The future role of government series

It’s hardly news that the events of the last four years have severely tested global supply chains. While most of the disruptions caused by measures to contain the COVID-19 pandemic are behind us, the effects of geopolitical conflict, piracy on critical global shipping routes, and a rapidly changing climate that’s pushing up sea levels continue to sow uncertainty about moving goods between continents. Layer on age-old supply chain foes like inflationary pressure and economic downturn, and we have yet more challenges.

The importance of resilient, sustainable global supply chains has never been clearer.

Over the past few months, Deloitte has brought leaders together to consider the evolving role of government. Given that supply chains are crucial to Canada’s economic security, growth, and prosperity, we argue that it is the role of the country’s various levels of government to develop a resilient supply chain ecosystem that anticipates, adapts to, and recovers quickly from disruptions. Our collective aspiration for Canada is this: to be a global leader in supply chain ecosystems that emphasize collaboration, advocate for the elimination of trade barriers, and promote economic growth. Its abundant resource deposits and advanced transportation, logistics, and manufacturing capabilities, as well as its extensive global trade network, position it to achieve this.

This article is part of Deloitte’s future role of government series, which examines the trends that are provoking governments to act and seeks to provide Canadian governments with bold ideas to address the underlying issues. Read our introductory report, The future role of government: Society is changing. So must the way it is governed, for more context.

The importance of supply chains to a nation cannot be overestimated: they are the arteries of an economy, enabling the provision of essential necessities such as food, medicine, and shelter. Their vulnerabilities have been recently highlighted, with the pandemic and geopolitical tensions revealing the weak points in labour and material availability. Facing commodity scarcities and the resulting inflationary pressures, countries have recognized the importance of shared values and solidarity in their trade networks and the need to continually improve their readiness for future global shocks. Reimagining how they manage inventory, for example, can make them more resilient during the next crisis.

Resiliency in supply chains means efficiency, reliability, and shock-resistance in delivering labour, goods, and services. The role of the Canadian government in this is twofold: to ensure the nation’s continued global competitiveness and to safeguard its security and prosperity. Such a role requires continued large-scale capital infrastructure investments—the Gordie Howe International Bridge between Windsor and Detroit, the Port of Montreal, and the pending high frequency rail between Toronto and Quebec City, together representing investments of more than $2 billion, are good examples. Similar investments by government to promote the transition to electric vehicles—namely the $2.7 billion battery manufacturing facility on Montreal’s South Shore and the $4.9 billion facility in Windsor—will further cement Canada’s future.

While these investments are fundamental first steps, re-evaluation and improvement should be ongoing.

The current state 

We’ve identified four pillars that are critical to transforming Canada’s supply chains: labour; domestic supply and manufacturing capabilities; international resiliency; and future specialization. 

Labour

Canadian supply chains are networks that encompass physical and technological expertise. At their core, they are people-driven, so the future of the country’s supply of labour centres on the recruitment and retention of skilled talent.¹  The value of a labour force is directly related to the accreditation process and how a nation upskills its workers. Accreditation for skilled trades in Canada can be lengthy and complicated, which can lead to a shortage of skilled workers and delays in production, while the certification process can take anywhere from 10 weeks to two years. That’s a lot of productivity lost to red tape. 

In addition, current policies and processes for foreign workers have limited the flow of skilled labour into the country—more than that, it’s contributed to an outward flow. The rate of immigrants leaving Canada has been increasing since the 1980s, peaking in 2019 at 1.18%—that’s 31% higher than the historical average of 0.9%.²  An outflux can be particularly problematic for businesses that rely on seasonal labour. Almost half of the workers in agriculture in Canada in 2021, for example, were seasonal employees. 

The federal, provincial, and territorial governments should continue their work developing homegrown talent and attracting skilled immigrants to fill supply chain vacancies.³  In tandem, companies should develop a talent retention strategy to prevent turnover and adhere to regulatory requirements. 

Domestic supply and manufacturing capabilities

Canada’s sector capabilities have centred around its natural resources. This must continue but also be diversified to remain competitive in the global marketplace. This means expanding infrastructure investments to bring the nation’s vast reserves of rare critical minerals to market through manufactured goods like batteries, smartphones, and other electronics. It also means improving its capabilities in harnessing diverse sources of energy, such as wind, hydro, solar, and nuclear. 

International resiliency

The country’s supply chains are volatile and can be vulnerable to impacts from external factors, which threaten its industrial independence. Canada’s security priorities—military and defence practices, telecommunications infrastructure, semiconductors, industrial batteries, health care, food, etc.—rely on its supply chains. Having diverse trade relations anchored in shared values and avoiding heavy dependence on a single foreign supplier would promote national security as well as resiliency.

Future specialization

To remain an important middle power, Canada must look to emerging and future technologies that will position it as a strong supplier of goods and services. For starters, it must accelerate its innovation in Industry 5.0 technologies, automation, and artificial intelligence. And its vast critical mineral deposits position the country to be a champion for global electrification. Prioritizing these investments will showcase Canada as a dependable ally and trading partner.

Recommendations

To help its governments develop Canada into a global leader in supply chain resilience, we’ve developed numerous targeted recommendations. They’re organized through four levers: people and leadership; policy and processes; technology; and collaboration.

People and leadership

How can governments improve labour retention and skill sets to ensure effective supply chain and manufacturing capabilities?

Labour accreditation and enhancement

An efficient and effective supply chain ensures that goods and services are produced and delivered on time, thereby creating jobs and supporting businesses. The backbone of this chain is the labour force—so any shortages in people or skills in any link can lead to delays, inefficiencies, and increased costs.

Governments should work with sector leaders and professional associations to smooth the accreditation process and support upskilling for workers in critical industries where the need for labour is high. Such an initiative will continue to support Canada’s strong rebound from its record high job vacancy of 1,003,200 set in May 2022.⁵ By investing in education and training programs that produce professionals in specific fields, Canada can improve the efficiency and competitiveness of its supply chains by equipping individuals with the expertise needed to fill vacant positions. Ensuring these positions are filled will lead to a more efficient use of resources, and will allow industries to optimize work and create efficient operations.

Supply chain functions

Since the pandemic, only 45% of organizations have restructured their procurement and supply chain functions; the public sector lagged the field, at just 35%. Of the organizations that restructured, only 61% agreed they felt more equipped to handle future disruptions.⁶

Leadership must prioritize the restructuring of vital functions to drive positive change and create future-proof operations. This could be done by concentrating expertise through a strong governance function and spreading the knowledge throughout the organization, investing in upskilling initiatives to ensure that workers are equipped to support innovative supply chain operations, developing standards to ensure consistency and quality, and streamlining across departments or agencies. This collective action enabled by change management will lead to greater confidence in an organization’s future-readiness.

Policy and processes

How can government create more efficient and productive policy and processes to ensure a healthier supply chain?

Geopolitical resilience

A resilient supply chain means having the capabilities to defend it from adversaries. As Canada looks to explore mineral deposits in the Far North, securing our Arctic waters from nations of concern becomes ever more crucial. The government will need to increase investments in advanced naval technologies—state-of-the-art icebreakers, surveillance vessels, and submarines capable of navigating icy waters, for example—to develop a robust defence system.

Further, strengthening air capabilities by deploying long-range reconnaissance aircraft and surveillance drones will increase situational awareness and provide early detection of potential threats. The federal government must also ensure that private- and public-sector organizations comply with international regulations, particularly regarding UN, NATO, and other allied-country sanctions on foreign entities. While Canadian companies may not intend to directly trade with and supply these entities, the government should ensure these risks are considered in the flow of goods.

Championing the circular economy and net-zero supply chain

The circular economy is an economic system that aims to eliminate waste and promote the continual use of resources. It can improve supply chain resiliency by promoting diversification and resource efficiency through the use of locally sourced materials and innovation using new and emerging technologies. Crucial to its success is the development and use of critical minerals such as cobalt, lithium, and graphite, which are found throughout Canada, for the sustainable production of goods and services that minimize environmental impact, contributing to long-term ecological balance and responsible resource management.

By developing policies and incentives that promote competitiveness in the circular economy, similar to that of the EU Commission’s Circular Economy Action Plan, Canada can become a leader in manufacturing niches, such as batteries, aerospace supplies, and electric vehicles. Embracing circular economy principles, fostering innovation, and investing in market opportunities will increase the country’s global competitiveness while aligning it with global sustainability trends, which can lead to more job creation and opportunities for economic growth in these sectors.

Technology

How can government leverage technology to create a resilient and innovative supply chain?

Accelerate the adoption of Industry 5.0 technologies

In today's fiercely competitive environment, technology adoption has become increasingly crucial for all organizations, including governments. By accepting Industry 5.0, governments can streamline their internal operations, reduce costs, and improve the quality of the many services they provide to citizens. For instance, automation and AI can enhance the efficiency of administrative processes such as procurement, invoicing, and contract management, which frees the time of employees to focus on value-added tasks like innovation, strategic planning, and adapting to dynamic market demands.

Governments can encourage the use of advanced technology in industry supply chains by providing funding or tax incentives for companies that adopt sustainable and innovative technologies. One example might be using the Earth observation data collected by satellites to work on solutions to minimize carbon emissions.

The development and integration of manufacturing technologies—think quantum computing, Internet of Things (IoT), and automation—can be further advanced by incentivizing continued research and development. The federal government has already seen success with projects like Scale AI, which applies AI to retail, manufacturing, transportation, infrastructure, and information and communications technology, to build smarter supply chains. These integrate advanced technologies to recognize efficiencies and effectiveness throughout the entire ecosystem and are expected to create more than $16.5 billion in GDP and more than 16,000 jobs over 10 years for Canada.⁷

Continuing to embrace evolving technologies and providing incentives for their adoption help position the Canadian government as a leader of the world’s future.

Collaboration

How can government develop relationships to create a resilient and innovative supply chain?

Stay true to shared values in trade

A dependence on foreign goods can expose a country to coercion. At the outset of the Russia-Ukraine war in early 2022, for example, 55% of Germany’s energy imports came from Russia. That figure was down to 26% a few months later, after Germany set the strategic goal of replacing all Russian energy imports by mid-2024—a decision made because the invasion of Ukraine was illegal, and the West supported Ukraine’s independence.⁸

Canada must continue to shore up its relationships with like-minded allies that share the values of democracy, freedom of expression, and protection of human rights. Its trade with other sovereign nations is an expression of these three principles. Organizations like the Future Borders Coalition—a group dedicated to building a better Canada-US border for travel and trade—enshrine this vision in their mandate and help ensure, among other things, efficient bilateral supply chain corridors. Participating nations contribute to an international supply chain and trade network that prioritizes these rights by rewarding with trade the countries that uphold these values and isolate those that do not.

Canada was the first nation to establish free trade agreements with all G7 nations. While this is a historical example, it showcases the country’s longstanding leadership in global trade. In times of geopolitical uncertainty, the securing of regionalized trade networks—such as those between NATO and NATO-aligned countries—will help reinforce the resiliency of Canada’s supply chain.

Indigenous allyship

Those in Canada who are perhaps the most vulnerable to supply chain pressures are Indigenous Peoples. Remote and rural Indigenous communities are disproportionately affected by the habitat loss and extreme weather conditions that are depleting traditional supply chains. Communities have experienced states of emergency due to melting ice, draining lakes, and changing migratory behaviours that affect their food supply, from caribou to salmon.¹⁰ Moving toward a more robust supply chain ecosystem means adopting strategies that prioritize sustainability and circular economies—management systems that Indigenous Peoples have used for thousands of years.¹¹

Conclusion

If governments across Canada take some of the action noted here, they can help the country develop a strong and resilient supply chain, promote trade commerce, and boost the manufacturing industry. This will help create a prosperous and thriving economy that benefits all Canadians.

In our ideal of its future state, Canada:

• Has a strong labour force, thanks to an enhanced supply of skilled labour and optimized recruitment and retention processes that expand the knowledge base through streamlined accreditation and certification opportunities, thereby fostering a growth-oriented environment.
• Has policies in place to safeguard domestic capabilities, secure natural resource deposits, and promote a circular economy, as well as a resilient domestic manufacturing sector capable of supplying goods on a global scale.
• Is a leading global force in supply chain efficiency, having rapidly adopted emerging technologies in automation, artificial intelligence, and robotics.
• Is a steadfast and reliable trading partner that prioritizes trade, both domestic and international, based on the core principles of democracy, freedom of expression, and the protection of human rights. Canada’s commitment to these underscores the significance of ethical trade practices and contributes to a more equitable marketplace.
   

Endnotes

Thank you to our key contributors, Eric Jackson and Aparna Ashokumar.