Europe''s Unique Supply Chain Opportunities, Challenges, and Innovations
"The Unexpected E-Europe" — Accenture's fourth annual report on the development of e-commerce in Europe — identified many similarities between Europe and the United States. It disclosed, for example, that 51 percent of European companies now regard their e-commerce activities as successful, which is roughly the same as in the United States. Moreover, 60 percent of European companies plan to increase their e-commerce expenditures over the next year, which actually is higher than in the United States. Europe also has narrowed the gap with the United States on conventional wired e-commerce adoption in areas such as logistics and procurement (Figure 1), and it is running neck-and-neck with the United States (and ahead of Japan) on "television commerce" and "silent commerce" (using microprocessors and tags to make everyday objects intelligent and interactive). Europe is also well ahead of the United States (albeit behind Japan) on wireless commerce.
Figure 1 Comparing various countries' deployment of e-commerce.
Similar patterns were reflected in Accenture's E-Santa survey of e-fulfillment performance in the United Kingdom and Europe over the 2001 Christmas period. The survey reported that most goods ordered from European Web sites were delivered in seven to eight days, compared with seven days in the United States; and that the average order takes 11 minutes to complete on a European Web site, compared with 13 minutes in the United States.
The survey also disclosed marked differences at the continent and national levels: For example, 98 percent of U.S. sites confirm orders by email, versus only 68 percent of U.K. sites and less than half of French sites. Whereas 80 percent of U.S. sites provide shipment confirmation, only 15 percent of Spanish sites and three percent of German sites provide confirmations. Clearly, cultural factors influence what different nations expect from their Web retailers.
Europe Really Is Different
Broad differences in areas like shipment confirmation provide some evidence that language, culture, and legal differences still predominate in Europe — across the European Union and (even more dramatically) in the countries of Central and Eastern Europe. However, these differences also have proven to be a business opportunity. Such was the case with Portum, whose e-auctioning and e-tendering capabilities are expanding across Europe. This company's products were developed with multicurrency and multilingual capability, which gives them a clear advantage over North American products.
Alternatively, some European incumbents - particularly those catering to national or even local preferences - have found themselves unable to expand outside their originally defined arenas. In effect, their niches have boxed them in. Sony Computer Entertainment Europe faced this problem during the launch of its PlayStation 2 game console. However, the company responded by putting itself through a significant transformation: from a traditional wholesaler to a personalized enterprise capable of forming one-on-one relationships with potential and actual customers. The cornerstone of that effort was a Web site where visitors speaking any one of 11 different languages can buy PlayStation products using any one of 17 different currencies - while complying seamlessly with their country's local tax requirements and distance-selling laws. This is a stark reminder of the advantages that are enjoyed by newcomers — a chance to build something from scratch without the encumbrances of an existing business model or expensive, underperforming assets.
Local Differences, Local Opportunities
The need for companies to address multiple languages, currencies, legal entities, and taxation requirements merely underscores the most significant of Europe's divides: Culturally, Europe is nearly as diverse as ever - which has significant supply chain implications. For example, different countries wash their clothes in different ways; this is why, although there are only two or three pan-European white goods manufacturers, very different washing machines are still delivered to different parts of Europe. There are also widely different attitudes toward recycling. This is a big issue in Northern Europe (especially Germany) but, so far it has had little impact in the Mediterranean countries. A good environmental example is reverse logistics: taking product back and recycling it. Led by Germany's BMW, reverse logistics is affecting all European auto manufacturers, but with widely varying levels of acceptance.
Another significant European factor is the regional variation in Internet adoption. Spain, for example, has a relatively high level of Internet take-up, which could explain the pioneering role of Spanish companies in establishing and using transportation/distribution-focused e-marketplaces. One example is çgoratrans, a B2B fulfillment services provider that matches shippers with goods awaiting transport across the Iberian peninsula with other carriers or shippers that cover the rest of Europe. To a great degree, Agoratrans' success is the result of e-enabled shipper/carrier partnerships created to manage end-to-end processes - from load planning, through track and trace, and on to delivery confirmation. Even carriers concerned about increased price visibility have been lured by the chance to increase efficiency, win more business, and participate in services packages (shared e-procurement of fuel, consumables, and vehicle spares).
Sometimes, Europe's supply chain differences reflect variations in accessibility. For example, Italian companies generally opt for highly local, depot-type distribution networks, while businesses in Holland (Italy's topographical opposite) prefer a very centralized approach. Similarly, regional distribution models have evolved from different countries' ability to use their road networks. As arteries become more congested, greater emphasis is placed on logistics in general, and decentralized operations in particular. In 2001, Southern Europe had to cope with the consequences of a series of fires in tunnels under the Alps. Ready access to real-time event management across multiple organizations was — and will continue to be —- critical.
Looking ahead, road and access challenges will spawn more, rather than fewer, local and regional solutions. In remote areas, for example, the postal service could become the preferred option for delivering "the last mile," while in urban environments, increases could occur in the use of drop boxes, where repair and maintenance engineers pick up spare parts. A major European utility recently went this route, replacing 55 manned secondary warehouses with 150 unmanned pick-up points. Field crews now go directly from their homes to their work site, picking up needed materials at unmanned collection points outside normal working hours. Finally, congested road systems around Europe's major metropolitan areas could bring about changes in bulk distribution. The most likely scenario is faster adoption of alternative forms of transport, combined with careful analysis of various depot structures to manage distribution.
Logistics and Politics
Companies must bear in mind that even beyond culture, technology, and geography, transportation and distribution in Europe also is political. For example, residents of Europe's most congested areas (e.g., southeast United Kingdom) may simply refuse to accept further increases in road traffic levels, which have consistently exceeded GDP growth for at least the last 10 years.
Even greater change - both political and economic - will occur as the countries of Central and Eastern Europe are incorporated into the European Union (or form new relationships with it). With their lower labor costs, countries of the former Soviet bloc already are becoming Europe's Mexico. One of the main implications of this could be continued atomization, as different parts of a wider Europe specialize in different areas. Concentrations of this sort exist already in locations, such as "Silicon Glen" in Scotland, the aerospace corridor around Toulouse in France, and the automotive concentration in Spain. But, imagine companies in Holland becoming logistics specialists while those in the Czech Republic evolve into engineering manufacturing specialists. What capabilities might we expect to emerge from those old Soviet missile-building cities?
All in all, it's clear that supply chain planning in the Europe of 2002 is based on a stable, uniform environment and is no more viable than it ever was. Organizations today must accommodate a staggering variety of cultural, technological, geographic, topographic, political, and economic factors in order to identify and implement an effective supply chain strategy. Moreover, they also will find it necessary to develop networks that exhibit a reasonable level of redundancy in terms of physical assets. Finally, they will need to concentrate on mechanisms that help them plan and coordinate operations with disparate partners. Europe will continue to experience strong demand for collaborative logistics, planning, forecasting, and shipping capabilities.
European Innovation
Europe has proven its ability to adapt supply chain technology to its unique and widely varying requirements. But is Europe also making significant contributions in this area? Developments such as the Bluetooth standard for short-range radio communications, the COBA (connected open building automation) standard, and the Profibus protocol for factory networking all suggest that Europe is more than a follower or adaptor - that it actually is a driving force behind much of the technological advancement in the supply chain.
Perhaps the best example is wireless technology. Partly because of the remoteness of some areas of the continent, Europe enjoys very high mobile phone usage, as well as (more recently) the emergence of a single common standard for digital mobile networks. As a result, a uniquely European body of knowledge has developed around the integration of mobile networks into industrial-strength backends. As early as 2000, for example, a WAP (wireless application protocol) phone linked with an ERP-based order status system was demonstrated in Europe.
Wireless innovation is evident in the growing number of European vehicle tracking and dispatching applications that are based on the integration of GSM (global system for mobile communications) and GPS (global positioning system). This is happening in the United States as well, but European applications tend to be more advanced. For example, they usually transmit data using standard, consumer-level mobile networks - which eliminates the need for more complex satellite-based systems or adaptations of pager networks.
European companies are playing a leading role in the development of silent commerce applications, which focus largely on making everyday objects intelligent and interactive. Unlike initiatives in North America, most of which are based on proprietary networks, European applications involve low-level exchanges of data using GSM networks. Silent commerce already has undergone trials at Sainsbury's, a major U.K. retailer, which is piloting the use of radio frequency identification (RFID) to monitor chilled foods across the supply chain. Although the cost per RFID tag remains high, the company is ready to act when the technology matures and the cost per tag decreases. Collaboration is another area where Europe has taken the lead, driven partly by the need to compete against U.S. manufacturers that have benefited from a huge, largely homogenous home market. In aerospace and defense, Europe has a long history of collaboration, dating back to projects like the Leander-class frigates of the 1960s. Current ventures like Airbus and the Joint European Fighter project draw upon a huge variety of accumulated experiences across borders, languages, and cultures.
Figure 2 - Silent Commerce Positioning Matrix
Today, Europe has several excellent manifestations of the "design anywhere, build anywhere" concept of collaborative product development. One of these is the micro-compact car (MCC) or smart car. MCC is built in a single, relatively small Mercedes Benz-run assembly plant that is surrounded by several subassembly plants. Owned and operated by first-tier suppliers, these plants supply subassemblies, such as engine trains and chassis, to the core plant on a just-in-time basis. Ford also has developed broad experience with collaborative design workshops in different locations and different countries across Europe.
Perhaps because European companies have always had to deal with cross-border, cross-culture, cross-language issues, some of the thinking around collaborative design and development is further along than in other parts of the world. In a recent pan-European survey, 67 percent of interviewees have launched a collaborative product development (CPD) initiative. Among organizations defined as "CPD innovators," 92 percent expect CPD to reduce baseline costs and new-product time-to-market.
As Europe continues to develop new financial, legislative, and commercial structures, it is clear that supply chain successes will emerge most frequently from the acceptance and exploitation of diversity, rather than the misguided assumption of homogeneity. Quite understandably, Europe is focused on supply chain solutions that meet its own unique requirements. When the technology that addresses those requirements cannot be found, its business leaders are willing and able to work together to develop it themselves. The result is a continuing commitment to the strength and value of diversity, and a steady stream of innovations to offer the rest of the world.
