A number of retail firms use a “private-label” strategy in which merchandise is sold under a brand name exclusive to the retail firm, but manufactured by one or more independent vendors. While offering a number of benefits, this approach also poses a different set of supply chain challenges than manufacturer-brand-based retailing, in that the retail firm must take a more active role in organizing and coordinating the planning and materials management activities in a supply base that is often dispersed and heterogenous.
This chapter describes a methodology for planning capacity commitments, scheduling shipments, and managing inventory for an assortment of private-label retail merchandise produced by multiple vendors. The vendors differ in their lead time requirements, costs, and production flexibility. Product demand is uncertain, and fluctuates over time. We develop an optimization model to choose the production commitments that maximize the retailer’s expected gross profit, given market demand forecasts and vendors’ capacity and flexibility constraints. The model has been incorporated into a PC-based decision support system called the Sourcing Allocation Manager (SAM). This was developed in collaboration with supply chain planners at a global retailer of seasonal and fashion merchandise, and has been tested by buyers at two major retailers.