May 2, 2008, 12:00 AM

Power Products

(Page 2 of 2)

Increasing margins

The central application also supports collaboration among the retailer’s marketing, merchandisers and logistics managers as well as suppliers to produce the most efficient packaging for the private label brand while minimizing the costs of producing and shipping packaging, he adds.

Indeed, improving overall profit margins is key to any private label program, experts say. “Incremental margins you can make on a product category can be quite significant if you get sourcing processes right,” says Chris Foulkes, founder and chief product officer of Eqos, a provider of web-based private label management systems. “Private label sourcing is all about going directly to a factory and getting a better margin.”

More retailers are getting into the furniture markets, he adds, where effective sourcing of components-the cross slats that support bed mattresses, finished wood and metal fastener parts, for example, all of which can come from different factories-provide the opportunity to put together a customized yet competitively priced product.

For retailers still operating on non-web-based legacy private label management systems, the decision to move into a web environment can be a tough choice. A big reason is because that old legacy system has probably been customized with special features to support particular operations; another reason often pertains to the comfort level employees have with their existing system.

A global home improvement retailer, who was interviewed for this article but asked to remain anonymous, recently deployed the web-based private label management system from RockBlocks-but only after overcoming a lot of initial doubts, the I.T. manager in charge of the project says.

The retailer decided to go with the web-based RockBlocks system as a means of reducing its I.T. workload. Its former system, a precursor to RockBlocks that had been in place for more than 10 years and was considered an effective means of managing imports, required extensive I.T. time and resources to manage the “fat client” applications that sat on hundreds of users’ desktops.

But with the old system popular with employees as well as the retailer’s executives, the I.T. director was unsure if moving to the web was a good idea, he says. The old system had been heavily customized-for example, it contained a software module designed for collaborating with suppliers to consolidate product shipments, which can be an important way to lower overall costs of a private label program. Additionally, the retailer’s employees were comfortable entering information on things like product designs and purchase orders with a computer keyboard and at first balked at having to use a computer mouse with the new system.

But what started out as a way to streamline I.T. operations led to a more productive private label management program, the retailer says. The RockBlocks system proved effective enough in consolidating shipments, and employees learned the new web interface after a few training sessions.

More important, the system provides for more efficient management of vendor compliance reviews to keep the right products arriving on time in distribution centers. Patio furniture, a hot item for spring, for example, may include parts sourced from multiple vendors, but if one of the vendors fails to meet its planned production, it can throw off the entire line, the manager says. The key thing is for the retailer to learn as early as possible of any expected interruption so it can find a substitute vendor or change its merchandising and marketing plans. “When you have a three-month turnaround to get ordered products in time for the spring season, it’s no good if you find out about a problem the day a product is supposed to be in your distribution center,” he says.

No more phone calls

The cost to deploy RockBlocks on a company’s own web servers starts at about $500,000 and can range up to about $5 million based on the number of users, the amount of products a company has and the number servers running the software, according to RockBlocks CEO David Diamond.

RockBlocks introduced an on-demand version of its software late last year, though it hadn’t announced any clients when interviewed for this article. The vendor also declines to reveal the on-demand subscription cost, but said it was designed to accommodate companies as small as $10 million in annual revenue.

Under the home improvement retailer’s old system, which relied on manual processes of making phone calls and processing paper invoices, problems with vendors would often go unnoticed until an incomplete delivery arrived. But with multiple vendors routinely updating the central RockBlocks application to share browser-accessed information with retail managers, the retailer can often react to any interruptions early enough to make changes, the retailer’s I.T. manager says.

Just as important is the ability to better manage vendor compliance with the retailer’s specifications and production goals, he adds. Having a central database accessible by multiple retail managers as well as vendors enables the retailer to make faster decisions on whether to keep vendors and renew their contracts.

And because the I.T. staff doesn’t have to spend as much time maintaining and updating fat-client software on individual computers-it saves about 30 staff hours or more per week with the web-based RockBlocks system-the staff now can spend more time helping merchandise managers enter new vendors and merchandise into the retailer’s product databases.

When it comes to running successful private label programs, Rosenblum says, it’s crucial to be able to quickly update them with fresh products and sources that meet their standards of quality and the ability to deliver on time.

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