Opinion: Urbanization’s Effect on the Supply Chain

This Opinion piece appears in the May 29 print edition of Transport Topics. Click here to subscribe today.

By Reginald Peterson

Director of Indirect Programs

AmeriQuest Business Services

Reginald Peterson

For the first time in almost 100 years, the rate of urban population growth has outpaced suburban growth. Americans are flocking to urban areas in large numbers — especially younger workers, or millennials, who view city living as a way to reduce commuting time and transportation expenses. At the same time, we are seeing the deindustrialization of center cities and changes to consumers’ lifestyle preferences.

This rapid urbanization is affecting how consumers shop, what products they prefer and how those goods are delivered. To be successful, companies need to understand the characteristics, preferences and buying patterns of consumers that will result from this shift to cities.

Companies need to understand how shifting demographics will impact their organizations’ footprint. Knowing the specifics about where their key customers live and work will be critical to success as well as the impact of their environmental changes. They also will need to define strategies that will help them navigate through the most diverse consumer markets in history and manage parallel products and channels for increasingly disparate consumer groups.

This urbanization will drive more spending in logistics, and shippers will need to get more personalized deliveries to their customers quicker, according to the Council of Supply Chain Management Professionals. This will lead to more spending on parcel deliveries. Supply chains will have to become leaner and more agile to keep up with consumers and their multiple connected devices, which is making it possible for them to order products from anywhere, at any time.

Because millennials have a strong preference for city living, a high propensity to rent their housing and an indifferent attitude toward owning cars, businesses are pondering strategies to market to this younger cohort.

The United States is not the only place where demographic changes are occurring. The population and buying power of middle-class customers are shifting from western nations to Asia.

In fact, there are nine global consumer groups to watch because they are expected to generate three-quarters of the global urban consumption growth. They are: Northeast Asia, Western Europe, Southeast Asia, South Asia, Latin America, China (60+ years old), North America, China (15-to-59 years old) and the retiring and elderly.

Going forward, businesses will need to build their brands on a global scale. Customers around the world now can follow brands and purchase products online. As a result, greater access to various brands across many countries is granted to consumers faster.

Technologies such as traffic-predicting tools, RFID tags, GPS devices, road sensors, bar codes, geofencing and location-based tracking will help companies optimize trips and ensure they are going as planned. In cases of unexpected disruptions, onboard vehicle telematics will allow deliveries to be redirected or rescheduled.

Another trend that will develop as a result of urbanization is that more money will be spent on high-speed rail projects. There likely will be an increased use of rail for freight deliveries. Rail freight deliveries will reduce road congestion and could be used as cost-effective options for same-day or next-day deliveries.

To continue to prosper, all members of the supply chain are going to have to adapt to the changes. Here’s what you need to do so you don’t get left behind:

• Make your supply chain leaner to become more agile. Most global supply chains were engineered to manage stable, high-volume production by capitalizing on labor-arbitrage opportunities available in low-cost countries. This approach is dying with the growth of urbanization. The advantage will go to those companies that are able to make products in varying quantities and at varying locations depending on demand, thereby making those products available to their customers faster from order to delivery.

• Don’t skimp on technology. Invest in technology to optimize your supply chain process. Use this opportunity to be collaborative with your supply chain partners to make those products and services available globally. You will need to gain market share from those nine global groups that will generate three-quarters of the global urban consumption growth from 2015 to 2030.

• Examine your broader supply networks five to 10 years into the future and reconfigure as necessary. This approach will build supply networks that are more diverse and resilient, allowing you to survive in times that are more uncertain.

• Change your massive supply chain into a smaller one. This will make you more agile and allow your company to combat complexity, reduce financial burdens and increase custo- mer service.

Urbanization and other demographic changes will have a significant impact, not only on how goods are bought and sold, but on how they are delivered. These trends will become challenges and opportunities for trucking-related businesses. Be ready.

AmeriQuest Transportation Services, which is based in Cherry Hill, N.J., delivers comprehensive fleet management solutions that enable companies to reduce costs, optimize productivity and be more competitive in their markets.