Tuesday, November 28, 2006

Publishing Supply Chain Part Two

Structural flaws in our business will increasingly cause a decrease in the amounts of productive capital invested in our business. Publishers we are weighed down by the inefficiencies within the publishing business and unless we adopt more flexible processes and work more collaboratively with our partners in the supply chain business growth will be stunted.

Our industry continues to benefit from a technology-driven period of change based in part on Y2K and ERP system implementations. IT infrastructure is now more flexible and provides information far surpassing the data and analytics available in years past. Today’s systems are also leveragable; their implementations allow even further opportunities for efficiencies within the organizations where they exist and this has helped drive cost and process efficiencies.

Recently, the President of a large trade publishing house commented that his company had maintained their operating margins over the past five years by squeezing more and more cost out of their operations but he couldn’t see that continuing in the ensuing years. Other publishers have begun to understand that cost structures have been cut about as much as they can and effort needs to be focused externally to achieve margin improvement. Creating efficiencies in the supply chain is the only area where sustainable expense and cost savings can be found.

The elements exist for publishing companies to understand and proactively manage their supply chains. Data warehouse structures now support sophisticated analytical reporting across a broad range of metrics, including the development of models for projecting the sales of new titles based on past performance of an authors previous titles or predicting sales of a new title against titles with similar characteristics. Publishers using the data currently available to them have generated incremental operating improvements from their use but there remain significant gaps in data supply.

Supply chain problems manifest themselves in operational statistics that would not be tolerated in most other businesses. Order fill rates averaging 85% are common; meaning we may be loosing as much as 15% of potential revenue. Counter intuitive to this fill rate percentage, inventory levels are often excessive - absorbing cash, capital expense, and operating costs due to personnel, obsolescence, damage and shrinkage. At fault is a lack of knowledge of key supply chain data elements. For example, most publishers (with a few exceptions) can not see day-to-day demand and stock positions across the supply chain. If this information were available to publishers, they could be far more educated about inventory, printing and supply decisions.

The low fill rates above are not for want of trying. There is plenty of inventory with the publishers, wholesalers and retailers. Nevertheless, a publisher’s annual inventory turns of less than of 1 is common. And let’s not forget returns which average between 25 - 40%. Efficiencies can and have been made within organizations with better planning and forecasting tools. For example, while at Price Waterhouse I was involved in a project which increased inventory turn at a large trade publisher saving them $120million/year; however, this only got them to a turn of once per year. To really drive inventory down and turn up, the publisher needed to know where their inventory was in the supply chain, what was selling and what projected demand was for all their titles down to the level of the locations that held the inventory – stores, wholesalers, retail warehouses, etc.

Access to retail sales data and stock information at each level in the supply chain would enable publishers to make their operations more efficient. Retailers would be able to manage their inventory effectively but most importantly all participants would be better placed to satisfy customer’s requests resulting in improved fill rates. Publishers don’t want to be caught unable to fulfill a title and incorporate a high safety stock level into their printing decisions. Intuitively, better knowledge would lead to more effective distribution and therefore less returns and less need for high safety stock levels. The ripple effect is considerable; high inventory turns means less warehouse space, fewer returns means less freight and postage, processing and write-offs.

Publishing needs to adopt an “Intelligent Publishing Supply Chain” (IPSN) model governed by the demand of the final consumer. This drum beat will set the pace for the entire supply chain and is based on information flow and access across the supply chain. Obviously, a main component of this information flow is demand information at all stages of the supply chain with full collaboration between trading partners. To be effective in driving supply chain efficiencies publishers, retailers and wholesalers will need to establish collaborative practices and common standards across the industry. This will require a significant change in approach and perspective for all the players but the benefits will accrue to all parties. Collaboration across the supply chain is the only meaningful opportunity which will result in increased sales, reduced inventories, and reduced supply chain costs.

What might this IPSN look like? That is for my next post on this subject.

Supply Chain Part One.

1 comment:

meika said...

a non publisher based ISBN system for starters, < troll>and get rid of that Bowker monopoly< / troll>

wow you can turn the ISBN all the way up to 13!

should be some sort of author-date-format system

publishers will be filters at most soon, not much more than reviewers, perhaps less than printed matter shops