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Three Critical Components for Private Label Success



Private label manufacturing has evolved into a demanding discipline characterized by high service levels, thin margins, large SKU counts, and little room for error. While it does require the utmost efficiency and productivity, for those mid-size private label manufacturers who can master the art of customer collaboration and the science of demand planning, inventory optimization and manufacturing planning, private label is a rewarding business (retailers generally see 8%—10% higher margins than for name brands) that continues to grow robustly year over year.

The advantage to retailers with store brands has been well-understood for years (differentiation, customer satisfaction, brand loyalty, better margins and value). By now, most economy-weary consumers have tried private label products and realize that an industry-wide shift has happened. Consumers now perceive that private label products deliver as good—in some cases, even better—quality than national brands at more affordable prices. Private label goods are usually priced 20% or more below the market leader, and Private Label Manufacturing Association research reveals that American shoppers consistently save about 35% off their grocery bill by choosing store brands over national brands—chalking up some $32 billion in annual savings.
From packaged foods in the grocery aisle to fashion-forward apparel labels to panoramic dedicated brands like Martha Stewart housewares, private label products are not only here to stay, they are often positioned to prevail.
For the private label manufacturer, especially the mid-size player, this opportunity comes with a “big manufacturer” challenge: more total SKUs, with lower production volume per SKU, is a recipe for inefficiency, inaccuracy, and expensive, reactive decision-making. Maintaining service levels on brands that directly shape a retailer’s core reputation requires the crucial disciplines of demand planning, multi echelon inventory optimization, manufacturing planning, and replenishment planning (perhaps with vendor-managed inventory).

This paper looks at what private label manufacturers can do to become more effective and organized than the “big boys...”


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