Rising costs and lean manufacturing have pressured supply chains in the private brand sector in recent years, forcing retailers and manufacturers to operate in environments of tight margins and battle-tested partnerships. When COVID-19’s impact shifted consumer demand and disrupted supply chains, retailers that had built robust relationships with manufacturers weathered the volatile conditions most effectively and sit best-positioned today to meet post-pandemic challenges.

Distribution and sales numbers support this, according to Nielsen. We looked at a diverse cross-section of U.S. retailers, and in 2020, those with long-term supplier relationships outpaced their competition in terms of product movement on shelf by up to 30%, depending on the category. Even in times of struggling distribution, like in the first three months of 2021, these retailers still earned roughly 20% more dollar growth than the market average.

Looking forward as consumer demand begins to normalize, sturdy relationships between retailers and manufacturers will help both navigate changing dynamics in the private brand sector that the pandemic set into motion or accelerated. They’ll help guide retailers and manufacturers as they address emerging questions related to earnings, inventory, product rationalization and processes.

Working together to improve processes

Even as a strong 2020 pushed earnings in the private brand space higher by roughly 20% in aggregate, COVID-19 disrupted many aspects of supply chains, including sourcing. Retailers and manufacturers have worked together to offset these input cost increases. In some cases, retailers have stepped in to help manufacturers source raw ingredients and negotiate booking quantities to lower ingredient costs.

Retailers are also weighing whether to lengthen their private brand inventory level policies, knowing they’ll feel the cost implications associated with storing finished goods for extended time frames. When partnering with cost-sensitive retailers, manufacturers should prioritize stronger internal forecasting, as managing inventory levels goes hand-in-hand with planning for demand.

A strong retailer-manufacturer partnership can make a considerable difference, as cost savings can boil down to knowing promotional calendars and drive periods, as well as acting before a physical purchase order is cut. Additionally, private brand manufacturers will sometimes perform vendor-managed inventory functions for the retailer, bringing visibility to inventory levels and ad planning in ways that can then be factored into demand planning.

Retailers and manufacturers are considering post-pandemic product offering reductions as they balance supply-chain efficiency against the need to innovate. Both could innovate to boost private brand share and relevancy, or they could press for more efficient supply chains.

For manufacturers, getting this balance right affects the volume they end up supplying to retailers. Meanwhile, making the right decision shapes a retailer’s perceived relevance to changing consumer habits.

Over the past year, several manufacturers cut back during the pandemic to maximize production runs, increasing product output and boosting profitability. Moving forward, it’s important for retailers to evaluate their product mix as costs increase so they can consolidate as needed without penalizing the consumer and eroding sales.

Finally, retailers and manufacturers are wrestling with when and how to accelerate business processes to stay agile as the environment changes. Speeding processes often include using technology to streamline setup, sourcing, product lifecycle management and demand planning in ways that move products to shelves faster.

Collaboration helps increase product supply and minimize cost pressures. Over the course of the pandemic manufacturers needed to determine how to increase output on essential items. Manufacturers and retailers worked together to identify measured and rationalized product assortments that maximized production runs with limited changeovers for packaging or product type, increasing production output almost 40%.

Understanding particular needs to communicate better

No matter where they land on each, it’s important for private brand retailers and manufacturers to understand and consider each other’s particular needs to communicate and negotiate these trends more effectively. Relationships matter, and the private brand sector’s request-for-proposal dynamic that often compels manufacturers to consider retailer supply contracts in tenuous 12-month increments complicates long-term relationship building.

For their part, manufacturers tend to retrench and consider their relationships with retailers more carefully when market conditions deteriorate. A manufacturer often considers the ease of doing business with a retailer when it prioritizes and schedules product runs, as well as determines where that retailer falls on their allocation list. Meanwhile, retailers focused on the lowest cost are encouraged to learn to think beyond a transactional mindset in their relationships with manufacturers to innovate and grow.

In the end, retailers and manufacturers see the most success when they work collaboratively as indispensable partners. Those relationships, fortified with high levels of trust, transparency and communication, will be better armed to meet future crises or the more conventional sourcing, inventory and speed-to-market challenges that arise.