Algorithm,
Anyone?
FROM PUBLISHING
TRENDS (DECEMBER 2002)
Despite
being ritually deemed “the bane of the publishing industry”
and “one of the costliest aspects of the business,”
the problem of book returns remains an estimated $7
billion thorn in the industry’s side. Last year, BISG
figures show, the average adult trade hardcover
return rate was 37.5%, up 3% from the year before. Publishing’s
response? “There is no statistical measure” for forecasting
frontlist book demand at the world’s largest publishing
house, says a knowledgeable source, while “gut-feel”
remains the crude weapon of choice to battle supply-chain
surfeit.
If Barnes & Noble has its way, action on
ramping down returns may get shoved to the front burner.
Two years ago, B&N went live with an inventory control
system from i2
Technologies,
which has introduced “very sophisticated statistical
forecasting algorithms” to gauge title-by-title demand,
says Anant Mahale, i2’s Program Director in Consulting.
Replacing what was described as an ad hoc system, B&N’s
new program tracks about 100,000 titles that contribute
80% of the bookseller’s business. Based on past order
history, seasonality models, and other algorithms, the
system also takes into account the vagaries of supplier
lead-times — in effect, studying wholesaler or publisher
shipping errors and creating a special model for each
vendor — to predict how much inventory B&N needs
to keep in stock. Mahale says the system, now operating
at two distribution centers, has helped B&N slash
its inventory levels yet keep customers happy. B&N
executives have confirmed that the chain may well cut
inventory levels 30–40%, saving $4 million annually,
on top of a one-time $13 million inventory reduction.
To be sure, other vendors prowl the supply-chain space
— among them Manugistics, which has been working
with Scholastic, as well as TMS and its
Bookmaster system, whose US clients include Columbia
University Press — and there’s always the data provided
by Bookscan to help monitor sales. But algorithm
advocates say the industry’s holy grail — and a strategy
B&N has “expressed a lot of interest” in — may lie
in what’s known as a “collaboration solution,” whereby
a distributor and publisher work off of the same forecast,
so that publishers have advanced visibility into the
distributor’s needs.
Mike
Shatzkin’s Idea Logical Company, on the other
hand, has worked with nine publishers this year
on an analysis of one chain’s sales data. He thinks
the returns problem is due to too many decisions, and
not enough bandwidth to make them. “Barnes & Noble
and Borders are trying to manage 100 million
stock levels with a minimal level of automation,” he
says. “What can be done at the distribution center level
is important, and can make a critical difference to
fill rates and inventory carrying costs. But high returns
come principally from the impossibility of making timely
decisions on a title-by-title, store-by-store basis.”
At B&N, anyway, the proof’s in the profits. The
bookseller cited “improved margins” and “cost controls”
in announcing its third-quarter profit last month. And
a filing from bn.com trumpeted higher gross profit
and gross margin due to “an increase in the Company’s
internal fulfillment rate” as well as “more efficiency
in fulfillment and customer service operations.”
©2002
Publishing Trends
