Planning To Set Up A Central Distribution Center In Europe? Here Are The Steps To Problem Solve The Design.

With the experience of setting up and running the Central Distribution Center (CDC) in Europe, I want to share my insights into the design (and selection) of CDC.

CDC is the operational back bone of a firm. Finding the right reason and then the right design and implementation is really important (also because exiting a set CDC can be a big financial burden (depending on the scale of operations) and may potentially jeopardize business continuity).

CDC in Europe should be implemented for the following (main) reasons:

To support direct presence in multiple markets in EuropeWhen importing goods from multiple countriesThis article will focus on the design aspect of CDC.

Design of CDC:The design of a CDC can be divided into 3 steps:

Quantitative comparison of different locationsQualitative comparison of different locationsSelection of the Logistics Service Provider1. Quantitative comparison of different locationsThis comparison of different locations for the CDC is based on the following metrics:

Sales forecast and cost drivers:

Which markets are expected to be having the top volume sales?

Which market is driven by wholesale and which by retail sale?

What is the expected sales trend of these markets in next 5 years (for a pro-active design)?

What is the pack size of both inward and outward freight (to ascertain the space required and the related warehousing operations cost)?

What is the Air/Sea ratio for inward freight (for the inbound logistics cost)?

The outbound lead time and transportations costs for the market-product mix (to align with the voice of customer and to account for the outbound logistics cost)?

Facility size and inventory carrying costs?

Cold chain and narcotics as a part of the supply chain (different regulatory aspects, preparation and cost for these)?

Center of Gravity:

This is the location in Europe that fits best to the operations of the firm based on the sales forecast and serviceability.

VAT deferment:

There are a few countries in Europe that have a VAT deferment system, Netherland and Belgium are two examples of the same.

VAT deferment helps in savings of around 15-20% (including benefits of increase in working capital)

For the firms that have a pan Europe operations, the Center of Gravity normally lies somewhere between Germany, Netherlands and Belgium. This is mainly driven by outbound transportation cost and the serviceability in the market. With Germany, Belgium or Netherlands any market in Europe can be served within 4 working days, with economy service.

Sensitivity analysis needs to be performed on some of the variables to determine the cost impact and Center of Gravity eg. pack size, Air vs. Sea split for the inbound, all next day deliveries etc.

2. Qualitative comparison of different locationsThere are 8 dimensions for creating a qualitative scorecard:

Transport and infrastructure (eg. distance to highways and ports)Pharma 3rd Party Logistics Providers availabilityLabour characteristics (e.g. availability of skilled WH operators etc.)Customs (time to obtain licence rulings, flexibility and business orientation)Language skills (also helpful in centralizing the order to cash)Labor regulations (labor unions, schedule flexibility, turnover etc.)Facilities and sites (availability of pre-built facilities and ease of obtaining building permits etc.)Business environment (Tax rate, VAT deferment etc.)3. Selecting the 3PL:Selection of the 3PL (including green fields) can be done by mapping the 3PLs on a cost quality matrix and a comparison grid.

This will surely help in making the right choice of the location and understanding the total cost of ownership of the Central Distribution Center operations.

Hope this helps in getting more clarity on the topic.