Catching up on Private Label Trends

In January, I predicted that private labels will do well in 2008. (See Private Labels Will Boom in '08.) Here are six recent news items showing that my growth prediction and the findings from Facing the Forces of Change®: Lead the Way in the Supply Chain are still on track.

1) HD Supply announced the launch of two new “proprietary” (a.k.a. private label) brands called Seasons and Brigade. According to a HD Supply press release: “The Seasons brand will be carried on products such as kitchen and bath fixtures and ceiling fans, ultimately used by consumers, while Brigade will be carried on heavy duty products, such as tools and hardware, ultimately used by professional contractors and trades people on the job.”

2) Industrial Distribution’s The State of Private Labeling in Distribution looks at developments at W.W. Grainger (NYSE:GWW), Wurth Industries, and IDC-USA. But don’t get confused by whether a distributor’s brand is called a “private label” or something else. Whether the distributor creates a brand or simply offers a non-branded product, the customer is buying the distributor’s brand rather than buying the national manufacturer’s brand.

3) Modern Distribution Management has a fascinating interview with United Stationers (NASDAQ:USTR) CEO Dick Gochnauer, who describes his company’s private label strategy. Quick quote: “You can’t avoid addressing a need the end user has. They are demanding some options in private label, and if you don’t fulfill it someone else will.”

4) A recent post by David Gordon and Allen Ray on their Electrical Trends blog are hearing that “a number of large, European-influenced companies continue to develop their product offerings.” You’ll hear more from David and Allen in the forthcoming Outlook 2009 report in October.

5) The Wall Street Journal recently noted that consumers are also shifting to private label / store-brand products due to the economic slowdown. (See Private-Label Goods Make Gains in Tough Economy.) Consistent with previous research, one analyst notes that private label brands takes share from second-tier brands more than the market share leaders.

6) According to Jason Busch at Spend Matters, his informal conversations with sourcing professionals who work for retailers in various segments of the market (e.g., food, general merchandise, electronics, etc.) indicate that private label goods are picking up steam.

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Feel free to drop me a line or comment on the blog if you want to share your own company’s experiences.

Private Labels Will Boom in '08

I project that 2008 will be a banner year for private labels in wholesale distribution. Growth will be driven by customer demands for lower-cost alternatives in a weakening economic environment. I also see a number of compelling reasons why the U.S. dollar's fall (shown on the right) will not necessarily stop import-led private label growth.

Trading Down

As I document in Facing the Forces of Change®: Lead the Way in the Supply Chain, roughly four out of ten distributors sell some kind of a private label product.

As customers start to feel more economic pressure, they often trade down to private labels. This pattern is playing out right now for consumer products, where private label sales for 10 household and personal care products grew by 21% in the second half of 2007 although overall industry sales were only up 1 to 2 percent. (See Even Package Goods Not Immune in Advertising Age.)

I believe that the same pattern is occurring in business-to-business markets. Customers may be more receptive than ever to moving away from a national brand in categories where the manufacturer's brand does not add enough value to the customer. (See Brand Killers.)

Dollar Devaluation

The flipside to this story is the value of the dollar. The trade weighted value of the U.S. dollar has fallen by more than 25% relative to other currencies since 2002, leading to a boom in exports from the U.S. (See slide 20 of my 2008 Economic Outlook presentation and the audio discussion for how savvy distributors can benefit from the export trend.)

Since almost 60 percent of wholesaler-distributors with private labels source their product from an overseas plant, we might expect the cost advantage between private labels and imports will narrow as the dollar depreciates and imports become more expensive.

However, there are at least four reasons why a currency-related increase in private label imports will not necessarily get passed on to customers.

1) China is the most important source of imported products for wholesaler-distributors with private labels. However, the yuan has appreciated much less against the dollar than other currencies since China stopped pegging the yuan’s value to the dollar in July 2005. (That said, the Chinese yuan has still risen ~14% against the dollar.)

2) Many so-called “US manufacturers” actually outsource production to China, too. So dollar depreciation is being felt by both private labels and the “national” brands.

3) Customers will only see a portion of the cost increase because most distributors will not want to pass on substantial cost increases in a weak economy. Historically, less than one-quarter of currency depreciation gets passed through as higher prices for imports.

4) It's unlikely that the dollar's record drop in 2007 will continue. (See Weak Dollar Might Change Course.)

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My bottom line: I see private label strategies accelerating as the economy weakens. Wholesaler-distributors will be able to stabilize or improve their margins with private labels even as economic conditions worsen, if appropriate for their business and done with selected product categories for the right customers.

Distribution Trends: 2007 Year in Review

Believe it or not, it’s time for my final post for 2007. In the spirit of the season, I take a quick look back at this year’s posts to highlight the major themes of Distribution Trends.

As you may know, I started writing this blog to help people get the most out of Facing the Forces of Change®: Lead the Way in the Supply Chain, a research study sponsored by the NAW Institute for Distribution Excellence. Many posts have been organized around the four major trends identified in the report, although other themes – economic trends and consolidation activity – generated very high levels of readership, too.

Here is a brief rundown of the year’s posts.

Trend 1: Private Label Products – The impact of private labels on channel relationships turned out to be an especially controversial topic. As I discussed in Brand Killers, private labels will continue to grow in categories where the manufacturer's brand does not add enough value to the customer. The debate in the electrical industry was particularly open because Graybar took a public stance against private labels. (See Private Label Static from Electrical Products.) I still think that private label products can be a way to strengthen manufacturer-distributor relationships by enabling the creation of jointly developed products.

Many private label products come from Asia, a fact that hit home over the summer with the recall of Chinese toys. Personally, I believe that The Risks of Chinese Sourcing have been overblown for political reasons, although private labels offer both Opportunity and Risk to a wholesaler-distributor. Perhaps we will even see a counter-trend toward Near-Shoring Private Labels from Canada and Mexico.

Trend 2: Demand-Driven Channels – The trend toward more data sharing between channel partners challenges many preconceptions about the wholesale distribution industry. I highlighted examples on the blog in channels as diverse as construction equipment and beer distribution. (I do not recommend combining the products from those industries!) Nevertheless, I believe that wholesaler-distributors should only share point-of-sale data with supplier organizations that have rigorous internal security policies for data management. (See Trust and Channel Data Sharing.)

Trend 3: New Profit Models – As I point out in Chapter Three of Lead the Way, many wholesaler-distributors are now successfully selling fee-based services and positioning themselves as suppliers of products with related services instead of only reliably providing goods. I highlighted examples from electronics distribution and industrial distribution. The new profit models trend also refers to the fact channel compensation is becoming more data-based and performance-oriented, as examples from John Deere and Coca-Cola demonstrated. I was also impressed with pay-for-performance forecasting in the beer industry.

Trend 4: Connected Customers – This trend was perfect for a blog because it refers to the growing interconnectedness of manufacturers, customers, and distributors. I advised wholesaler-distributors to Be Found Online, pay attention to Online Customer Communities, and recognize the power of Leads Searching for You. The Future is Already Here was one of the top posts this year on Distribution Trends.

Other Trends – Loyal readers know that I’ve strayed beyond the confines of the four major trends to look at other major issues.

My most popular posts (based on number of web hits) were analyses of economic trends, especially 2008 Economic Growth and You and 2007 Growth and the 2008 Economic Outlook.

As always, consolidation was a hot topic, especially as we all watched the twists and turns of HD Supply this year in Is M&A Peaking? (June), The Fallout from HD Supply (September), and HD Supply Begins to Unroll-Up (December).

Two posts on strategic planning also had very high readership. In Why Strategy Matters, I reminded wholesale distribution executives to pay attention to long-term economic trends when building a long-term vision for your company. In Building Future Leaders, I described how one CEO uses Facing the Forces of Change®: Lead the Way in the Supply Chain as a leadership development tool for managers.

What’s ahead for 2008?

I'm grateful for the positive response to this blog and very much appreciate the many positive emails and comments that I have received since launching 8 months ago.

As I told you in my 2008 Wholesale Distribution Economic Outlook, many wholesaler-distributors will face the toughest economy in nearly five years. Therefore, I plan to cover broader macro-economic developments throughout 2008 while continuing to interpret the news for wholesale distribution executives and their suppliers. Please feel free to email me if you have suggestions for topics or articles.

I'll wrap-up the year with some homegrown supply chain humor, straight from the pages of The Wall Street Jovial:

Santa's Supply Chain Keeps Pace, Despite Changes

I will be back during the week of January 8. Until then, I wish you a healthly and happy new year!

All the best,
Adam

Finding Chinese Suppliers

I’ve been on the road for the past 6 weeks talking about my new Facing the Forces of Change®: Lead the Way in the Supply Chain book. It’s been a lot of fun for me, especially when I get questions from people who’ve been reading my books and articles for years – and even a few who have checked out this blog!

Over the next few weeks, I want to address some of the common questions that I hearing. Today I’ll address the controversial practice of global sourcing for private label products. The other controversial topic has been data sharing between wholesaler-distributors and their suppliers, which I’ll discuss week.

I have been surprised at how many wholesale distribution executives are looking into sourcing their own private label products. Apparently, many people still see opportunity among the risks.
A common question: How do I find a reliable supplier of private label products?

To be honest, I am not an expert in locating or evaluating potential suppliers. So check out How the Internet Changed Sourcing, an Industry Week article suggesting that U.S.-based buyers can now quickly generate a short list of potential suppliers using the Internet.

The author mentions three sites to look online for Chinese suppliers:

Alibaba

Made in China

Global Sources

While I can’t vouch for these sites, you should certainly look around on these sites as they are a fascinating peek into the world of global commerce. FYI, Alibaba is about to conduct the largest IPO (initial public offering) ever by a Chinese technology company. (See Alibaba.com Plans Up To US$1.33B HK IPO.) Yahoo owns 39% of Alibaba’s parent company.

Can anyone suggest any other good resources?

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P.S. Keep in mind that the falling dollar will reduce the attractiveness of Chinese imports while making American exports more attractive. Martin Feldstein, who chaired the Council of Economic Advisers under President Reagan, argues that the dollar’s fall will be good news for American competitiveness. (The article is quite unambiguous: A more competitive dollar is good for America.) Just one more unpredictable dynamic to monitor!

Reinventing Industrial Distribution

Industrial Distribution just released its 61st Annual Survey of Distributor Operations. I wrote the Overview again this year, which you can access for free. You’ll have to pay for the full report, but it’s a worthwhile investment if you want to really understand this sector of wholesale distribution.

In reviewing the survey data, I was once again struck by the ingenious ways in which many industrial distributors are evolving to stay relevant in a shifting marketplace. I cover the industrial market in Chapter 7 of Facing the Forces of Change®: Lead the Way in the Supply Chain, so it was interesting to see some themes from my NAW report appear in the more granular results from the 61st Survey.

• One out of four industrial distributors is currently private-labeling products manufactured outside of the U.S., including 18 percent of distributors with revenues below $10 million.


• Many—but not all—industrial distributors are charging fees for their services rather than merely giving away “value added” and hoping to recoup the costs with product margins. Notable fee-based services mentioned by survey respondents include accelerated delivery time, set-up/ installation, and fabrication.
  
• Smaller distributors are more aggressively using the Internet to level the playing field when competing for new sales opportunities with larger competitors.

There are many other important trends covered in this study. I found the report to be especially helpful in understanding detailed responses by major product category as well as distributor size.

Hmmm, 2007 minus 61 equals 1946. I guess the survey is now officially a Baby Boomer!

Chinese Culture and Product Recalls

I’ve been writing about risks of chinese sourcing as it relates to the private label trend in Facing the Forces of Change®: Lead the Way in the Supply Chain. But to be honest, I don’t fully understand the cultural gap between the U.S. and China.

So, I invited guest blogger Dr. Benjamin Olshin of S2R to provide some cross-cultural business insight for Distribution Trends readers. Dr. Olshin is an expert on international geopolitics and its impact on management. He has conducted research and advised executives all over the world. Check out HinterNet, his just-launched blog in which he will be examining the business impacts of foreign policy, international affairs, and culture. Dr. Olshin is a fantastic speaker and educator, so please send him an email if you want to know more.

Adam
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The Link between Chinese Culture and Product Recalls
by Benjamin B. Olshin, Ph.D.

Pet food, toothpaste, and now toys — tainted products coming out of China are not only making American consumers nervous, but there are reverberations back home, too…It’s even led to safety talks between China and the U.S.

The recent tragedies do not foretell of a change in Chinese practices, at least not in the short term, despite a CCTV report today that China’s Head of the General Administration of Quality Supervision, Inspection, and Quarantine is moving to improve the product quality of Chinese exports. A quick check of the site of China’s official news agency, Xinhua today barely revealed a mention of the problem. So, it’s no time for rejoicing.

Americans don’t quite understand where these scandalous manufacturing practices come from — that is, why do the Chinese do this kind of thing? — and why they’ll be more such scandals in the future.

Singapore and Taiwan are exporters of products that are considered of the highest quality. As I see it, two important cultural factors explain why the mainland Chinese manufacturers have been engaging in these dangerous practices.

One factor is expediency. In greatly simplified terms, the Chinese are pragmatic and are less concerned with abstract principles — and those principles include manufacturing standards. Expediency means cranking out products as quickly and cheaply as possible. In the Chinese mind, the negative consequences of such practices can always be dealt with later. Pragmatism means that to the Chinese those consequences, in fact, don’t really exist at the present time.

Closely connected with this principle of expediency is the Chinese expression, cha bu duo jiu hao le, translated as “so-so is good enough”. Unfortunately, in China this expression sometimes becomes a manufacturing principle.

The second factor behind these scandals of low-quality, tainted goods is much more complicated, so I’ll just give the short version here: China never had an Industrial Revolution. The West’s move into mass manufacturing was a long process by which technology, standards and ethics developed over two centuries.

Sure, places like Japan took a shortcut on the road to industrialization, but they also consciously imported Western models of management, not just the technology. Taiwan based its industrial model to a great extent on the Japanese model, and Singapore had the influence of both the Japanese model and the British. But even Taiwan has had some bumps on the road to quality manufacturing, and you can check out a critique I wrote back in 1996 on this subject, entitled “Teaching Concepts of Quality,” available on my website and on my blog. Mainland China started most of its major industrialization in the Communist era, when the emphasis was much more on beating the West than on quality or safety.

Nowadays, the emphasis is no longer ideological — it’s monetary — but the bad habits remain the same.

Opportunity and Risk

Albert Einstein once said: "In the middle of difficulity lies opportunity." Keep that quote in mind while you read three interesting new articles on the controversial private label trend.

#1: Are Brands Dead?

This article provides a succinct overview of the new book Private Label Strategy, which I highly recommend. Here’s my interpretation on their advice to distribution intermediaries about when private labels add value:

• In a category that is dominated by one or two brands, with little price competition. See the following quote on page 25 of Lead the Way in the Supply Chain: “Large manufacturers have relabeled generic accessory products for many years, thus capturing extraordinary gross margins from accessory sales. We sell what are, in essence, the exact same things more economically.”
  
• When the wholesaler-distributors can obtain a dramatically lower priced product by re-engineering the value chain. Global sourcing is the most prominent example of this reengineering. China has emerged as the most important source of imported products for wholesaler-distributors with private labels.


• Introducing new products and concepts that are not offered by brand manufacturers. For example, the case study on page 28 of Lead the Way in the Supply Chain discusses how Arbill Safety Products offers a better quality product in selected product lines than the manufacturer-branded products on the market.

#2: Opportunity is Not Without Risk

The NAW released this superb summary of the product liability issues associated with private label products. As the brief points out, it may be difficult for a wholesaler-distributor to involve a foreign supplier as a co-defendant in any litigation, especially if the foreign company has no legal presence in the U.S. All wholesale distribution executives should discuss this article with their own company’s attorneys to understand the issues.

#3: Head of China toy company kills self

I'm sad to report that the risks of chinese sourcing can also have a personal impact. The head of a Chinese manufacturer whose lead-tainted Sesame Street toys were the center of a massive U.S. recall reportedly killed himself. (Hat tip to Spend Matters.)

The Risks of Chinese Sourcing

A few people have emailed recently to ask if I am rethinking private labels and Chinese sourcing in light of recent product quality problems.

My short answer: no. Most of the problems have occurred in food and drugs, although problems in some finished manufactured products have appeared such as the infamous Chinese tire recall. Many people are too quick to throw out overseas sourcing for political reasons. Nonetheless, wholesaler-distributors will have to pay close attention to their sourcing partners or risk future liabilities.

Food, Drugs, and Tires

As I point out in Chapter One of Facing the Forces of Change®: Lead the Way in the Supply Chain, China has emerged as the most important source of imported products for wholesaler-distributors with private labels. Almost 60 percent of wholesaler-distributors with private labels currently source their private label product from an overseas plant. By 2012, more than 80% of these companies expect to be sourcing overseas. (See Exhibit 1-2 ).

At least one distributor’s private label brand got caught up in the recall of tainted toothpaste. According to the New York Times, McKesson, the largest pharmaceutical distributor, recalled its McKesson EverFRESH brand after laboratory tests found small amounts of diethylene glycol.

The Wall Street Journal has a done some nice summary articles on the problems. Two highlights:

• Are Chinese Export Products Unsafe? “In a span of 15 years, China has gone from a country that struggled to feed its population to a major food exporter. … While China has adopted stringent safety regulations, those have been poorly enforced, if at all.”
  
• Safety Becomes a Hot Trade Issue “Safety and quality standards are increasingly replacing tariffs and quotas as focal points for international trade disputes.”

The second article highlights the analytical challenge -- it's difficult to distinguish genuine safety issues from protectionist rhetoric.

Safe Sourcing

For a different point of view, read What's Going on With China Quality (if Anything)? This ex-Ariba blogger quotes one of his former colleagues as saying: “Companies that source raw materials and manufactured goods throughout the globe need to have sound supply chain practices in place to insure that quality levels are maintained.”

The story of Chinese tire importer Foreign Tire Sales shows what happens when you cut corners. (See Made in China: Faulty Tires.) Keep in mind that FTS sold its products to distributors.

Interestingly, Andrew Berlin of Berlin Packaging echoes the value of knowing your foreign suppliers in this recent interview with Modern Distribution Management, which said:

Still, even with the advent of Internet, "nothing beats walking the factory floors and doing the audits and meeting the principals of these organizations. There’s no shortcut for the hard work that goes into finding these factories." Taking the extra time to find reliable factories will mitigate some of your risks. And as with any investment, sourcing from overseas requires the hedging of bets.

You should also read through Andrew’s presentation slides from the NAW Executive Summit for further insights on protecting your business with sound importing practices.

Private Label Static from Electrical Products

The growth of private label brands is the very first major trend that I present in the new Facing the Forces of Change®: Lead the Way in the Supply Chain report. The electrical industry shows just how controversial and disruptive this trend will be for wholesale distribution channels.

The Distributors' View

Private labels are less common in electrical wholesaling than other wholesale distribution industries. Our research found that 43% wholesaler-distributors currently sell their own private label products using the entire wholesale distribution industry sample from Lead the Way.

In contrast, our study discovered that only 14% of electrical wholesalers offer a private label. One well-known example is Rexel, which offers private label fasteners, exit signs, and emergency lighting fixtures. (Rexel is now #2 on Industrial Distribution’s just-published list of electrical distributors.) About one-third of electrical wholesalers will offer private label products by 2012.

However, not all electrical wholesalers support private labels. Last month, Bob Reynolds, Chairman, President, and CEO of Graybar Electric, boldly announced that Graybar would not offer private labels. (See Graybar Takes a Stand Against Private Labeling.) Graybar is #6 on ID’s electrical distributor list, so Graybar’s announcement shows just how important this issue has become.

The Customers' View

Contractor preferences are a major barrier to private labels faced by electrical wholesalers. Some contractors use premium brands to communicate the quality and reliability of their services to their customers, thereby increasing the importance of carrying high-quality national brands. Product liability issues also limit the willingness of wholesalers to enter certain categories.

Electrical Wholesaling has been running an excellent multi-part series on the private label trend. In the May issue, David Gordon and Allen Ray provide some data from a survey of 600 contractors in Customers Speak Out on the Industry's Five-Ton Elephant. Some key findings:

• Almost 20 percent of the end-user respondents said they know at least one distributor selling private-label products.
• In some categories, contractors are “brand apathetic” – the customer will accept any manufacturer’s brand or a distributor’s own brand. The product categories with the greatest apathy scores were cable ties, fasteners, chemicals & lubricants, and metal fittings.
• Brand preference is alive and well for mission-critical electrified products such as breakers, switchgear, and controls.

These results match up well with the six questions for assessing private label potential on page 27 of Lead the Way in the Supply Chain.

Channel Conflict

As I point out in Brand Killers, private labels will continue to grow in categories where the manufacturer's brand does not add enough value to the customer. Sometimes, private labels can even strengthen channel relationships.

But make no mistake – suppliers and their distributors will be battling over private labels. Private label brands shift the balance of power away from manufacturers and toward customers.

For consumers, private label brands are moving out of groceries into higher-profit categories such as clothing. The losers have been manufacturers of mid-range brands lacking either consumer loyalty or the lowest costs. (See Private Lines from The Economist for more on this dynamic.)

EW editor Jim Lucy, quoting noted management theorist Paul Simon, advises manufacturers to keep innovating so that their brand equity doesn’t start slip slidin’ away. Good advice for manufacturers who also don’t want their distributors to start singing “50 ways to leave your supplier.”

Near-Shoring Private Labels

I am on the road almost non-stop this month talking with distributors and manufacturers about the new Facing the Forces of Change®: Lead the Way in the Supply Chain report, giving me real-time insight into how executives are responding and interpreting the results.

Discordant Trends?

Here’s a really thoughtful question that I got recently: “Doesn’t the Private Label trend counteract the Demand-Driven Channels trend?”

The short answer: Maybe. (I said it was a thoughtful question, not an easy one!)

The Demand-Driven Channels trend describes how to build a lean supply chain and reduce inventories through closer relationships with suppliers. In contrast, the Private Label trend describes how wholesaler-distributors are taking over more functions and risks from suppliers.

I mention this trade-off very briefly on page 29 of Lead the Way in the Supply Chain when I write: “Geographic distance makes planning more difficult because lead times are much longer and more uncertain, thereby inflating inventories in the supply chain. Ironically, global sourcing strategies by wholesaler-distributors represent a trend opposed to the demand-driven channel trend.”

Demand-Driven Private Labels

To better understand this trade-off, I suggest that you check out a very useful article called Revisiting LCCS in a Demand-Driven World from the new Supply Chain Management Review.

(In case you are wondering, LCCS stands for “low-cost country sourcing.” Hey, it wouldn’t be a real supply chain article without some MUFLAs -- Made-Up Four Letter Acronyms!)

As I note in Chapter One of Lead the Way, the lower costs and ready availability of overseas sourcing opportunities makes it easier for wholesaler-distributors to get their own private label products manufactured. Nearly 2/3 of distributors with private labels are using LCCS from an overseas plant.

However, the article advocates a reevaluation of “near-shoring,” such as sourcing in Mexico for goods destined for the U.S. and Canadian markets. Key points:

• “While offshoring provides clear reductions in the product cost, the associated overhead and processes required don’t always sustain the value.”
• “Near shoring may not yield production costs as low as the offshoring sites, but it can provide less cost and process fluctuation in the value chain.”
• “Companies that have products with variable demand, require low inventory, have bulky but labor-intensive products, and require significant buyer-led supplier development or engineering support are good candidates for the near-shoring option.”

Read this article to better understand the supply chain burdens of a longer inbound supply chain.

Brand Killers

Four years ago, Fortune magazine ran a cover story called Brand Killers that told how private label retail brands "scared the pants off" consumer goods makers. Over the past few months, I've been talking with manufacturers in business markets who are getting worried about the growth of B2B private label brands.

Here's a good example: Stanley Works (NYSE:SWK) announced a few weeks ago that Home Depot would be replacing its branded padlocks and latches with products from Crown Bolt, a manufacturer that Home Depot acquired last year and is now part of HD Supply. (Full article: Home Depot, Stanley hardware part ways)

Wholesaler-branded products are now expanding rapidly in B2B supply chains. For example, my research for the new Facing the Forces of Change® report found that almost one-half of maintenance, repair, and operations (MRO) supplies distributors and nearly two-thirds of original equipment manufacturer (OEM) distributors currently offer private label products. (See page 133 for the specific data.)

These data point to an uncomfortable new reality -- private labels will continue to grow in categories where the manufacturer's brand does not add enough value to the customer. As in consumer markets, products are becoming increasingly commoditized as supply chain customers shop for the low-cost sourcing alternatives. Distributors have recognized the opportunity to provide these products and help customers with sourcing, instead of only acting as a sales channel for branded manufacturers.

I'll follow-up on manufacturer strategies in a future post, but don't be surprised if you see more conflict due to private label brands in the future. In the meantime, check out Private Label Strategy, a new book that analyzes strategy in consumer markets from both the manufacturer and retailer perspectives. (I'll post a review in a week or two.)

FOLLOW-UP ITEMS

• You can now order the new 2007 NAW Economic Reports, which I referenced in Measuring the Growth Gap

• Friday's NAW SmartBrief had a good article on Avnet's fee-for-service logistics business, which I discussed in Capturing New Profits from Services.

• Check out Forbes publisher Rich Karlgaard's editorial about how one airplane manufacturer benefits from the positive -- and sometimes negative -- customer discussion on its online community. (I highlighted Online Customer Communities last week.)

Can private labels strengthen channel links?

On the very first page of Facing the Forces of Change®: Lead the Way in the Supply Chain, I write about executives who “…position their companies to lead the supply chain by combining an understanding of their customers’ purchasing priorities with a realistic perspective on their best suppliers’ business requirements.”

Industrial Distribution’s February issue has a super example in Kimball Midwest, a company that is putting this philosophy into practice. (See Going public about private labeling.) Curt Campagna, Kimball Midwest's director of marketing, says:

“We want to differentiate ourselves, so we try to work with manufacturers, using our expertise and their expertise, to come up with not just a generic product, but one that is better than the standard. By doing so, we help solve specific customer problems and reduce their overall costs."

Well said!

Read the whole article and you’ll also see how private labels can be a way to strengthen relationships with suppliers, an intriguing counterpoint to my discussion of strained relationships in Chapter One (p. 26).

Kimball is consciously collaborating with its manufacturer-suppliers “... to try to come up with a more effective product than the manufacturers would be able to make on their own and market to a broader customer base.” Andrew Berlin of Berlin Packaging also highlighted the potential collaboration opportunity in his fascinating talk at NAW's Executive Summit in January.

I'm very intrigued by this "man bites dog" angle on private label products. Anyone out there have a similar story in which a private label strategy led to greater collaboration between a manufacturer and a distributor?