Europe’s Most WantedDistribution Center Locations

Results of a Survey

the way we see itin collaboration with

© 2006 Capgemini. No part of this document may be modified, deleted or expanded by anyprocess or means without prior written approval from Capgemini

2

Contents 2

Introduction 3

Management Summary 4

Country View 6

Industry View 11

Food and Beverage 13

High Tech and Electronics 14

Consumer Products 15

Life Sciences and Pharmaceuticals 16

Other Industry Sectors 17

Trends in Locations for Distribution Centers 19

Table of Contents

In the second half of 2006 in association with ProLogis, we surveyed a wide rangeof global operating companies that had a significant pan-European distributionnetwork.

About a hundred supply chain leaders from various industry sectors provided uswith insight into their current footprint and the main issues facing them. In all,we evaluated:

n 300 distribution center locations

n 18,000 FTEs (full-time equivalents) in the realm of employment

n 2.4 million square meters of distribution center surface area.

The findings in this report are based entirely on the results of the survey. We donot profess to provide a comprehensive representation of the current state ofdistribution centers in Europe. As with any survey, we have tried to make sure thevalidity of our insightful conclusions take into account the number of respondentsin a specific group.

The goal of this report is to give a high-level overview of the pan-Europeandistribution footprint over different industry sectors. We also address the keychallenges per industry sector as stated by the respondents.

3

Introduction

the way we see it

The Capgemini survey into Europe’s most wanted distribution center locationsreveals some interesting facts and insights into the choices, strategies andchallenges of the global operating companies that took part.

The Country View revealed that:

n Most of the companies’ distribution centers are concentrated in TheNetherlands, France, UK and Germany, with Belgium not too far behind.

n The 3 types of distribution center – European Distribution Centers (EDCs),Regional Distribution Centers (RDCs) and National Distribution Centers (NDCs)– enable companies to adapt their networks to suit their strategic needs.

n The country of choice for European Distribution Centers is The Netherlands,with neighbours Belgium and Germany also in the frame.

n The UK is the largest employer in the distribution network, with Belgium, TheNetherlands and Poland also employing significant numbers of full-timeequivalents (FTEs).

n Distribution centers with few FTEs per site are by far the most common, whilecenters with 500+ FTES are rare

n The Netherlands, UK, France and Germany hosted two-thirds of the totalsurface area of distribution centers.

The Industry View reveals that the network of distribution centers depends on thecharacteristics of an industry and the specific needs of both products andconsumers. The results of the survey only permit summaries of the industries ofthose companies that provided extensive information about their operations.

One interesting insight to emerge was that, in large companies at least, thelogistics department is often responsible for making strategic supply chaindecisions, although the board of directors is also vital.

The survey reveals the following industry profiles:

n High Tech and Electronics – Companies within this industry prefer TheNetherlands, Germany and France for the location of their distribution centers.In most cases, the network structure is centralized with minimal stocks.Challenges to meet include balancing costs with satisfying the increasingdemands of customers.

n Food and Beverage – These companies prefer The Netherlands, France andBelgium for the location of their distribution centers. In most cases, the networkstructure is highly decentralized, with many relatively small national distributioncenters (NDCs). Challenges to meet vary and include consolidation of productflow, reducing the number of centers and coping with the complexity of smallerorders.

n Consumer Products – Companies in this industry clearly prefer France, withBelgium a distant second location. Network structure differs according toproduct specifics and characteristics. Challenges to meet include making furthercost reductions through consolidation.

n Life Sciences and Pharmaceuticals – These companies seem to have nopreference regarding the location of their distribution centers. Network structureis highly decentralized, with many relatively small national distribution centers(NDCs). Challenges to meet include reducing complexity and ensuring reliabledistribution service to customers.

4

Management Summary

the way we see it

n Other industry sectors – Companies from other industries, such as Aerospace,Apparel, Automotive, Industrial Manufacturing and Chemicals, did not provideenough information about their warehouse locations. However, informationabout their current distribution network and supply chain challenges aresummarized towards the end of the survey.

Respondents reported the following expected distribution network changes:

n Consolidation by reducing supply chain costs, complexity and numbers ofdistribution centers, and by merging networks.

n Increased regional distribution to take advantage of opportunities in EasternEuropean markets, such as Poland and Romania, and to reduce the impact ofincreased transport costs.

n Meeting change by adopting strategies that include outsourcing of logistics,leasing property, taking shorter lease contracts and using flexible warehousespace.

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According to the survey, the majority of distribution centers are currentlyconcentrated in the ‘old European’ countries, such as The Netherlands, France,UK and Germany. This is illustrated in Figure 1, in which the size of the redcircles indicates the amount of distribution centers in each country.

There are three different types of distribution centers:

n European distribution centers (EDC) distribute to all European customers andsupply regional and/or national distribution centers. An EDC is a distributioncenter which has outbound flows to customers or subsidiary nationaldistribution centers located in multiple European countries.

n Regional distribution centers (RDC) typically distribute to a group of adjacentcountries (e.g. Spain, Portugal and southern France).

n National distribution centers cover local markets in a country.

Figure 1: Concentration of distribution centers in the European countries

Figure 2 (see next page) shows the share per country of the roughly 300distribution centers revealed in the survey. Just over half are located in theNetherlands, France, UK and Germany. The 30% assigned to other countriesincludes Italy (5.5%), Sweden (4%) and Switzerland (4%), while the remainingcountries have a share of 2 % or less.

Country View

the way we see it

Figure 2: Share of total distribution centers in Europe per country

France13%

UK13%

Germany10%

Spain7%

Belgium6%

Poland6%

Other30%

The Netherlands

15%

TThhee mmoosstt wwaanntteedd ccoouunnttrryy ffoorr tthhee llooccaattiioonn ooff EEuurrooppeeaann ddiissttrriibbuuttiioonn cceenntteerrss iiss TThheeNNeetthheerrllaannddss

If we only consider distribution centers with a European function (EDCs), TheNetherlands is the most wanted country, with Belgium and Germany in secondand third place (see Figure 3).

The Netherlands and Belgium have a relatively large number of distributioncenters compared to their population size. One reason for this is that thesecountries are close to the major demand markets, have good transportinfrastructures and have access to two large international sea harbors (Antwerpand Rotterdam) to handle large overseas flows.

Figure 3: Top 3 countries based on number of EDCs

02468

101214161820

Number of EDCs

The Netherlands Belgium Germany

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The employment in distribution centers per country is defined as the number offull-time equivalents (FTEs) working in all the distribution centers in that country.The UK has the largest employment in distribution centers with 22 % of theEuropean total (see Figure 4), with Belgium and Poland in second and third place.

Figure 4: Share of FTEs working in distribution centers per country

UK22%

Belgium17%

Poland15%

Germany10%

Other11%

France7%

Czech Republic

3%

The Netherlands

15%

According to the survey, most distribution centers in Europe have a relative lowaverage employment of less than 50 FTEs per site (see Figure 5). Large centers,which employ more than 500 FTEs are not common and take only 2 % of thetotal. The results shows that 68 % of the total number of distribution sites employless than 50 FTEs and that 23 % employ between 50 and 200 FTEs.

Figure 5: Percentage of distribution centers per employment size

0%

10%

20%

30%

40%

50%

60%

70%

% of Europe’s distribution centers

< 50 50-200 200-500 500-1000 > 1500

Number of FTEs

the way we see it

9

A more detailed view (see Figure 6) of the employment in distribution centers ofthe top four employment countries reveals that:

n In the UK, most distribution centers employ 50 to 200 FTEs and no distributioncenters employ more than 500 FTEs

n Belgium has distribution centers in all employment classes, even in the highestclasses that employ more than 1500 FTEs. However, most distribution centersare in the lowest employment class (<50 FTE).

n The majority of Poland’s distribution centers are within the lowest employmentclass (< 50 FTEs), while the remainder are in the highest two classes. We foundno distribution centers in the middle range.

n Most of The Netherlands’ distribution centers are in the lowest employmentclass. Like the UK, no centers have more than 500 FTEs.

Figure 6: Percentage of distribution centers per employment size in the UK,Belgium, Poland and The Netherlands

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

< 50 50-200 200-500 500-1000 > 1500

Number of FTEs

% of UK’s distribution centers

0%

10%

20%

30%

40%

50%

60%

70%

< 50 50-200 200-500 500-1000 > 1500

Number of FTEs

% of Belgium distribution centers

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

< 50 50-200 200-500 500-1000 > 1500

Number of FTEs

% of Poland distribution centers

0%

10%

20%

30%

40%

50%

60%

70%

< 50 50-200 200-500 500-1000 > 1500

Number of FTEs

% of Netherlands distribution centers

TThhee NNeetthheerrllaannddss,, UUKK,, FFrraannccee aanndd GGeerrmmaannyy hhaavvee tthhee llaarrggeesstt ttoottaall ssuurrffaaccee aarreeaa ooffddiissttrriibbuuttiioonn cceenntteerrss

The Netherlands, UK, France and Germany together take almost two thirds of thetotal surface area (footage) of distribution centers in Europe (see Figure 7, nextpage). This total surface area is calculated as the sum of the surface areas of all thedistribution centers in each country.

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Figure 7: Total distribution center surface area per country

UK17%

France14%

Germany12%

Belgium11%

Italy6%

Spain5%

Other16%

The Netherlands

19%

The whole range of surface area sizes is represented, but most distribution centersin Europe have a relatively small surface area (see Figure 8).

Figure 8: Percentage of distribution centers per surface area size

0%

5%

10%

15%

20%

25%

30%

35%

% of Europe’s distribution

centers

< 5 5-10 10-15 15-20 20-30 30-40 > 40

Square meters (x 1000)

the way we see it

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The European distribution network structure depends on specific industrycharacteristics, such as market dynamics, volume and value of products, expecteddelivery time to customers and so forth.

This section gives a high-level overview of the current European distributionstructure per industry sector, based on the survey results. We will also discuss thekey challenges faced by each industry sector.

Some companies provided more detailed information about their existingwarehouse locations (see Figure 9). We will discuss the industries from which wehave more extensive information.

n Food and Beverage

n High Tech and Electronics

n Consumer Products

n Life Sciences and Pharmaceutical

Other industry sectors that did not provide us with enough detailed informationare summarized later. These include Aerospace, Apparel, Automotive, IndustrialManufacturing and Chemicals.

Figure 9: Industry sector respondents who provided details on warehouse locations

0 2 4 6 8 10 12 14

Other

Apparel

Aerospace

Automotive

Chemical

IndustrialManufacturing

Retail

Life Sciences andPharmaceutical

Consumer Products

High Tech andElectronics

Food and Beverage

Number of respondents

Industry View

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Overall, the power to make decisions regarding strategic supply chain issues and,in particular, the investment of new European Distribution Centers (EDC) mayinvolve the board of directors, the logistics or supply chain department, theprocurement department or the sales department.

The logistics department leads the pack with 54 percent, but in 41 percent ofcompanies the board decides where to invest in new EDCs. The procurement andsales departments are heavily involved in 4 and 1 percent of companiesrespectively.

Figure 10: Who makes the decisions on strategic supply chain issues?

Logistics department

54%

Board of directors

41%

Procurement department

4%

Sales department

1%

Especially in the larger companies, with turnover of more than one billion euros,more responsibility is given to the logistics department regarding supply chaindecisions. The board of directors makes strategic supply chain decisions withinsmaller companies.

Most of the industries follow the general pattern as described above. However, inthe Consumer Products and Industrial Manufacturing industries the board hasmore power in deciding on investments and the location of new EDCs.

The Aerospace industry is the only industry in which the procurementdepartment equally shares power with the logistics department.

the way we see it

Food and Beverage

CCoommppaanniieess iinn tthhee FFoooodd aanndd BBeevveerraaggee sseeccttoorr mmoosstt wwaanntt ttoo llooccaattee tthheeiirr ddiissttrriibbuuttiioonncceenntteerrss iinn TThhee NNeetthheerrllaannddss,, FFrraannccee aanndd BBeellggiiuumm

The Netherlands, France and Belgium together take a share of almost 60 % of thedistribution centers in the Food and Beverage sector (see Figure 11).

Figure 11: Share of Food and Beverage centers per country

The Netherlands36%

France13%

Belgium11%

Germany8%

UK8%

Spain8%

Poland5%

Other11%

CCuurrrreenntt nneettwwoorrkk aanndd mmaaiinn ssuuppppllyy cchhaaiinn cchhaalllleennggeessIn general, the Food and Beverage industry characterizes itself by high volumes,perishable products, short required lead time to the market and a relative lowproduct value per square meter. In most cases, production is dispersed over manydifferent countries.

Transport costs and delivery speed are the main drivers for the current networkfootprint, which leads to highly decentralized European distribution networkswith the use of many relative small national distribution centers.

The main challenges are not uniform for all companies in the sector. Somecompanies indicate that the main challenge is to find ways to consolidate theflows more and reduce the number of distribution centers. Others indicate asmain challenge how to deal with the increased costs and complexity of smallerorders and smaller drop sizes to customers.

Current European DistributionNetwork Main Supply Chain Challenges

FFoooodd aannddBBeevveerraaggee

n Very decentralized networks

n High level use of NDCs. In mostcases with a surface area between5000 and 15000 square meters

n Outsourcing of warehouses varies.The company usually owns thewarehouse

n Strategic supply chain decisions aremade at the logistics department

n Smaller drop sizes and smaller ordersto more customers

n Optimization of distribution network

n Further consolidation by reducing thenumber of distribution centers

n Increase in warehouse operationoutsourcing

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High Tech and Electronics

CCoommppaanniieess iinn tthhee HHiigghh TTeecchh aanndd EElleeccttrroonniiccss sseeccttoorr mmoosstt wwaanntt ttoo llooccaattee tthheeiirrddiissttrriibbuuttiioonn cceenntteerrss iinn TThhee NNeetthheerrllaannddss,, GGeerrmmaannyy aanndd FFrraannccee

The Netherlands, Germany and France together have a 50 % share of thedistribution centers in the High Tech and Electronics industry (see Figure 12).

Figure 12: Share of High Tech and Electronics centers per country

The Netherlands20%

Germany17%

France13%

UK9%

Spain8%

Sweden6%

Italy6%

Other21%

CCuurrrreenntt nneettwwoorrkk aanndd mmaaiinn ssuuppppllyy cchhaaiinn cchhaalllleennggeessCompanies in the High Tech and Electronics industry most frequently have acentralized European distribution network, which is often combined with a largeportion of production overseas in Asia.

In general, the product lifecycles in this industry are short and the product valueper square meter is high (e.g. a pallet of iPods). The main drivers for networkstructure are the substantial inventory holding costs and risk of obsolescence.Transport costs have a relatively lower impact. Therefore, the distributionstructure tends, in most cases, to be a centralized structure with minimal stock.

However, not all High Tech and electronic products have a high value per squaremeter (e.g. copier machines). For such products transport costs become relativelymore important and a more decentralized structure can be appropriate.

The main challenge in this industry is to find the balance between costs andsatisfying the needs of customers who are increasingly more demanding in termsof service requirements (e.g. delivery speed) and in terms of variety in productsthat increase the supply chain complexity.

Current European DistributionNetwork Main Supply Chain Challenges

HHiigghh TTeecchh aannddEElleeccttrroonniiccss

n In most cases centralized networkswith a high level use of EDCs andRDCs

n High level of warehouse operationoutsourcing

n Strategic supply chain decisions aremade at logistics department

n Optimizing the distribution network(cost reduction versus servicerequirements)

n Reducing the number of distributioncenters

n Increased complexity

n Delivery speed

the way we see it

15

Consumer Products

CCoommppaanniieess iinn tthhee CCoonnssuummeerr PPrroodduuccttss sseeccttoorr mmoosstt wwaanntt ttoo llooccaattee tthheeiirrddiissttrriibbuuttiioonn cceenntteerrss iinn FFrraannccee

France has 40 % of the distribution centers in the Consumer Products industryand Belgium is second with 17 % (see Figure 13). France also has the most RDCsand Belgium the highest number of EDCs for consumer products.

Figure 13: Share of Consumer Products centers per country

Belgium17%

Spain9%

The Netherlands

5%

Switzerland5%

Germany5%

Sweden5%

Other14%

France40%

CCuurrrreenntt nneettwwoorrkk aanndd mmaaiinn ssuuppppllyy cchhaaiinn cchhaalllleennggeessThe Consumer Products industry has a varied mix of demand volumes, productvalues per square meter, product life cycles and customer demand patterns. Evenwithin companies the supply chain network can be different, depending on theproduct group (e.g. basic products versus fashionable products).

The European network structure differs according to the product group and isdriven by specific product characteristics, such as value density and the demandpattern. However, the industry generally shows a relative low level of warehouseoutsourcing. Furthermore, most companies in this industry indicate further costreduction through consolidation as a main supply chain challenge.

Current European DistributionNetwork Main Supply Chain Challenges

CCoonnssuummeerrPPrroodduuccttss

n Mixed distribution structure, with theuse of EDC, RDC and NDC

n Low level of warehousing outsourcingin this industry

n Hardly any use of 4PL providers;shippers generally use many differentlogistics service providers

n Belgium is a “hot” location forlocating European DistributionCenters

n Strategic supply chain decisions areusually taken at Board level

n Reduce transport lead times and supplychain costs

n Consolidation: reduce number ofdistribution centers; increase size ofexisting warehouses

n Change network because of offshoringand dramatic shift in demandregions/patterns

n Customers want better service

n Strict EU transport regulations

n Consolidation of retailers who alsowant to minimize stocks

n Shorten product creation to markettimeframe needs

16

Life Sciences and Pharmaceutical

TThhee LLiiffee SScciieenncceess aanndd PPhhaarrmmaacceeuuttiiccaall sseeccttoorr sshhoowwss aa mmiixxeedd ppaatttteerrnn ooff ddiissttrriibbuuttiioonncceenntteerrss

The distribution centers in Life Sciences and Pharmaceutical industry aredispersed over many countries in Europe (see Figure 14). In the top 7 countriesthe number of distribution centers is only 57 %.

Figure 14: Share of Life Sciences and Pharmaceutical centers per country

Spain9%

Switzerland9%

France6%

UK6%Belgium

6%Italy6%

Other43%

The Netherlands

15%

CCuurrrreenntt nneettwwoorrkk aanndd mmaaiinn ssuuppppllyy cchhaaiinn cchhaalllleennggeessThe Life Sciences and Pharmaceutical industry has a wide range of products, highproduct value per square meter and high customer expectations concerningdelivery speed and quality. The industry has highly decentralized distributionstructures, with mainly national distribution centers of a relative small size.

The main challenges in this industry relate to reducing complexity and ensuring areliable distribution service to its customers.

Current European DistributionNetwork Main Supply Chain Challenges

LLiiffee SScciieenncceess aannddPPhhaarrmmaacceeuuttiiccaallss

n Highly decentralized structure with ahigh use of NDCs

n High value product and transportspeed is vital

n Life sciences industry requires veryhigh on time in full deliveryperformance

n Warehouse outsourcing varies amongcompanies

n Mainly smaller sized distributioncenters

n Logistics department usually takesstrategic supply chain decisions

n Transport times to remote regions inEurope

n Reduce the number of distributioncenters and reduce complexity

n Increase service in last mile delivery

n Risk management, secure cool chainoperations, regulatory compliance

the way we see it

17

Other Industry Sectors

This section includes the industry sectors that did not provide enough detailedinformation about their warehouse locations, but gave sufficient informationabout their current European distribution network structure and indicated theirmain supply chain challenges. The following industry sectors are summarized inthe tables below: Aerospace, Apparel, Automotive, Industrial Manufacturing andChemicals.

Current European DistributionNetwork Main Supply Chain Challenges

AAeerroossppaaccee

n Most spare parts EDCs locatedaround Frankfurt, Germany

n Very important to locate distributioncenters close to main airports becausethe required speed of getting spareparts to other airports (to reducedowntime of airplanes)

n Usually highly centralizeddistribution networks because of highaverage costs of aerospace spare parts

n Requirement to have “old” spare partsavailable for a very long period oftime

n Spare parts services are playing amajor role in positioning for newaircraft sales

n Strongly regulated market because ofexport restrictions (parts that can beused both in civilian and militaryaircrafts)

n Decentralization of spare partsdistribution centers

n Further outsourcing of warehousingand customs activities

n Further centralization of major spareparts warehouses at major global airhubs (e.g. increasing profile of Dubai asthe largest Middle East air hub)

n Emerging markets are having a majorinfluence on the aerospacemanufacturers distribution networks

n Increasing demands from customersregarding timely deliveries

n Information technology developmentsare having a major impact on theaerospace spare parts industry

Current European DistributionNetwork Main Supply Chain Challenges

AAppppaarreell

n Typically one or more distributioncenters in low-cost regions close tomanufacturing plants (e.g. Turkey)

n Typically one distribution center percountry since the apparel retailindustry is organized per country andsince fashion trends are highlycountry-specific

n Low degree of outsourcing ofwarehouse operations

n Challenges around customs paperwork and requirements for non-EUcountries

n Changes to distribution networkbecause of increasing offshoremanufacturing

n Large scope changes in used transportmode (truck, air, sea, barge, rail)

n Changes in network because ofdramatic shift in demandregions/patterns

n Increasing inbound volumes toEuropean Distribution Centers vs. morefrequent and smaller inbound deliveriesto Regional Distribution Centers

n Increasing usage of containers fortransportation of goods

n Increasing usage of recent ITdevelopments (RFID)

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Current European DistributionNetwork Main Supply Chain Challenges

AAuuttoommoottiivvee

n Very decentralized Europeandistribution networks

n Very high degree of outsourcing ofwarehouse operations

n Small storage capacity of dealersn Strict next day delivery requirementsn High fill rate levels required

n Declining average order sizen Further consolidation by reducing the

number of distribution centersn Increasing variation in used transport

modes (truck, air, sea, barge, rail)n Changes in network because of

dramatic shift in demand regions/patterns

n Emerging markets growth are havingan important impact on distributionnetworks

n Increased competition and newcompetitors are seriously impactingdistribution networks

n Customer are demanding better servicelevels

n EU transport regulations are becomingmore strict

n Shorter product lifecyclesn Increasing cost of fuel

Current European DistributionNetwork Main Supply Chain Challenges

CChheemmiiccaallss

n Very decentralized Europeandistribution networks

n High level of use of factorywarehouses in addition to EuropeanDistribution Centers (EDCs) andNational Distribution Centers (NDCs)– usually very complex distributionnetworks

n Moderate degree of outsourcing ofwarehouse operations – on averageuse of many different logistics serviceproviders

n Fast connection to rail, road andinland water transport required

n Route to market and cost to serveextremely important for the design ofdistribution networks given the highpercentage of transportation cost aspart of the sales price

n Dangerous goods legislations andrestrictions are having an importantimpact on distribution networkdesigns

n Permissions are required for settingup warehouses for classified goods

n Further consolidation: reduce numberof distribution centers

n Outsourcing to pan-continental3PL/4PL

n Large scope changes in used transportmode (truck, air, sea, barge, rail)

n Changes in network because ofdramatic shift in demandregions/patterns

n Consolidation in Western Europewhere possible, expansion in EasternEurope

n Stricter EU transport, safety andsecurity regulations

n Management of cost inflation isextremely important

n Continuous cost-to-serve optimizationn Distribution shifting from lane carriers

to network managersn Increasing inbound volumes to EDCs v.

smaller more frequent inbounddeliveries to RDCs

n Increasing importance of narrowdelivery time windows

Current European DistributionNetwork Main Supply Chain Challenges

IInndduussttrriiaallMMaannuuffaaccttuurriinngg

n Degree of warehouse operationoutsourcing varies among companies

n Centralized and decentralizedEuropean distribution

n Mainly smaller sized distributioncenters

n Strategic supply chain decisions areusually taken at Board level

n Transport cost reductionn Minimize number of distribution

centers

the way we see it

19

Trends in Locations forDistribution Centers

The business environment is changing continuously, which has a great impact onthe distribution networks of various companies. The companies in the surveyhave indicated the following expected distribution network changes. For moreinformation, see the study1 of Capgemini together with Prologis):

n CCoonnssoolliiddaattiioonn ddrriivveenn bbyy gglloobbaalliizzaattiioonn. Reducing supply chain costs andcomplexity are the drivers to reduce the number of distribution centers and tomerge distribution networks.

n GGrroowwiinngg iimmppoorrttaannccee ooff rreeggiioonnaall ddiissttrriibbuuttiioonn.. Growing transport costs, shorterdelivery lead times and emerging markets (especially in Eastern Europe) requirea regional-based distribution that is more driven on transport costs rather thanon inventory costs.

In the survey the multinationals indicated the following important trends:

MMaarrkkeett ggrroowwtthh iinn EEaasstteerrnn EEuurrooppeeaann ccoouunnttrriieess

The survey identifies the sales and manufacturing growth in Eastern Europe as animportant macro trend with potential to become more and more significant.According to 26 % of the respondents, growth in sourcing and market demand inthe East is one the main influences for adding or relocating a European orregional distribution center.

The European Union expansion in Central and Eastern Europe (CEE) willincrease the market activity further. Poland, for example, is becoming a strongereconomy and has relatively low labor and land/terrain costs compared to thewestern European countries.

Another example is Romania, which will probably become an EU member fromthe January 1st 2007. During 2006, companies have been establishing a presencein Romania – for example, the largest real-estate deal in Romania was establishedby a Dutch logistics provider who now operates six distribution centers with 180employees.

As many companies expand their business activities to these Eastern Europeancountries, shifts in distribution networks will be needed to facilitate their supplychains.

IInnccrreeaassiinngg fflleexxiibbiilliittyy iinn wwaarreehhoouussee ssppaaccee

Most companies (86%) indicated that they have recently taken measures toincrease the flexibility in their supply chain, such as:

n Outsourcing of logistics such as their warehouse operations – shippers oftenconsider outsourcing their logistics activities as a way to achieve higherflexibility (see the recent study2 on third party logistics service providers).Outsourcing of logistics is becoming more attractive, due to an increasingconsolidation of service providers that leads to more global competition withfewer players.

1. “Warehousing space in Europe: meeting tomorrow’s demand”, Capgemini together with ProLogis, 2006.www.capgemini.com/resources/thought_leadership/warehousing_space_in_europe_meeting_tomorrows_demand/

2. 11th Annual Third-Party Logistics Study 2006 conducted by Capgemini, Georgia Institute of Technology, SAP and DHL2006www.3plstudy.com/

20

n Leased property instead of owned property – leasing instead of owning allowscompanies to sell their property assets in order to redeploy capital to moreproductive use.

n Shorter lease contracts – these allow companies to flexibly adapt to changingmarket developments. A lease contract from one to three years is the mostdesirable lease term for shippers. For more information, refer to study3 ofCapgemini together with ProLogis.

n Using flexible warehouse space – flexible warehouse space, such as multi-userfacilities, is used for the short term fluctuation of customer demand. However,there is also a growing need for mid-term adaptability of the distributionnetwork to anticipate fluctuations in demand.

IInnccrreeaassiinngg ttrraannssppoorrtt ccoossttss

Transport costs drive network change. In the future, increased transport costs maycause companies to change to a more regionalized distribution structure usingregional distribution centers (RDCs) or a “local for local” structure rather than acentralized distribution structure with an EDC.

The survey revealed two main sources for increased transport costs:

1. Increasing cost of fuel, cost of road tax and EU driving limits

2. Increase of delivery frequencies to improve customer service

For more information on main trends and their impact on distribution networkchanges, see also the recent study3 of Capgemini together with ProLogis.

3. Warehousing space in Europe: meeting tomorrow’s demand, Capgemini together with ProLogis, 2006. www.capgemini.com/resources/thought_leadership/warehousing_space_in_europe_meeting_tomorrows_demand/

the way we see it

21

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Backed by over three decades of industryand service experience, the CollaborativeBusiness Experience is designed to helpour clients achieve better, faster, moresustainable results through seamlessaccess to our network of world-leadingtechnology partners and collaboration-focused methods and tools.

Through commitment to mutual successand the achievement of tangible value,we help businesses implement growthstrategies, leverage technology, and thrivethrough the power of collaboration.

Capgemini employs approximately61,000 people worldwide and reported2005 global revenues of 6,954 millioneuros.

More information about individualservice lines, offices, and research isavailable at wwwwww..ccaappggeemmiinnii..ccoomm

About Capgemini and the Collaborative Business Experience

Contacts:

CapgeminiRoy LendersVice President+31 30 689 0328roy.lenders@capgemini.com

Menno RustenburgSenior Consultant+31 30 689 8301menno.rustenburg@capgemini.com

ProLogisBert AngelSenior Vice President Global ServicesEurope+31 20 655 6632bangel@prologis.com

Authors:

Roy Lenders

Ewout van Loon

Menno Rustenburg

Maurits Speksnijder

ProLogis is the world’s largest owner,manager and developer of distributionfacilities, with operations in 81 marketsacross North America, Europe and Asia.The company has $25.3 billion of assetsowned, managed and underdevelopment, comprising 406.9 millionsquare feet (37.8 million square meters)in 2,406 properties as of September 30,2006. ProLogis’ customers includemanufacturers, retailers, transportationcompanies, third-party logistics providersand other enterprises with large-scaledistribution needs. Headquartered inDenver, Colorado.

ProLogis employs more than 1,200people worldwide. For additionalinformation about the company, pleasevisitwwwwww..pprroollooggiiss..ccoomm

About ProLogis

www.capgemini.com

Capgemini Nederland B.V.

Papendorpseweg 100

P.O. Box 2575 - 3500 GN Utrecht

The Netherlands

Tel. +31 30 689 0000