Key Areas of Improvement
Q: What supply chain generates as many challenges as 10? A: A private label supply chain.
Store brand products, once thought of as bottom shelf products, are now viewed on par or above many national brand counterparts. Research shows the major shift came with the recession when many households were forced to try alternatives to the pricey brands they were accustomed to. Once consumers made the switch, many found the quality and product differentiation to their liking and stayed with the store brand.
As store brands have gained popularity so did the market opportunity. Many private label manufacturers started to expand into new categories and create new product differentiators. This led to a proliferation of new SKUs and brought with it many new challenges inherent in an increasingly more complex supply chain. Manufacturers now have to manage multiple customer-specific SKUs with slight product variation and custom packaging.
Better Demand Planning
The complex nature of a private label manufacturer’s supply chain dictates that each product will have customer-specific differences and once a label is affixed, the product is off limits everywhere else. It is vital manufacturers have complete visibility to accurately predict future demand and generate an accurate customer level forecast. Through our work over the past decade with private label manufacturers we have uncovered that only a few companies are generating a good customer-level forecast to drive their demand planning activities. This is clearly an area for improvement.
One of the best practices is to initiate a smart, visibility-oriented planning process to synchronize demand across departments. With advanced technology as the foundation, sales, marketing and manufacturing teams can collaborate about events for a specific customer, such as in-store promotions, in-season demand swings and fill-in store brand programs.
Wipe Away Excess
Retailers understand that if service levels from a private label manufacturer decline they have alternatives. To engender loyalty, private label manufacturers need to ensure high service levels and become an extension of their customer. The critical question is how much inventory is required to maintain high service levels? Many manufacturers handled this with a rule of thumb inventory policy which leads to excessive buffers.
Speaking with many manufactures we find the majority are shocked to learn just how much safety stock has accrued across all nodes of their supply chain to protect against stock-outs, mitigate long lead times and react to whipsawing demand signals. When inventory is analyzed across the entire supply chain factoring each specific customer, private label manufacturers realize a significant amount of vital working capital has been trapped.
It is crucial to apply a powerful end-to-end inventory optimization solution to each dedicated inventory footprint. While supply chain splintering and product differentiation may make it difficult, a good inventory optimization system can uncover many opportunities to reposition inventory, postpone customization, pool finished goods, aggregate demand streams, and mitigate the challenges of demand and supply variability. Another key is running multi-echelon what-if scenarios which can reveal how to adjust the size of inventory buffers across all the stages and locations of the supply chain to minimize the overall investment in safety stock required to meet a desired service level.
Moving Beyond ERP
You are only as good as your plan. Or are you? Production planning is more challenging for private label manufacturers than for a like-sized brand manufacturer because satisfying the splintered demand of specific retailers requires smaller runs and more frequent changeovers. The key to success is to get better at planning and producing a large number of SKUs while ensuring the most efficient use of short production runs. To maximize efficiency and minimize cost, private label manufacturers must model the capacity, capability and throughput of facilities to optimize production planning and sequencing while minimizing manufacturing costs.
Planning a diverse private label product portfolio quickly surpasses the capabilities of typical ERP systems (Enterprise Resource Planning). While ERP systems focus on materials, today’s manufacturers need to plan the schedule down to the minute. Advanced planning and scheduling systems are able to plan material consumption to the minute allowing companies to minimize constraints and produce goods more efficiently. The idea is to look for the ability for a system to deliver granularity, precision and detailed analysis, while simultaneously providing a big-picture view of the business.
* Karin L. Bursa is vice president of marketing at Logility, a provider of collaborative supply chain management solutions. Ms. Bursa has 25 years of experience in the development, support and marketing of software solutions to improve and automate enterprise-wide operations. For more information, please visit www.logility.com.
