S&S, Scholastic Among Houses Pondering the Product Pipeline
While a well-oiled supply chain has been an obsession among other industries over the last two decades, book publishers have only recently begun to put the product pipeline front and center on the radar screen as they try to banish “inventory obsolescence” — products washing up on the corporate doorstep that no longer have any value. Spurred on by the flourishing of high-sale, high-return retail channels, big technology upgrades (SAP, anyone?), better access to sales data, and the improving economics of shorter print runs, most major publishers have sought out fresh thinking about inventory management as they look to boost sell-through efficiency, drive down product costs, and ramp up inventory turn.
Granted, it’s not the sexiest thing in publishing. But increasing consciousness of supply chain issues throughout the industry — including Borders’ much-debated “category management” exercise, ubiquitous Bookscan data, and information streaming from Baker & Taylor and Ingram — has led executives to take a closer survey of any supply chain slack. From forecasting demand to manufacturing, shipping, and billing titles, all the way until that inventory drops into the hands of a purchaser, publishers are working more concertedly than ever to avoid the classic worst-case scenario: books going out-of-stock at one account (causing missed sales) while being overstocked at another (you’ve got returns). And while the bottom-line impact may be debatable, the quest for supply-chain salvation is no doubt on in earnest.
‘Just In Time,’ Not ‘Just In Case’
One of the most ambitious such quests has taken place at Simon & Schuster, which got rolling in August 2000 with the launch of its Supply Chain Management department, headed up by Cliff Walter, who had been Director of Inventory Control and Operations at Pocket. The supply chain unit consolidated all inventory management departments and demand planners, who resided in the sales organizations at the time. This effort was central to “our ongoing initiative to significantly improve sell-through efficiency across all segments of our domestic business.” The group got cracking on a replenishment model, forecasting sales by account for major titles. Within a year more consolidation was under way: S&S folded production, inventory management, and supply chain management together under Joe D’Onofrio, Simon & Schuster’s SVP Supply Chain, who in a prior role as VP, General Manager of Pocket helped bring about what the company called “a significant reduction in returns.” Finally, this summer S&S expanded D’Onofrio’s purview even further to include the distribution and order fulfillment functions, as well as an operations group that manages reporting, customer and vendor requirements, and purchasing. Now, every link in the supply chain — from demand forecasting and manufacturing all the way through to distribution and customer service — reports to D’Onofrio, who in turn reports to CFO Sam Judd.
In theory, the process works like this: At the beginning of each selling season, the sales team “grids out” what revenue they think the new list will generate, while the demand planners are working with sales and publishing management to establish initial distribution targets for major accounts. Key to this process is the use of previous title sales history and point-of-sale data from Bookscan and other feeds from wholesalers and retailers. Then the production department is prepped to tackle the timing and delivery of books, which are in many cases shipped direct from the bindery. In practice — for Hillary Clinton’s Living History, which went out the door with a million copies — “this whole process worked like a fine-tuned orchestra,” D’Onofrio says. His demand forecasters were getting daily point-of-sale information from major accounts. They met with publishers and the sales team twice a day, monitoring retail channels. Once they tracked a sales velocity, they then turned to the production department to schedule quick reprints, and vendors were cued to deliver the product on time.
This crucial last link in the chain has been bolstered with “cross-enterprise collaboration,” meaning that S&S has begun to forge strategic partnerships with suppliers, signing last year a “long-term, single-source arrangement” with printer Quebecor World. As a result, turnaround time has shrunk in some cases to five or seven days, giving S&S an extra week or two to monitor sales before hitting the reprint button. The result? “Hillary sell-through has been phenomenal,” D’Onofrio says. “On a book with distribution of 1.6 million copies in the marketplace in six seeks, we’ve already sold through 1.2 million.” Meanwhile, John Adams went through more than 30 reprints, with over 1.6 million copies in print and a return rate of “barely 6%.”
Just one question: How do demand planners and inventory managers avoid internecine warfare with the sales organization? Officially, the demand forecasting department acts “in an advisory capacity” to the publishers and the sales force, and as D’Onofrio emphasizes: “The publishers are in control. We provide recommendations, but they’re the ones making the call.” The relationship with the sales teams has also evolved over time, as a certain amount of re-education has been necessary for reps who have been conditioned that the bigger the order quantity the better. “In the old days, it was all about getting the biggest order you can get,” D’Onofrio says. “The new model is, ‘Go get me the best order you can get.’” Now, when a customer orders up 25,000 copies, S&S may demur. “We’ve said, ‘We’ll give you 20,000 and we’ll stage 5,000 for you. If the book starts to take off, we’ll respond.’ That’s a whole different mindset.” D’Onofrio cautions that his team has worked hard to avoid alienating customers — as happened some years ago when other publishers took a hard line on restricting order quantities. As D’Onofrio explains, “There are customers who have taken exception to us second-guessing them, but they’ve learned to trust our judgment as long as we’re able to respond to their reorders.” As D’Onofrio acknowledges, “It’s very complicated and intricate and requires the utmost coordination across the whole value chain to get the result that you want.” Still, getting all of the players in the supply chain in the same room together is, at very least, a novel step in the right direction. “They’re part of the process. That never happened before,” he says. “At the end of the day, it’s all about getting the right product to the right place in the right quantities at the right time.”
Quarterbacking ‘Captain Underpants’
With a task as mammoth as the distribution of Harry Potter — or a “huge selling” education program like Read 180, which includes paperbacks and audiobooks as well as CD-ROMs and teacher materials, all packed in an inventory manager’s nightmare of 13 crates — you’d think Scholastic would also be burnishing its supply chain links. Indeed, the publisher has “invested very heavily” in the people, processes, and technology to give its big titles a better bounce, according to VP Supply Chain Pete Datos. At Scholastic, an inventory forecasting and planning revamp had just gotten under way when Beth Ford, SVP Global Operations and Information Technology, came on board in August 2000 and grabbed the reins. Specifically, the company targeted cost savings on products such as Captain Underpants (the new title just now shipping has a print order of 1.6 million) that are sold across a number of channels, including book clubs, fairs, and the trade market. “The whole idea was to drive cross-channel visibility of our inventory requirements,” Ford explains. As the centerpiece of its technology platform, Scholastic selected a Manugistics suite of supply chain software products, and in early 2001 Ford created the new position of VP Supply Chain, and brought in Datos from Unilever to shepherd the day-to-day activities, reporting to Ford. Finally, last fall the company began centralizing some of its planning operations, particularly on the supply side.
Here’s the drill at Scholastic: Datos oversees all capacity and scheduling functions, on the one hand, and inventory management, on the other, in addition to a planning and analysis group — with a few Joe Montana moves thrown in. “Pete’s role is to give a crucial weekly, monthly, and quarterly view of what’s happening across logistics, across manufacturing, and in the channels,” says Ford. “He sits right in the middle of all this activity and plays the quarterback role with all these different functions.” (Ford’s role is more analogous to D’Onofrio’s at Simon & Schuster. Among those reporting to Ford are Datos’ planning group; the logistics group; purchasing and manufacturing; and the warehousing group. Ford in turn reports to Scholastic CEO Richard Robinson.) At Scholastic, demand planning is carried out within each division, because demand drivers are different for each channel. Datos’ task is to consolidate these forecasts, time-phase them, and develop an appropriate inventory plan based on vendor and warehouse capacity. “Instead of asking the division what to print, we’re now asking them what they’re going to sell,” Datos explains. “We’re consolidating that across the channels and then deciding what to print.”
And that’s where the database comes in. Weekly updates of inventory positions in the company’s Jefferson City, MO warehouse are fed into the system, as well as sales information, and weekly master plans are generated — though Harry Potter required a detailed daily delivery schedule. (In the unfortunate event of a stock shortage, the planning group defers to each of the divisions to decide who gets what inventory.) At the same time, Scholastic has developed its system to offer vendors better visibility into its print capacity needs, and is working on an EDI link with R.R. Donnelley, the long-term vision being to integrate its system more usefully with both vendors and customers.
One might rightly wonder if consumer products strategies can work for books as well as they do for, say, cartons of Lipton tea. “It’s amazing how many of the analytical methods really do work across industries,” Datos reports. When Scholastic first deployed a technique used in other industries known as statistical safety stock — a way to forecast a bottom-line inventory number to cover fluctuations in demand — there was some doubt whether it would work for books. But — small wonder — Scholastic found this formula does a bang-up job for the publishing industry, allowing the company to take into account its “historical forecast error” and arrive at a minimum inventory level for each item. “It makes a lot of sense to have a safety stock level on our items that are regular evergreen titles,” Datos says. “There’s a real way to make sure that you don’t run out of stock.”
It’s clear that supply chain innovations have paid off for larger businesses. But should other houses order up a Manugistics implementation? Some say their nimbleness makes all the supply-chain difference. “Our size is an advantage,” says Jack Perry, VP Sales, Marketing, and Publicity at Sourcebooks. “We can’t outspend Scholastic. But we can communicate better. We’re also able to move faster. We don’t have to wait for 12 people to make a decision.” Still, Perry says tighter inventory control has reduced returns by 24% so far this year, driven by shorter, more frequent reprints: “We may do a reprint every couple of weeks. It does cost us more per unit, but instead of doing 20,000 we may find we only needed 15,000. We can skip that last reprint and it saves us from being overstocked.” Downloadable sales information has also helped level the data playing field. “In the past, large publishers had access to a lot of information that other publishers couldn’t get,” he says. “Bookscan has given smaller publishers more information, so we can now make these decisions.” In the academic publishing world, Oxford University Press USA has been able to drive a notable decrease in inventory costs via a print-on-demand partnership with Lightning Source, according to SVP Operations Brinton Strode. About 4,600 titles are now available on a POD basis, making sales of $2.5 million last year, and since Lightning has facilities in both the US and UK, Oxford can access the full breadth of its list from either side of the pond and drop-ship those titles for delivery as necessary.
How do souped-up supply chains look from the other end of the pipeline? “The major publishers have come a long way in working with accounts,” says Jean Srnecz, SVP Merchandising at Baker & Taylor. “They’re trying to take time out of the supply chain by more and better EDI relationships, and they’re making better use of the available information in the marketplace.” B&T’s own studies show that return rates are closely related to title lead times: the longer it takes between order placement and availability for sale, the higher the returns. Srnecz stresses that the company’s Title Source database offers publishers access to demand, on-hand, and order positions, in addition to custom reports. There’s always a downside, of course, when the supply chain turns into a trickle. “Returns are a cost of sales and marketing,” Srnecz says. “You need to model what the price of the book can absorb, and then work your supply chain metrics accordingly, watching the rate of sale day-to-day or hour-to-hour. Title Source is updated daily, and has a click through feature that allows near real-time access to inventory information.”
Other wholesalers credit publishers with aiding their own supply chain strides. “We definitely have seen a trend over the last few years, with primarily the larger publishers,” says Kelley Maier, SVP Product Management and Marketing for Ingram Book Group. “We’re not only seeing a positive impact on sell-through, but big benefits in inventory turn and in-stock rates both for Ingram to our customers, and also from our publishers.” Ingram’s fill rate on its nearly 750,000 titles is close to 90% — “the highest fill rate we’ve ever seen,” says Maier. She adds that Ingram’s ipage portal is being developed as an electronic feed that will push data directly into publishers’ systems, a function expected to go live with a select group of publishers in January.
We thank Mike Shatzkin of The Idea Logical Company for his contribution to this article.