Supply Chain 2020: Five Key Factors in Your Future

A handful of global "macrofactors" will have a huge influence on supply chains in the coming decade, according to a research project from the MIT Center for Transportation and Logistics (CTL).

At the NA 2010 exhibition in Cleveland sponsored by the Material Handling Industry of America, Larry Lapide, Ph.D., a CTL research affiliate and its former director, discussed the implications of the five macrofactors shaping supply chains in the future:

Aging of the Developed Countries: Population trends are leading to a "dislocation" between younger workers in developing countries who increasingly will be making and distributing products, and aging populations in developed nations who will be buying products. Lapide said these aging consumers will demand personalized products that will help them with issues such as physical, hearing and sight challenges. They will also look for "total solutions" rather than just a product (installation and set-up of a high-definition television system rather than just buying an HDTV). There will more opportunities in the health care field for services such as in-home monitoring of individual's diet and health.

Supply chain workers in the U.S. will be graying and, as companies reach out to find increasingly scarce workers, they will have to adapt their operations for workers who may speak languages other than English and may be physically or mentally handicapped. He noted that work is being done, for example, to design dashboards that are easier for older truck drivers to view.

A "wild card" in this scenario, said Lapide, is how the United States handles immigration. Efforts to tighten immigration would increase demand for workers, while looser immigration rules would keep a larger influx of workers coming to the United States.

Volatility of Oil Prices: Lapide said oil prices are likely to trend upward, perhaps to the $200 to $400 per barrel range by 2020, even as there are sharp price swings during that period. Two major factors driving prices are higher costs for oil extraction in increasingly remote areas and developing nations building their economies and consuming greater amounts of oil.

While cheap oil has encouraged supply chain practices such as flying goods from Asia to the United States, Lapide noted, more costly energy will lead to more emphasis on slower, more energy-efficient transportation such as shipping and trucking, and moving production closer to where products are consumed.

Economic/Military Power Shift Towards the East: The share of world gross domestic product (GDP) by the United States and Western Europe is declining. The U.S. share peaked in 2001 at 32.3%. Meanwhile, China's GDP has grown quickly, resulting in it passing Germany to become the world's third-largest economy in 2007. Lapide noted that many of the world's "largest" companies are now headquartered outside either the United States or Europe. Growing economies in China and India will compete for scarce materials with the developed world. They also will produce more engineers and colleged-educated students, begging the question if not just production but innovation will also move to these countries.

Tightly Aligned Trading Blocks: Rather than the global economic model portrayed in Tom Friedman's book "The World is Flat," Lapide said it likely that three or four tightly aligned trading blocks will develop in the coming years.

Green Laws: Transportation is the second largest source of greenhouse emissions after electricity generation, Lapide noted. He said companies need to develop energy efficient transportation operations, greatly enhance their reverse logistics capabilities, move toward green product design and take a holistic view of supply chain compliance as they become aware that their image in the marketplace depends not just on their own operations but their whole supply chain.

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