Collaborative supply chain networks may benefit their participants in many ways. Information-sharing initiatives can increase profitability throughout the supply chain by way of cost reduction, demand augmentation, and better ability to respond quickly and accurately to market changes. For more background, please see The Blessing and Curse of Global Sourcing and Supplier Management and Distinctions and Benefits of Strategic Sourcing.
As for the retail sector, there is also a growing trend toward offering private labels and brands (also known as own and house brands and labels) to help retailers grow revenue. Consequently, there comes a fundamental reassessment of the structure of global sourcing—whether to use agents or other middlemen at all if companies can now work directly with manufacturers via the Internet. Therefore, given some reports of success with lower-priced house brands, retailers in several segments (including fast-moving consumer goods [FMCG], consumer electronics, and apparel) are increasing their focus on private label merchandise to take advantage of margin improvements, more consistent quality, and brand loyalty. To learn more, please see The Fragile Consumer Packaged Goods Market and Private Label Products and A Unique Product Lifecycle Management Tool for Private Label Retail.
Recently, Retail Systems Alert Group's (RSAG) Sourcing and Product Lifecycle Management (PLM) Benchmark Study reported that adding private label merchandise into the overall product mix drives not only margins for retailers, but also top line revenues and sustained growth. The study was based on survey responses and interviews with nearly 150 executives and managers representing retailers from around the world with annual revenues ranging from less than $50 million (USD) to more than $5 billion (USD). It reports that retail winners (that is, companies that outperform their peers in year-over-year comparable store sales) carry a significantly higher percentage of private label merchandise than their competitors do. These same leading retailers also achieve better return on inventory investments and outperform competitors in overall gross margin improvements. Further, according to a recent AMR Research report, even US grocers are beginning to respond to the growing demand for private label product, as they require even greater speed, visibility, and agility.
RSAG's study uncovered other key industry shifts. Namely, after a decade of reverse auctions and bidding events designed to drive cost out of merchandise without regards to impact on suppliers, RSAG found that retailers today are beginning to develop long-term, collaborative relationships with trusted suppliers. Winning retailers, according to the firm, are leveraging technologies to manage these relationships as well as for product development, supplier audits, managing and tracking merchandise status, and self-managing freight, all of which ultimately drive gross margin and sales improvements.
Similar conclusions were drawn in another late 2006 report titled The New Retail: Driving Growth through Product and Supplier Innovation by analysts Industry Directions. The research revealed that leading retailers are moving beyond the severe cost-cutting measures of the past decade to pursue more strategic private label programs that deliver differentiated products with higher margins to the market.
According to Industry Directions, retailers that are able to leverage the expertise of their buying and merchandising teams in order to seize the revenue-generating opportunities presented by private labeling, fast fashion, and global sourcing, will be the leaders of tomorrow. However, this type of integrated joint effort requires commitment to new cross-organizational processes and technology-enabled collaboration that support the entire product life cycle (from product concept to delivery to the importer and product discontinuation) coupled with the ability to proactively manage a multiplicity of tasks, activities, and relationships across the enterprise.
Other key recommendations to retailers looking to drive appreciable growth objectives included the following:
* Retailers must prepare to work collaboratively within their supplier ecosystems to increase customer value while addressing corporate social responsibility (CSR).
* The combination of manual processes, Microsoft Excel spreadsheets, and disparate technologies that most retailers use today will not support the collaboration required to deliver differentiated products into global markets.
* Retailers must gain visibility into emerging product concepts to streamline and coordinate efforts across their organizations and throughout their supplier networks.
* Retailers, sourcing offices, agents, suppliers, and other stakeholders require the ability to share critical information in a timely and appropriate manner.
* Sustainable competitive advantage will belong to those retailers that are able to leverage the expertise of their buying and merchandising teams to build synergistic and strategic partnerships with selected suppliers.
One might wonder, from a sourcing perspective, what it has taken to accomplish this growth through private label–based innovation. To that end, the largest and most forward-thinking retailers have, over time, certainly mastered tactical procurement and supplier performance practices. Namely, they have gradually moved beyond paper-based purchase orders (which merely require supplier identification in terms of managing supplier community) to online bidding processes (which at least demand more standardized processes when it comes to managing supplier community and structured responses when it comes to enterprise sourcing processes). As their supplier bases have grown, these companies have developed solid vendor stratification strategies, supplier scorecards, and other supplier performance management (SPM) technologies that have further helped their success. However, based on the above research reports, low cost sourcing, while necessary, will not be sufficient, since it is now more about collaborative product and market innovation (including strategic partner collaboration) and moving brand loyalty from national and international labels to local store brands.
While the above-mentioned focus on true cost remains of paramount importance, sourcing is often just as much about the delivered value to the end customer, where private label products are providing distinct offerings to companies like Tesco, for instance. Eqos cites as the primary reason customers purchase its software is that they want to scale their private label businesses. To that end, the software is a part of a grander strategy that normally includes opening a sourcing office (in Hong Kong, for example) and experimenting with going directly to prospective supplying factories to save the estimated 6 percent agent fee. Given that nowadays agents are acting as factories, many importers are looking for other options, and they generally use a combination of agents and direct offices, which is only possible with astute technology solutions.
As for the retail sector, there is also a growing trend toward offering private labels and brands (also known as own and house brands and labels) to help retailers grow revenue. Consequently, there comes a fundamental reassessment of the structure of global sourcing—whether to use agents or other middlemen at all if companies can now work directly with manufacturers via the Internet. Therefore, given some reports of success with lower-priced house brands, retailers in several segments (including fast-moving consumer goods [FMCG], consumer electronics, and apparel) are increasing their focus on private label merchandise to take advantage of margin improvements, more consistent quality, and brand loyalty. To learn more, please see The Fragile Consumer Packaged Goods Market and Private Label Products and A Unique Product Lifecycle Management Tool for Private Label Retail.
Recently, Retail Systems Alert Group's (RSAG) Sourcing and Product Lifecycle Management (PLM) Benchmark Study reported that adding private label merchandise into the overall product mix drives not only margins for retailers, but also top line revenues and sustained growth. The study was based on survey responses and interviews with nearly 150 executives and managers representing retailers from around the world with annual revenues ranging from less than $50 million (USD) to more than $5 billion (USD). It reports that retail winners (that is, companies that outperform their peers in year-over-year comparable store sales) carry a significantly higher percentage of private label merchandise than their competitors do. These same leading retailers also achieve better return on inventory investments and outperform competitors in overall gross margin improvements. Further, according to a recent AMR Research report, even US grocers are beginning to respond to the growing demand for private label product, as they require even greater speed, visibility, and agility.
RSAG's study uncovered other key industry shifts. Namely, after a decade of reverse auctions and bidding events designed to drive cost out of merchandise without regards to impact on suppliers, RSAG found that retailers today are beginning to develop long-term, collaborative relationships with trusted suppliers. Winning retailers, according to the firm, are leveraging technologies to manage these relationships as well as for product development, supplier audits, managing and tracking merchandise status, and self-managing freight, all of which ultimately drive gross margin and sales improvements.
Similar conclusions were drawn in another late 2006 report titled The New Retail: Driving Growth through Product and Supplier Innovation by analysts Industry Directions. The research revealed that leading retailers are moving beyond the severe cost-cutting measures of the past decade to pursue more strategic private label programs that deliver differentiated products with higher margins to the market.
According to Industry Directions, retailers that are able to leverage the expertise of their buying and merchandising teams in order to seize the revenue-generating opportunities presented by private labeling, fast fashion, and global sourcing, will be the leaders of tomorrow. However, this type of integrated joint effort requires commitment to new cross-organizational processes and technology-enabled collaboration that support the entire product life cycle (from product concept to delivery to the importer and product discontinuation) coupled with the ability to proactively manage a multiplicity of tasks, activities, and relationships across the enterprise.
Other key recommendations to retailers looking to drive appreciable growth objectives included the following:
* Retailers must prepare to work collaboratively within their supplier ecosystems to increase customer value while addressing corporate social responsibility (CSR).
* The combination of manual processes, Microsoft Excel spreadsheets, and disparate technologies that most retailers use today will not support the collaboration required to deliver differentiated products into global markets.
* Retailers must gain visibility into emerging product concepts to streamline and coordinate efforts across their organizations and throughout their supplier networks.
* Retailers, sourcing offices, agents, suppliers, and other stakeholders require the ability to share critical information in a timely and appropriate manner.
* Sustainable competitive advantage will belong to those retailers that are able to leverage the expertise of their buying and merchandising teams to build synergistic and strategic partnerships with selected suppliers.
One might wonder, from a sourcing perspective, what it has taken to accomplish this growth through private label–based innovation. To that end, the largest and most forward-thinking retailers have, over time, certainly mastered tactical procurement and supplier performance practices. Namely, they have gradually moved beyond paper-based purchase orders (which merely require supplier identification in terms of managing supplier community) to online bidding processes (which at least demand more standardized processes when it comes to managing supplier community and structured responses when it comes to enterprise sourcing processes). As their supplier bases have grown, these companies have developed solid vendor stratification strategies, supplier scorecards, and other supplier performance management (SPM) technologies that have further helped their success. However, based on the above research reports, low cost sourcing, while necessary, will not be sufficient, since it is now more about collaborative product and market innovation (including strategic partner collaboration) and moving brand loyalty from national and international labels to local store brands.
While the above-mentioned focus on true cost remains of paramount importance, sourcing is often just as much about the delivered value to the end customer, where private label products are providing distinct offerings to companies like Tesco, for instance. Eqos cites as the primary reason customers purchase its software is that they want to scale their private label businesses. To that end, the software is a part of a grander strategy that normally includes opening a sourcing office (in Hong Kong, for example) and experimenting with going directly to prospective supplying factories to save the estimated 6 percent agent fee. Given that nowadays agents are acting as factories, many importers are looking for other options, and they generally use a combination of agents and direct offices, which is only possible with astute technology solutions.
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