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Linking the chains

How goods and services move around the globe Share this page on Facebook Share this page on Twitter Share this page on LinkedIn Share this page by email Never miss an article from Bank of Canada when you sign up for email alerts. The elaborate supply chains that link global trade have faced many disruptions in recent years. Despite these stresses, supply chains continue to provide benefits to businesses and consumers. Global value chains Companies around the world use sophisticated supply chains to produce all kinds of goods and services. These networks are known as global value chains. They got that name because the companies in these networks tend to specialize in just one or a few of the things that make up a product. In other words, each company serves as a valuable link in the chain. Helping firms go global and prosper Starting in the 1990s, doing business abroad became easier than ever because of: freer trade and investment across borders advances in technology Companies in Canada and elsewhere began relying much less on end-to-end assembly lines at home. Instead, they worked with other companies around the world to build complex value chains. These global value chains allow companies to get parts or services from anywhere to then use in their own production processes. Countries and figures listed are for illustrative purposes only. Improved efficiency The shift to global value chains helped many companies in Canada and around the world become more efficient, competitive and international. Today, increasing numbers of companies—and countries—specialize in products, parts or expertise. For any given product, different companies: invent it make each part assemble it sell it ship it While specialization allowed for a greater variety of products at better prices, the impact on workers was mixed. For example, many routine, lower-skill jobs in Canada and other advanced economies moved to places where workers get paid less. At the same time, specialization created new higher-skill, well-paying jobs in many countries. The risks of being connected Value chains have become more sophisticated, efficient and connected over the years. That clearly carries benefits. But the far-reaching, web-like networks can also make it easier for problems to spread. The effects of the Great East Japan Earthquake of 2011, for instance, disrupted production chains. This left factories around the world short of supplies such as parts for motor vehicles. Even so, firms were able to rely on these extensive networks for support to quickly resume production. More recently, the COVID-19 pandemic and the invasion of Ukraine caused widespread disruptions to global value chains. Despite the vulnerabilities of global value chains, the companies that use these chains have become better at finding ways around the disruptions they know can’t be avoided. This has helped them navigate the problems caused by the pandemic and the invasion of Ukraine. Establishing and improving global value chains take time and investments. That’s why companies that build supply chain relationships try to maintain these relationships despite occasional disruptions. To prepare for unforeseen challenges, companies may improve the resiliency of their supply chains by investing in: staff or outside partners dedicated to managing supply chain risks backup plans that draw on alternative suppliers in emergencies the ability to get back up and running quickly once a disruption has passed Major disruptions, while painful, can help make value chains stronger. COVID‑19 and value chains in Canada Shortly after the pandemic began, the Bank of Canada regularly consulted companies that support supply chains. We wanted to learn how disruptions caused by the pandemic were affecting the value chains Canadian businesses rely on. They told us that the pandemic had a negative effect on their operations, particularly when it came to: getting products transporting and storing goods As supply chain disruptions continued, many companies saw their sales affected. They also reported a surge in prices for the things they needed to produce goods or offer services, known as inputs. Overall, the networks that Canadian companies rely on had to adapt to shutdowns, shortages and delays. Companies also made various adjustments, such as limiting their product lines or finding different suppliers. And businesses increased their inventories to avoid shortages of key inputs. Several firms say they navigated significant challenges in part by working closely with larger firms in their network. Shifting strategies Supply chains are unlikely to return to their pre-pandemic form after all the events of the past years and the effects from other long-term trends. The Bank’s consultations show that businesses will continue to adjust. […]

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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