Adapting to economic shocks: Strategies for Canadian manufacturers

Since his inauguration, U.S. President Donald Trump has upended global supply chains with a rapid-fire series of executive orders imposing tariffs with almost immediate effect. Unfortunately, this type of economic shock is becoming the norm rather than the exception. Over the past nine years, businesses have faced Trump’s first-term trade policies, the COVID-19 pandemic, and various whipsaw changes during Trump’s second term.

Historically, companies had ample lead time to study scenarios and incrementally test strategic responses. Today, time is a luxury they can no longer afford. Those who succeed in the long run will be those capable of rapid response.

This is playing out in real-time across our manufacturing client base. Some are already in action mode – shifting supply sources, renegotiating contracts and even relocating manufacturing and inventory to more tariff-friendly jurisdictions. Others are still churning through preliminary analysis – gathering data and assessing options. I worry about how this latter group will fare in the long run.

Below are key areas manufacturers are addressing to meet the changing economic landscape.

What-if analyses and simulations
In response to imposed, planned or potential tariffs, manufacturers are evaluating their supply chain with the goal of finding affordable supply sources. A standard first step is an internal analysis of existing suppliers and vendors. Companies will examine supplier performance across cost, lead time, reliability and quality dimensions to determine whether they can reliably shift purchasing to already approved alternate suppliers or if they need to source new suppliers.

Manufacturers will also want to simulate the impacts of any changes, assessing the full landed cost impacts by evaluating the shipping, customs and insurance costs of the various options. Changes will likely have a ripple effect from source to customer, so companies should assess the impacts on production schedules, fulfillment schedules and customer delivery promise dates.

Sourcing strategies and procurement execution
When making changes, companies may need to source new vendors and negotiate new contracts. Often, this process begins with a structured request-for-quotation, followed by the onboarding of new suppliers and rigorous initial quality reviews. Companies that excel in these areas will be able to rapidly pivot their sourcing strategies to prioritize purchases based on the lowest cost, shortest lead time or other dimensions. Modern ERP systems, for example, allow manufacturers to implement sourcing strategies that the MRP engine uses to automate its suggested purchase orders.

Business process efficiencies and operational effectiveness
Businesses might not be able to pass all cost increases to their customers. To protect net margins, companies can also look inward to partially offset the value of cost increases by removing business process waste. For example, can companies optimize their production schedules to maximize effective capacity? Can they revisit product designs and bills of materials to maximize yield and reduce scrap? Are there manual reports that can be automated to reduce wasteful data re-entry time?

Ultimately, reducing business process waste serves a dual purpose of both protecting margins and building a nimbler organization capable of responding to sudden shifts.

Leveraging ERP systems to efficiently respond to economic shocks
These are just a few key areas that Canadian manufacturers can investigate to address actual and threatened tariffs.

Companies that are proving capable of quickly pivoting cut across sectors, differ in size and have varying levels of operational complexity. Despite these differences, they share one major commonality – their core processes and data are tightly controlled, typically in an ERP system.

ERP is fundamentally both a planning engine that balances supply and demand and a near real-time accounting system tied to operational modules. ERP enforces controlled business processes, which may seem constraining. However, these controls enable agility. Accurate data for timely analysis, scenario planning tools and features that enable course changes all contribute to a strong manufacturing ERP solution. This includes integrated sourcing and procurement functionality, what-if scenario planning and as-needed analytics to support timely decision-making.

By continually refining their core processes and leveraging robust ERP systems, companies can build resilience and responsiveness, providing them with a foundation to effectively navigate the complexities of ongoing economic shocks and emerge stronger in the face of adversity.

Jonathan Gross is managing director at Pemeco Consulting, a vendor-neutral consulting firm. He leads clients through the entire digital transformation lifecycle, including: technology architecture and planning, technology vendor selection, technology procurement, implementation, and ongoing optimization.