase (69%);
the cost of their inputs will continue to increase (66%).
The more active companies are on the international scene, the greater the concerns.
4 Strategies to Mitigate Supply Chain Disruptions
Although it is difficult to completely avoid supply chain issues and the resulting inflation , there are a few options available to entrepreneurs to lessen their consequences.
1. Increase the amount of items you store
Many companies have made the decision to increase their inventories of the most sought-after and profitable items in order to protect themselves against shortages and to be able to meet the needs of their customers.
To do this, companies must invest more in inventory and storage space. They must manage these spaces optimally by using robotization and digitalization, in particular to ensure that they reduce their labor requirements and closely monitor inventory.
2. Diversify your suppliers
Greater resilience also necessarily involves diversification. We suggest carrying out continuous monitoring to identify potential suppliers , in Canada or abroad.
If one chooses to repatriate a greater part of the production to the country , one must be ultra-efficient by investing in the automation of production and work processes in order to compensate for the generally higher labor costs . In the case where importation cannot be avoided, one must ensure that the space used in containers is maximized in order to reduce transportation costs.
3. Invest in digital
Don’t hesitate to invest in digital tools to help you stay in control of your supply chain and plan effectively.
Some supply chain management software is available to SMBs to help them track inventory, manage shipping, and stay on top of which items are moving the fastest.
4. Communicate with your suppliers and customers
Be transparent with your customers about delivery times. Explain that orders may be delayed due to circumstances beyond your control.
If you are having trouble with certain products, let them know before orders are placed. Many customers know that there are supply issues going on right now. It's about not surprising them and managing their expectations.
Also keep in close contact with your suppliers so that you know their delivery times and can inform your customers as soon as a delay is announced.
