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Inventories tell the future of Canada’s factory sector

Workers lay cables and wiring in a Global Express jet being manufactured at Bombardier Inc.'s Downsview assembly plant on May 29 2012.

Fred Lum/Fred Lum/The Globe and Mail

Statistics Canada devotes five paragraphs in its latest report on manufacturing shipments on the evolution of inventory management over the past decade. For anyone in need of evidence to support factories' embrace of just-in-time delivery, this is the place to go.

Inventories shrank in November, but generally have been on a gradual rise over the past couple of years, reflecting sluggish global demand. The monthly average for the first 11 months of 2012 was $65.2-billion, the highest since 2008.

Stockpiles are made up for three segments: raw materials; goods-in-process, or stuff that remains uncompleted; and finished goods. The Statscan data show factory managers are actively trying to keep down volumes of raw materials and goods ready for market.

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Raw materials accounted for 39.8 per cent of total inventories in 2012, compared with 44.5 per cent in 2004, and finished goods – despite an increase from 2011 – represented 33.3 per cent of total stockpiles last year, the lowest since 2002. At the same time, the share of goods-in-process of overall inventories has been rising steadily since 2004, reaching 26.9 per cent last year, the highest in a decade.

Statscan makes no comment of its own on what these numbers mean. We've written about Canadian manufacturing a fair bit over the last couple of years, demonstrating anecdotally how manufacturing is increasingly being done by smaller, nimbler companies that seek to fit into global supply chains. The Statscan analysis seems to support this shift. These companies are building components, not assembling store-ready products. And they don't want the cost burden of carrying lots of inventory: they want to make it, and then get it out the door. This is the future of manufacturing. The percentage of goods-in-process of total inventories will continue to grow.

The question for Canada is whether the shift is happening fast enough.

Manufacturing shipments increased 1.7 per cent to $49.9-billion in November, the highest level since May, 2012. Unfilled orders jumped 3.6 per cent to $64.1-billion, the most since March, 2009, suggesting sales should hold up over the months ahead.

But those gains were driven by makers of transportation equipment, which accounted for a third of the increase in sales, Statscan said. Unfilled orders in the aerospace segment surged 7.8 per cent to $34.2-billion in November, the highest since March 2009.

These data reflect strong U.S. demand for automobiles and a good month for Montreal-based Bombardier Inc. Evidence of strength in other advanced manufacturing industries is spotty. Machinery sales plunged 10.3 per cent from November 2011 and sales by makers of computer-and-electronic products dropped 4.3 per cent over the same period.

Canada's makers of automobiles and planes -- and parts for automobiles and planes -- are internationally competitive and stand to gain as the global economy picks up after a lacklustre 2012. But there's reason to worry about other segments of the manufacturing industry. Despite all the talk of global supply chains and inventory management, many of the country's manufacturers aren't keeping up.

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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