Manufacturing is a vitally important element in the Canadian economy. It provides valuable export income, many high-quality jobs at a time when concerns are growing of a widening gap between rich and poor and stimulates the knowledge economy. While many often assume that manufacturing has minimal importance in Canada’s digitally based future, it is important to understand that manufacturing has a vital role to play in the development of that future and in the quality of life that people will have within it. This is receiving emphasis by the Canadian government:
The Canadian Manufacturers and Exporters note that manufacturing:
• Accounts for two thirds of Canada’s exports
• Employs 1.81 million people
• Generates 11 percent of Gross Domestic Product
• Is the biggest business sector in Canada
It has a $475 billion impact on the Canadian economy through a direct impact of $183 billion, an indirect impact of $186 billion and an induced impact of $106 billion and impacts 4.72 million jobs.
Jobs in Canadian manufacturing companies are often of higher quality than those in other sectors. Technology is often thought to be contributing to stagnating and lower pay levels, increased job insecurity and to many people feeling that opportunities for career advancement are limited. Manufacturing companies are often offering jobs that are better paid, more secure and offer opportunities for advancement than those in other sectors. This worker asked the Canadian Prime Minister about the future of manufacturing jobs:
Manufacturing is also a driver of the knowledge economy. While it is rightly argued that much future job growth will be in knowledge-based areas, such as programming and software development, manufacturing will be using the results of their work and is an important provider of demand for them. Canada’s manufacturing sector is a source of demand that will support the development and growth of Canada’s tech sector in areas that will be valuable in international markets. Tech startups need customers.
Manufacturing in Canada is distributed in every province. There are clear differences in emphasis, which will impact the application of digital transformation. For example, digital transformation in the oil and gas sector in Alberta, will be very different from that in automotive in Ontario or in seafood processing in the Atlantic provinces. The variation in manufacturing emphasis in each province will result in different forms of digital transformation, different technologies and the development of different eco-systems to support them.
Digital transformation in Canadian manufacturing is at an early stage for most companies. Most large manufacturers are considering its implications and have started to work with it. 55 % of Canadian manufacturers have not yet invested in advanced manufacturing technologies but only one in five does not intend to do so in the next five years (CME).
Smaller companies have been slower to adopt new technologies, lacking the scale, resources and capability to invest. IDC report that mid sized organizations in Canada are lagging behind larger ones with 54 % of large manufacturing organisations pursuing digital strategies and only 31 – 38 % of mid size doing so. This is confirmed by BDC who found that 39 % of Canadian small and mid sized manufacturers have implemented Industry 4.0 projects (BDC) but most are in the early stages of adoption. Provincially, Quebec is furthest ahead with 46 % of small to medium sized manufacturing companies having implemented digital technologies, followed by the Prairies (Manitoba and Saskatchewan) on 44 %, British Columbia and Ontario on 39 %, Alberta on 36 % and Atlantic Canada on 32 %. (BDC) The following panel discussion considers the future of manufacturing in Canada.
According to McKinsey, digital transformation is progressing in all global sectors but is furthest ahead in more technologically advanced industries, including industrial automation, software, and semi conductors. Close behind are consumer goods, automotive, mechanical engineering and plant engineering.
New companies are being established in existing markets with new technology-based business models and some existing businesses are concerned that the change required for them to compete may be beyond their capability. In some sectors there may be significant disruption as established companies decline and new ones emerge with products and services that displace them.
Data gathering from equipment-based sensors is spreading quickly and analysis of that data is developing slowly. Sectors with the most low hanging fruit are making more use of internet of things technologies, especially those with a strong focus on maintenance and where application of technology will bring large, quick benefits.
Drivers of Change
Manufacturing in Canada is taking place in a rapidly changing market environment that is making digital transformation a necessity. Globalization is leading to higher levels of international competition and technological change is altering products, processes and supply chains. Customer expectations are increasing quickly and public concern about the future of work is increasing. At the same time, trade barriers and trading relationships between nations are in a state of flux. Together, these factors require a carefully considered, radical response.
Globalization has made it easier for companies to sell their products and operate their supply chains internationally. Many Canadian manufacturers have seen a growth in competition from abroad (the CME report that 31 % feel global competition is growing fiercer) and have moved aspects of their operations to other countries. While this is likely to continue in the future, international trading relationships are changing in some areas, creating opportunities for some and challenges for others, that technology can help them address.
Technological change is the subject of this report and it is impacting all areas of manufacturing activity. It is altering products, processes and markets, creating new competitive conditions. Companies that do not respond to these changes in their industries, risk rapid obsolescence. Incorporating technology in business strategy is now essential. Accenture has estimated that in the automotive sector there is $0.67 trillion in value from digital transformation for the companies involved and $3.1 trillion for society.
Customer expectation are also changing. Business customers adopting lean methodologies expect higher levels of service and flexibility and closer levels of collaboration with their suppliers. Consumers have more choice than ever before, intensifying competition and causing sellers to provide higher levels of customer service, enhance their product offerings and engage more closely with their customers.
Increases in protectionism and changes in trading agreements (as those with USMCA, NAFTA and Brexit) between countries create new conditions for manufacturers to deal with. The Canadian Manufacturers and Exporters report that 35 % of Canadian manufacturers are concerned about the impact of US protectionism. Demand for products may increase or decrease, new products may be offered, supply chains may become more complicated and there may be some reduction in outsourcing of work to lower wage countries. Canada’s premiers offer their opinions on the USMCA:
Finally, public concern for the impact of information technology on jobs is growing and will impact how organizations are able to apply information technology-based solutions to deal with these drivers of change.
The manufacturing business environment requires that most manufacturing organizations evaluate their current position and the developments that are occurring. Globalization, technological change, customer relationships, protectionism and pressure from employees and the public will drive the consideration and adoption of information-based technologies in manufacturing.
Operations and Supply Chain Management 