Category Archives: Miscellaneous

Have Low Cost Brands Priced Themselves Out of the Supply Chain?

A recent article over on World Trade Magazine that describes “a new spin on just in time” describes the impact of SKU proliferation on supply chains and how many distributors and 3PLs now have to deal with replenishment requests from retailers that are less-than-pallet or less-than-case. As a result of name brand and private-label brand proliferation across many categories of consumer goods, there are now more products competing for the same shelf space and retailers are carrying less stock of each item and issuing more frequent replenishment requests for fast-selling items.

The article also notes that, as a result of the recession and a (dramatic) increase in quality in private label brands, we’re seeing consumers move from premium brands to what might be appropriately called, more mainstream products, and staying there. This means that private label brand sales are steadily increasing at the expense of name brands of similar quality that have gone from being the low-cost option to the more expensive option. At some point, a tipping point will be reached and the name brand product will disappear from the shelf.

Think about it logically. As sales of a certain brand increase, that brand becomes a top-seller and an important contributor to the store’s bottom line in that category. Priority will be placed on the brand to minimize the risks of stock-out and to find ways to decrease the cost to maintain the increasing sales trend. In-stock thresholds will be bumped up and order quantities will increase, decreasing the amount of storage available, and in-stock thresholds for, the low-cost name brands. At some point, the replenishment cost for the low-cost name brand, which will always be less-than-pallet and/or less-than-case will become prohibitive, as it will increase the product’s cost (in contrast to the decreasing cost of the private-label brand which now has sufficient volume to be replenished economically), and the sales will start to drop substantially relative to the private-label brand. At this point, the retailer will just drop the low-cost name brand, knowing it will be able to make up most of the sales in its own private-label brand. It’s been happening for years.

Here in Canada, President’s Choice, the private-label brand of Superstore (owned by Loblaws Inc, which is a top 2 or top 3 grocery retailer in most Canadian provinces), has been bumping low-cost name-brand alternatives off of the shelves for years. For many types of products, your only choice now is private-label or considerably more expensive name brand. And since PC products are often as good as the similarly priced low-cost name brands, or no-name brands, if not better, no one cares. (In some categories, you literally have to pay twice as much for a premium brand to find something better.) In the US, Target is a prime example. They have their own housewares and clothing lines, and they are often better than many of the more expensive name brands. As a result, many stores typically only carry the Target brands or the (considerably) more expensive premium brands.

In other words, it seems that the low-cost brands, that launched big in the 80’s, have now priced themselves out of business as the big-retailers now individually account for enough demand that they can not only cut production and distribution costs, but marketing costs as well. As that can typically shave another 10% off of the product price, it looks like the days for are numbered for many of these brands. I wonder if ABC(c) knew when it introduced its now-classic Why Pay More campaign in the late 80’s (in Canada) that it was the beginning of the end. Less than 20 years later, it would be dumped by Colgate-Palmolive to Phoenix Brands where it continued its slide into brand obscurity.

Any differing opinions?

Are You Really a Futurist if You Predict a Future That’s Already Here?

I found a recent article over on SupplyChainBrain on Five Fearless Visions of the Future very entertaining, and not just because I found a few of the predictions to be out of left field, but because some were not really predictions at all … as the predictions were simply describing the current state of affairs.

Consider the following:

  • The cloud is upon us.
    The “cloud” has been hovering over us for a few years now. There’s been a strong movement to SaaS for the last five years. When even companies like Ariba buy SaaS players and start converting all their legacy systems to SaaS, you know its time has come.
  • Companies that blindly outsourced their manufacturing to Asia will start bringing some of that capability back to the U.S.
    Already happening. I’ve been reading articles all year about companies that are pulling manufacturing back to North America, and not just Mexico. Area Development had a good article back in January. Yes, there are still more companies on the outsourcing bandwagon than off it, but it’s already started. Outsourcing will continue, but not for items with high shipment costs or low production costs where it makes more sense to produce them locally. Also, we’ll start to see more service outsourcing. With goods, you have to deal with ever-increasing shipment costs, but with services, it’s just the cost of the pipe that carries the bandwidth.
  • We are in the midst of a transition to electronic software delivery.
    This was my favourite as you’d pretty much have to be Rip Van Winkle to come up with this one. When was the last time you bought software that came in a box? That wasn’t out-dated the minute the CD was burnt? If this were 2000, it would almost be timely. But this is 2010!

When you get right down to it, the only good prediction that wasn’t either already happen or mostly obvious to anyone knee-deep in supply chain was Jim Miller’s (of Google) prediction that Fifteen years from now, the world will realize that China is not the juggernaut that we make [it] out to be. The nation faces a number of systemic problems, including the prospect of the mother of all real estate bubbles. Here, here! They won’t be #1 GDP for another 2 decades, and then they’re going to have to face all the problems the US has faced since WWII. They’ll always be a major player, but they won’t be the only one.

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HBR’s Advice on Getting Your Idea Approved

As per the eSourcingWiki article on “The Quest for Purchasing Fire”, it can be tough to get your idea approved. That’s why you need to take the advice of the experts from time to time, and this recent post over on the HBR Blogs on “How to Get Your Idea Approved” is a great start. Especially the second step of:

Prepare, Prepare, Prepare

As Michael Norton says, “when you watch someone stumble through an answer, you make an inference that they don’t know what they’re talking about“, so if you stumble through an answer, you can expect that your audience will think that your idea is half-baked, which will greatly reduce your chances of getting it approved. A major key to success is to identify the potential concerns of your audience up front and then prepare concise, honest answers to their challenges that you can deliver with confidence. Even if they don’t buy in, they’ll be a lot less likely to fight your idea. And then, you need to:

Keep it Simple

As Norton says, the curse of a presentation is that you know much more than your audience about the topic, but you have to avoid overwhelming your audience when you present the idea. You need to focus on the main points, which should be presented in the language of your audience, so that your audience will grasp the benefits quickly, and avoid tangential wanderings into secondary points unless they come up in the course of Q&A. And even then, you have to keep your answers concise. (Only go into the full details in the full written proposal, and only give it to those who ask. Provide everyone else with short executive summaries.) Finally, it’s important to:

Maintain Alliances

While its important to form alliances early, it’s also equally important to maintain those alliances. You’d be surprised how fast those alliances could go up in a puff of smoke if you don’t maintain your connections, keep them apprised of what is going on, continually address their concerns, and, of course, socialize.

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