Three Critical Supply Chain Capabilities for Private Label Industry Success
I generally do not like the shopping experience. I prefer to develop a list of carefully researched products so I can get into and out of a store as fast as possible. However, on a recent trip to a mega grocery store I started meandering up and down aisles looking at the variety of both national and store brand products available for purchase. Although I am fully aware of the product proliferation trend driven by customer segmentation, it is still eye watering to see that a store would carry 13 different varieties of olives or 48 different brand/package combinations of toilet paper.
In an attempt to stretch the budget, many consumers have tried private label products and found that they often deliver as good or better quality as national brands. Considering private label goods are often priced 20% or more below the national brand market leader it is no coincidence that the number of private label products offered continues to grow.
The private label manufacturer generally produces more total SKUs with lower production volumes per SKU requiring more frequent line changes, more total safety stock and potentially higher product obsolescence. To combat this complexity and provide high service levels on brands that directly shape a retailer’s core reputation requires expertise in the crucial disciplines of demand planning, inventory optimization, and manufacturing planning.
Customer-level forecasting represents a huge improvement opportunity for private label manufacturers, whose goals must include reducing forecast error by focusing relentlessly on customer-specific needs. This requires delivering highly accurate data to drive optimal decisions, but without spending precious supply planner time gathering and tabulating that data. Some private label manufacturers leverage point-of-sale (POS) data provided by the retailer. This early access to the demand signal helps tune plans and, over time, build a better model to drive forecast accuracy. Collaborative demand planning supported by a powerful planning solution gives everyone weekly visibility to the demand signal and reveals when actual demand exceeds or drops below forecast on an ongoing basis.
Inventory buffers are a reaction to limited demand visibility, inefficiency, and lack of production flexibility. When private label manufacturers face the fact that excessive inventory is building up for each specific retailer supply chain, they realize a significant amount of vital working capital is trapped. While supply chain splintering and product differentiation may make it difficult, Multi-Echelon Inventory Optimization (MEIO) can uncover many opportunities to reposition inventory, postpone customization, pool finished goods, aggregate demand streams and mitigate the challenges of demand and supply variability.
Aggressive make-to-stock manufacturing, needed to meet private label product demands, requires an agile response to changing market needs. Private label manufacturers must be able to model the capacity, capability and throughput of each process stage within each facility in order to optimize production planning and sequencing while minimizing manufacturing costs. Planning a private label product portfolio quickly surpasses the capabilities of typical ERP systems. A state-of-the-art Advanced Planning and Scheduling (APS) solution is needed to generate the actual schedule down to minutes to consume materials, minimize constraints and produce products efficiently. An APS solution ensures the highest-possible performance for all manufacturing runs, as helps to free up extra production capacity, creating more flexibility to respond to real-time events.
The private label world has become all about differentiated products that produce a unique value and brand equity for each retailer. Leading private label manufacturers have met this challenge through concentrating on three critical supply chain capabilities; Demand Planning, Inventory Optimization, and Manufacturing Planning.
Next time you are walking through a large grocery store look at the variety of private label products on the shelf and consider the supply chain complexities involved in bringing those products to the shelf at a competitive price.