Changing Demographics Ripple through the Supply Chain

Major demographic shifts will alter the makeup and preferences of consumers worldwide in years to come, and companies that maintain global supply chains must take note.

In a recent CSCMP’s Supply Chain Quarterly article, two Penn State University professors and a VP of supply chain operations at the Hershey Company examined three significant demographic changes that they expect to occur, and the effects those changes could have on the supply chain.

Getting ahead of a Global Shift

Global shifts in population will affect where and how people live and work, according to the article’s authors, who expect the changes to be measured across three primary dimensions:

• Magnitude—The rate of global population growth will decline, with Africa and Asia the biggest contributors to growth
• Structure—Longer lifespans will dominate, religious makeups will shift, and middle-class growth will accelerate in Asia
• Migration—Internationally, the movement of migrants will reverse—flowing to Europe instead of from it—while on the local scale, migration to urban areas will increase

The changes will affect both ends of the supply chain and challenge executives to rethink not only where customer demand will be, but also where companies should locate production to meet that demand.

As manufacturing and logistics expert Cindy Elliott observed in a recent WhereNext article, “Execs must grasp not only where consumers are now, but where they are going—predicting business opportunities based on emerging trends in precision demographics.”

Leading companies are paying attention to these trends in consumer movement and preferences, and using location intelligence to proactively adjust their supply chains.

Analyzing Local and Global Demographics

In the Supply Chain Quarterly article, Hershey Company VP of supply chain operations Jason Reiman noted that his company is making changes throughout the supply chain in anticipation. As part of its analysis, Hershey first examined where it expects future customers to live, then planned production locations close to the areas of increasing demand. Next, it identified a suitable workforce in those new areas.

For businesses conducting similar long-term planning, location intelligence can be a key asset. As Elliott explained:

The engine for that analysis is often a geographic information system. GIS technology ties digital information to a place, allowing retailers to examine competitor locations, insurance companies to assess claims across neighborhoods, and logistics providers to plan efficient delivery routes. Global manufacturers use the demographic capabilities of GIS to gauge where customers may move in coming years.

Building a Complete Supply Chain Strategy

Globally, growth was slowing in Hershey’s traditional markets in the United States, Europe, Japan, and Australia, the authors note. The company saw an emerging city-dwelling middle class in Asia and the Middle East, a cohort predicted to grow over the next 15 to 20 years.

These were potential new consumers with disposable income to spend on Hershey’s confectionary products. To get close to that demand—and key resources such as cocoa liquor and sugar—the company established a new manufacturing plant in Malaysia.

As the authors explain, Hershey then examined local demographics near the city of Johor, Malaysia. They identified a potential workforce that was young, educated, and productive. Delving deeper into the psychographics of the new workforce helped the company plan a facility layout and operating procedures that complemented local training needs, languages, and religious preferences.

The location intelligence that comes from demographic analysis was once the exclusive province of marketing executives seeking to craft messages for certain groups of customers. As Hershey’s tale illustrates, such insight now plays a role throughout the supply chain.

On the demand side, companies use GIS-powered location intelligence to understand changing consumer needs and adjust their presence in various markets. Those adjustments ripple through to the supply side, influencing where the company sites production facilities. They also help facility planners and operators understand and accommodate the local workforce.

The demographic shifts that Hershey and other companies foresee aren’t short-term changes. They will have significant and lasting effects on the supply chain. Executives who enlist location intelligence to plan for those changes now will likely find themselves with the right supply chain balance down the road.