Pump up your PL supply chain

Articles
November 10, 2009

Pump up your PL supply chain

Cost Plus World Market, the home décor retailer, sells almost 80% of its merchandise in private label. It deals with primary vendors directly and has a direct import strategy that keeps its product pipeline rich and streamlines costs.

Cost Plus World Market, the home décor retailer, sells almost 80% of its merchandise in private label. It deals with primary vendors directly and has a direct import strategy that keeps its product pipeline rich and streamlines costs. 

It was able to slash private-label sourcing costs by 25% year-over-year by improving logistics, EDI and POS strategies, and becoming more transparent in vendor relations, said Sahir Anand, research director-retail, hospitality and CPG, of Aberdeen Group, in a recent webinar, Five Critical Success Factors for Private Label Retailers. He co-presented with Donny Askin, chief executive officer, Arigo.

What Cost Plus achieved could serve as a lesson for food retailers who are vesting more of their reputations and future performance on the quality, imagery and profitability of private labels, believes Facts, Figures & The Future. Well beyond the confines of Costco, Aldi and Trader Joe's is the vast body of conventional food retailers who could also raise their fortunes by better controlling the supply chain of brands that bear their names.

According to Aberdeen research of VPs of procurement, merchandising, supply chain and related disciplines, retailers will emphasize four areas of cost reduction over the next 12 to 18 months:

  • Increased lead times for delivery of products (30% said this)
  • Low inventory turns (29%)
  • High inventory costs and cost-of-goods-sold (25%)
  • High transportation and distribution costs (25%)??

Because they want "intimate relationships" with their private-label suppliers, chains will look to improve their sourcing operations capabilities in four ways too, he said:

  • Automate and integrate inbound and outbound visibility and processes with trading partners (49% said this)
  • Provide near real-time sales data visibility to trading partners(48%)
  • Automate and integrate planning, new item sourcing, listing and setup process with trading partners (42%)
  • Automate and integrate order status visibility, payment and settlement processes with trading partners (42%)

??"Food is a unique space with perishability and safety concerns," Anand noted in a Q&A session. "These procedures are...more important in the case of food retailing, because the flow in hard goods is much slower. Food retailers aren't doing such a good job when it comes to compliance and auditing, our data show, even though they have a big stake that right and safe products are sold to customers."??

"Some retailers are trading-off in quality or regulatory compliance to make short-term gains and satisfy Wall Street," observed Anand, who cautioned that "companies [actually] make triple the net profit if they don't make such trade-offs. Do not trade-off in sourcing in the short- or long-term. You won't get results. It will catch up with you."??Best-in-class private-label retailers have stand-out performance, reported Aberdeen:

  • 75% increased their annual net profit vs. 32% of all other retailers
  • 77% increased GMROI vs. 37% of all other retailers
  • 55% reduced procurement costs vs. 25% of all other retailers??

The five success factors for private-label sourcing, concurred Anand and Askin:

  • Focus on product flow cost reduction and optimizing sourcing operations across the multi-enterprise, multi-tier supply chain.
  • Effectively integrate trading partner data into internal merchandising, procurement and supply chain processes.
  • Focus on compliance, auditing, risk management and vendor collaboration to improve product flow into warehouses and stores.
  • Implement real-time visibility and communication.
  • Optimize both pre-PO (purchase order) and post-PO process and technology.
     

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