Maintaining essential services and supply chains amid an economic and health crisis

We don’t pay much attention to how we get all the consumer goods we need and want every day. Things just arrive at a store or are delivered to our door. Services are available through a plug in the wall or a tap or a flip of a switch or a cable. People show up to help when we call a plumber or taxi or arrive at a hospital or medical clinic — the list is endless. Absolutely everything we use every day comes to us via complex logistics and supply chains that link producer to consumer.

In fact, all economies consist of a circular flow of goods, services, information/data, and money. Millions of people in the labour force — there are 2.6 million of us in B.C. — contribute our effort to businesses who produce innumerable goods and services. Businesses of all sizes, in turn, flow money to individuals as wages, interest, profits, and to government revenues from fees, taxes, royalties, rents, and so on. Much of that money finds its way back to businesses through the purchase of products or services. And although information/data is not represented in the figure below, its flows are embedded in each pathway and are indispensable to the functioning of the economy.

Source: Gregory Mankiw, Harvard University, Measurement of National Income.

Today, this network and our economic health and prosperity are at great risk. Because of COVID-19, segments of the supply chain are being interrupted and many businesses have had to partially or completely shut down operations. The goods supply chain along with communication networks, energy, transportation, information/data, and financial systems are the “invisible” threads of both social and economic structures. All it takes is for one weak link or a bottleneck along any of the pathways and the entire chain is compromised.

In the short run, protecting supply chains is essential to ensure the flow of and access to necessities such as food, fuel, electricity, communications, and medical supplies. Equally important are the jobs and economic activity derived from the various activities in supply chains, along with our need to ensure information/data and credit flows. They seem less vulnerable because they are less tangible. But like energy, they are the sources of “oxygen” to well functioning economies; they too will be under pressure during this momentous time.

Employment in wholesale trade, transportation and warehousing represents 10% of all jobs in B.C. (~227,000 jobs). Adding the retail sector, the last point of a long chain of transactions ending with the consumer, raises this share to 16% (529,000 jobs).[1] Viewed in this context, supply chain jobs represent more than ¼ of all service sector employment in the province. They are critical to a well-functioning goods producing sector and to the broader economy, including essential public services. In short, the economic ecosystem is highly interconnected, interdependent, and sensitive to disruption.

For perspective, let’s take a quick look at the production of a lead pencil, a deceivingly simple item. We begin with a tree. First, the tree must grow into itself. If we assume its origins are not old growth, then as a seedling it is germinated and nurtured in a tree nursery, eventually making its way to forest land and planted. Many years later a tree is harvested with saws, chains, specialized equipment, trucks, railways and tugs, until the log reaches a fabrication mill. The mill itself is full of specialized equipment. It is built from steel, concrete and innumerable other components, sourced, transformed, shipped, delivered, and assembled on site. The inside of the mill is a collection of complex mechanical and electronic machinery relying on electricity, kilns that may be fueled with natural gas for drying, and all operated by people supported by other people who do everything from make coffee to run and repair equipment, enabling the transformation of a log into pencil-length pieces of wood. These pieces are shipped by truck, rail, or boat to another factory. That facility has sourced the graphite, perhaps from somewhere else in B.C., but probably imported. The graphite is refined into the pencil lead, not necessarily in B.C., using yet another combination of supplies and suppliers. Still another company (or companies) puts the lead in the pencils, sorts, and packages them for warehousing and distribution to office supply stores and possibly for export. The combinations and permeations of supply chain connections and chain of custody for a simple pencil are many, vast and varied.

Now imagine applying this same logic to the over 300 categories of B.C. manufacturing activities,[2] including food and medicines, tracked by Statistics Canada for the purposes of building a picture of economic activity in the province. The network of interconnections is mind boggling, all relying on people and the market to deliver us what we need, when we need it, just in time. Disruption of this sensitive ecosystem of connections will have profound and cascading effects on B.C.’s economy. It is imperative for companies and governments to identify bottlenecks and find workarounds to keep supply chains operating, including information/data and within the financial sector. We need them now and for the time when we eventually recover from this global challenge.

The Business Council is closely monitoring the operation and stability of critical supply chains as the COVID-19 pandemic plays out right now and, in the months, ahead.

[1] BC Stats, BC GDP by Industry - NAICS Aggregations, 1997-2018, Millions of chained (2012) dollars; BC Stats, British Columbia Employment by Detailed Industry, Annual Averages.

[2] Manufacturing contributed $17 billion to B.C. GDP in 2019 and 165,700 jobs.