Spotlight on Logistics

Private Label Executives Find New Opportunities in the Supply Chain.

• Product Damage • Asset Utilization • Transportation Costs • Product Reclamation • International Shipping and • Contract Manufacturing were among the supply chain issues a group of leading executives discussed during the 2010 Private Label Manufacturers Association Leadership Conference in March. The roundtable, sponsored by CHEP and organized by Private Label magazine, included participants from the manufacturing and retail/wholesale sectors of the private label industry and was moderated by former Supermarket News editor David Merrefield.

The group began the discussion by focusing on the business environment during the past year. All agreed that the down economy has been good for sales in the private label industry, but raised the issue of preparing for the recovery.

Note to reader: In order to ensure total candidness, none of the participants are quoted directly.

“We have had a good year driven by the recessionary transition from brands to the private brand industry. We saw that growth consistent to where we have seen the share gains. So it definitely had a positive effect on our business, our growth was consistent across multiple areas.”

Optimistic Outlook

Both suppliers and retailers are optimistic about sales for the next year.

“We budgeted this coming year aggressively because we continue to see the positive momentum. When the consumer tastes the product and they like it, the trust factor is allowing us to keep those customers. An improving economy will not hurt our business at all. We think that we will have the loyalty of those who now buy our items everyday.”

Still, the attendees are preparing for all eventualities. They expect, for instance, the makers of national brands to devote extra resources to reclaim market share lost to store brands. Shopper insights will play a particularly important role in this effort.

“Branding has been chasing private label for years. We feel that we have been able to leverage our brand position in a control brand program.”

“There is the reality that the consumers will dictate what will happen in our industry. Retailers and manufacturers have to really understand the consumers or we are going to have some problems.”

Turning to the supply chain, the group reports that top executives in the private label industry are spending an increasing amount of time on warehousing and transportation issues.

“The supply chain effects us every day whether there is a recessionary environment or not. The supply chain is a very expensive component of our business and retailers have very high expectations on the amount of supply they are going to carry. The companies that have a very disciplined supply chain plan are going to be the winners because they can translate that into value in their propositions in their business.”

When the price of transportation rises, manufacturers say they can’t always pass that on to the retailer, resulting in margin erosion. Some companies adjust freight fees twice a year to hedge against these increases. Others are trying to move all possible shipments to full truckload because of the increased cost of less-than-truckload deliveries. Still other companies are encouraging companies to increase backhauls and FOB orders.

“From a supply chain perspective, it is really easy to say once you have this model in place and you know who your customers are, that you should put a warehouse here and one there. But then suddenly you go through a couple customer changes and it doesn’t look as good as it did with your first customers. Flexibility is the key issue. Our business model has a changing dynamic and I think that this is true for the majority of companies in the private business.”

New Initiatives

The group then discussed new initiatives they are taking to increase supply chain efficiency.

“One of the most interesting challenges for us when developing new products is pallet space utilization. We need to think about this earlier in the design of the product because until you start putting together what the pallet looks like and how many cases go on the layer, you don’t know how much of that 40x48 footprint you’re going to end up using, if you have overhang problems, especially in the club industry, its very sensitive, but you will have a lot of damage issues if you design the product in such a way that there is pallet overhang.”

In another initiative, several retailers are pushing their suppliers to use green packaging, which the group sees as a good business decision. In the end, however, the package has to be affordable and it has to be able to ship efficiently.

The group agreed collaboration between suppliers and retailers is becoming stronger in the private label sector. There are to keys to collaboration — suppliers need to go to the retailers with an initiative on how to lower costs and the relationship has to be long term. This has been the challenge in the past.

“The collaborative opportunities are somewhat limited because we are not moving into more of a long term strategic supply relationship with retailers where the transparency to cost issues and the more collaborative approach would be easier to implement.”
Looking to the future, the group agreed that supply chain issues will continue to impact both tactical and strategic planning.

“The biggest challenge is that my crystal ball is worthless. I can’t determine what is going to be the next big issue. We have been talking about indexing pricing to the raw material and the cost of the package, but what happens if energy explodes a year from now and that is the key driver that is eroding the margin? The problem is you never know what is lurking around the corner.”

CHEP is the global leader in pallet and container pooling services, serving many of the world's largest companies. With more than 7,500 employees and operating in 46 countries, CHEP combines superior technology and an asset base of more than 300 million pallets and containers to offer its customers exceptional value, a platform that enables reduction in customer product damage and an environmentally sustainable logistics solution. For more information, contact 1-800-CHEPUSA or visit www.chep.com.