Private-Label Operatins Reprt Explanatins f Numbers Cst Allcatins Suggestins and Tips fr Using the Reprt Cnsulting this reprt regularly is abslutely essential if yur cmpany s management team is t (1) knw the extent t which participatin in the private-label segment is cntributing t the cmpany s verall perfrmance (Did yu win any f the bids submitted? Did yu make mney r lse mney and in which regins?) and (2) d a gd jb f running the private-label prtin f the cmpany s business. This reprt, the Benchmarking data n p. 6 f each issue f the Ftwear Industry Reprt regarding private-label statistics, and t a lesser extent the Plant Operatins Reprt are yur three mst valuable tls fr crafting and executing a strategy t make mney in the private-label segment f the glbal ftwear market. This Help page cnsists f three sectins. The first deals with understanding where all f the cst numbers cme frm and seeing what the margins/prfit cntributins were n any f the bids that were wn in the fur gegraphic regins. The secnd sectin presents sme suggestins and tips fr using the infrmatin in this reprt t gd advantage in enhancing the prfitability f yur cmpany s private-label peratins. The third explains the details f hw the tw types f exchange rate adjustments shwn n this reprt are calculated. Understanding the Numbers n the Private-Label Operatins Reprt This reprt cntains a cmprehensive rundwn n yur cmpany s private-label peratins, frm prductin csts t pairs prduced and shipped t revenues and margins ver direct csts. Offers Submitted. This sectin f the reprt shws the cmpany s ffers (bids) made t private-label buyers in the reprt year and, if ne r mre ffers were accepted, the pairs rdered by private-label buyers. Fr bids that were accepted by private-label buyers, the pairs rdered by private-label buyers always match the pairs ffered by the cmpany unless the bid was the last bid accepted by private-label buyers in the regin. The last bid accepted in a regin will smetimes be fr an amunt f pairs that is less than the number ffered when private-label buyers have satisfied mst f the demand by accepting mre attractively priced bids frm cmpeting cmpanies first. Prductin and Shipping. This sectin f the reprt shws the csts f making the private-label ftwear fr thse cntracts that were actually wn in the cmpetitive bidding prcess and the ttal number f pairs that were prduced after rejects, and t which warehuses the pairs were shipped. A brief discussin f each f the prductin cst cmpnents fr private-label ftwear is presented belw: Materials Csts Yur cmpany s materials csts fr private-label ftwear are a direct result f the percentages f standard and superir materials used in prducing them and the prevailing wrldwide prices fr standard and superir materials. The base prices fr materials, unless yu have been ntified f changes, are $6 per pair fr ftwear made f 100% standard materials and $12 fr ftwear made f 100% superir materials. Hwever, the prevailing base prices are adjusted up r dwn each year accrding t the percentage mix f standard-superir materials usage and the strength f demand fr ftwear materials: The ging market prices f standard and superir materials in any ne year deviate frm their respective base price whenever the percentage mix is anything ther than the nrm f 50% fr standard materials and 50% fr superir materials. The ging market price f superir (r standard) materials will rise 2% abve the base fr each 1% that wrldwide use f superir (r standard) materials exceeds 50%. Simultaneusly, the glbal market price f standard (r superir) materials will fall 0.5% fr each 1% that the glbal usage f standard (r superir) materials falls belw 50%. Thus, wrldwide materials usage f 60% superir materials and 40% standard materials will result in a glbal market price fr superir materials that is 20% abve the prevailing $12 base price fr superir materials and a glbal market price fr standard materials that is 5% belw the prevailing $6 base price fr standard materials. Similarly, wrldwide usage f 55% standard materials and 45% superir materials will result in a glbal market price fr standard materials that is 10% abve the $6 base price and a glbal market price fr superir materials that is 2.5% belw the prevailing $12 base. In ther wrds, greater than 50% usage f superir materials widens the price gap between superir and standard materials, and greater than 50% usage f standard materials narrws the gap. Materials prices fall whenever glbal prductin levels drp belw 90% f glbal prductin capacity and materials prices rise when glbal prductin levels rise abve 110% f glbal plant capacity. Shuld glbal she prductin fall belw 90% f the ftwear industry's glbal plant capacity (nt cunting vertime prductin capability), the market prices fr bth standard and superir materials will drp 1% fr each 1% that glbal she prductin is belw the 90% capacity utilizatin level. Such price reductins reflect increased cmpetitin amng materials suppliers fr the available rders. On the ther hand, when glbal prductin levels exceed 110% f the industry s glbal plant capacity (reflecting use f vertime prductin),
the prices f bth standard and superir materials will g up 1% fr each 1% that glbal prductin levels exceed 110% f glbal prductin capacity. Thus nce vertime prductin exceeds a glbal average f 10% f installed plant capacity wrldwide, then material suppliers are able t exert pricing pwer and can cmmand higher prices. In the event glbal prductin reaches the 20% vertime maximum, the prices f standard and superir materials will be 10% higher than they wuld therwise be. Yu can always track hw these tw demand-supply factrs have affected recent materials prices by cnsulting the Materials Price sectin n page 4 f each issue f the Ftwear Industry Reprt. Key Pints Abut Materials Csts in Making Private-Label Pairs: The ttal csts fr standard and superir materials in the first clumn f cst data at each plant are based n the prevailing glbal prices the cmpany pays fr standard and superir materials and the ttal number f private-label pairs prduced including rejects. The per pair csts f materials represent ttal expenditures fr standard/superir materials divided by the number f privatelabel pairs prduced after rejects. The per pair materials csts are ften nt the same at all plants making private-label ftwear fr any r all f three reasns: Different percentages f standard and superir materials may have been used t make private-label pairs. The private-label reject rates are lwer at sme plants than thers. The per pair csts fr materials at a plant are calculated by (1) dividing ttal materials csts by the number f private-label pairs prduced after rejects. The lwer the reject rates fr private-label pairs at a plant, the larger the denminatr in these per pair calculatins and the lwer the materials cst per pair. The reject rates fr private-label pairs at each plant are shwn in the reprt see the line labeled Pairs Rejected and will be lwer than fr branded pairs if yur cmpany prduces mre branded mdel/styles than private-label mdels/styles. Because yur cmpany may nt have exerted the same cumulative effrt at each plant t train wrkers in the use f best practices. One f the benefits f best practices training is that it leads t less materials waste, which effectively reduces materials csts per pair prduced. Cumulative best practices training per pair prduced is what drives reductins in materials waste. As cumulative spending per pair prduced rises prgressively abve $0.30 per pair prduced, grwing ability n the part f plant persnnel leads t less materials waste and net reductins in materials csts per pair (which culd amunt t as much as 20% lwer net materials csts if the cmpany s best practices training effrt at a plant is very aggressive perhaps in the range f $1.00 t $1.25 per pair prduced). Cumulative spending n best practices training per pair is reprted in the Labr Statistics sectin f the Plant Operatins Reprt Labr Csts Direct labr csts have tw cmpnents: (1) labr csts fr base pay and incentive pay during regular time prductin f private-label ftwear and (2) labr csts incurred during vertime prductin. Labr csts per private-label pair prduced at vertime are always higher than at regular time because yur cmpany pays wrkers 1.5 times the hurly base pay equivalent fr all vertime prductin. Als, the labr cst per privatelabel pair is always based n pairs prduced after rejects are deducted (see the numbers fr net private-label prductin) rather than n ttal pairs prduced. Wrker prductivity in prducing private-label ftwear is the same as in prducing branded ftwear. Styling/Features Csts These cst numbers reflect hw much cmpany c-managers pted t spend per branded mdel/style prduced. The ttal dllar amunt equals the expenditure per branded mdel/style that was entered n the Branded Prductin screen during the decisin prcess multiplied by the number f branded mdels/styles prduced at the plant. The per pair number represents the ttal dllar expenditures fr branded styling/features at the plant divided by the ttal number f branded pair prduced (after rejects). TQM/Six Sigma Csts The ttal amunt cmpany c-managers spent n TQM/Six Sigma quality cntrl prgrams at each plant in the reprt year is allcated between branded prductin and private-label prductin accrding t their respective percentages f ttal pairs prduced thus, if 10% f the ttal pairs prduced at a plant are private-label then 10% f plant csts fr TQM/Six Sigma quality cntrl prgrams are allcated t private-label prductin. The ttal dllar cst shwn fr plant TQM/Six Sigma quality cntrl prgrams represents the prtin f ttal csts fr TQM/Six Sigma quality cntrl fr the year allcated t private-label prductin. TQM/Six Sigma quality cntrl csts per private-label pair are equal t the ttal csts fr TQM/Six Sigma quality cntrl allcated t private-label prductin divided by the number f private-label pairs prduced (after rejects). Prductin Run Set-Up Csts Chain retailers are very cnscius f the need t carry nly private-label mdels/styles that are easy and less expensive t prduce s they can sell their private-label shes at attractively lwer prices than name brand athletic ftwear. As a cnsequence f their effrts t rder nly mdels/styles that are simpler t prduce, prductin run set-up csts fr private-label pairs are 75% belw thse fr branded pairs. Thus, prductin run set-up csts are $250,000 per plant fr making 50 mdels/styles f private-label shes, $625,000 per plant fr 100 mdels/styles, $1 millin per plant fr 150 mdels/styles, $1.5 millin per plant fr 200 mdels/styles, $2.0 millin fr 250 mdels/styles, $2.625 millin fr 350 mdels/styles, and $3.5 millin fr 500 mdels/styles. The size f the plant des nt matter in determining prductin run set-up csts, nly the number f mdels.
The ttal dllar amunt shwn fr prductin-run set-up csts at each plant represents the number f private-label mdel/styles prduced at each plant (prductin run set-up csts fr branded pairs are shwn n the Plant Operatins Reprt). The prductin run set-up csts per pair represent the ttal prductin run set-up cst number divided by the number f private-label pairs prduced after rejects (as shwn in the line labeled Net Private-Label prductin. Other Allcated Csts At plants where private-label pairs are prduced, sme f the csts fr plant supervisin, plant maintenance, and plant depreciatin are allcated t private-label prductin. The nature f these csts and allcatin prcedures are described belw: TQM/Six Sigma Csts The ttal amunt cmpany c-managers spent n TQM/Six Sigma quality cntrl prgrams at each plant in the reprt year is allcated between branded prductin and private-label prductin accrding t their respective percentages f ttal pairs prduced thus, if 10% f the ttal pairs prduced at a plant are private-label then 10% f plant csts fr TQM/Six Sigma quality cntrl prgrams are allcated t private-label prductin. The ttal dllar cst shwn fr plant TQM/Six Sigma quality cntrl prgrams represents the prtin f ttal csts fr TQM/Six Sigma quality cntrl fr the year allcated t private-label prductin. TQM/Six Sigma quality cntrl csts per private-label pair are equal t the ttal csts fr TQM/Six Sigma quality cntrl allcated t private-label prductin divided by the number f private-label pairs prduced (after rejects). Best Practices Training Csts The ttal amunt the cmpany spent fr best practices training at each plant in the reprt year is allcated between branded prductin and private-label prductin accrding t their respective percentages f ttal pairs prduced thus, if 12% f the ttal pairs prduced at a plant were privatelabel then 12% f plant expenditures fr best practices training are allcated t private-label prductin. The ttal dllar amunt allcated t private-label prductin is included as part f the dllar ttal fr Other Allcated Csts. Plant Supervisin Csts Csts fr plant supervisin are directly related t the number f wrkers at a plant. These csts are equal t $6,000 per wrker at plants in Nrth America and Eurpe-Africa and $2,000 per wrker at plants in the Asia-Pacific and Latin America hwever, these per wrker amunts are subject t change by yur instructr as the game prgresses. Annual plant supervisin csts are allcated between branded prductin and private-label prductin accrding t their respective percentages f ttal pairs prduced thus, if 5% f the ttal pairs prduced at a plant are private-label then 5% f annual plant supervisin csts are allcated t private-label prductin. The ttal dllar amunt plant supervisin csts fr the year allcated t private-label prductin are included in the dllar ttal fr Other Allcated Csts. Plant Maintenance Csts fr plant maintenance are equal t 5% f grss plant investment plus anther 0.25% fr each year f age past 5 years. As f the end f Year 10, the plant in Nrth American was 10 years ld and the Asia-Pacific plant was 3 years ld. Hwever, plant maintenance is nly 25% f the nrmal amunt in the event yu and yur c-managers pt t temprarily shut dwn prductin at a plant fr ne r mre years. The ttal maintenance csts are allcated between branded prductin and private-label prductin accrding t their respective percentages f ttal pairs prduced thus, if 10% f the ttal pairs prduced at a plant are private-label then 10% f ttal maintenance csts are allcated t private-label prductin. The ttal dllar amunt allcated t private-label prductin is included in the dllar ttal f Other Allcated Csts. Depreciatin Csts The depreciatin csts at a plant equal 5% f grss plant investment. Plants are assumed t have a 20-year life and are depreciated n a straight-line basis. Annual depreciatin csts are allcated between branded prductin and private-label prductin accrding t their respective percentages f ttal pairs prduced thus, if 15% f the ttal pairs prduced at a plant are private-label then 15% f annual depreciatin csts are allcated t private-label prductin. The ttal dllar amunt fr depreciatin allcated t private-label prductin is included in the dllar ttal fr Other Allcated Csts. Other Allcated Csts per private-label pair are equal t the verall dllar ttal divided by the number f privatelabel pairs prduced (after rejects). The sum f all these csts represents the prductin csts f making private-label shes fr thse cntracts that were actually wn. Yu shuld take nte f the degree t which prductin csts per pair differ at each plant and als which cst categries accunt fr the prductin cst differences. Pairs Prduced and Shipping. The reprt shws hw many private label pairs were actually prduced (after rejects) at each plant and then shipped t each f the 4 reginal distributin centers, based n the cntracts that the cmpany wn. Fr mre infrmatin n private-label prductin (rejected pairs, reject rate, number f mdels, and S/Q rating) see the Prductin Statistics sectin f the Plant Operatins Reprt. Revenues-Direct Csts-Margins n Private-Label Sales. This sectin f the reprt is very imprtant because it shws the ttal dllar and per pair margins the cmpany made (r lst) n its private-label sales regin-by-regin and the verall ttal earned/lst n the cntracts it was awarded. The sizes f the margins ver direct csts are a clear indicatin f hw much the cmpany earned n its winning private-label bids and thus hw many dllars were
available frm private-label peratins t help cver the cmpany s administrative expenses and interest csts and cntribute t the cmpany s bttm line. If the cmpany s margins n branded ftwear were sufficient t cver administrative expenses and all interest csts, then the margins ver direct csts represent pre-tax prfit. It is wrth ging thrugh each item in this sectin f the reprt, s that yu can be sure yu understand what all the numbers mean. Grss Private-Label Revenues Grss revenues are equal t the bid price per pair in a regin multiplied by the ttal number f pairs awarded in the regin. The numbers in the $/pair clumn is yur cmpany s bid price in each f the regins where bids were made. Exchange Rate Adjustment When exchange rate shifts result in a weaker US$ and a strnger eur/real/sing$, then the eurs cllected n ftwear sales in Eurpe-Africa, the reals cllected n ftwear sales in Latin America, and/r the Sing$ cllected n ftwear sales in the Asia-Pacific translate int mre US$, thus creating freign exchange gains that have the effect f enhancing cmpany revenues and prfits. In ther wrds, freign currency gains assciated with reprting the cmpany s perating results in US$ causes a psitive exchange rate adjustment t revenues n sales made in thse freign markets where the US$ has grwn weaker. When exchange rate shifts result in a strnger US$ and a weaker eur/real/sing$, then the eurs cllected n ftwear sales in Eurpe-Africa, the reals cllected n ftwear sales in Latin America, and/r the Sing$ cllected n ftwear sales in the Asia-Pacific translate int fewer US$, thus resulting in freign currency exchange lsses that have the effect f reducing cmpany revenues and prfits in thse freign markets where the US$ is nw strnger. In such cases, the exchange rate adjustment t revenues is negative. N exchange rate adjustments t revenues are ever needed n ftwear sales in Nrth America, where all payments are always tied t the US$ t begin with. Thus the imprtant understanding in interpreting the relevance f this exchange rate adjustment is that: A psitive number fr a regin represents a favrable exchange rate adjustment and raises the per pair revenues in US$ frm sales f private-label ftwear sld in that regin (an adjustment that ultimately bsts the margins ver direct csts n private-label sales in that regin). A negative number fr a regin represents an unfavrable exchange rate change that effectively lwers the per pair revenues in US$ f private-label pairs sld t chain retailers in that regin (an adjustment that acts t dampen the prfitability f private-label sales in that regin). Fr mre explanatin f the revenue adjustment, see the sectin n Understanding the Exchange Rate Adjustments t Revenues and Csts at the end f this Help page. Net Private-Label Revenues The net revenue numbers in this rw are always equal t the grss revenue numbers minus the exchange rate adjustments t grss revenues. They represent the mnies actually received in dllars frm private-label sales in each regin after cnverting the eurs, reals, and Sing$ t US$. Again, there are n exchange rate adjustments t revenues frm private-label sales in Nrth America because all chain retailer payments In Nrth America are in US$. Prductin Csts This number is derived directly frm the prductin csts at the plants (as shwn in the upper part f the reprt). If all f the pairs in a particular distributin warehuse came frm the same plant, then the prductin cst per pair shwn n this line is the same as the ttal prductin cst per pair at the plant frm which the pairs were prduced and shipped. Hwever, if the private-label pairs in a given distributin warehuse came frm tw r mre plants, then the per pair prductin csts are a weighted average f the prductin csts at each plant (where the weights are the prprtin f pairs cming frm each f the plants). Yu can readily see frm the shipping numbers hw many private-label pairs in each reginal market came frm which plants. Exchange Rate Adjustment This secnd exchange rate adjustment has t d with the impact f shifting exchange rates n ftwear prduced in ne gegraphic regin and shipped t anther. A negative exchange rate adjustment in prductin csts represents a favrable change in the exchange rates that effectively lwered the csts f incming shipments (and acted t bst the margin ver direct csts). A psitive exchange rate cst adjustment in prductin csts represents an unfavrable change in the exchange rates that raised the csts f incming shipments (and acted t reduce the margin earned ver direct csts). Fr mre explanatin f all that this cst adjustment invlves, see the sectin n Understanding the Exchange Rate Adjustments t Revenues and Csts at the end f this Help page. Freight The freight csts n private-label pairs shipped frm plants t reginal distributin centers are a functin whether the pairs came frm a plant in the same gegraphic regin (in which case the csts are $1 per pair) r frm a plant in a different regin in which case the csts are $2 per pair). If all f the pairs in a particular regin came frm the same plant, then the freight cst per pair will be either $1 per pair (fr shipments frm a lcal plant) r $2 per pair (fr crss-regin shipments). Hwever, if the private-label pairs in a given regin came frm tw r mre plants, then the per pair freight csts are a weighted average f the shipping csts frm the different plants
(where the weights are the prprtin f pairs cming frm each f the plants). Yu can readily see frm the shipping numbers hw many private-label pairs in each reginal market came frm which plants. Imprt Tariffs The amunt f any imprt tariffs are a functin f whether the private-label pairs were prduced at a plant inside the regin (in case n tariffs are paid) r whether the pairs were imprted frm a freign plant. Unless yu have been ntified f any tariff changes, tariffs per pair are as fllws: Tariffs n private-label ftwear exprted frm Asia-Pacific plants and Eurpe-Africa plants t markets in Latin America are $6 per pair. Tariffs n private-label ftwear exprted frm Asia-Pacific plants, Latin American plants, and Nrth American plants t markets in Eurpe-Africa are $4 per pair. Tariffs n private-label ftwear exprted frm Eurpe-Africa plants, Latin American plants, and Nrth American plants t markets in the Asia-Pacific regin are $8 per pair. Tariffs n private-label ftwear exprts frm Nrth American plants t Latin America are $0 and are als $0 n exprts frm any Latin American plants t markets in Nrth America (as per the Free Trade Treaty f the Americas, which allws tariff-free mvement f ftwear between all the cuntries f Nrth America and Latin America). Nrth America has n imprt tariffs n private-label ftwear made in either Eurpe-Africa r Asia-Pacific (unless yur instructr has ntified yu t the cntrary). The per pair csts shwn fr imprt tariffs will likely be either 0, $4, $6, r $8 (if all the pairs came frm a single lcal r freign plant) r else a weighted average if incming shipments frm several plants were invlved. Packing/Shipping Csts Bxing and shipping fees n private-label pairs delivered t chain retailers are a flat $1 per pair. (Nte that this $1 charge is significantly less than fr branded pairs unless the branded pair vlume at a particular distributin center exceeds 3 millin pairs annually. The packing and shipping csts fr branded pairs at each distributin center run $2 per pair n the first 1 millin branded pairs shipped ut annually; $1.50 per pair n the next 2 millin branded pairs shipped ut annually, and $1 n each pair in excess f 3 millin branded pairs shipped annually.) Nne f the annual distributin warehuse leasing csts are allcated t private-label sales. Margin Over Direct Cst f P-L Sales These are really the key numbers n this reprt. The sizes f the ttal dllar margins ver direct csts in each regin indicate hw many dllars were available frm private-label sales in that regin t (1) help cver the cmpany s administrative expenses and interest csts and (2) cntribute t the cmpany s bttm line. The per pair numbers in each regin indicate the prfit margin n each pair sld. The verall r cmpanywide ttal dllar margin in the right clumn indicates hw many dllars were available frm private-label sales in all regins t cntribute t administrative expenses, interest csts, and cntribute t the cmpany s bttm line. If yur cmpany s prfits frm branded peratins were sufficient t cver all administrative expenses and interest csts, then the ttal dllar margins ver direct csts represent pre-tax prfits Using the Infrmatin n This Reprt t Enhance the Prfitability f Private-Label Sales The infrmatin in this reprt is essential t crafting and executing a prfitable strategy fr the private-label side f yur cmpany s business and mnitring the prfitability f the cntracts yur cmpany wn t supply private-label ftwear. Here are several suggestins and tips fr using the infrmatin in this reprt t full advantage: Always cnsult the Benchmarking data n page 6 f the Ftwear Industry Reprt t see hw yur cmpany cmpared against rivals n 1. Reject rates fr private-label prductin (shwn in the Plant and Prductin Benchmarks sectin) 2. Ttal manufacturing csts per pair fr private-label ftwear made at each f the cmpany s plants (shwn in the Plant and Prductin Benchmarks sectin). Als check hw rivals csts at plants in ther regins cmpare t the csts at yur plants. 3. Private-label prductin csts n pairs shipped t each gegraphic regin (shwn in the Operating Benchmarks sectin) 4. Warehuse expenses fr private-label sales (shwn in the Operating Benchmarks sectin) 5. Margins ver direct csts in each regin (shwn in the Operating Benchmarks sectin) This infrmatin is essential in determining yur cmpany s cmpetitiveness in the private-label segment.
Any time yur cmpany s private-label prductin csts are meaningfully higher than thse f cmpetitrs, yu and yur c-managers ught t see that as a huge red flag indicating yur cmpany plant peratins are nt as efficient as thse perated by certain rivals. Plainly, if sme rivals prduced private-label ftwear at their Asia- Pacific plants fr $22 per pair and prductin csts fr private-label ftwear at yur Asia-Pacific plant were $25, then crrective actins t cut private-label prductin csts at yur Asia-Pacific plant in the upcming year are clearly in rder. This may mean nt nly revisiting prductin decisins t find ways t squeeze ut cst savings but als cnsidering plant upgrades the Plant and Prductin Benchmarks at the tp f page 6 f the FIR give yu clear indicatin f whether ttal cmpensatin csts, prductivity, and labr csts are in line r ut-f-line at each f yur plants. T enjy sustained success in the private-label segment, yu and yur c-managers will have t take actins at yur plants t keep the prductin csts f private-label ftwear very lw relative t rival cmpanies nly lwcst prviders stand t make much mney in the private-label segment ver the lng-term. Achieving lwer prductin csts than rivals in making pairs fr the private-label segment usually means: Investing in cst-saving plant upgrades. Having lw labr csts per pair prduced relative t rival bidders. Maintaining a lw labr cst advantage ver rival bidders ften requires cncentrating private-label prductin at plants in the Asia-Pacific and in Latin America where cmpensatin payments t wrkers are far lwer. Hwever, the labr cst advantages f such plants can ften be surmunted by cmpanies wh have plants in Eurpe-Africa and thus escape paying tariffs n private-label pairs prduced at these plants that are sld under cntract t chain retailers in Eurpe-Africa. Operating plants at full capacity (s as t spread fixed prductin csts especially depreciatin and prductin run set-up csts ver a larger number f pairs) this means investing. Ding a gd jb f ut-managing rivals in perating plants efficiently via lwer reject rates, use f best practices t eliminate waste in materials usage, and s frth. Usually private-label prductin needs t be cncentrated in lw labr-cst plants, unless a plant with high labr csts is gegraphically psitined t be able t ffset its higher labr csts with lwer (r even 0) tariff payments and exchange rate adjustments. Be skeptical abut the merits f allcating t much f yur cmpany s prductin capacity t the private-label segment f the glbal ftwear market. A bet the cmpany strategy that makes winning high-vlume cntracts fr private-label ftwear essential t the cmpany s bttm line success is a very questinable and certainly high-risk business mdel. The nly time when making private-label prductin a truly cre part f yur cmpany s strategy has real appeal is when yu have a cmpetitive advantage ver rivals in prducing private-label ftwear at meaningfully lwer csts than rivals smething that can be quickly cnfirmed r disprved by the Benchmarking data n page 6 f the Ftwear Industry Reprt. Understanding the Exchange Rate Adjustments t Revenues and Csts in the Private-Label Sales Reprt All ftwear cmpanies are subject t exchange rate adjustments at tw different pints in their business. The first ccurs when ftwear is shipped frm a plant in ne regin t distributin warehuses in a different regin (where lcal currencies are different frm that in which the ftwear was prduced). The prductin csts f ftwear made at Asia- Pacific plants are tied t the Singapre dllar; the prductin csts f ftwear made at Eurpe-Africa plants are tied t the eur; the prductin csts f ftwear made at Latin American plants are tied t the t the Brazilian real; and the csts f ftwear made in Nrth American plants are tied t the U.S. dllar. Thus, the prductin cst f ftwear that is made at an Asia Pacific plant and then shipped t Latin America is adjusted up r dwn fr any exchange rate changes between the Singapre dllar and the Brazilian real that ccur between the time the gds leave the plant and the time they are sld and shipped frm the distributin center in Latin America (a perid f 3-6 weeks). Similarly, the manufacturing csts f ftwear shipped between Nrth America and Latin America are adjusted up r dwn fr recent exchange rate changes between the U.S. dllar and the Brazilian real; the manufacturing csts n pairs shipped between Nrth America and Eurpe are adjusted up r dwn based n recent exchange rate fluctuatins between the U.S. dllar and the eur; the manufacturing csts n pairs shipped between Asia-Pacific and Eurpe-Africa are adjusted fr recent fluctuatins between the Singapre dllar and the eur; and s n. It is this accunting adjustment that is shwn n the line labeled Exchange Rate Adjustments just underneath Prductin Csts. The secnd exchange rate adjustment ccurs when the lcal currency the cmpany receives in payment frm retailers and nline buyers ver the curse f a year in Eurpe-Africa (where all sales transactins are tied t the eur), Latin America (where all sales are tied t the Brazilian real),and the Asia-Pacific (where all sales are tied t the Singapre dllar) must be cnverted t the equivalent f U.S. dllars fr financial reprting purpses the cmpany s financial statements are always reprted in U.S. dllars. It is this adjustment that is shwn n the line labeled Exchange Rate Adjustments underneath Grss Private-Label Revenues.
BSG Online is prgrammed t access all the relevant real-wrld exchanges rates between decisin perids, handle the calculatin f bth types f exchange rate adjustments, and reprt the size f each year s percentage adjustments n the Crprate Lbby screen, n the pertinent decisin screens, and in the varius reprts n cmpany peratins. The percentage sizes f the actual exchange rate shifts each year are always equal t 5 times the actual perid-tperid percentage change in the real-wrld exchange rates fr US$, eurs ( ), Brazilian reals, and Sing$ (multiplying the actual percent change by 5 is dne in rder t translate actual exchange rate changes ver the few days between decisin perids int changes that are mre representative f a ptential full-year change). Thus if the exchange rate f per US$ shifts frm 0.8010 t 0.8045, the percentage adjustment is calculated as fllws: [(Perid 2 Rate - Perid 1 Rate) Perid 1 Rate] x 5 [(0.8035-0.8010) 0.8010] x 5 = +2.18% Because actual exchange rates are ccasinally quite vlatile ver a several day perid, the maximum exchange rate adjustment during any ne perid is capped at ± 20% (even thugh bigger changes ver a 12-mnth perid are fairly cmmn in the real wrld). Yu and yur c-managers always have ready access t the percentage sizes f the revenue and cst adjustments n crss-regin shipments f newly-prduced pairs that stem frm the latest shifts in exchange rates see the Exchange Rates bx n yur Crprate Lbby screen. Furthermre, because it matters which directin transactins are ccurring, yu shuld nte frm the listing f all the exchange rate changes in the bxed table in yur Crprate Lbby, that there are (1) changes in the per US$ and changes in the US$ per, (2) changes in the per Sing$ and changes in the Sing$ per, (3) changes in the Brazilian real per and changes in the per Brazilian real, and s n. All the varius crss-rates cme int play. Table 1 belw summarizes the meaning f all the different exchange rates used in The Business Strategy Game and explains hw t interpret the shifts in the exchange rate values frm Year 1 t Year 2 (all f the exchange rates shwn in the table represent actual exchange rate changes ver a 24-hur perid in February 2004). Table 1: Representative Exchange Rates, What the Rates Mean, and Hw t Interpret the Shift between Perids Eurs ( ) per US$ Exchange Rates Year 1 Year 2 0.7985 0.7960 Meaning f the Exchange Rate Numbers $1.00 equals 0.7985 in Year 1 $1.00 equals 0.7960 in Year 2 Interpretatin f the Exchange Rate Shift The US $ has grwn weaker because $1.00 is equivalent t a smaller amunt f eurs in Year 2 US$ per Eur ( ) 1.2523 1.2563 1.00 equals $1.2523 in Year 1 1.00 equals $1.2563 in Year 2 The eur has grwn strnger because 1.00 is equivalent t mre US $ in Year 2 Reals (R) per US$ 2.9603 2.9656 $1.00 equals R2.9603 in Year 1 $1.00 equals R2.9656 in Year 2 The US $ has grwn strnger because $1.00 is equivalent t mre reals in Year 2 US$ per Real (R) 0.3378 0.3372 R1.00 equals $0.3378 in Year 1 R1.00 equals $0.3372 in Year 2 The real has grwn weaker because R1.00 is equivalent t fewer US $ in Year 2 Sing$ per US$ 1.6949 1.6844 US$1.00 equals Sing$1.6949 in Year 1 US$1.00 equals Sing$1.6844 in Year 2 The US $ has grwn weaker because $1.00 is equivalent t fewer Sing$ in Year 2 US$ per Sing$ 0.5900 0.5937 Sing$1.00 equals $0.5900 in Year 1 Sing$1.00 equals $0.5937 in Year 2 The Sing$ has grwn strnger because Sing$1.00 is equivalent t mre US $ in Year 2
Eur ( ) per Sing$ 0.4711 0.4617 Sing$1.00 equals 0.4711 in Year 1 Sing$1.00 equals 0.4617 in Year 2 The Sing$ has grwn weaker because Sing$1.00 is equivalent t fewer eurs in Year 2 Sing $ per Eur ( ) 2.1225 2.1161 1.00 equals Sing$2.1225 in Year 1 1.00 equals Sing$2.1161 in Year 2 The eur has grwn weaker because 1.00 is equivalent t fewer Sing$ in Year 2 Eur ( ) per Real (R) 0.2697 0.2684 R1.00 equals 0.2697 in Year 1 R1.00 equals 0.2684 in Year 2 The real has grwn weaker because R1.00 is equivalent t a smaller amunt f eurs in Year 2 Real (R) per Eur ( ) 3.7072 3.7257 1.00 equals R3.7072 in Year 1 1.00 equals R3.7257 in Year 2 The eur has grwn strnger because 1.00 is equivalent t mre Brazilian reals in Year 2 Sing$ per Real (R) 0.5725 0.5680 R1.00 equals Sing$0.5727 in Year 1 R1.00 equals Sing$0.5680 in Year 2 The real has grwn weaker because R1.00 is equivalent t a smaller amunt f Sing$ in Year 2 Real (R) per Sing$ 1.7466 1.7606 Sing$1.00 equals R1.7466 in Year 1 Sing$1.00 equals R1.7606 in Year 2 The Sing$ has grwn strnger because Sing$1.00 is equivalent t mre Brazilian reals in Year 2 Nte: Once ne knws the exchange rate f ne currency fr anther, say, eurs per US$, then it is a simple calculatin t determine the rate fr US$ per eur. Fr example, if the exchange rate is 0.8010 per US$, then the exchange rate f US$ per eur is 1.00 0.8010 r 1.2484. Similarly, if the exchange rate f Sing$ per Brazilian real is 0.5725, then the exchange rate f Brazilian real per Sing$ is 1.00 0.5725 r 1.7467. Interpreting the Meaning f the Exchange Rate Adjustments t Grss Private-Label Revenues. In the incremental revenue-cst-prfit prjectins fr private label sales, the exchange rate adjustment t Grss Private-Label Revenues reflect freign currency gains r lsses frm 1. cnverting the eurs received frm private-label sales t chain retailers in Eurpe-Africa int U.S. dllars (US$), given the annualized change in the eur-t-us$ exchange rate (shwn in the bxed table n the Crprate Lbby screen), 2. cnverting the Brazilian reals received frm private-label sales t chain retailers in Latin American int US$, given the annualized change in the real-t-us$ exchange rate, and 3. cnverting the Singapre dllars (Sing$) received frm private-label sales t chain retailers in the Asia-Pacific int US$, given the annualized change in the Sing$-t-US$ exchange rate. The upward versus dwnward revenue adjustments ccur because the lcal currency payments (eurs, reals, and Sing$) f private-label sales t chain retailers utside Nrth America have t be cnverted back int U.S. dllars (since the cmpany reprts its financial statements in U.S. dllars). Thus: The net revenues the cmpany receives frm any private-label sales t chain retailers in Eurpe-Africa are adjusted up r dwn fr exchange rate changes between the eur and the US$. Shuld the exchange rate f eurs per US$ fall frm ne decisin perid t the next (signaling a weaker US$ versus the eur), then chain retailer payments in eurs equate t mre US$ and an upward adjustment in the cmpany s revenues. Cnversely, when the exchange rate f eurs per US$ rises (signaling a strnger US$ versus the eur), then the cmpany des nt receive as many US$ dllars in payment fr private-label pairs sld in eurs t chain retailers in Eurpe-Africa and the revenue adjustment is dwnward. The net revenues received frm sales any private-label sales t chain retailers in the Asia-Pacific are adjusted up r dwn fr exchange rate changes between the Sing$ and the US$. Shuld the exchange rate f Sing$ per US$ fall frm ne decisin perid t the next (signaling a weaker US$ versus the Sing$), then chain retailer payments in Sing$ equate t mre US$ and an upward adjustment in the cmpany s revenues. Cnversely, when the exchange rate f Sing$ per US$ rises (signaling a strnger US$ versus the Sing$), then the cmpany des nt receive as many US$ dllars in payment fr private-label pairs sld in Sing$ t chain retailers in the Asia- Pacific regin and the revenue adjustment is dwnward.
The net revenues received frm any private-label sales t chain retailers in Latin America are adjusted up r dwn fr exchange rate changes between the Brazilian real and the US$. Shuld the exchange rate f Brazilian real per US$ fall frm ne decisin perid t the next (signaling a weaker US$ versus the real), then chain retailer payments in reals equate t mre US$ and an upward adjustment in the cmpany s revenues. Cnversely, when the exchange rate f Brazilian reals per US$ rises (signaling a strnger US$ versus the real), then the cmpany des nt receive as many US$ dllars in payment fr private-label pairs sld in reals t chain retailers in the Asia-Pacific regin and the revenue adjustment is dwnward. The percentage sizes f the actual exchange rate shifts each year are always equal t 5 times the actual perid-tperid percentage change in the real-wrld exchange rates fr U.S dllars, eurs, Brazilian reals, and Singapre dllars (multiplying the actual percent change by 5 is dne in rder t translate actual exchange rate changes ver the few days between decisin perids int changes that are mre representative f a ptential full-year change). Thus if the exchange rate f eurs ( ) per US$ shifts frm 0.8010 t 0.8045, the percentage adjustment is calculated as fllws: [(Perid 2 Rate - Perid 1 Rate) Perid 1 Rate] x 5 [(0.8045-0.8010) 0.8010] x 5 = +2.18% Because actual exchange rates are ccasinally quite vlatile ver a several day perid, the maximum exchange rate adjustment during any ne perid is capped at ± 20% (even thugh bigger changes ver a 12-mnth perid are fairly cmmn in the real wrld). The fllwing table prvides representative examples f hw the revenue adjustments are calculated and what interpretatin shuld be placed n the directin f the adjustments (all f the exchange rates shwn in the table represent actual exchange rate changes ver a 24-hur perid in February 2004). Table 2: Hw the Sizes f the Revenue Adjustments Are Calculated and Hw t Distinguish Between Favrable and Unfavrable Adjustments Cnverting Freign Currencies t US$ US$ per Eur ( ) Exchange Rates Year 1 Year 2 Size f the Exchange Rate Adjustment in Revenues (Change in the Rate) (Year 1 Rate) x 5 1.2523 1.2563 (0.0040 1.2523) x 5 = +1.60% Interpretatin and Implicatins f the Adjustment t Revenues Weaker dllar/strnger eur results in a psitive (r favrable) revenue adjustment n pairs sld in Eurpe-Africa; increases prfit margins n pairs sld in Eurpe-Africa and imprves verall prfitability US$ per Real (R) US$ per Sing$ 0.3378 0.3372 (-0.0006 0.3378) x 5 = -0.89% 0.5900 0.5937 (0.0037 0.5900) x 5 = +3.14% Strnger US$/weaker real results in a negative (r unfavrable) revenue adjustment n pairs sld in Latin America; reduces prfit margins f pairs sld in Latin America and weakens verall prfitability Weaker US$/strnger Sing$ results in psitive (r favrable) revenue impact n pairs sld in Asia- Pacific; increases prfit margins n pairs sld in the Asia-Pacific and imprves verall prfitability Nte: The size f the cst adjustment is always capped at ±20% t limit the impact f shifting exchange rates n cmpany peratins. Yu have the advantage in The Business Strategy Game f knwing the sizes f the impact in advance f each year's decisins; in the real-wrld, cmpanies have t adjust n the fly t whatever exchange rates ccur ver the curse f the year. Interpreting the Exchange Rate Adjustment t Private-Label Prductin Csts. T better grasp why and hw shifting exchange rates entail cst adjustments when ftwear prduced in ne gegraphic regin is exprted t distributin centers in a different gegraphic regin, cnsider the case f a cmpany that has lcated ftwear manufacturing facilities in the Latin America (where the relevant currency is Brazilian reals) and that exprts much f the Latin American-made ftwear t markets in Eurpe-Africa (where the relevant currency is eurs). T keep the numbers simple, assume that the exchange rate is 4 Brazilian reals fr 1 eur and that the ftwear being made in Brazil has a manufacturing cst f 4 Brazilian reals (r 1 eur). Nw suppse that during the upcming year the exchange rate shifts frm 4 reals per eur t 5 reals per eur a change that means the Brazilian real has declined in value (because it nw takes 5 reals t purchase a eur) and that the eur has grwn strnger in value (because 1 eur will nw purchase gds wrth 5 reals instead f just 4 reals). Making the ftwear in Latin America is nw mre cst-
cmpetitive because branded ftwear csting 4 reals per pair t prduce and exprted t Eurpe-Africa nw carries a cst f nly 0.8 eurs at the new exchange rate (versus 1 eur at the frmer exchange rate). A dwnward adjustment in the cst f the Latin American-made ftwear available fr sale in the Eurpe-Africa distributin center is thus in rder. On the ther hand, if the value f the Brazilian real grws strnger in relatin t the eur resulting in an exchange rate f 3 reals t 1 eur the same ftwear csting 4 reals t prduce at the Latin American plant nw has a cst f 1.33 eurs at the Eurpe-Africa distributin center, requiring an upward r unfavrable cst adjustment. Clearly, the attractin f manufacturing a ftwear in Latin America and selling it in Eurpe-Africa markets is far greater when the real is weak (an exchange rate f 1 eur fr 5 Brazilian reals) than when the real is strng and exchanges fr 3 r 4 eurs. Frm this simple example, it fllws that: Exchange rate shifts that cause the US$ t be weaker versus the eur/real/sing$ enhance the cst cmpetitiveness f prducing ftwear in Nrth American plants and exprting ftwear t thse freign markets where the lcal currency is strnger. In such cases, the exchange rate adjustment t the prductin csts n all pairs shipped frm Nrth America will be negative/favrable, thus reflecting the greater cst cmpetitiveness f Nrth American-made ftwear in markets where the currency is nw strnger versus the US$. Exchange rate shifts that cause the Sing$ t be weaker versus the US$/eur/real enhance the cst cmpetitiveness f prducing ftwear in Asia-Pacific plants and exprting the ftwear t thse freign markets where the lcal currency is strnger. In such cases, the exchange rate adjustment t the prductin csts n all pairs shipped frm the Asia-Pacific will be negative/favrable, thus reflecting the greater cst cmpetitiveness f Asia-Pacific-made ftwear in markets where the currency is nw strnger versus the Sing$. Exchange rate shifts that cause the Brazilian real t be weaker versus the US$/eur/Sing$ enhance the cst cmpetitiveness f prducing ftwear in Latin American plants and exprting the ftwear t thse freign markets where the lcal currency is strnger. In such cases, the exchange rate adjustment t the prductin csts n all pairs shipped frm Latin America will be negative/favrable, thus reflecting the greater cst cmpetitiveness f Latin American-made ftwear in markets where the currency is nw strnger versus the Brazilian real. Exchange rate shifts that cause the eur t be weaker versus the US$/real/Sing$ enhance the cst cmpetitiveness f prducing ftwear in Eurpe-Africa plants and exprting the ftwear t thse freign markets where the lcal currency is strnger. In such cases, the exchange rate adjustment t the prductin csts n all pairs shipped frm Eurpe-Africa will be negative/favrable, thus reflecting the greater cst cmpetitiveness f Eurpe-Africa-made ftwear in markets where the currency is nw strnger versus the eur. All f this discussin abut the exchange rate adjustments t prductin csts can be summed up in three main pints: A higher exchange rate f ne currency fr anther means that the currency with the higher exchange rate number is weaker than befre, nt strnger. Whenever exchange rate changes weaken the currency in which ne f yur plants is lcated, then it becmes cmpetitively mre attractive t exprt ftwear frm that plant t buyers in thse freign markets where the currency has grwn strnger. Such a favrable exchange rate change is indicated when the number fr the exchange rate cst adjustment is negative because the effect is t lwer the per pair csts f incming shipments. Hence, a negative cst adjustment is gd. Whenever exchange rates strengthen the value f the currency f the regin in which ne f yur plants is lcated, then it becmes cmpetitively less attractive t exprt ftwear frm that plant t buyers in thse freign markets where the currency has grwn weaker. Such an unfavrable exchange rate change is indicated when the number fr the exchange rate cst adjustment is psitive. A psitive exchange rate cst adjustment in prductin csts represents an unfavrable change in the exchange rates because the effect is t raise the per pair csts f incming shipments. Cnsequently, a psitive cst adjustment is bad. The bigger the year-t-year changes in the exchange rates between the fur currencies and thus the bigger the psitive/negative cst adjustments, the mre that yur cmpany s margins ver direct csts n private-label bids were affected by hw many private-label pairs were shipped frm which plants t which gegraphic regins. Table 3 belw utilizes actual exchange rate shifts ver a 24-hur perid in early 2004 t illustrate each crss-rate cmbinatin that is used in The Business Strategy Game and shws hw the size f the crrespnding exchange rate adjustment t prductin csts wuld be calculated. Even thugh BSG Online des all the exchange rate cst adjustment calculatins fr yu, yu may find that spending a few minutes wrking yur way thrugh part f Table 2 will help yu get better cmmand f what is ging n with the cst adjustments and why exchange rate shifts can matter in deciding hw many pairs t ship frm which plants t which distributin centers. It is always up t yu and yur cmanagers t decide what actins t take, nce yu see the sizes f the cst adjustments in the bxed table n the Crprate Lbby screen and nce yu see the sizes f the cst adjustments assciated with yur shipping decisins.
Table 3: Hw the Sizes f the Cst Adjustments Due t Shifting Exchange Rates Are Calculated, and the Implicatins f the Adjustment Directin f the Shipments f Newly- Prduced Pairs Nrth America Plants Exchange Size f the Exchange Rate Rates Cst Adjustment [(Change in Year 1 Year 2 the Rates) Year 1 Rate] x 5 Interpretatin and Implicatins f the Adjustment T Latin America (Reals per US$) T Asia-Pacific (Sing$ per US$) T Eurpe Africa (Eurs per US$) Asia-Pacific Plants T Latin America (Reals per Sing$) T Nrth America (US$ per Sing$) T Eurpe-Africa (Eurs per Sing$) Latin American Plants T Asia-Pacific (Sing$ per Real) T Nrth America (US$ per Real) T Eurpe Africa (Eurs per Real) Eurpe-Africa Plants T Latin America (Reals per Eur) T Nrth America (US$ per Eur) 2.9603 2.9656 (0.0053 2.9603) x 5 = 0.90% 1.6949 1.6844 ( 0.0105 1.6949) x 5 = 4.43% 0.7985 0.7960 ( 0.0025 0.7985) x 5 = 1.57% 1.7466 1.7606 (0.0140 1.7466) x 5 = 4.01% 0.5900 0.5937 (0.0037 0.5900) x 5 = 3.14% 0.4711 0.4726 (0.0015 0.4711) x 5 = 1.59% 0.5725 0.5680 ( 0.0045 0.5725) x 5 = 3.93% 0.3378 0.3372 ( 0.0006 0.3378) x 5 = 0.89% 0.2697 0.2684 ( 0.0013 0.2697) x 5 = 2.41% 3.7072 3.7257 (0.0185 3.7072) x 5 = 2.50% 1.2523 1.2563 (0.0040 1.2523) x 5 = 1.60% Strnger US$ results in unfavrable cst adjustment makes exprts frm Nrth American plants t Latin America are less attractive Weaker US$ results in favrable cst adjustment makes exprts frm Nrth American plants t Asia-Pacific mre attractive Weaker US$ results in favrable cst adjustment and makes exprts frm Nrth American plants t Eurpe-Africa mre attractive Strnger Sing$ results in unfavrable upward cst adjustment--makes exprts frm Asia-Pacific plants t Latin America less attractive e Strnger Sing$ results in unfavrable upward cst adjustment--makes exprts frm Asia-Pacific plants t Nrth America less attractive Strnger Sing$ results in unfavrable upward cst adjustment--makes exprts frm Asia-Pacific plants t Eurpe- Africa less attractive Weaker Brazilian real results in favrable dwnward cst adjustment makes exprts frm Latin American plants t Asia-Pacific mre attractive Weaker Brazilian real results in favrable dwnward cst adjustment makes exprts frm Latin American plants t Nrth America mre attractive Weaker Brazilian real results in favrable dwnward cst adjustment makes exprts frm Latin American plants t Eurpe-Africa mre attractive Strnger eur results in unfavrable upward cst adjustment makes exprts frm Eurpe-Africa plants t Latin America less attractive Strnger eur results in unfavrable upward cst adjustment makes exprts frm Eurpe-Africa plants t Nrth America less attractive
T Asia-Pacific (Sing$ per Eur) 2.1225 2.1661 (0.0436 2.1225) x 5 = 10.27% Strnger eur results in unfavrable upward cst adjustment makes exprts frm Eurpe-Africa plants t Asia-Pacific less attractive Nte: The size f the cst adjustment is always capped at ±20% t limit the impact f shifting exchange rates n cmpany peratins. Yu have the advantage in The Business Strategy Game f knwing the sizes f the impact in advance f each year's decisins; in the real-wrld, cmpanies have t adjust n the fly t whatever exchange rates ccur ver the curse f the year. It is wrth repeating that the lessns f the abve lengthy explanatin f the exchange rate cst adjustments n privatelabel ftwear shipments can be summed up in three pints: A higher exchange rate f ne currency fr anther means that the currency with the higher exchange rate number is weaker than befre, nt strnger. Fr example, a higher exchange rate f Sing$/eurs/reals per U.S. dllar means that the US$ is strnger (because a US$ is equivalent t mre Sing$/eurs/reals) and that the Sing$/eur/real are weaker (because it takes mre Sing$/eurs/reals t buy a US$); cnversely, a lwer exchange rate per US$ means that the US$ is weaker (because a US$ is equivalent t fewer Sing$ r eurs r reals) and the Sing$/eur/real is strnger (because it takes fewer Sing$/eurs/reals t buy a US$). A psitive cst adjustment is bad. Psitive numbers fr the exchange rate cst adjustment reflect an upward cst shift fr private-label pairs sld t chain retailers in the regin and thus serve t bst yur price bid (which may put yur cmpany at a cmpetitive disadvantage vis-à-vis rivals that have plants in the regins that are nt subject t the exchange rate cst adjustment. A negative cst adjustment is gd. Negative numbers reflect dwnward cst shift fr private-label pairs sld t chain retailers in the regin and thus can help lwer yur price bid (which may give yur cmpany a slight cmpetitive advantage ver rivals that have plants in the regins and that cannt benefit frm any such exchange rate cst adjustment hwever, these rivals may nnetheless have a substantial net cst advantage because f nt having t incur any csts fr tariff payments (since they have plants inside the regin).