Choosing a site for a European Distribution Center (EDC) is a major undertaking, and a complex one. But for firms with large or growing markets in Europe, it cannot be ignored.
EDC site selection is complicated because there is no single criteria on which to base this decision.
Before potential sites are debated, an array of factors must be weighed: Will distribution be outsourced or self-operated? Is a single central site, or several regional distribution centers, best? Do the products have special characteristics -- weight, size, fragility, toxicity -- to consider? Is it best to be close to suppliers -- or to markets? And are these markets shifting, or geographically stable?
Myriad questions arise and demand answers before a site can be evaluated.
To outsource or self-operate? That is the question
One of the most basic questions that must be addressed is whether European distribution should be outsourced to a third-party logistics provider. At present, two out of three U.S. EDCs are outsourced.
Why outsource European distribution? One advantage is the savings on capital investment. By contracting with a third-party distributor, the U.S. firm does not have to invest in land, buildings, or handling equipment. The third-party firm also hires and trains personnel. Because a third-party provider can handle several clients with different seasonal patterns they have a constant work flow, which lowers costs.
Consultants International are located in the following countries:
- 57% Netherlands
- 13% Belgium
- 12% United Kingdom
- 7% Germany
- 6% France
|
There is also the economies of scale issue: Because they are handling distribution for many different companies, a logistics provider can invest in certain equipment, specialized personnel, and information systems that each user would otherwise have to purchase on its own.
The logistics provider also helps a company track costs closely by providing a regular overview of distribution expenses. Outsourcing distribution in Europe to a third party allows a corporation to focus on its core business: marketing and sales.
Third-party providers also offer an ever-increasing array of Value-Added Logistics (VAL) services, including: quality control and product testing; customizing ("countrylizing") products for different national markets; light assembly; repair (and re-use) of components; and training at customers' premises.
Adding value to products at an EDC site makes sense because it extends the range of products available, reduces delivery times, and also allows firms to keep inventory to a minimum. It can lower the cost of stocks, transportation, and import duties.
Some third-party logistics providers even help with the building of specialized distribution units. In the Flanders region of Belgium, for instance, Katoen Natie developed, engineered, and built a $16 million storage facility for one of its customers.
With all these services, it is hardly surprising that many U.S. firms choose to outsource production. But some reports suggest that U.S. satisfaction with third-party logistics providers is diminishing.
As U.S. firms become more experienced in operating EDCs, third-party logistics providers will have to work harder to keep their business growing and to win back the business of major firms like USHIO, the Japanese lighting company.
USHIO stopped outsourcing distribution in Europe because top executives felt its employees were best equipped to handle their fragile high-tech products.
On the other hand, René Buck, president of Buck Consultants International, believes all but the largest U.S. companies will likely choose to outsource their European distribution.
"The trends we see are that small- and medium-sized companies will continue to outsource," says Buck. "Overall, in the next several years, we don't expect to see a decline in outsourcing."
Centralization vs. Regionalization
Before the 1993 unification of the European market, U.S. firms selling in Europe were compelled to set up distribution centers in each country or region where they did business.
| "The trends we see are that small- and medium-sized companies will continue to outsource."
-- René Buck, president of Buck Consultants International | |
European Unification removed barriers to the distribution of goods across national borders and allowed U.S. firms to consolidate distribution at a single, central hub. For instance, after 1993 Compaq whittled its 13 service centers down to three outsourced facilities. While large corporations are re-engineering their multiple EDCs, unification has also opened doors for small- and medium-sized companies to establish central EDCs.
A central EDC offers many advantages. Multiple regional EDCs can mean duplication of warehousing and office facilities, personnel and stockpiles. Many foreign companies selling to European markets aim for just-in-time delivery -- that is, keeping on hand just enough product to respond promptly to customer demands across the continent. A central EDC makes this possible.
Some regions offer facilities that maximize these savings. For instance, the Port of Rotterdam's strategically-located Distriparks provide warehousing and forwarding facilities, on-site customs service and a variety of value-added services including packing, labeling, assembling and invoicing.
However, a case can be made for establishing several regional distribution centers.
"Some companies have their highest percentage of cost in transport," says Karin Hoerhold, senior project manager at JCG International in New Rochelle, N.Y. "If cutting transportation costs and delivery time are key issues, several well-located regional centers may make sense."
Special requirements
Once a company makes the central vs. regional EDC decision, there are a number of other factors to consider. These include availability of transportation, real estate costs, and cultural considerations.
Product prerequisites
The nature of the product to be handled at the EDC is a key factor executives must consider.
There is the weight-to-value issue: Lightweight products mean shipping costs are not a major concern. Therefore, the EDC can be put wherever the necessary transportation is, and not necessarily close to the incoming port or even major markets. Companies producing heavy products (like automobiles) tend to put their EDCs close to the point where the vehicles are shipped in, usually a major seaport.
Some products have unique qualities that must be factored in -- like medical products and hazardous materials, both of which are shipped quickly and directly to the end user.
There are several regions in Europe attempting to meet the requirements of all types of incoming products by building multi-modal platforms -- facilities that combine road, rail, air and water transport facilities at one location.
Transportation deliberations
Transportation needs are a consideration. Europe is well-linked by all forms of transportation, so the crucial transportation decision may be how best to move the product from the United States to Europe.
| "If cutting transportation costs and delivery time are key issues, several well-located regional centers may make sense."
-- Karin Hoerhold, senior project manager at JCG International, New Rochelle, N.Y. | |
The type of product typically determines the mode of shipping and that, in turn, can affect whether the U.S. firm puts its EDC near a major port or by an airport.
U.S. firms continue to flock to the Netherlands because it is home to the world's largest seaport in Rotterdam and to Schiphol, the business-oriented airport area [see story on page 87, third column].
Another issue is national transportation regulations. Some countries have maximum truck weight laws. For instance, goods moved by truck through these countries may be forced to unload part of their cargo at the border. Efforts are underway to establish standard EC transport laws, but for the present this remains an issue to consider.
Real estate requirements
| "GE selected a strategic area within central Europe from which it could provide high quality service to its European customers on a 48-hour delivery cycle time. The Lorraine (France) region was part of this ideal area..."
-- Steven Marbut, logistics manager, General Electric Lighting | |
If a firm plans to rent large warehouses and/or offices, rental rates are a prime consideration. As of mid-1996, the lowest commercial rents were in Madrid, Brussels, Amsterdam and Vienna (an average of $250 - $300 per square meter for office space).
A related real estate issue concerns the type of facilities required. The firm USHIO put its self-operated EDC at Amsterdam's Schiphol Airport Area because that business center offered the combination of warehouse and office space USHIO required. Amsterdam Westpoint is building 20 warehouses, with storage capacity of at least 650,000 square feet. These can be tailored to clients' needs, with integrated offices, climate control and heating.
Many firms flock to bonded warehouses, where the manufacturer does not have to pay customs until the product is shipped out of the warehouse, shortening the time between payment of duties and the sale of the item.
Cultural considerations
Political culture is important to consider. A stable government (and economy) makes setting up and running an EDC easier.
Western Europe is one region of the world where U.S. executives do not have to worry about revolution, civil war, or other forms of mass unrest. Despite talk of distribution centers shifting east into the former Soviet bloc, Western Europe will continue to offer U.S. corporations an unprecedented level of political and social stability.
A country or region's work ethic and pro-business attitudes are other cultural factors to consider. These are signaled by a lack of red tape and flexible customs regulations, qualities for which the Netherlands and Belgium are renowned.
For instance, in Antwerp, there are over 500 public and private bonded warehouses, about 200 tax bonds used for goods subject to excise, and VAT bonds used for goods on which only VAT has to be paid.
When goods are stored under any of these arrangements, import duties, excise and VAT are not due.
Financial incentive packages from local or national authorities are another sign of a pro-business attitude. For instance, Lorraine, France -- where major U.S. firms like Massey-Ferguson, Fort Lock, AlliedSignal, GE and Wellman have invested -- offers a flexible financial package for up to 34 percent of the total investment.
Ireland Development Board of Northern Ireland (IDB) recently helped the U.S. firm AVX to establish research and development programs as well as specialized training for employees for their distribution center.
Language and culture are other criteria that U.S. executives cite as a reason for placing their EDC in a particular country. Of course, language is less important when the U.S. firm outsources distribution, but U.S. firms self-operating their EDCs sometimes seek a region with a high rate of English-language fluency. For instance, a recent study by KPMG found that companies that moved to Amsterdam cited the Dutch people's multi-lingualism as a key factor (79 percent of Dutch citizens speak English).
The art of EDC site selection
With so many variables to consider, it is not surprising that selecting an EDC site is a difficult decision.
In 1994 General Electric Lighting opened its Master Distribution Center in the Lorraine region of France.
Logistics manager Steven Marbut explains why: "GE selected a strategic area within central Europe from which it could provide high quality service to its European customers on a 48-hour delivery cycle time. The Lorraine region was part of this ideal area and was selected due to its favorable labor conditions, excellent infrastructure, and the support from government and community officials."
Selecting an EDC site is a difficult decision because there are so many important variables to consider.
| The best location for a European distribution center depends on a variety of factors, including the type of product, the stability of a country, and the proximity of consumers.
|
Nike chose Laakdal, in the Flanders region of Belgium for a multitude of reasons: central geographical location; easy access to a number of transportation alternatives (including inland waterways); available workforce; and room for expansion at the selected site.
Nike's choice, which balanced many considerations, is typical; rarely, it seems, does a single variable outweigh all the others.
Firms must analyze a variety of factors carefully -- and perhaps draw on the expertise of a logistics consultant -- to find the perfect site for their situation.
| Amsterdam Airport Schiphol: Gateway to 'the Gateway'
Favored by geography with a central location and access to the North Sea, for over 500 years the Netherlands has been at the forefront of international trade.
Today this legacy lives on in the pro-business attitude of customs and tax authorities, the highly-developed infrastructure, and a large, technically-skilled and multilingual workforce. Home to more European Distribution Centers (EDCs) than any other part of the European Community, the Netherlands' title as "The Gateway to Europe" is assured -- and it is enhanced further by trade-oriented Amsterdam Airport Schiphol.
Recently KPMG surveyed executives from foreign firms who chose Amsterdam as their EDC site. They found these companies chose Amsterdam for two reasons: the area's multilingual culture and Airport Schiphol. In fact, half of the U.S. and Japanese EDCs in the Netherlands are located at Schiphol.
Amsterdam Airport Schiphol is less than 20 minutes by public transport from Amsterdam's city center and within three hours' flight time from all of Europe.
South of the airport is the Port of Rotterdam which -- because of its five million containers and ability to process 310 million tons of freight each year -- makes it larger than all other European ports combined, according to John Bertram of InterMarketing in New York City. Schiphol International Airport handles 85 airlines serving 97 countries. The third largest (and fastest growing) cargo airport in the European Community, Schiphol processed 1.1 million tons of cargo in 1996 and its capacity will double by the year 2003.
Amsterdam Airport Schiphol -- also known as Schiphol Area Development Company, or SADC -- is the result of a partnership between Dutch government and business officials.
The partners contributing assets and skills to the project are the city of Amsterdam, municipality of Haarlemmermeer, Schiphol Area Development Company, Kantoren Fonds Nederland (a major real estate investment fund) and KLM Airlines (which has its hub at Schiphol).
Together they have created a pro-business mini-city, with a wide range of commercial and industrial property to lease, including tailor-made turnkey premises, efficient warehouses and luxurious offices. U.S. firms considering an EDC in the Netherlands will find Schiphol officials eager to offer advice in locating the facility that is just right for their business needs.
Schiphol Airport Area contains seven business parks, each with a particular focus.
For instance, there is the International Business Park Riekerpolder, home to the European headquarters of IBM and Nissan. Beukenhorst is the park site chosen by Microsoft; it also contains a Holiday Inn Crown Plaza and a rail station. Schiphol Southeast is a new cargo area with direct access to a runway; it will also eventually include a tunnel link to the older cargo area. Schiphol can offer firms combination office-warehouse space, bonded warehouses, and value-added logistics (VAL) services.
U.S. and Asian companies are flocking to Schiphol. Canon-Europe has its EDC there. Seagate Technology set up its first EDC there in 1992; a second opened in April 1997. 3M-owned Imation Europe BV will start leasing its space in July 1998.
With its array of facilities and services, Airport Area Schiphol is a major gateway for foreign firms trying to reach the European market.
|
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