EASTERN EUROPE TOPS THE BILL

Research carried out by supply chain consultancy Total Logistics and property expert King Sturge shows that countries such as the Czech Republic, Lithuania and Poland have overtaken Germany in the race to be the location of choice for pan-European businesses. Kenneth Porter, partner from Total Logistics takes a deeper look at some of the findings.

“While the increasingly international nature of the EU offers huge opportunities for businesses, the complexities of decision making – specifically in terms of warehouse location and infrastructure – can be bewildering at times. Working closely with industrial property experts King Sturge, we developed a methodology that attempts to address some of the intricacies that occur when comparing key commercial considerations regarding the location of warehousing.

“Having developed a complex model, using 1,000 demand points and 50 different potential warehouse locations, the study assessed the relative attractiveness of each country, taking into account such issues as warehousing costs, labour rates, infrastructure and other demographic measures.

“Initially, we undertook standard evaluations of headline logistics costs across 27 industrialised European countries, looking at figures such as the average annual cost per warehouse worker and the average rent per square metre of warehouse space. Unsurprisingly, whereas countries such as Switzerland, Norway and Sweden came out as being relatively expensive on both counts, the likes of Lithuania and Hungary looked very attractive from a purely cost-based perspective.

“Working through a number of different scenarios was a fascinating exercise as it demonstrated the relatively poor performance of Germany from a warehousing perspective, given its otherwise excellent reputation. Even when we factored out the relative high cost of labour in the country, Berlin, Bonn and Dusseldorf came out relatively poorly against other cities such as Prague, Warsaw, Katowice and Vilnius.

“We undertook this research to get a clearer understanding of warehousing trends across Europe and were very surprised by the relative robustness of many of the former Eastern bloc countries. When we looked at a single warehouse scenario, central Europe and the Benelux countries fared well, but when we looked at the situation of a separate UK and mainland Europe warehouse, the centre of gravity shifted further east to Prague, Katowice, Brno and Bratislava.

“Only when you factor in a more complex, UK plus two other warehouse network, do countries such as France and Benelux re-appear.

“One of the interesting factors that needs to be taken into account is the number of warehouses required in a proposed supply chain network and the core markets that structure needs to serve. Our research clearly showed that while the location with the lowest overall cost was Prague (which was also the lowest cost location across mainland Europe), if a business wanted to service both the East and West European markets, then Warsaw comes out on top.

“Even when we increased wages by 50 per cent in the former Eastern Bloc countries, Warsaw, Katowice and Vilnius still came out as the most attractive locations to serve the East and West, which illustrated to sheer robustness of these cities as potential logistics ‘hot spots’ in the future.

“Our research also shows that ‘emerging stars’ such as Russia (Moscow, St Petersburg), Ukraine (Kiev) and Turkey are well placed for future growth as supply chain centres.

“The research also highlighted the importance of warehouse design and the differences in understanding between logistics experts and developers when it came to speculative developments. For example, too many developers are taking terms such as ‘cross docking’ too literally according to the researchers, who are urging developers to be more flexible when it comes to the design and build stages of warehousing.

“During our research, we found many developers still believe that traditional flow through warehouses, where product is unloaded from one door and re-consigned through an opposite bay, are best. In reality, we are looking for far more flexible approach where speculative developments need to be appropriate for a wide range of sectors, from the apparel market to the FMCG sector.

“Our experience confirms that most warehouse users want the flexibility to be able to cross dock and store products, without having to choose one over the other.

“Culturally, we are also seeing too many developers investing in speculative ventures in countries such as Russia, with a through understanding of the cultural differences between many former communist countries and the UK. While planning regulations and building control in Eastern Europe is very different from the structured regime that exists in the UK, the economy is also very different. We have seen several developers suffering from the ‘field of dreams’ syndrome, whereby they have invested in major warehousing projects, only to find that there was simply not the market for their development upon completion.

“We also found that retailers are holding less stock and undertaking more cross docking at points across Europe, as the trend towards consolidation of products within countries of origin grows. In practical terms, this means that more store-ready goods are being held in warehouses that require more specialist equipment and handling procedures that more standard supply chain challenges.

“Finally, we can see a growth in the area of shared and multi-user warehouses as cost and sustainability issues increase demand for transaction-based logistics contracts. This trend is already well established in the UK and is typified by the use of additional, bespoke warehousing to deal with peaks in retail demand that can typically occur during sale periods and festivities. This trend reinforces the need for developers to take a more flexible approach to warehouse design, moving away from rigid formats and layouts that worked a decade ago.

“As the former Eastern Bloc countries continue to develop their economies, the supply chain opportunities are significant. Getting the balance right between the three L’s - location, labour, layout – will be critical to success.”

Total Logistics provides practical strategic supply chain consultancy across all industry sectors throughout Europe and the rest of the world. For more information contact us on +44 (0)118 977 3027, or send an e-mail to info@total-logistics.eu.com.

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This Total Logistics press release was created on 4th January 2008