An Executive Q&A – Challenges of a Private Label Manufacturer


As an alternative to playing the discount game and further eroding margins, many retailers have found tremendous success with private label products. By offering innovative goods at a reasonable cost, retailers have successfully distinguished their brands and helped engender consumer loyalty. This is a sound strategy, but it can easily backfire if the supply chain infrastructure is not in place to support it.
 

With this in mind, I spoke with Craig Ablin, vice president of supply chain with Clement Pappas, to get his perspective on a few of the unique challenges private label manufacturers face. Clement Pappas is one of the largest private label producers of store brand fruit juices and drinks in the United States and a major producer of cranberry juices, drinks and sauces. Clement Pappas is focused on providing its customers with a full line of quality products available when they want them. On an annual basis, Clement Pappas introduces 20 to 30% new SKUs to fulfill this goal. 
 
1) What are the top supply chain challenges you face as a private label manufacturer? 

For starters, the private label business is more complicated than branded. If you look at just new product introductions (NPI) for example where a national brand may have five to seven NPIs per year, we need to manage more than 300 annually. Each new product has its own set of unique challenges. For example, one of our retail partners is going from four labels down to one. This is a good thing, however, at the start it requires a lot of effort to ensure existing SKUs run out across all facilities before the new label is positioned. When you are a national brand you can do this in a phased rollout. As a private label manufacturer, there are many moving parts across several products that all have to work in concert with each other.
 
All of this places pressure on our supply chain. As the number of SKUs increases, our supply chain becomes very complex. The bottom line is that efficient and effective supply chain operations are even more important for private label manufacturers–larger product portfolios, exponentially more new product introductions, continuous production changeovers, inventory that is dedicated to a single customer or channel, and less control over promotional schedules. This is no small feat.
 
2) How does promotional activity impact your private label business? 

Promotions create significant swings in demand and require close collaboration with our retail partners. As a private label manufacturer we can influence schedules and key decisions but the retailer ultimately controls the private label brand and promotional schedule. Since we do not have the same level of control as a national brand, the timing, quantities and overall promotion plans tend to be less clear. To sort through the challenges requires two characteristics. 
 
First is a solid process-oriented team to methodically control the flow of information and ensure we meet our targets. The second is to have a strong entrepreneurial spirit. Private label manufacturers tend to be quick, nimble, creative, and constantly looking to cost effectively build their customers’ brands. Supply chain’s role is to enable this entrepreneurial spirit, and put efficient and effective processes around it. 
 
With a significantly higher level of SKU proliferation, labels, and NPIs combined with less control, we have to determine each customer’s unique needs and serve them effectively as demand changes in relation to promotional activities. Likewise, volume can dip significantly when a national brand is on promotion which will impact our replenishment orders and the timing of future production. 
 
3) How has technology helped you manage these challenges?

Private label manufacturers have to be better supply chain managers than our national brand counterparts. With a broader product portfolio it can be incredibly complicated to keep track of NPIs, label changes and promotional demand without an advanced supply chain solution. For example, before we implemented Logility Voyager Solutions, we just couldn’t keep up with the rapid pace of market changes and we were carrying too much inventory dedicated to a specific channel. A well-defined demand planning process in concert with the right software has helped us more accurately forecast demand, track performance, position inventory, and respond to the time-phased needs of our customer base. Our ability to manage time-phased inventory policies allows us to align specific customer service targets with our retail partners. This is even more critical as we implement new product innovations, label changes, and product run outs. 
 
As a manufacturer with a broad product portfolio, we need to maximize our production capacity. While a national brand may make one item in a size/flavor, we are more likely to make 40 in a similar size/flavor combination with different recipes based on each retailer’s formula requirements. We need to plan this complexity in an efficient manner and sequence production orders accordingly. Access to the right technology is critical if we are to solve these types of planning challenges. Remember, we have to be even better than our national branded peers. We have exponentially more products in our rotations. Lots of moving parts and high service level expectations require increased visibility.  
 
With growth comes opportunities, and challenges. To seize these opportunities private label manufacturers must see and understand them, and know how to optimally plan their business. Clement Pappas built its own recipe for success—process improvement, entrepreneurial spirit and the right technology—to become a proactive private label manufacturer; one that has greater visibility into demand which directly translates into more efficient supply chain and manufacturing operations.
 
The above article is from the May/June 2012 issue of Private Label Magazine and can be found at www.privatelabelmag.com/issues/pl-may-2012/logistics.cfm
 

Karin Bursa is Vice President at Logility. She can be reached at blog@logility.com.

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