Canadian manufacturing and the global supply chain
By Guillermo Moreno.
If you have been following the conversation about creating a national energy strategy, you’ve likely heard the argument that a Canada-wide supply chain approach will generate jobs. You’ve also likely heard the argument that it won’t. So often we are quick to assume that any job creation in energy development will only benefit one province or one industry.
As the leader of Tenaris in Canada — a global steel pipe manufacturer and service provider for the world’s energy industry with a distinct focus on local operations, I am often asked to explain the value domestic manufacturing provides to our clients. Today, our customers intuitively understand the importance of global competitiveness, but they typically underappreciate the advantages of a local network.
As the world becomes increasingly globalized, it’s easy to lose sight of the role the domestic market plays, and the opportunity our local industry has to add value well before the resource is developed.
Domestic manufacturing creates value for the customer and Canada. Being local adds value to the local economy. Being local means providing customers with better results by understanding their needs, developing collaborative relationships, and fostering continuous improvement. Being local means adhering to higher standards in health, safety, and environmental regulations.
Being local adds value to the local economy
In the energy industry, a domestic supply chain has a multiplier effect on the economic impact to Canada’s economy. Consider manufacturing domestic steel pipe, for instance.
The supply chain allows steel, manufacturing, and mining industries to grow alongside it. These impacts include the jobs added when a supplier from Quebec provides steel to Ontario or Alberta manufacturers that produce pipe used by Canadian energy companies in Manitoba, Saskatchewan, Alberta, and British Columbia. By connecting the western energy supply chain with the central Canadian manufacturing supply, Canada’s economy benefits.
The cascading effect of local businesses using and developing other local businesses generates a stable, secure economic engine that fosters further growth. At the macroeconomic level, when the buyer and seller are both Canadian companies, the contribution to the national economy is maximized.
Being local means providing customers with better results
As a local manufacturer supplying local customers, proximity and regional connection is an obvious advantage, but so too is continuous dialogue. A commitment to continuous improvement is a unique attribute of domestic manufacturers. It leads to better product performance, and lowers total costs by minimizing errors, waste, and downtime. Tenaris’s Rig Direct™ service is an example of this concept.
With local technical consultants dedicated to understanding the operating conditions of each formation and well, customers receive optimized products and materials selection that make sense for them. This can even include creating tailor-made products from our mills to help meet customers’ needs. Choosing the right materials from the beginning reduces costs from unnecessary product purchases and wasted material.
A shorter supply chain means less time to deliver a product, and less working capital to make projects happen. In the case of the oil and gas industry, operators can change the well design to increase production more quickly when they rely on a short, responsive domestic supply chain. This dynamic supply chain allows companies to reduce on-the-ground inventory to generate greater revenues. Working together with a local business that understands the needs of the industry and the challenges it faces provides innovative ways to collaborate to find solutions.
Additionally, by connecting domestic manufacturing and investments in integrated logistics services and RFID tracking, with just-in-time installation in the field, the customer and supplier relationship is designed around meeting customer needs and providing services that matter to them.
Being local means higher standards in health, safety, and environment
Maximizing the local economy as a domestic manufacturer creates an industry more responsive to Canadian values. It’s easy to forget that Canada has some of the world’s most stringent health and safety standards. Choosing to be a domestic manufacturer in Canada means providing the best working conditions for workers, not to mention generating high-quality products. Understanding the local environment also allows companies to curate a workforce that meets the market needs and supports community growth.
By using a local supply chain there is an opportunity to reduce greenhouse gas (GHG) emissions when considering the total lifecycle. Steel manufactured in Canada, by comparison, is the lowest GHG-emission steel available to Canadian suppliers. Canadian produced steel has one-third of the full lifecycle GHG emissions of steel produced in China, and one-half the emissions of steel produced in South Korea. An energy industry increasingly committed to reducing its emissions footprint sees value in Canadian manufacturing of steel pipe to meet their corporate social objectives.
Other shared corporate social objectives include a commitment to education in Canada and a renewed focus on areas of science, technology, engineering, and mathematics disciplines, particularly in enhancing the diversity of students pursuing this education focus. Manufacturers and end users in Canada are aligned in their support for science, robotics competitions, and in supporting the continued education of Canadian youth.
But the success of a domestic manufacturing sector would not be possible without fair market competition. Canadian manufacturers compete on market-based values and principals, but this isn’t necessarily the case for some foreign competitors.
Many foreign competitors use government intervention and less-than-market-value supports that distort their costs. These supports may include intervention from state-owned enterprises; manipulated currency; lower levels of health, safety, and environmental standards; and, engineered home market prices to support their export business competitiveness. Competition must be based on a level playing field and not distorted by unfair imports through dumping and illegal subsidy. Working together with local government to establish an effective trade remedy system in Canada prevents unfair imports from affecting competition. This makes investment in local manufacturing more attractive allowing for a more secure and stable supply available to the Canadian end user.
For global companies operating in Canada, there is a real opportunity to combine local commitment with global capabilities offering complementary niche products to better serve the domestic manufacturing sector. Global product supply can complement local commitment rather than replace it. Through collaboration and enhanced relationships, customers can receive customized solutions that balance specializations and further enhance the value for our domestic market.
Utilizing a Canadian manufacturing and service supply chain that incorporates a commitment to Canada and global excellence with complementary products generates an economic benefit for the customer, the supply chain, and the country. As we consider the need for a national energy strategy, think about how all Canadians in the supply chain can benefit from this economic opportunity.
Guillermo Moreno has been the president of Tenaris in Canada since October 2012, managing activity across the country for the company’s 1,300 employees, including its Calgary-based headquarters, three manufacturing facilities, and six service centres.