DIGITAL INTEGRATION

If you’ve had your fill of uncertainty over the past three years, as I have, it’s not particularly fun to mention that we’re likely in for more. Supply chain disruptions, workforce shortages, geopolitical strife, rising interest rates and other factors all but guarantee our collective crystal balls will remain cloudy for a while yet.

There’s a need to use any advantage we can against this uncertainty. That means, those who haven’t already begun doing so should work towards digital transformation.

Data is more important to supply chains than it’s ever been. You’re likely going to need even more data going forward. At the very least, you’ll need visibility into the data you already have access to.

It’s supply networks, not supply chains, that will power organizations going forward. That will mean access to data, protection from cyberattacks, and digital integration across an organization will be more important than ever.

We all need to be sure that data can flow across our organizations and their systems seamlessly, so that all operations run as smoothly as possible. An increasingly and continuously interconnected world means the need for interconnected data.

In fact, a recent whitepaper by IDC notes that this sort of digital integration can help to create a competitive advantage for organizations that engage in it. According to the whitepaper, 80 per cent of respondents noted levels of improvement – including the cost of handling and sharing information, staffing efficiencies, and KPI improvements – after automating a range of collaboration documents.

Digital integration can help to harness the potential of technological innovations like data analysis, machine learning, the Internet of Things (IoT) and others.

As another example, artificial intelligence (AI) used in supply chain can act as a tool to increase visibility, track sustainability, and increase cybersecurity and worker safety. Online shopping giant Amazon, for example, is using AI to recommend products to online shoppers, predict consumer demand, and optimize delivery routes, among other uses. Natural language processing allows warehouse workers to voice-pick. This keeps their hands free, thus making their jobs safer. We take a look at the various ways in which supply chains are using AI in our article on page 18.

In this issue, we also look at how digitally integrated inventory management can increase efficiency and effectiveness of the supply chain, for example by helping to foresee future demand, prevent shortages or excess inventory and so on. You can check out our inventory management article on page 16.

Whatever the status quo is now, it’s bound to change at some point. That means, whatever the industry, digital integration and adapting technology can help operations run smoothly.

EDITOR

MICHAEL POWER 416-441-2085 x7 michael@supplypro.ca

PUBLISHER

ALEX PAPANOU 416-441-2085 x1 alex@supplypro.ca

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LAURA MOFFATT 416-441-2085 x2 lmoffatt@iqbusinessmedia.com

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FARIA AHMED 416-919-8338 faria@supplypro.ca

EDITORIAL ADVISORY BOARD

LORI BENSON Procurement Compliance, L&D, Engagement and Knowledge Lead | Business Enablement, Ernst & Young LLP

THOMAS HUDEL Manager, Purchasing and AP, Esri Canada Ltd.

WAEL SAFWAT Procurement Director, Black & McDonald

SHERRY MARSHALL Senior Manager, Meetings, Travel & Card Service, PwC Management Services

KIRUBA SANKAR Director, Program Support, Purchasing and Materials Management— City of Toronto iQ BUSINESS MEDIA INC.

JEFF RUSSELL Corporate Purchasing Manager & Inventory Manager, Miller Waste Systems Inc.

Vice President

STEVE WILSON 416-441-2085 x3 swilson@iqbusinessmedia.com

President ALEX PAPANOU

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If you’re a baby boomer (which means you were born between 1946 and 1964) you may be familiar with the book, Zen and the Art of Motorcycle Maintenance, by Robert Pirsig. It’s a great work, but in my opinion his second novel, Lila, is even better. In it, he discusses the inability of traditional thinking to place the animal, platypus, into the conventional categories understood by zoologists. Specifically, mammals suckle their young while reptiles lay eggs. But low and behold, the platypus lays eggs and then after those eggs are hatched, it suckles its babies. So, what is a platypus? A reptile or a mammal?

Apparently, this question created quite a stir in the zoological community. What a paradox! But as Pirsig points out commonsensically, there really isn’t any paradox. Platypuses are doing what is natural for them, what they’ve been doing for thousands of years. The real mystery – and here I’m using Pirsig’s words verbatim –“is how mature, objective, trained scientific observers can blame their own goof on a poor, innocent platypus.”

This story came to mind in the wake of the Bank of Canada’s decision on January 26 to raise interest rates for the eighth time in the past 12 months. What it is responding to is an economy that it believes has systemic inflation built into it. Raising interest rates is the traditional response that central banks all over the world have used when they believe there is an inflationary spiral. Except the Bank of Canada is missing the point. We are not in an inflationary spiral and the inappropri- ate response of hiking interest rates is almost certainly going to lead to a prolonged period of slower economic growth than is necessary.

My guess is that if you studied macroeconomics either in high school or university, you learned about the business cycle. The core of this theory is that in the developed world, the economy tends to grow over time, but not in a linear manner. There are extended periods of expansion, then contractions, before the recovery and subsequent re-expansion.

The two most important indicators to determine where we are at any one time in the business cycle are inflation and the unemployment rate. And this is why today’s central bankers are raising interest rates: inflation is higher than the desired two per cent and unemployment is extremely low. It currently stands at five per cent while the historical norm is 7.6 per cent.

A Different Economy

But here’s the rub. Today’s modern economy is fundamentally different than it was when the current theories were developed. Specifically, manufacturing is not as important as the service sector, which is far less cyclical.

Think of the most important services that you use routinely, health and dental care; or basic government services like getting your driver’s license renewed or mail delivery. These are not cyclical. I would agree that if this were the 1970s and the indicators were pointing in a similar direction, then the appropriate response would be to raise interest rates. But things are different now, and when things are different, they are not the same.

If the Bank of Canada is incapable of reading the economy correctly, at least we can. I’m looking at a graph of the price of oil and a barrel is pretty much identical to what it was one year ago. At the same time, it’s significantly lower than it was from an extended period that stretches from March to August 2022. When the inflation numbers come out several months from now, we’re almost certainly going to see readings that are either benign or even disinflation which means lower prices compared to a year before.

And we have to correctly understand the unemployment rate. Yes, unemployment stands at five per cent which is about 2.5 per cent lower than the historical norm. But as of December 2022, the participation rate was 65 per cent. The participation rate measures the percentage of the working age population that is either working or actively looking for work. Historically, it has been about 67 per cent and if you adjust for that, you immediately understand that the unemployment rate is pretty much even with its historical norm.

I read the news every day and one large organization after another is slashing its work force. This suggests that this is not the time to be hiking interest rates.

So why are interest rates going up? A critical reason is that those who make these decisions are themselves exempt from experiencing the real economy. Tiff Macklem is the Governor of the Bank of Canada. He earns approximately $500,000 per year. My guess is that he’s not carrying a mortgage.

He and the other decision makers are so out of touch with the reality of most Canadians that we can’t reasonably expect them to craft sound economic policy. Which is why they don’t. SP