Supply
Chain Salvation
S&S,
Scholastic Among Houses Pondering the Product Pipeline
FROM PUBLISHING
TRENDS (SEPTEMBER 2003)
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 — see the remainder
dealers’ view — 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.
©2003
Publishing Trends
