Global Supply Chain Network Optimization for a Medical Equipment Company

Background

The client was one of the world’s leading distributors of toys and growing rapidly in Europe. They had a warehouse in Scandinavia supporting the European market that was at capacity, with some overstock already being stored at a nearby 3PL. Most of the products were coming inbound to the Denmark warehouse on ocean containers from Asia and being distributed to customers across Europe. The client decided that they wanted to go with a 3PL to support the European operation and wanted to determine where they should conduct the 3PL search.

The Approach

Establish was to conduct a network optimization study to determine the recommended location for the 3PL search based on minimizing costs. The first step was to gather sales and shipment data to be analyzed. Outbound shipments were split evenly between parcel and freight, with most of the demand in western Europe, the UK, and Scandinavia. This resulted in a center of gravity for Europe in the center of Belgium, right in the heart of the Benelux region.

Then the locations to be analyzed were determined. A few different cities in the Benelux region and western Germany, near the center of gravity were chosen, along with some locations near the existing warehouse and some locations in Poland due to their attractive warehouse and labor rates. Since all the inbound was being received via ocean container, some work was done to determine the port of entry and inbound costs for the various locations being analyzed.

The shipment data and costs were then loaded into Establish’s proprietary network optimization software so that transportation, warehouse, and labor costs could be compared across the different locations.

The Outcome

Inbound costs accounted for the highest percentage of cost. Locations in Denmark and the Benelux region had the lowest projected inbound costs due to their proximity to major ports compared to Germany and Poland (25-30% lower). Locations in the Benelux region also had significantly lower projected outbound costs (40-50% lower) due to their proximity to the demand and more favorable transportation rates.

When it comes to warehousing and labor costs, the Poland locations were projected to be significantly lower (50-60%) based on labor and real estate cost indexes and 3PL benchmark data. However, it was not enough to offset the higher transportation cost.

When considering additional qualitative considerations, such as logistics infrastructure and environmental impact, the Benelux region was the recommended area for the 3PL search due to a 10-18% total logistics cost savings compared to the other locations analyzed.