The more than 100 people who attended the Book Industry Study Group's "Making Information Pay" conference February 4 heard speaker after speaker say that if the industry is to become more profitable, the different players in the supply chain must do a much better job sharing information and then acting on it.
Michael Cairns, president of Bowker, set the tone by asserting that publishing must become more of a collaborative effort among the different industry members. He said companies must rebuild partner relationships to give everyone access to the same information, because the lack of trust among industry members is hindering efficiency. Cairns gave a similar address at last fall's Frankfurt Book Fair; he said that since then he believes people in the industry are "talking more," but he acknowledged that it will be an evolutionary process to get all sectors of the industry working together.
During his remarks Cairns suggested that the supply chain is "the next frontier" for finding savings, a statement supported by Sourcebooks publisher Dominique Raccah. With top-line growth sluggish, gains in profits will come from taking costs out of the business, she said. The areas where Sourcebooks has focused its efforts include advances, inventory and returns. When developing what an advance should be, Sourcebooks uses BookScan figures and other information to "help rationalize the predictive process," Raccah said. An author's previous sales plus sales information from other titles in the particular category can help the publisher get a better idea of what the demand for the new book will be, Raccah said.
More accurately matching supply with demand will not only help determine a fair advance, Raccah said; it will also help decrease unsold inventory. Sourcebooks makes its inventory decisions by looking at reprints and first printings. In managing reprints, Sourcebooks examines where the demand for the reprint is coming from, why the reprint is needed and what is the inventory on hand in the channel; the company also reviews sell-through information with its major accounts.
First printings are more risky to gauge than reprintings because you have less information, Raccah said. Sourcebooks has "very aggressively" lowered its first printings while planning for more reprints. In adopting this approach, Raccah said, Sourcebooks works closely with its printers to decrease print cycles as much as possible. Sourcebooks also uses different benchmarking practices to determine when the reprint button should be hit; Raccah finds the inventory-days-on-hand benchmark the most helpful. The most expensive printing is the last, Raccah said, "because you don't know it's the last." By using marketplace information it may be possible "to turn off" the last printing, she said.
Better management of inventory helped Sourcebooks lower returns by 25% in 2003. Sourcebooks uses the inventory information it has in conjunction with its customers. "You can't make decisions in a vacuum," Raccah noted, adding that working closely with customers is key to reducing returns. While smaller first printings and more reprints may raise the cost of goods sold, they will lead to more cash on hand at the end of the day, she said.
Raccah said reducing returns is critical to fighting what she sees as a "fundamental devaluation of books" by the growing remainder and used book markets. Jean Srnecz, senior v-p for merchandising at Baker & Taylor, agreed that returns put pressure on prices and that cash is king. The way to lower returns and increase cash is for publishers "to collaborate on infrastructure and compete on content." To improve the efficiency in the supply chain, publishers need to appoint a supply chain person "who understands the business" and can work with the growing number of channels book are sold in, Srnecz said.
First-printing decisions must be made rationally, she said. Too many publishers still rely on pushing through as many orders as they can, but B&T is limited "by the financial guys" to the total number of books it will take, she explained. Srnecz stressed the importance of shortening lead time in maximizing sales and minimizing returns. "Lead time is the gunk that clouds the window on forecast," she said. Srnecz said when lead time goes beyond 15 days returns go up and turns go down.
In terms of inventory, Srnecz said, it is not cost-effective for B&T to have enough stock on hand to ensure that it can fill 100% of orders. The company would need to double inventory on a title to get 99% of sales. B&T can get 90% of sales by keeping inventory at a manageable level, she said, a model that leads to greater profitability. Srnecz argued that with the growth of print-on-demand publishing, titles should never go out of print. Taken as a group, POD suppliers now are one of B&T's top 50 vendors, she said.
Srnecz offered a number of concrete ideas for publishers going forward. She said children's publishers need to be able to get reprints done in four weeks, and should standardize trim size if it improves turnaround time. Children's publishers should also keep their backlist alive since funding patterns are irregular and can change quickly. For publishers in general, Srnecz advised that operational efficiency should be a priority when doing product design and developing packaging. Publishers need to invest in information technology and develop a data warehouse and analysis tools. Data should be the "DNA of your organization," she said. And finally, publishers need to collaborate with others.
In touting the benefits of using BookScan, Jonathan Nowell, president of Nielsen Book, said publishers should set "high return rate reduction targets" for themselves. He said that when U.K. publishers fully adopted the point-of-sale system, industrywide returns fell from 19% to 12%.
