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Global Age Dependency Ratios Will Drive Increasing Automation Investments

Goods to Person Automation - A Multishuttle Primer

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Supply Chain Digest Blog Entry: March 19, 2013 (here).

Whether you know it or not, the "Age Dependency Ratio" is an important statistic that manufacturers, distributors and retailers need to make themselves aware of.  Age Dependency Ratio (hereafter ADR) is the ratio of dependents (i.e. people younger than 15 or older than 64) divided by the working-age population (i.e. people aged 15-64).  A small ADR is good because this means that there are plenty of working people available to support the dependents.; Conversely a large ADR is bad for the opposite reason. 

I thought it would be interesting to look at statistics from different countries around the world to illustrate the current situation as it stands today versus projections out to 2050.  The data below shows the proportion of dependents per 100 working-age population by country.  Remember small is good, large is bad and the ideal trend is from large to small over time.

Global Age Dependency Ratio Chart
Note: A complete list of countries can be found here.

With the exception of India and Mexico, the countries listed in the above table are all facing the forthcoming challenge of supporting their economies with shrinking labor forces.  Countries like Japan, Germany and Spain are literally moving towards crisis situations where projected labor shortages will likely require an overhaul of immigration policies lest there be a shortage of millions of workers.   As the population ages and young people have fewer babies, the size of labor forces is declining which means that manufacturers and distributors in developed countries will find it increasingly difficult to attract, recruit and retain labor.  This also implies that governments will increase taxes such as payroll levies and health benefits to pay for the bills.

This leads me to the main point of this article.  If labor resources become increasingly scarce then inflationary pressures are not far behind.  A shrinking labor pool combined with projected higher wages and benefits costs implies that we will very likely be witnessing a significant increase in the demand for automated material handling systems in countries where there is an increasing Age Dependency Ratio.  Faced with rising labor and benefits costs, companies will quite naturally respond with investments that reduce their dependency on labor resources.  This has already been the case in Western Europe for the past several decades and we are now starting to see an increasing number of North American firms make strategic investments in distribution automation. 

We fully expect the North America automation market to accelerate in a big way over the next 5 - 10+ years as more companies realize that these solutions deliver significant competitive advantage.  There is now a wide range of proven automation solutions available for both manufacturing and distribution applications.  It is the responsibility of every supply chain executive to stay informed about the technologies that may be applicable to their business. Our firm is working to help executives with a series of free white papers that are available here (no sign-up required).  These documents are not funded in any way by the vendor community so you can rest assured that they are 100% unbiased.  Take a look for yourself to see what companies are doing by way of automation investments and let us know what you think.

Marc Wulfraat is the President of MWPVL International Inc.  He can be reached by clicking hereMWPVL International provides supply chain / logistics network strategy consulting services. Our services include: supply chain network strategy; distribution center design; material handling and automation design;  supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.

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MWPVL International Inc. is a full-service global Supply Chain, Logistics and Distribution Consulting firm.  Our consulting services include Supply Chain Network Strategy, Product Sourcing Strategy, 3PL Outsourcing Strategy, Purchasing and Inventory Management, Distribution Center Design, Material Handling Systems, Supply Chain Technology Advisory Services (WMS, TMS, LMS, YMS, OMS, DMS, Purchasing, Forecasting, Slotting), Lean Distribution, Lean Manufacturing,Transportation Management, Distribution Operations Assessments, Warehouse Operations Consulting and much more.

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