Unpack the Value Chain

In the Private Brand space, recessionary times create a few more challenges than on the branded side of things. Some people will ask why - as product make up and flow through the system contains pretty much the same pieces. While this is true, national brands often have people assigned to each step of the Value Chain to make sure everything happens as it is supposed to. Too often in Private Brands, this level of detail knowledge is either not available or located in some pretty esoteric places in the organization - and not easily accessible.

I have learned over the years that the successful equation for Private Brands is not often fulfilled - let alone turned loose on the entire Value Chain. What is that equation?

Fascination + Mastery = Passion

Not enough people get fascinated by the details of the Private Brand value chain to dig into the details far enough (or long enough) to achieve Mastery - and this leaves Passion for Private Brands a bit lacking. I can tell you that it was this Fascination that led me to dig into every single step in the Value Chain process - from Concept to Consumer - and that this desire for Mastery in all of these pieces that allowed me and the team I had with me to get an amazing handle on all of the value chain pieces (the visual above is from a speech I gave at PLMA many years ago where we examined each step of the supply chain...examining the Value Chain provides even more insight).

So, as we move through this recessionary period, what pieces of the Value Chain (besides all of them!!!) should you focus on to make sure you are getting to know your products and brands as intimately as possible?

• Crops - do you get regular updates on crops from around the world? Tracking corn, peas and beans in the US and wheat everywhere will provide some good insight into not only directly related products (canned and frozen vegetables) but almost every processed product in your line
• Ingredients - do you track the major ingredients that make up so many of your products? There are markets for each of these (or at least ones that can be used as proxies) that can indicate where you should expect price increases and declines. By the way, refusing price increases is foolish at best - but pushing back with enhanced knowledge on where commodities are going can help reduce how much of an increase you have to absorb
• Packaging - this is a bit of a hidden one as most people do not follow the board/wood market or the resin market to understand what is driving substrate cost. Even fewer people engage in buy points, quantity discounts or figure out the arbitrage opportunity available (with some risk built in) of leveraging total volume in print to create a revenue stream
• Supply Chain (Basic) - how can you reduce costs? Know what options are available through supply chain efficiencies (I would mention SLOG 1 or SLOG 2 but only seasoned professionals or Walmart junkies will remember this...). Know your FOB cost per product (plant direct or mixing warehouse) know your delivery locations and know your purchase frequency - now you can solve for basic supply chain
• Supply Chain (Advanced) - you can wring cost out of the system by understanding your own buying challenges - when buyers are more interested in low inventory than true buying efficiency (balances order patterns with lowest cost brackets to achieve Nirvana)
• Build your own "hedging" capabilities by working with your suppliers to "fix" major commodity costs. This allows you to remove the inefficiency of weekly price changes that get pushed through the system (many of which never get caught or executed - leading to a Vampire situation where you bleed profit due to too many prices changes that go unchanged). As me about how to do this - it is not difficult but does involve some desire to win that goes beyond just a low price
• Financial Drivers - wages, healthcare costs, office space (think of remote vs. office work), other benefits, etc. - all can impact how prices will move. These are more difficult - but knowing some averages will help

There are, of course, many others. Your Value Chain may be unique to your company, geography or category but most run parallel to the normal path for all products. I encourage you to get fascinated by this - especially as the economy improves. The tendency in Private Brands is to ask for and accept cost reductions as prices come down. With the knowledge you will gain if you dig in, you will know earlier than most when to expect reductions (size, speed and duration) - and ask for them intelligently.

I always disliked when my team would simply ask for a cost reduction because a competitor had a better price. Alternatively, I was always impressed when one of them would cite various cost drivers that were shifting that should result in a price decline. This was (and is) the place that defines the line between good and great.

I also had a great time working with suppliers who knew their business better than I did - there were some but not many - and could share their view of where cost drivers were and were going and how we could maximize our benefit from them.

Which side of the line are you on? How can I help you find that line and help you get on the "great" side?

Do you want to build a more sustainable private brand business (and perhaps enhance your total merchandising approach to Private Brands) where you can outpace both the competition and who you were yesterday? Schedule a 30-minute session to explore the possibilities:?https://calendly.com/craigespelien/30-minute-meet_greet