Supply Chain Frontiers issue #4. Read all articles in this issue.
Companies are familiar with disruptive technologies as a competitive threat, but what about disruptive demographics? Adapting to the expectations of graying consumers may be an even bigger challenge, particularly when it involves the transformation of entrenched supply chain practices.
Baby boomers, individuals born between 1946 and 1964, are entering their fifties at a rate of one every seven seconds in the United States. The nation's population of seniors over the age of 65 is projected to double by 2035. This August, Federal Reserve Chairman Alan Greenspan, described the "abrupt and painful" choices the US faces as 77 million baby boomers start to cash in their retirement benefits.
Also facing some painful choices are companies that fail to prepare for these changes. The baby boom generation wields an estimated 40% of the nation's disposable income. According to Joe Coughlin, Director, MIT AgeLab, these consumers are the new lead adopters and "companies have got to re-tool quickly to stay competitive and take advantage of the market opportunities that are opening up."
Said Coughlin, the graying of the consumer population has profound implications for the "the last few meters" of the supply chain -- namely what products and services are purchased, in what context, and how. This goes well beyond changes in marketing, he said. The evolving purchasing experience of baby boomer consumers will have repercussions all the way back through the supply chain, creating opportunities for nimble corporate players and considerable threats to those that are not prepared. The changes will impact how firms define consumer segments, design products and deliver real value, he explained.
The AgeLab was founded by Coughlin and is affiliated with the MIT Center for Transportation & Logistics. It is at the forefront of understanding the dynamics of aging consumer markets, and is helping CTL to analyze the associated logistical challenges and opportunities in multiple industry segments.
For example, AgeLab is developing a computerized shopping cart that identifies the ingredients of food products by scanning electronically tagged items on supermarket shelves. The computer indicates which foods are compatible with the health needs of the individual shopper. This type of information, and the buying decisions it triggers, could be an integral part of retail supply chains of the future, Coughlin said.
On a more global level, aging populations will place a higher premium on products that are bundled with services that support their lifestyles, pointed out Yossi Sheffi, CTL Director. "These consumers are less tolerant of products that do not meet their needs and offer features they see as redundant," he said.
A stereo unit, for instance, is perceived as part of a total home entertainment system rather than a discrete, standalone product. In order to deliver these service packages companies will have to develop integrated supply chain networks and become more responsive to consumer demands. Sheffi is leading a CTL research project on the use of postponement strategies to better align supply with demand in manufacturing.
But some experts argue that reshaping the traditional supply chain is not enough - that a new model for making and delivering products is needed. Shoshana Zuboff, co-author of the book The Support Economy, believes that demographic change is one of the drivers behind a shift in consumer attitudes that ultimately will render the concept of a supply chain obsolete.
"The last 50 years have been a watershed, and the baby boomers are the pioneers of a new mentality," she said. Increasingly, companies will be expected not only to make and sell products but also to help individuals manage their lives, said Zuboff. The traditional, linear supply chain with its internal rivalries is incapable of meeting these individual demands, she argued, and will be replaced by federations of enterprises that come together to offer tailored products and services.
Zuboff emphasized that older consumers are not the only agents of change in these emergent markets. "This is not a generational blip," she said. Twenty-something consumers and even adolescents "if anything are taking the individuation process to a new extreme." These youthful generations do not believe that they must fight for the products and services they want, "they have a tactic expectation, like instant messaging," she said.