Reengineering the Book Publishing Supply Chain

March 4, 2015 by Thad McIlroy

The subject of the book publishing supply chain has been with us since IT enabled the recording of supply chain metrics. This allowed managers to plan process improvements based on solid data, not just seat-of-the-pant suppositions. As the results came in the publishing industry soon learned that it was not winning the supply chain battle. Back in 1998 a KPMG report (ppt) on the U.K. book publishing industry supply chain notes that publishing “is more costly and wasteful than other consumer goods sectors. Publishers’ logistics costs are 13% of sales, amongst the highest in industry (average costs to a typical consumer goods manufacturer are 6%).”

I think that we are entering an exciting new era in supply chain management and process improvement. There are two reasons for this. On the physical side, “total inventory management” programs reverse the equation. Instead of a publisher bearing responsibility for the efficiency of its supply chain processes, specialized distribution vendors step in and take responsibility for the chain. Their dedicated efficiencies provide them with costs low enough to be able to share the excess with publishing partners.

The second reason is digital. Most publishers continue to treat their digital production, distribution and marketing as something related to print, but standing just a little behind it, a bastard child trying to climb into the playpen. I think that the integration of digital with print offers publishers the big hit on solving the supply chain problem. It’s a complex rewiring of current workflows, but the rewards are worth the effort.

I’m going to spell out some of these ideas in a series of blog entries. My plan is to later write a report directed to all publishers, particularly smaller ones, showing them how to take advantage of the changes in supply chain technology and processes.

 

Let’s start with two diagrams that fill the page, courtesy of publishingtrendsetter.com, a great early (i.e. 2007) chart, and something a little more modern.

LifecycleTwoCharts

The chart on the left is focused mostly on the manufacturing and distribution aspects of the supply chain, while the chart on the right is “holistic” by including actual writers, agents, editors, designers and the whole marketing and publicity machine. As a result it’s more unidirectional than the first chart which captures the problem of returnability of printed books.

The Archetypical Supply Chain Diagram

The Archetypical Supply Chain Diagram © www.theprogressgroup.com

Indeed the notion of supply chain should start out with a very simple concept, moving raw materials through to processing (manufacturing), distribution and then on to the customer.

Wikipedia has one of its monster entries on Supply Chain, 2100 words, 25 footnotes and 35 “see alsos.” Investopedia brings it down to basics: “The supply chain encompasses the steps it takes to get a good or service from the supplier to the customer. (Italics mine.)

The key points are in those italics: (i) the supply chain concerns goods or services, and then (ii) moving those goods or services from a supplier to a defined customer, i.e. moving books to readers.

Problems in the Publishing Supply Chain

The publishing industry’s supply chain has never been a model that other industries have tried to emulate. As noted above, the publishing industry has had a long-term struggle with supply chain issues.

The publishing supply chain for printed books has always been plagued by two key problems:

(1) The cost of book printing, and deciding the number of copies to print.

(2) Physically moving books from a publisher’s warehouse to the distribution points, primarily chain and independent booksellers.

It sounds simple but complexity soon layers the challenges. For example:

(a) Publishers traditionally work with multiple printers, receiving bids for each new title on a competitive basis. Not only is this time consuming for the publisher it extracts profitability from the printing industry. It has lead, in part, to the tremendous consolidation of book printers that we’ve seen since over the past two decades. I have in my archives a June 2007 article from the printing industry trade magazine, Graphic Arts Monthly (which was shuttered in 2010) stating that “of the 101 companies that appeared in Graphic Arts Monthly‘s first GAM 101 list of top printers, published in 1983, only 16 companies remain.” The most recent chart of the “Top 30 Book Manufacturers” was published in 2009 (PDF), six years ago. Just half of the top ten companies continue to operate independently; three have exited book printing altogether. Most recently R.R. Donnelley outbid Quad/Graphics to buy Courier Corporation (founded in 1824). Consolidation will continue.

In theory consolidation removes capacity from book printing and so drives up the price printers can charge. There is so much print capacity that pricing has had a long fall, but the latest reports from Printing Industries of America (membership required) show prices beginning to slowly climb as the economy improves. The question for publishers in seeking competitive pricing from the declining pool of print providers is whether the supposed savings offset the overhead of managing the competitive bidding process, and, more importantly, the cost of managing a larger supplier base.

(b) For most books, in the category underneath midlist, deciding the number of copies to print is straightforward. Add up the advance orders and then increase the order size according to your recent experience in selling books in this category. For example library orders lag bookstore orders and the estimated orders from this market need to be built in at publication time.

Print-on-demand is now a viable alternative to offset printing for books that have no advance retail sell-in. Most of the orders will be from libraries and colleges. The slightly higher cost per printed copy is more than balanced by the savings both from not maintaining copies in inventory and from eliminating returns (or nearly so).

(c) The number of copies to print both of midlist titles and of titles expected to hit the bestseller lists remains a crap shoot. In pre-Internet days book consumers were accustomed to sometimes finding bestsellers out of stock at their favorite bookstore. They were generally patient and relatively loyal — willing to wait a week or two until stock was replenished. In these days of information overload the intention to buy a single title is quickly lost or diminished if stock is not immediately available. The buyer moves on to the next written or visual distraction.

The big 5, and other larger publishers, still have the power to stuff a lot of inventory into the supply chain. But the chain retains the right to return unsold books. This in turn has created an industry of “remaindered” books, offered generally at a retail price discounted by a third to three-quarters. A current hot remaindered item at American Book Co. is Dr. Mike Moreno’s The 17 Day Diet Breakthrough Edition. It’s still selling well on Amazon (at exactly the “#1,000 in Books” ranking), but American Book Company has 4,700 copies available that it’s offering to booksellers for about 10% of the original list price (which means it paid half that). This is not an example of supply chain efficiency. (Although there’s no question that publishers do everything they can to minimize the impact of this familiar dilemma.)

(d) The movement of books from the printer into the supply chain has become sophisticated, efficient and cost-effective. The largest publishers offer state-of-the-art warehouse facilities, as does Barnes & Noble in support of its 1200+ trade and college stores. Smaller publishers can access similar distribution facilities from dedicated distributors. The issue here is a simple one: each digital copy sold can bypass the costs of physical distribution, regardless of its relative efficiency today.

 

To be continued…

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