S
u p p ly
Ch
ai n
Manage me nt
Logistics network and production footprint
optimization
Benefiting from sales and production potentials in Eastern Europe,
Russia and the Middle East
Logistics network and production footprint optimization
Context
The emerging regions of Central and
Eastern Europe (CEE) as well as the
Middle East and Northern Africa
(MENA) are growth areas impacting
European supply chains. A relatively
low standard of living combined with
an above-average GDP growth are
strong indications that tomorrow’s
business markets will be located there.
Leading companies are already leveraging the low wages and well educated
people at their production facilities,
benefiting from short lead times to
the sales markets of Western Europe.
However, the huge sales potential
associated with about 460 million
people living in CEE and over 380
million people in MENA should not
be underestimated and needs to be
leveraged especially in the light of a
significantly lower average age compared to Western Europe. In addition, these regions are the entry point
to the fast growing markets of Russia,
Central and Southwestern Asia.
In some industry segments the
logistical footprint has already shifted
towards CEE, e.g. aftersales engine
parts. Other companies might strategically consider doing so in order to
lead their market. Shortening lead
times and tight delivery windows can
only be met from a location near the
customer. This creates an increasing
demand for warehouse space in strategic locations, close to the market and
with high transport availabilities.
CEE countries significantly differ in
terms of their capabilities, cost competitiveness and infrastructures.
Therefore, in-depth knowledge of
local specifics, e.g. an understanding
of regional labor force potentials,
demand and supply characteristics, is
required to cash in on these locational
advantages.
KEY MESSAGE:
Drivers for a reassessment of the
logistics network and production
footprint:
n Shift in demand towards CEE
and MENA
n Growing importance of CEE
as production location
Our approach
Capgemini Consulting uses a five-step
approach to optimize the logistics and
production footprint. (see figure 1).
Baselining
Key step in approaching a supply chain
network revision is to understand
the customer and supplier structure
and therewith identify the necessary
supply chain characteristics. As figure
2 shows, several trade-offs have to be
considered: Is there a need for a cost
efficient or rather flexible and responsive supply chain? Are value added
services required? Could operations
outsourcing be an option? Being
aligned on these basics is essential.
From an economic perspective,
baselining is the starting point for all
consecutive calculations of the business case.
Pre-evaluation
The second necessary step is to analyze
the network flows to get an overview
of its gravity on value and volume
level. The goal here is it to build and
validate the baseline network costs and
flow data set relative to the current
service level. This analysis is based
on our client’s actual data. On postal
code level we analyze the supply and
Figure 1: Approach
Baselining
Current structure and
forecast/ SC
characteristics
Pre-evaluation
(long list)
Reasonable scenarios
based on the logistics
footprint and client’s
expectation
Some countries in CEE, such as Poland
and the Czech Republic, have a huge
potential due to cost competiveness,
a strong industrial footprint, market
growth and a strategic location advantage compared to typical production
countries in the Far East. However, the
Qualification
(short list)
Quantification
Prioritized future
scenarios
Quantification analysis
of top ranked scenarios
Analysis of qualitative
factors defined in close
collaboration with the
client
Iteration towards the
optimum
Local evaluation
Identification of the
best solution on a
regional basis
Ready for investment/
implementation
Phase 1
Phase 2
© Capgemini Consulting 2012
2
demand flows. Expected future business growth also needs to be taken into
consideration. Though originating from
the client’s strategic demand planning,
the figures still need to be challenged
in terms of their robustness.
Based on this analysis an overview of
the source and sink structure is created
which forms the basis for a long list of
potential warehouse locations meeting
the objectives of the company.
Qualification
Our approach now focuses on the
analysis of qualitative factors defined
in close collaboration with the client.
The investment in a specific country or
city needs to be in line with the business goals and culture. Is a company
willing to accept shortages due to bad
infrastructure or invest heavily into
the further education of employees in
an undeveloped region in return for
a cheap workforce? Does a company
want to be located close to its competitor to profit from regional industry
cluster advantages and therefore pay
higher warehouse rents and wages?
Answering these and similar questions
in a sequence of workshops a transparent and objective set of constraints
will be elaborated and weighted
according to their importance.
In order to identify the preferred
network structure and/or production
footprint, we start with a number of
reasonable to-be scenarios based on
the client’s needs and strategy, industry
specifics and our knowledge of the
CEE and MENA markets.
Based on detailed regional data the
scenarios will then be compared with
each other (for an example, please see
figure 3). According to their relative
attractiveness in the specific categories
and finally aggregated across the
agreed constraints we will arrive at a
ranking of the scenarios. From this list
of potential scenarios a few promising
options will be selected.
% of orders
75%
future
Total
distribution
Inventory
Inter-depo
transport
High on-time delivery performance
50%
Warehouses
Local
distribution
Service level differentiation
25%
0 <12h
Cost optimization of network structures
Security and flexibility of supply
(availability)
100%
today
today
<24h
<36h
Number of sites
Transparency on delivery status
Time
Network topology (central – regional –
local)
Replenishment and stock principles
(push or pull)
Portfolio of logistic services
Operational efficiency
Trade-off
within
the logistics
network
Outsourcing potential
Eastern European/ Middle East
growth and market strategy
Regional optimization of material flows
due to cost and customer structures
Eastern European/ Middle East
production strategy
Eastern European & Middle East/ local
customer expectations (performance)
Global sourcing structures
(trading items)
Regional and local tax and customs
regulations
Transportation network
Keeping the global picture
Different software tools on the market
offer network calculation functionality
by considering the most important
standard variables. However, our
experience shows that a well tailored
mathematical model adjusted to the
client’s situation offers a more specific
and detailed picture. Even more, a
customized tool often reaches higher
acceptance by the client.
Local evaluation
The Top Down Business Case compares the results with the current
state extrapolated by forecasted sales
and will finally lead to a savings
potential per scenario.
Figure 2: Logistics optimization trade-off
Market and customer requirements
Qualification
These future state scenarios will be iterated towards optimum and compared
with the baseline to establish the relative attractiveness. Calculating the total
logistics costs all constraints already
taken into account when analyzing the
base scenario need to be considered.
Exemplary these might be transport
costs from the central warehouse
to the regional hub and finally to
the customer based on cost rate per
truck utilization. Other examples are
labor costs for logistics staff, packaging costs and warehouse rent.
Acceptance of regional requirements
Having eliminated the options not
feasible to client’s expectations during
the qualitative assessment in step 3, all
remaining scenarios could potentially
be implemented. For a final evaluation we use a collaborative approach.
In moderated discussions with the
leadership team pros and cons will
be weighted. It needs to be decided
whether it might be beneficial to alter
the qualitative borders set in step 3.
Potential trade-offs might be to decide
on not going for the cheapest option
but applying a scenario that reduces
the required order lead time in order to
© Capgemini Consulting 2012
3
generate additional sales. For instance,
it may even be beneficial to waive
some savings in return for a reduced
shortage risk.
A recommended option will eventually
emerge from the workshop outputs.
acceptance by the client.
Ready for investment/
implementation
In a second project phase, a Bottom
up Business Case clarifies when and
how the benefits can be capitalized.
Depending on the desired way forward
a detailed location selection on micro
level or a logistics outsourcing tender
could be conducted to leverage the
identified potential. Our experience
shows that the required investment is
usually recovered in less than 3 years.
Deciding in favor of a 3rd party setup
even lowers the initial investments.
Key insights
With a track record of many supply
chain projects in CEE and MENA the
only recurring fact is that every company has particular requirements.
KEY MESSAGE:
Drivers for a reassessment of the
logistics network and production
footprint:
n 5 steps to select the option best
fitting the client’s objectives
n Narrowing scenarios by analyzing qualitative factors and
quantitative
n Investment case calculation in
second project phase
4
Of course, every industry has its
specifics but even at company level
there might be special situations.
We have identified several pitfalls
to be taken into account in order to
quickly ramp up and reduce the cost
basis from beginning.
Go-to-market strategy
To approach the market effectively,
forecast and future demand/supply
structures are crucial and must be thoroughly analyzed. Wrong assumptions
here can lead to a logistics network
structure unable to cope with future
requirements. Logistics effects have
to be considered as well. An allocation
change of different part families to a
specific warehouse might impact the
overall calculation. For example, the
removal of one part family can impact
combined shipment volumes and
either lower the number of shipments
and with that service levels, or increase
the shipment costs.
Leveraging the full potential has to
be ensured when investing in a new
CEE/ MENA footprint. Improved part
availability, reduced lead time and cost
competiveness directly impact the
growth potential, which needs to be
reflected in the sales plan.
Network design
Cross dock solutions might be an
option to reduce storage times, but
they require reliable truck schedules
and a precise planning. Combining
them with value added services
has proven even profitable in labor
expensive countries, especially when
it comes to perishable goods. For
instance, when processing fresh
centrally stored fruits from Turkey in
a cross dock in Germany, they will
still arrive eatable in France.
In addition, planning network routes
only on distances level is short sighted.
Waiting times especially at customs
have also to be considered as they can
vary from border to border. It may
even be beneficial to accept a detour,
e.g. not crossing Belarus, before entering Russian territory.
Frame conditions
Legal requirements are often neglected
by companies, though they can have
an enormous impact on the business
case. Already applying the Waste
Electrical and Electronic Equipment
(WEEE) Directive correctly can save
administrative efforts. Applying
customs law requirements properly can
in particular save money and time –
just think of the regulation governing
preferential treatment or the inward
processing procedure. Therefore, it
is even important to advise suppliers
correctly on how to deliver, and
R&D departments on implications of
a changing supplier structure.
Group power
When entering a new location it is
often financially beneficial to align
with already established facilities
of the group. This not only allows
for reduced ramp-up costs but also
enables an increased productivity
in daily operations. Administration
costs are lower and economies of
scale in transport can be achieved.
However, internal political issues
need to be expected when proposing
this way of working and need to be
carefully checked in advance.
Cultural aspects
Personal and cultural aspects play a
bigger role than often expected when
checking whole supply chain network
structures. This needs to be emphasized especially when products go
directly to consumers, but it may also
hinder daily operations. Some regions
suffer from historically developed
animosities especially between MENA
and CEE countries. Checking this is a
very sensitive topic but may be crucial
for the success or failure of the project.
Conclusion
Due to the fast changing environment
it is necessary to conduct a supply
chain network analysis at least once
every 5 years. It does not automatically mean that a regional change is
required.
KEY MESSAGE:
Experience in CEE/ MENA setup
and logistical implications are
essential.
Our offering
Supply chain revisions in the fast
changing environment of CEE and
MENA not merely require fundamental
knowledge of logistics network
optimization techniques but also
in-depth regional knowledge and the
ability to transform industry specific
requirements to targets for individual
companies.
Current developments and macroeconomic figures are continuously monitored by our research department. Our
repository offers a detailed overview of
Figure 3: Qualitative assessment
1
1
1 [in % of
Labor
– unemployment
rate 2011
labor
Laboravailability
availability
- unemployment
rate
2011 [in
%force]
labor force]
62,5%
75%
87,5%
112,5%
100%
Quality
ofwarehouses
warehouses
available
- warehouse
2010score]
[survey score]
Quality of
available
– warehouse
quality quality
20101 [survey
125% 137,5%
62,5%
Score
1
2
3
4
5
6
7
8
1
%
1
16
Database
Score
2
10
8
6
4 3,2 3,4
5,4
4,4 4,8
6,0 6,0
6,7 6,8
9,5100%
9,5
62,5%2
87,5%
9,1 9,3 9,5
8,2 8,3 8,4 8,4 8,8
7,6 7,6 7,8 7,9
1
2
3
4
112,5% 125% 137,5%3
Database
2
Score
5
6
50,2
48,6 49,3 50,8
42,1
41,5
44,4
42,0 42,1
40,5 40,6
1
10 7,2
0
28,3
25,8
27,9 28,5 29,2
26,3 26,5
22,1
25,2
19,9 20,6 21,3 22,2
62,5%
87,5%
16,5 17,0
11,5
25,5
25
20
15
10
5
2,6
4,2
5,9
7,4 7,7 7,8 7,9
9,2
12,2
13,9
16,8
19,4
35,0
Database
1 0,6
0
140
IE
Eurostat, OECD, Capgemini research database 2010
Intervall from 62,5% to 75% does not exist in the analyzed distribution, thus the score of „7“ could not be assigned for this criteria
Intervall from 125% to 137,5% and above 137,5% does not exist in the analyzed distribution, thus the score of „2“ and “1” could not be assigned for this criteria
8
4,1 4,1
3,9 4,0
1
0,9 0,9
1,3 1,3 1,3 1,3
1,6 1,7
1,8 1,9
2,1 2,2
4,6 4,6
2,9
2,7 2,8
2,5 2,5 2,6
62,5%
75%
87,5%
100% 125% 137,5%
A high level of regulation can complicate business activities in Eastern138,5
Europe.
118,9
Capgemini research database, IMD World Competitiveness Center, 2011
80
60
51,4
44,0 46,5 47,2 48,1
36,3 41,0
31,9 33,3
8,6
9,1 12,7
RU
EE
58,3
69,2 70,7 73,2
81,7 82,8 84,4
92,4
0
NL LU FR SE BE DK NO
Locations in Eastern Europe enable significant warehousing labor cost savings.
1
2
3
7
IT NO FI BE DK FR NL AT DE LU SE SE
6,0
100
20
AT DE
6
8
7
6
5
4
2
1
RU UA HR BG HU GR PL SL IT ES RO SK UK PT BE LT FR TR DE NL CZ AT NO LU IE EE SE CH DK FI
40
FI
125% 137,5%
5
120
1
Database
IT
112,5%
100%
4
%
38,2
0
BG RO LT SK PL HU EE CZ PT SL GR ES UK
87,5%
3
3
2
27,1 27,1
21,1
75%
2
Capgemini
4 research, 2010
Score
33,0
2,1 2,1 2,1
5,1 5,3
Warehouses of acceptable quality are rare in Eastern Europe.
5
1
100% 112,5%
40
1,8
62,5%
3,8 3,8 3,8
3,6 3,6 3,6 3,7
3,4 3,5 3,5
2
Intervalls
above 112,5% does
not exist, thus the scores
of “6”-”8” in
could%
not of
be assigned
this criteria [in %]
Public
debtlevel
level
central
government
GDP
2011
1for[in
3,1 3,3
Public debt
–central
government
debt debt
in % of
GDP
2011
%]
8
6
5
4
3
UA BG RO RU LT TR HR PL EE CZ HU SK PT SL CH DE GR SE UK FI DK ES IT AT BE IE NL FR LU NO
Gross domestic product, purchasing power parity
Capgemini
research database, IMD World Competitiveness Center, 2010
35
31,3 31,5 31,6
Intervall from 62,5% to 75% does not exist in the analyzed distribution, thus the score of „2“ could not be assigned for this criteria
29,8
29,2
Intervall
assigned
for this criteria
30 from 137,5% to 150% does not exist in the analyzed distribution, thus the score of „8“ could not be 28,9
3,2
3,0
2,4 2,4
RU RO SL EE LT BG PL GR CZ TR PT ES HU IE
6
DueEuro
to low labor productivity in Eastern Europe, more labor force might be needed.
Database
5
0
Score
There
is no shortage of available labor force in most Eastern European countries.
60
50
1,4 1,5 1,5 1,5
1
62,1
57,8
Eurostat, Capgemini research database 2009
40
Labor
cost1warehousing
warehousing
- labor
wages,
salaries,
direct remuneration
2010 [in EUR]
Labor cost
– labor
cost,cost,
wages,
salaries,
direct remuneration
20101 [in EUR]
20
4
1
7
NO NL SE AT LU DK SL CZ RO DE UK IT BE PL FI RU SE UA BG PT HR FR GR HU IE SK LT EE TR ES
30
3
1
0
USD
2
2,8
3
Level
ofregulation
regulation
- bureaucracy
[survey
score]
Level of
– bureaucracy
201112011
[survey
score]
2,6 2,6 2,7
14,0
11,8 12,1
10,1
70
1
2
3
4
100%
4
18,0
18
1 per person
13,7 13,8
Labor
productivity
- GDP
(PPP)
per person
employed
hour2 [in
in 2010
Labor productivity
(PPP)
employed
per hourper
in 2010
USD] [in USD]
14 - GDP
Score
87,5%
Score
20
Database
75%
Score
12
However, the analysis might pinpoint
that a better organization of the current
warehouse, an aligned procurement
or a better planning process could
generate additional profit.
Capgemini Consulting has proven its
capabilities in countless projects across
all relevant industries. Our collaborative approach ensures a tailored
solution by considering our clients’
individual needs and wishes. Proficient
in logistics optimization techniques,
our experience suggests that identifying
the solution hands-on rather than
following academic approaches proves
easier for clients to follow, accept and
implement. With Business Transformation as part of our DNA, we always
look for a sustainable concept leading
to sustainable results.
LU
CZ
LT
NO
DK
SE
ES
DE
PL
TR
NL
IE
AT
UK
HU
FR
PT
BE
IT
GR
Low public debt levels enable stable tax rates and subsidies in Eastern Europe.
1
World Bank, 2011 / OECD / International Monetary Fund, Government Finance Statistics Yearbook and data files
© Capgemini Consulting 2012
5
different countries and urban centers,
and visualizes business developments
at local level (for example, see the
automotive industry in Bulgaria shown
in figure 4).
Finally, our local office base in all
major CEE countries with more than
9000 employees and more than 600
management consultants provides
unique local insights and ensures
successful solutions for our clients.
KEY MESSAGE:
Capgemini Consulting has
proven its capabilities and is the
right partner.
Figure 4: Country infrastructure analysis (Bulgaria – Automotive industry)
33
34
54
Warna
53
30
18 26
42
Comments
50 49
25 13
52
There are many logistics centers, light production
facilities, heavy construction machinery and large
storage facilities in and around Sofia
Sofia
46
32
1 37
27
Varna has its own sea port, international airport
(includes Cargo), a well connected rail network and
the E70 international highway
22
2 7
3
4 9
16
16 8 10
40 1731 11
38 36 41 1312
14
44 43
Plovdiv
23 24
15 2048
21
39
Major car
manufactures
Major automotive
suppliers
Logistics service providers
Chinese Great Walls
Motors (Lovech)
4
Bosch (Sofia)
7
Kuehne & Nagel International
(Sofia)
2
Renault Nissan (Sofia)
5
Yazaki (Yambol)
8
Schenker EOOD (Sofia)
3
Volkswagen (Sofia)
6
9
DHL Express (Sofia)
10
TNT (Sofia)
11
Panalpina (Sofia)
UPS Supply Chain Solutions
(Sofia)
13 Expeditors International of
Washington (Sofia, Varna)
12
14
47
35
28 29
1
ZF Friedrichshafen*
Eagle Global Logistics (Sofia)
Plovdiv has attracted investments from big
companies like ABB (power and automation),
Liebherr (heavy equipment manufacturing), EVN &
Schneider Electric (Energy), William Hughes
(Manufacturing), etc.
Major Transit-/ MainHighways
45 Sofia International
Port of Varna
(Varna)
46 Gorna Oryahovitsa Airport
46
Port of Burgas
(Burgas)
Trakiya motorway-A1 (Sofia - Stara
Zagora to Karnobat - Burgas (under
construction - Stara Zagora to
Karnobat))
15 ABB (Plovdiv)
30 Keros (Rousse)
16 FESTO (Sofia)
31 Saint-Gobain (Sofia)
17 Johnson Controls (Sofia)
32 Hamberger (Sevlievo)
18 MONTUPET SA (Ruse)
33 Bramac (Silistra)
47 Bourgas Airport (Bourgas)
47
Port of Russe
(Russe)
19 Yazaki (Yambol)
34 Eichhoff Electric GmbH (Vidin)
Hemus motorway-A2 (SofiaYablanitsa and Varna-Shumen)
48 Plovdiv International
48
Port of Lom
(Lom)
49 Varna International
Port of Vidin
(Vidin)
Cherno More motorway - A3 (Varna
to Burgas (planned))
49
20 LIEBHERR (Plovdiv)
35 Zobele Group (Stryama)
21 SCHNEIDER ELECTRIC
36 SIEMENS (Sofia)
Maritsa (Near Plovdiv)
22 Saint-Gobain (Gabrovo)
23 ENEL (Maritsa-Iztok)
25 E.ON (Varna)
26 Witte Automotive (Ruse)
27 GRAMER (Trudovetz)
28 WILLIAM HUGHES (Stryama)
29 Ixetic (Stryama)
Source: Capgemini Research 2011
Note: * - Budapest office serves ZF Friedrichshafen Bulgaria
Major
seaports
45
Major cargo
airports
Major companies that have invested (FDIs) in the last
5-10 years
24 AES (Maritsa-Iztok)
6
Plovdiv is an upcoming industrial area with three of
the pan-European transport corridors and an
international airport
51
5 19
Airport (Sofia)
(Gorna Oryahovitsa)
Airport (Plovdiv)
37 SPARKY (Lovech)
38 CEZ (Sofia)
39 EVN (Plovdiv)
40 AMIS (Sofia)
41 Mitsubishi Heavy industries (Sofia)
Airport (Varna)
Maritsa motorway - A4 (Parvomay to
Kapitan Andreevo (under
construction))
Lyulin motorway - A5 (Sofia to
Pernik (opening H1/2011))
Struma motorway - A6 (Pernik to
Kulata (under construction))
42 WE2 and WPD (Dobrich)
43 Eolica Navara (Sofia)
44 HYUNDAY ELPROM TRAFO (Sofia)
© Capgemini Consulting 2012
About Capgemini Consulting
Capgemini Consulting is the global strategy and transformation consulting organization
of the Capgemini Group, specializing in advising and supporting enterprises in significant transformation, from innovative strategy to execution and with an unstinting focus
on results. With the new digital economy creating significant disruptions and opportunities, our global team of over 3,600 talented individuals work with leading companies
and governments to master Digital Transformation, drawing on our understanding of the
digital economy and our leadership in business transformation and organizational
change.
Find out more at: www.de.capgemini-consulting.com
About Capgemini
With around 120,000 people in 40 countries, Capgemini is one of the world‘s foremost
providers of consulting, technology and outsourcing services. The Group reported 2011
global revenues of EUR 9.7 billion. Together with its clients, Capgemini creates and
delivers business and technology solutions that fit their needs and drive the results
they want. A deeply multicultural organization, Capgemini has developed its own way of
working, the Collaborative Business ExperienceTM, and draws on Rightshore®, its worldwide delivery model.
Find out more at: www.de.capgemini.com
Rightshore® is a trademark belonging to Capgemini.
Contact
Thomas Friedrich
Principal
Supply Chain Management
+41 79 377 36 85
Pascal Herrmann
Senior Consultant
Supply Chain Management
+49 151 40252492
7
Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group
12-0074
Capgemini Deutschland GmbH
Karlstraße 12
Karolinen Karree
D- 80333 Munich
Phone: +49 89 9400-0 – Fax: +49 89 9400-1111
www.de.capgemini-consulting.com