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Supply Chain Challenges: What Went Wrong in the Construction Industry

Guest Blog By: Clive Thurston, Thurston Consulting Services

I’m sure that like me, many of you have been following the numerous stories that have been appearing for the last few years regarding the supply chain and labour shortages, that are impacting the construction industry.

Like you, I have followed these stories with great interest and at the request of my friends at FCA have been asked to contribute my opinion on these two critical topics impacting Canadian contractors. In this first article, I will tackle the supply chain.

Unfortunately, I don’t see a quick fix to the supply chain issues impacting the construction industry. The main reason I do not see a quick resolution is that in a globalized economy we have created a system that cannot adapt and respond to a pandemic based shutdown economy.

Over the last few decades many industries instituted what became known as “just-in-time delivery”. This is a system whereby materials and parts are not stockpiled. Instead, they are manufactured and delivered based on an as needed basis. This means there is limited inventory build up which reduces the related storage and spoilage costs. This is a system that has been used heavily in the automotive industry where it was originally pioneered.

For years, we had seen the cracks appear with the use of this system and should likely have recognized the warning signs. However, the previous situations that led to disruptions with just in time delivery were small and isolated to strikes, local disasters and plant related shutdowns. Because of the smaller scale of these events, it didn’t create widespread disruptions. In these cases, the isolated disruptions were a cost of doing business in utilizing a just in time system that provided much greater overall savings.

In my opinion, these small challenges were reflective of a fundamental weakness in the system.

What was most important with a just in time delivery system was saving money and as such this was seen as the way to go. As we now know, when you have a significant event that impacts manufacturing, the just-in-time system cannot respond quick enough to fill the gaps that have been created by long periods of shutdown.

The logistics system needs a more balanced approach that combines the benefits of a globalized just in time delivery system with a modest stockpile system that provides redundancy in the case of a wider shutdown. If we don’t create a more balanced system, it is going to be a challenge to emerge from this crisis and avoid similar ones in future.

A second major factor is that for decades we have been outsourcing manufacturing to foreign countries. Businesses, associations, and politicians prioritized a service-based economy that lowers costs to the broader economy by moving manufacturing and heavy industry to countries with cheaper labor. We’ve all seen the slow decline of he manufacturing and heavy industry in Ontario over the years.

Once a major powerhouse of manufacturing, Ontario today is simply comprised of assembly factories where parts coming from around the world are assembled and then distributed.

This was highlighted by the lack of PPE equipment during the pandemic and the fact that we no longer produce our own. It had the same impact on the vaccines because we no longer have those businesses here in Canada.

A just in time inventory system combined with a reduction in domestic manufacturing created a perfect storm which continues to impact those that procure construction assets and those that build them.

The silver lining is that the construction industry is beginning to look at new solutions. These include modular building systems. These systems help to minimize on site delays and assembly. New systems must be adopted to ensure that the problems that we have experienced from the pandemic will not impede our ability to respond to future challenges whether they be health, manufacturing, or construction.

Furthermore, another positive is that there seems to be a willingness at the Ontario government level to bring manufacturing back.

The proof will be in the pudding and as voters, we will need to hold our government accountable in creating a more balanced, robust and risk protected economy. It is critical these measures are implemented so that in the future something like COVID will not cause the problems that we are seeing today.

 

 

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