Prior to 1993, Europe was divided - logistically speaking. Because of internal borders, many companies had operations and warehouses in different countries.
With the advent of the European Union (EU), borders opened as the continent began integrating itself into a single market. With the opening of borders, competition increased and the pace of the supply chain quickened.
Companies were able to centralize their inventories and maintain or improve their customer service.
A decade later, businesses and customers in Europe are expecting more service and more rapid response from their logistics providers.
One of the results of expanding markets has been the growing importance of regional distribution centers in Europe. This results in a centralized distribution center, with one or more regional DC to serve more remote markets and/or to enlarge the responsiveness of the supply chain.
For example, telecommunication companies have to respond in two hours when they get an order for spare parts. That can be a difficult window to fulfill depending on where the manufacturer is located and where the customer is located.
A company can only respond that quickly when it has inventory located throughout the continent.
"Because of the state-of-the-art information systems available, companies can run their operations as if it were centralized, but handle their inventory in a decentralized manner," said Rene Boerema, vice president of the Holland International Distribution Council. "They can see their inventory, yet keep that inventory close to their customers."
Centralization of European distribution is a logical step in the development of many U.S. and Asian companies, Boerema said. Almost half of the American and Asian companies in Europe have one or more European distribution centers (DCs) serving the European market.
Companies with a diversified product range, such as large manufacturers of electronics, heavy equipment, office equipment and medical supplies and equipment, tend to use one or more European DCs.
The benefits of central distribution, as well as the savings resulting from it, include: lower transport costs through optimization of inbound transport and increased volume per transport; more efficient management of stock; shorter turnaround time of products with faster delivery times and more expedient service to the customer; lower working capital requirements because of lower levels of stock; and reduced currencies transactions cost reductions since stock, warehousing and personnel costs are reduced trough economies of scale.
The Uniting of a Continent
The removal of barriers to the cross-border movement of goods, workers and companies within the expanding EU, together with the growing interest in integrating the supply chain on a global scale, are the prime drivers for re-engineering European logistics.
Fuel taxes are high in the United Kingdom, so UK freight haulers are basing themselves on the continent to lower their share. Under the rules of the EU, this is a legal maneuver on their part.
The influence of Eastern Europe is also taking hold in the European logistics industry.
For the past decade, many high-tech companies have based their manufacturing in Ireland and Scotland. Those companies are now moving to Eastern European nations because labor costs are lower there.
When a company moves its manufacturing operations to a different location, it has to create a new supply chain.
Because most Eastern European nations are not yet members of the EU, startup logistics companies in the region can offer lower prices and operate under less-stringent regulations than established logistics providers in the EU.
Once those companies come under the EU umbrella, a more common cost structure will evolve, and they will be obligated to follow EU regulations. But for now, manufacturers in Eastern Europe can find better rates to move their products out into the supply chain.
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