We live in what has been termed a 'VUCA' world – volatile, uncertain, complex & ambiguous – with managing volatility now the number one challenge for grocery sector businesses, followed by the need to maintain competitiveness, a new report has found.
IPLC – International Private Label Consult has undertaken a major study exploring how firms can best position themselves for a business environment continually in flux, beset by inflationary pressures, sourcing challenges, the need for cost savings, and related concerns.
'There have been some very challenging conversations between buyers and manufacturers in the last two years,' the report states. 'Retailers pushed back hard but the inflation challenge was too big to ignore.
'Most suppliers were forced to place a question mark over their ability to supply without appropriate costs increases, and this is when things started to get moving as it was a signal to the buyers that it wasn’t sustainable to continue supplying. Some suppliers even had to resort to ceasing deliveries, which would previously have been considered a nuclear option.'
In researching the report, The Evolving Balance of Power: How private label suppliers and buyers can win through collaboration, IPLC conducted four pieces of research between January and April 2023, which included conducting interviews with 35 private-label suppliers in 10 European markets, as well as collecting data from more than 140 companies.
IPLC's panel of private-label manufacturers identified three focus areas to enable them to deal with inevitable future shocks, which are explored in detail in the report.
The first of these involves diversifying the customer mix. While retailer-supplier relationships have become more collaborative since the pandemic, manufacturers should be fearful of a return to the aggressive negotiation strategies of previous years, as well as downward cost pressure.
To reduce exposure, IPLC suggests, private-label manufacturers should look to diversify their customer base, including contract manufacturing for third party brands.
Elsewhere, IPLC suggests that future success for private-label manufacturers will be underpinned by an effective procurement strategy, which in turn will enable a more effective selling strategy.
For smaller firms, this may require developing a buying strategy that moves beyond the 'buyer/replenishment' role, while for larger companies it may involved more active hedging and quality management. Cross-functional working cultures and commercial skills training will also be key, IPLC adds.
In addition to gathering insights from customers, private label suppliers should invest in understanding the various cost inputs and commodity trackers, IPLC suggests.
Achieving an integration of supplier-facing and customer-facing insights calls for a more ambitious approach through cross-functional project teams, ensuring they can eliminate blind spots, make better business decisions, and enhance business resilience.
New Ways Of Working
As IPLC notes in its report, 'There are major challenges on the horizon. Managing volatility, finding efficiencies, implementing sustainability strategies and retaining talent are some of the biggest. To achieve this ever-demanding balance it will be necessary for suppliers and buyers to collaborate at levels never seen before. End-to-end supply chain visibility, digital transformation and collective problem solving will be the new ways of working.
'This will require trust and commitment which can be enabled by longer term, more transparent deals possibly underpinned by open-book arrangements that remove the conflict and allow everyone to focus on category, supply chain and production innovation.'
You can read the full report here.