The Canada-United States supply chain in the era of global economic competitiveness.

Author:Tompkins, P. Kelly
 
FREE EXCERPT

Session Chair--P. Kelly Tompkins

Canadian Speaker--Garland Chow

United States Speaker--Paul Vandevert

INTRODUCTION

MR. TOMPKINS: Good morning. My name is Kelly Tompkins. I am an Executive Vice President of RPM International. (1) And sitting next to my colleague from Ford, I feel like a really small company with a mere $3.5 billion in sales. (2) That said, it is my pleasure to chair this opening panel. I can assure you that the expertise lies to my left and right; indeed, I am merely the appetizer for the main course, which my two colleagues will serve us in a few minutes.

Let me also thank Henry King for his kind, if not persuasive invitation. Those of you who have known Henry, he is very capable of twisting arms, although he did not need to do that in this case. Henry, thank you, it is a pleasure to be here.

DR. KING: Thank you.

MR. TOMPKINS: Our topic today is U.S.-Canada Supply Chain

Logistics. I am assuming that most everyone in the room is not an expert in supply chain logistics. Fortunately, our opening speaker, Professor Chow, will give us the big picture view of supply chain logistics to frame our discussion.

Following Professor Chow, Paul Vandevert will take us a little deeper into the automotive industry, in particular Ford, to give us a real-life example of the tension between supply chain logistics, economic considerations, and border security.

I was struck by some of the economic statistics between the U.S. and Canada which Valerie mentioned as she was heading off to China this weekend; that was shocking to me. Not only did Canada import $248 billion from the U.S. in '07, but the province of Ontario buys more from the U.S. than does China at about $160 billion. (3) So we are talking about significant economic stakes.

The Ambassador Bridge, which we are all familiar with, which connects Windsor and Detroit, exports roughly that which is equal to the U.S. exports to China across that one bridge alone. (4) From a two-way trade standpoint, we are talking about nearly $2 billion a day between our two countries, $1 million a minute, a 400,000 people per day crossing on average. (5) Clearly we are talking about significant economic relationships and economic implications.

As Sam Palmisano, the chairman of IBM, remarked recently, we are in a globally-connected world, and when we are globally connected, work moves to the places where it is done best, most efficiently, highest quality, and that is the essence of the global supply chain. (6)

Perhaps as a working definition--and I can assure you Professor Chow will give us a more refined explanation of global supply chains--we refer to it simply getting the right product at the right place at the right time at the right price. (7) That is really the essence of the global supply chain.

As I mentioned, Paul will take us into the automotive industry where the assembly of one car can involve three, four, five border crossings. (8) Producing each part in the most efficient location improves productivity, lowers costs, increases profits and that is the essence of today's global supply chain manager's challenge. (9) Inefficiency, whether it is due to a lagging infrastructure or well-intended but improperly-scoped security, is the key to the competitiveness of an integrated North American economy vis-a-vis Asia and Europe among other regions of the world. (10)

So among our questions today are, is the border thickening, and if so, what are the trade implications? Are well-intended security rules and regulations having unintended consequences to our collective competitiveness around the world from the perspective of global supply chain considerations? Do our regulators and policymakers really appreciate the full economic impact of delays and just-in-time delivery systems on U.S. and Canadian suppliers, customers, OEM's, and ultimately consumers? Hopefully during the course of the next hour, we can address some of these and other questions, and I look forward to active participation by the audience.

So with that, let me introduce our first speaker, Professor Garland Chow, an Associate Professor of Logistics and Supply Chain Management at the University of British Columbia in Vancouver. (11) He teaches and writes in the field of supply chain logistics, freight transport pricing, an internationally known authority, and has done extensive research on the role of Canadian firms in the global supply chain, the relevance of Canadian labor standards, the long-distance truckers, modeling of supply chains, utilizing the Asia-Pacific Gateway, and I could go on and on. (12) Suffice it to say, we have great expertise on this topic. So with that, I will turn it over to Garland and let him frame our global supply chain logistical challenge for us. Garland.

CANADIAN SPEAKER

Garland Chow *

DR. CHOW: Thank you. Actually last night, Dan, you mentioned that Cleveland has the Rock and Roll Hall of Fame. (13) Well, you know, that got me thinking. It got me thinking about when I was in the University, I was thinking about The Rolling Stones. Now, at my age, and I think some of you all, we are thinking about the kidney stones. You know, back in those days some of you folks were getting in trouble with the authorities because you had long hair. Now you are longing for hair. And did not we all anticipate those big weekends where we empty a keg of beer? Now on weekends, instead of thinking about a keg, K-E-G, we are thinking about our EKG.

Well, not only have we changed, but also the geoeconomic landscape that we live in has changed. You know, for practically anywhere from 20 to 30 years after World War II and the Korean Conflict, both U.S. and Canada experienced a significant period of economic growth with much of that value-added activity performed right here in North America. (14) This is enabled in part by the world's best transportation system because in the United States, we developed the national interstate highway system, and in Canada, in parallel, the Trans-Canada Highway, supplemented by the railroad. (15) In cooperation with the railroads, this meant we had good internal transportation to move goods around so that, yes, where work was best done in North America, or at least in United States or in Canada, it was done there. (16)

Now as Paul will bring out more detail, free trade between the U.S. and Canada was pioneered by the auto industry in the 1960's, and with the FTA and NAFTA agreements in 1989 and 1994 respectively, integrated supply chains further developed within North America primarily through the reduction in trade barriers. (17) Since then, globalization has taken place. (18) I am not going to thrill you with a bunch of numbers because you are all well aware of that the numbers. Much of the world's low-cost manufacturing has migrated to Asia, spurring the impressive growth of not only Asian countries but trade between Asia and developed countries such as North America, Canada, United States. (19)

This is all very interesting, but globalization is more than just offshore sourcing to low-cost manufacturing companies. (20) The rise of global supply chains in which imports and exports are exchanged across borders as part of the production and marketing processing of a single company or a network of companies means that firms should not be asking where should we create an entire product or service. No. What firms should be asking, and what they are asking, is where is the best place to locate each specific activity? And that is the essence of the supply chain. (21) The supply chain, as Kelly mentioned, is getting the right product to the right place at the right time in the right quantity and in the right condition. (22) When a consumer says I want a product, then someone has to design it. Where is it going to be designed? It can be designed anyplace in the world. (23) That product has to be developed and engineered. Where is that going to happen? It can be done anyplace in the world. (24)

The raw materials have to be sourced. Where is it going to be sourced? It can come from many places in the world. (25) And components need to be sourced. Where are they going to come from? They can come from many different places in the world. (26) Lots of products today go through several steps in manufacturing. (27) You manufacture an intermediate product which then is transformed again and again and again until it gets the final manufacturing or to the OEM for final assembly. (28) Where is it going to be done? It can be done at many different places. (29) And finally there is distribution. Where do you locate your distribution centers? Where do you locate your stocks of finished goods? Typically they are close to the customer. (30)

Let us look at an example. Now, some of you may have heard about the Boeing situation. (31) And as complicated as it looks, Boeing will assemble, they will assemble. (32) They conceptualize by the way what this product's going to look like, a 787. They are going to assemble it in Seattle, but where do all the components come from? (33) It is a joint effort where they have source, the design and engineering, and the production of many different parts all over the world. (34) If you look at it, you are going to see the United States, you are going to see Italy, you are going to see France, you are going to see Australia, and you are going to see Sweden. (35) And right down there on the bottom, you will see wind body faring landing gear doors from Boeing Canada. (36)

And I know that right in British Columbia we have a company called Avcorp. (37) While they are not supplying parts and components to this plane, they do supply significant assemblies to Boeing for other aircraft. (38)

Here is another good example. Bombardier Transportation. (39) Bombardier recently signed a contract to provide 88 advanced rapid transit cars to Malaysia in Kuala Lumpur. (40) In this case, they have partnered with Hartasuma, or HSB. (41) They are partnering with a...

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