November 1, 2010, 12:00 AM

Bridging the Great Divide

Retailers rely on the web to ease communication with faraway suppliers of private-label goods.

Lead Photo

One legacy of the Great Recession has been retailers producing and selling more private-label products. The number of retailers that say at least half of the merchandise they sell carries their own label has risen 31% since 2008, from 42% to 55%, according to a Retail Systems Research LLC survey.

That trend is unlikely to subside, as 90% of retail executives expect market share for private-label products to increase by 2012, according to a survey by consulting and accounting firm Deloitte LLP. Behind the growth are the larger profit margins that private-label products offer retailers, says Paula Rosenblum, RSR managing partner.

But the growing role of retailer-branded products means that retailers are under more pressure to efficiently manage their private-label programs, which isn't easy, Rosenblum says. "The real challenge is getting products to market," she says. "The pace of change is stunning in a variety of categories from fashion to computers and electronics. That means that if you're sourcing from far away you have to be able to be responsive."

Being able to design and produce private-label goods quickly in response to changing market demand requires retailers to ensure that the factories manufacturing their private-label products—which increasingly are in Asia—have the right mix of materials at the right time so that goods arrive in time for seasonal rollouts and promotions. Responding to demand, vendors have introduced an array of web-based product cycle management systems that allow retailers to oversee each step of the production process—from product design to manufacturing to shipping.

A consistent message

Managing a private-label program requires retailers to manage myriad moving parts, says Rosenblum. That includes working with a variety of vendors and overseeing the procurement of raw materials, development and pre-production processes, manufacturing, post-production and shipping.

For each private-label product, retailers often must communicate with several vendors. That's where a web-based product cycle management system comes in. Such a system can provide a single gateway where a retailer can inspect each step of the production process. Doing so improves retailers' chances of receiving products on time that meet their expectations, please their customers, and improve the bottom line, says Rosenblum.

Slip-ups could prove costly if the transfer of incorrect or imprecise information leaves a retailer with products that are of poor quality, are defective or even require a safety recall. And, since the retailer's own label is on the product, quality control issues could taint consumers' perceptions of other products sold under the same label, as well as the retailer itself, says Pat Conroy, vice chairman and U.S. consumer products leader at Deloitte. "Even though they're selling a private-label brand, it is their brand that that private-label brand is associated with," he says.

Quality issues often stem from retailers cobbling together too many software applications to monitor the production of the goods they sell under their own labels, says Rosenblum. For instance, 36% of retailers with more than $1 billion in revenue per year use at least three separate applications to design, source, track and verify their inbound private-label merchandise, according to RSR. What's more, rather than use a commercial application designed to oversee the production process, 16% of large retailers rely solely on spreadsheets.

Juggling various vendors

Even if there aren't slip-ups, maintaining several different systems, or relying on spreadsheets, can slow down the production process because the retailer is inputting data more than once, which increases the likelihood of human error. And, if those systems aren't web-based, updates or changes might be lost in the e-mail shuffle.

Navigating that juggling act has been the reality for Probus One Touch, an Internet retailer that sells private-label products through such e-commerce sites as 1MassageStore.com, KillZoneHunting.com and DuraShieldCovers.com. Using a patchwork of systems and spreadsheets has slowed down the retailer's production process so that many products take up to 120 days to get to market, according to George Lee, Probus president. "The system works, but not well," he says. "It requires a lot of coordination from a lot of different people who are all trying to share information."

Because the retailer works with manufacturers in China, resolving issues of miscommunication can be an extremely laborious process. For instance, because the word "gray" doesn't exist in Chinese, the retailer must use extremely technical specifications to communicate the specific color it wants.

The long lead time is a big issue, because demand spikes periodically when one of Probus' two main competitors runs out of product, Lee says. With his current system, rush orders are pretty much ruled out.

To speed up and standardize its process, Probus is transitioning into a three-pronged system using web-based software from SAP AG, Accellos and Valogix LLC designed to improve efficiency and reduce time to market. Doing so will enable all the interested parties to update and see information in real time, and that should speed up the production process, says Lee.

Developments

Key to most of today's web-based systems is their standardization of measurements, colors and other data points across languages, which helps retailers avoid errors and get products to distribution centers and stores on time, say experts.

The gold standard of those systems are single systems that retailers use to track the entire process from retailer to vendor and back, says Sue Welch, CEO of TradeStone Software, a provider of web-based supply chain technology.

"A single system helps retailers establish consistent communications because they're only inputting data once," says Welch. That allows a retailer to have various employees input data into a single system that is accessible to other employees and vendors.

To avoid common issues, such as a manufacturer using the wrong color, TradeStone encourages the retailer to work with a company that specializes in color to input the precise recipe for the exact color it wants. The information that the retailer enters into the web-based system is what the manufacturer uses to produce the goods.

"Standardization is not just about cost, it's also about time," says Welch. "Retailers are competing with national brands and they can't afford to waste time going back and forth about which color they like. They need to be able to adapt to in-market conditions."

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