Europe is home to some of the world’s largest economies which makes it an attractive market. However, even though the continent’s land mass is larger than that of the United States, its geography, service preferences, mix of cultures, languages, and geographic wealth distribution present a unique set of challenges that add complexity to distribution network planning and execution.
Taken as a whole, Europe is made up of a collection of peninsulas. This high coast-to-landmass ratio — coupled with several mountainous regions throughout the continent — limits the service reach of a potential distribution location compared to the contiguous landmass and straight highways of the United States.
The non-homogeneous wealth distribution across countries within Europe further complicates distribution network planning by limiting the incremental service reach of potential distribution locations, particularly when demand for products mirrors per-capita GDP. Generally speaking, the per-capita GDP of Western and Nordic countries is twice as much as the adjacent countries and the per-capita GDP of these adjacent countries is twice as much as the countries in Southeastern Europe (see Figure 1). This wide disparity in wealth becomes increasingly important the higher the value of the products being distributed.
Finally, service preferences can further complicate distribution network planning by effectively sub-dividing the European continent. As an example, depending on the industry, it’s not uncommon for French customers to prefer deliveries from France; yet distribution centers located in France often add little value for distribution outside France. Since France is Europe’s third largest economy, service requirements like this can’t be ignored.
The combined impact of these conditions is a limit on the potential effectiveness (from a service reach perspective) of a small number of large distribution locations as well as a limit on the incremental benefit of each additional distribution location.
A closer look at the numbers
Figure 2 below depicts the diminishing value of additional distribution locations using seven common logistics hubs in Europe and the United States. (Note: This analysis is based on incremental service reach by per-capita GDP.)
In the case of Europe, Venlo as a representative location of the Benelux area can reach nearly 40% of the total European GDP [1] within an 8-hour drive and the other 5 locations add decreasing increments of 11% to 6% with Copenhagen adding only 2% for a total around 80%. By including Paris as a location to exclusively serve France, Venlo reaches 33%, Paris covers 11%, and the other locations add similar small increments of reach.
For comparison sake, with Allentown as a representative location of the Northeast area, a DC in this area has the highest reach within an 8-hour drive with near 30% of the total North American GDP [2] and the following 4 sites add decreasing increments of 18% to 10% each with Seattle and Orlando only adding 4% and 2% for a cumulative total of almost 90%.
This analysis confirms that additional DCs in an European network have much more limited impact in service coverage than additional DCs in a North American network.
So what’s the best pan-European distribution strategy?
Unfortunately, with diversity in product classes, storage, and transport cube utilization, there isn’t a “one size fits all” solution. A more nuanced distribution network strategy is often required.
You can leverage optimization technology to consider both the costs and service levels that your market demands, so you can quantify the impact of various scenarios. Similar to the example above, one possible solution might be a multi-tiered network that consists of a mix of pan-European DCs for all products, coupled with regional DCs for fast-movers to replenish local markets. If service requirements are known upfront, you should also factor these into your mixed multi-tier business strategy. A fact-based approach will ensure you are targeting the best geography to advance your goals.
Juliana Davila-Suarez is a Director in the Supply Chain Design practice at Chainalytics. In this role, she designs supply chain networks for clients in food and beverage, consumer goods, electronics and home and office durables, among other industries in the Americas and Europe. She employs deep expertise in supply chain design modeling to support clients’ fact-based decisions and help them achieve long-term strategic planning and supply chain results and savings.
[1] GDP considered for European Union members plus Norway, Switzerland, and Turkey
[2] GDP considered for 48 contiguous states
