Deciding a Distribution Network Design: Varying from Centralized to Decentralized Pattern - The case of Mölnlycke Health Care AB towards east European market -

Abstract

On May1, 2004, the EU welcomed 10 new members including among these states: Hungary and Czech Republic. Customs duties are abolished with those new countries, while trading barriers are facilitated. Mölnlycke Health Care, a Swedish company, distributes to Europe via a main warehouse in Belgium. The recent changes in the European business environment appear, to this company, as an opportunity to gain new market share towards East European countries, particularly Hungary and the Czech Republic. The purpose of this research was to study what could be the optimal design of a distribution structure towards the markets in Hungary, the Czech Republic and one particular area in East Germany. We decide to look at the design of the current distribution network, and to compare two alternative distribution network designs. While analyzing the business case, we suggest solutions and improvements according to the following perspective: cost, flexibility, location of warehouses, and the risks of reduced customer service level. In a first part we review the theory used in the thesis. Then we present the gathered data, on an organized approach that support a further analysis, concerning the current situation. In a third part we analyze the results obtained from gathering the empirical data. This part includes also a cost simulation of the two alternatives; therefore a discussion about the soft factors is added. The results showed the centralized alternative much cheaper than any other distribution network design. The solution with the merged local warehouse in East Europe located in Prague is more able to adapt itself to further change in the market. Keeping the current situation is the solution that includes the least amount of risk for a reduced customer service level. In the conclusion we tried to relativize the cost comparison we got, and make the reader aware of the uncertainties in the thesis. In the conclusion we also gave possible implementations to improve the business of Mölnlycke Health Care. Some suggestions, such as implementing Vendor Managed Inventory, may be a topic for further research.