Executive Briefings

European Supply Chain Operations - Where Are We?

During 2010, companies around the globe were examining their internal operations and evaluating different areas of their supply chains to determine how to improve their bottom line. Businesses throughout Europe have not been excluded from this, and they continue to look to their supply chains in 2011 to reduce costs and increase revenue. Below are some key areas in which European companies are focusing their attention in the upcoming year.

-Susan Evans, Managing Director - EMEA, Tompkins International

Centralization of Distribution and Transportation

Over the past decade, many companies have become engaged in mergers and acquisitions. And while many M&As are financially or market driven, a large number of companies in this situation fail to take advantage of the benefits that come with integrating their supply chains, which could help them realize efficiencies and improve their bottom line.

In addition, other European companies that are not involved in M&As are also evaluating the advantages of integrating and centralizing their warehousing and transportation.

Depending on product mix, centralizing warehousing operations does not always work. For the companies with the right product mix and an overlap of warehouses, analyzing and integrating the distribution network can reduce the number of locations, decrease inventory, and improve processes across the supply chain.

Likewise, centralizing transportation offers several benefits: opportunities for consolidating loads and reduction of service providers, leading to volume discounts, tighter partnerships, better service and potential lower cost per unit.

Outsourcing - Where is This Going - East and How Far?

In an effort to reduce operating costs, many European companies are moving some business processes east. But not all processes are moving as far as Asia or going offshore; some are relocating to the neighborhoods of Central and Eastern Europe. A few key reasons for this include lower labor costs combined with the advantage of being in close time zones, easily accessible locations for project meetings, and closer cultural compatibility.

Sourcing, production, IT and support are examples of processes that are being considered for outsourcing, and some of these are staying "near" to the home country. When this occurs, the outsourcing in close proximity to home is termed "nearshoring."

Nearshoring, often referred as nearshore outsourcing, is a derivative of the business term "offshore outsourcing" and is something more European companies are considering.

Other advantages include lower travel costs for project support and fewer problems with visa requirements, especially when accounting for a significant number of business trips.

Another benefit to European companies is that European Union legislation also provides complete protection of intellectual property rights. This is a critical component when sensitive proprietary information needs to cross as a result of the nearshore engagement, and with a nearby location, legislation will remain the same.

However, not all processes are best for nearshore, and some continue to be most cost-effective with offshore outsourcing. Before considering outsourcing, one must identify core and non-core processes and, of these, which would be a good candidate for outsourcing.

At the same time, whether outsourcing, offshore or nearshore, companies must consider service to customers and all financial components - not only labor, but also transportation and facility costs. A financial view of a global supply chain focusing on Total Delivered Costs provides the data needed to make sound outsourcing decisions.

The Outlook

In 2011, European companies and European entities will be highly focused on these two areas as they strive for continuous improvement. Both centralizing planning and distribution operations and determining if non-core processes should be outsourced (either nearby or offshore) will help these companies improve their bottom line.

During 2010, companies around the globe were examining their internal operations and evaluating different areas of their supply chains to determine how to improve their bottom line. Businesses throughout Europe have not been excluded from this, and they continue to look to their supply chains in 2011 to reduce costs and increase revenue. Below are some key areas in which European companies are focusing their attention in the upcoming year.

-Susan Evans, Managing Director - EMEA, Tompkins International

Centralization of Distribution and Transportation

Over the past decade, many companies have become engaged in mergers and acquisitions. And while many M&As are financially or market driven, a large number of companies in this situation fail to take advantage of the benefits that come with integrating their supply chains, which could help them realize efficiencies and improve their bottom line.

In addition, other European companies that are not involved in M&As are also evaluating the advantages of integrating and centralizing their warehousing and transportation.

Depending on product mix, centralizing warehousing operations does not always work. For the companies with the right product mix and an overlap of warehouses, analyzing and integrating the distribution network can reduce the number of locations, decrease inventory, and improve processes across the supply chain.

Likewise, centralizing transportation offers several benefits: opportunities for consolidating loads and reduction of service providers, leading to volume discounts, tighter partnerships, better service and potential lower cost per unit.

Outsourcing - Where is This Going - East and How Far?

In an effort to reduce operating costs, many European companies are moving some business processes east. But not all processes are moving as far as Asia or going offshore; some are relocating to the neighborhoods of Central and Eastern Europe. A few key reasons for this include lower labor costs combined with the advantage of being in close time zones, easily accessible locations for project meetings, and closer cultural compatibility.

Sourcing, production, IT and support are examples of processes that are being considered for outsourcing, and some of these are staying "near" to the home country. When this occurs, the outsourcing in close proximity to home is termed "nearshoring."

Nearshoring, often referred as nearshore outsourcing, is a derivative of the business term "offshore outsourcing" and is something more European companies are considering.

Other advantages include lower travel costs for project support and fewer problems with visa requirements, especially when accounting for a significant number of business trips.

Another benefit to European companies is that European Union legislation also provides complete protection of intellectual property rights. This is a critical component when sensitive proprietary information needs to cross as a result of the nearshore engagement, and with a nearby location, legislation will remain the same.

However, not all processes are best for nearshore, and some continue to be most cost-effective with offshore outsourcing. Before considering outsourcing, one must identify core and non-core processes and, of these, which would be a good candidate for outsourcing.

At the same time, whether outsourcing, offshore or nearshore, companies must consider service to customers and all financial components - not only labor, but also transportation and facility costs. A financial view of a global supply chain focusing on Total Delivered Costs provides the data needed to make sound outsourcing decisions.

The Outlook

In 2011, European companies and European entities will be highly focused on these two areas as they strive for continuous improvement. Both centralizing planning and distribution operations and determining if non-core processes should be outsourced (either nearby or offshore) will help these companies improve their bottom line.