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The UK Book Industry
Unlocking the Supply Chain‟s Hidden Prize
16th February 1998 Working together for a more profitable industry Management report
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Book Industry Supply Chain Project Phase 1 - Conclusions
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The current book industry supply chain structure is complex and costly, characterised by high fragmentation, few economies of scale, and many-to-many trading relationships
At root are fundamental issues about the nature of the publishing and bookselling process
The structure is the legacy of an age of large batch sizes and infrequent orders and is not relevant to today‟s little-andoften ordering patterns
There is an inevitable tension between the creative processes in publishing and bookselling and the technical disciplines of supply chain management
There is little exploitation of opportunities for economies of scale in physical distribution and transaction processing Trading relationships are complex, largely adversarial, with little partnership activity There is little joint planning across the supply chain
The long tail of slow moving titles is responsible for a disproportionate share of costs and wastage The very high number of new titles is dealt with inefficiently and cause lost sales, high costs and wastage Little-and-often ordering has reduced returns somewhat, but sales are being lost in the process Category management and demand planning are not properly understood or applied in the book industry Opportunities for electronic commerce are not being seized
The competition for retail exposure causes Publishers to push stock into the supply chain, accepting the risk of returns this creates. Partly this is due to:
– – – – dependency on new titles shortcomings in the responsiveness and efficiency of the supply chain perceived limitation of retailers‟ re-ordering policies retailers not incentivised to resist because they carry little stock risk
There are a number of obstacles to change to be overcome for the industry to reap all the benefits available
These include mistrust of trading partners‟ motives, complacency, the difficulty of balancing requirements for individual versus industry-wide benefits, and short-termism
There is a pressing need for action, as financial returns are low, and there is major competition for consumer attention and spending
Book Industry Supply Chain Project Phase 1 - Recommendations
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Phase I has identified a number of quick wins that industry players can initiate by themselves
These will have a material impact on the supply chain within one year
The industry needs to take co-ordinated action in five interrelated areas to move from high cost trading conditions to more effective and efficient trading relationships
Improvements in transaction processes Partnership trading arrangements in list and demand management
Improved stock management and better use of printing and distribution capacity Distribution efficiencies Reduction in the level and cost of returns
We recommend a number of priority and longer term projects that form a strategic change programme to unlock the benefits available
An industry pressure group of senior executives should be appointed to overcome existing obstacles, drive through the change programme, and co-ordinate industry action
KPMG also recommends that the industry establish formal liaison mechanisms between the Booksellers and the Publishers Associations to reflect their common supply chain
Book Industry Supply Chain Project Phase 1 - Description
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Project description
Identify the opportunities available to the book industry to reduce operating costs and increase service levels through improved supply chain management
Project objectives
Analyse the cost of the common processes in the supply chain Size the prize by analysis of the scope for cost reduction and improvements in customer service by comparison with best practice in other sectors/markets Identify quick wins achievable and outline scenarios for alternative solutions
Project scope
The focus is on the UK retail book trade, and encompasses publishers, printers, distributors, wholesalers and retailers
Project deliverables
Costs involved in the common supply chain processes and the potential benefits available to the industry Where the major benefits might lie, and what options are available for action What benefits there are for individual sectors in the industry What quick wins are available immediately
Book Industry Supply Chain Project Phase 1 - Summary of Findings
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Book industry spend on the UK retail supply chain is £3/4 billion per annum
The industry is more costly and wasteful than other consumer goods sectors
– publishers‟ logistics costs are 13% of sales, amongst the highest in industry (average costs to a typical consumer goods manufacturer are 6%)
Returns alone cost about £100 million per annum, each return typically costing a Publisher £1 and a
Retailer 50p
Inventory management through the supply chain is uncoordinated. The result is more than 60 weeks
stock in the system.
There is substantial stock wastage which is inflated by inappropriate supply chain processes (up to
20% of total production)
Real service level requirements are unclear and show wide disparity both in delivery and perception
3% of titles sold make up 50% of unit sales in traditional bookshops yet there is no differentiation in the
supply chain between major and minor titles
Consolidation of distribution is still comparatively low, leaving an industry characterised by many-to-
many trading relationships and limited economies of scale
– booksellers can source 80% of their requirements from 29 distributors, yet individual stores still deal direct with a multitude of smaller suppliers
Benefits available from an industry-wide change programme could exceed £150 million per annum
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Introduction
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The supply chain has become a much quoted phrase and its importance was highlighted at the 1997 Booksellers Association conference in Dublin. There is a substantial prize for all players if the industry can move towards a more efficient supply chain model
The book industry's supply chain is particularly complex and has to handle a large number and wide variety of products. It involves many different players (publishers, printers, distributors, wholesalers, retailers) and many common processes and related information flows (e.g. buying, distribution, sales, customer service, returns) The key to achieving the benefits available from improved supply chain management is to simplify and standardise these common processes by co-operation between trading partners. All players can benefit from lower operating costs, improvements in customer service and a reduction in lost sales
To achieve change requires industry focus. In order to address the challenge, the PA and the BA together set up a steering committee to identify the size of the benefits locked within the supply chain and how to release them in ways which bring mutual benefit to all players
This management report summarises phase 1 of the study
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Objectives and Scope
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The scope of the study focused on the core components of the UK retail supply chain
Supply chain Library and school supplier Printer
Institutions
Wholesaler Author/ illustrator Consumer/ reader
Publisher
Distributor
Retailer
Scope definition Flow in scope
In scope
Book Club
Flow out of scope
Out of scope
Export channels
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Approach
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Our study focused on those processes which were common to participants in the chain
Buying Distributing Selling Customer service Returns Informations flows
Publisher
Printer
Process shared across industry
Process not shared by player
Distributor
Wholesaler
Retailer
Approach
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The process for change was phased with clear objectives and deliverables at each stage
Phase 1: Assess the scope for improvements in supply chain management within the industry
Analyse the cost of common
Phase 2: Design an optimal supply chain model and recommend a procedure for realising benefits identified in Phase 1 including:
Description of alternative models and
processes in the supply chain
„Size the prize‟ by analysis of the
scope for cost reduction and improvements in customer service by comparison with best practice in other sectors/markets
Identify „quick wins‟ achievable and
scenarios for future management of supply chain, and analysis of their strengths, weaknesses and benefits
Recommendations for optimal design and
performance methodologies for industry
Recommendation of procedures for attaining
Phase 3: Implementation of recommendations from Phases 1 and 2 through multiple projects
the identified benefits
Clear and implementable action plan
outline scenarios for alternative solutions
showing ease and cost of implementing each element
Approach
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During phase 1, the emphasis has been on collecting and analysing high level data in order to develop options and approaches to change and build commitment for phase 2
Step 1: Planning Step 2: Data collection Step 3: Data analysis and option development
Agree information requirements
Conduct discussions with management of participants and other industry players
Identify opportunities and potential barriers to change Develop options and approaches to change Identify potential benefits
Compare with best practice parameters
Mobilisation
Agree participation criteria
Validate information request
Roll out to participants
Validate and analyse information
Agree participants
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Participants
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Leadership for the project was provided by a steering committee comprising 14 senior industry figures
Project structure
Steering Committee BA Council
Iain Burns (Aspen Group) - Chairman Ian Taylor (Publishers Association) - Secretary Charles Ashford (Marston Book Services) Sydney Davies (Booksellers Association) Toby Faber (Faber & Faber) Alan Giles (Waterstone‟s) Brian Green (BIC) Les Higgins (HarperCollins) Terry King (THE) Michael Johnson (Devizes Books) Shirley Noakes (W.H. Smith Retail) David Pemberton (TBS) Joe Sinyor (Dillons) David Young (Little, Brown)
PA Council
Participating companies
BIC Supply Chain Focus Group
KPMG Core Team Sarah Charles: lead partner Gary McIlraith: supply chain partner Alan Newman: engagement director Kirti Thanki : engagement manager Andrew Hodder-Williams: publishing specialist Andrew Tidey: wholesaling/retail specialist Chris Stanley: distribution specialist Simon Hay: supply chain analyst Tim Harwood: supply chain analyst
Other KPMG Resources Global supply chain practice Global book industry network Other industry expertise
Participants
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Quantitative and qualitative data was gathered from a representative sample of the industry
Data providers
Publishers Printers Distributors Wholesalers /RDC/Library Supply
Bertrams THE WHS Swindon
Interviewees (from data providers except as specified)
Retailers Publishers Printers Distributors Wholesalers/ RDC/ Library Supply
Julian Rivers
Retailers
Random House Macmillan Press HarperCollins
Clays (St Ives) Bath Press
TBS Macmillan Distribution
WHS Retail Waterstone‟s Dillons Tesco Devizes Independents „panel‟
Simon Master
Gary Iceton
David Pemberton
Beverley Hodson Alan Giles &
Adrian Soar,
Dominic Knight & Liz Warner
Les Higgins David Young Peter Ferris Toby Faber Philip Kogan &
Peter Palframon & David Smith
Richard Tucker
Jeff Prince
Chris White
Charles Ashford Tony Wagstaff Desmond Clarke
Martin Lee
Joe Sinyor Fiona Kennedy Michael Johnson Mark Wait
Marston
Thomas Cork
Ian Walker
Biblios
Little, Brown Wiley Faber & Faber Kogan Page
(ITPS)
Alan Martin (IBD)
(Heffers)
Mark Clutterback
(Johns Booksellers)
Matthew Huntley
Gordan Watts
Mark Barty-King
(P&G Wells)
Malcolm Gibson
(Transworld)
Anthony Forbes
(Volume One)
Watson & Andrew Welham (Penguin)
Others:
Tony Ferratro (Securicor) Mike Barnard (PIRA/Macmillan) Shaun Plunkett (EMI) Cees Hagenbeek & Henk Geer (Centraal Boekhuis) Paul Pounsford (Teleordering) Richard Knight & Jeremy Neate (BookTrack) Dennis Bennett (VISTA Computer Services) Iain Burns (Aspen Group) Ian Taylor (Publishers Association) Sydney Davies (Booksellers Association) Frank Fishwick (Cranfield Business School) Brian Green (BIC) BIC Supply Chain Focus Group
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Analysis of current situation
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The study focused on the one third of UK publishers‟ revenues derived from the UK retail channel
Publishers invoiced sales (1996)
UK via retail channel UK via non retail channel* c £0.95 bn c £0.95 bn
Mark up
UK total consumer and institutional expenditure on books (1996)
Via retail Via non retail* £1.5 bn £1.2 bn
£0.55bn £0.25bn
UK expenditure £2.7 bn Export Total £0.9 bn £2.8 bn
* non retail defined as direct, institutional, bookclub and other non retail channels
UK publishers‟ revenues are derived broadly 1/3 from UK retailers, 1/3 from overseas, and 1/3 from other UK sources (including institutional and direct supply)
The UK component of distribution costs incurred by publishers from wholly owned or outsourced operations was estimated at £215 million Revenues of trade and merchandising wholesalers were estimated at £260m invoiced value
Source: PA, BA, Book Marketing Ltd, Participant Data, KPMG
Analysis of current situation
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The UK book industry is characterised by the huge range of publishers selling through the retail channel
Publisher Sales
100
The size of the publisher tail
Number of imprints publishing in year Number of titles published
% of sales
Larger imprints
% titles published by larger imprints
80 60 40 20 0
33%
1996
56%
9,188 8,844 8,509
108,625 102,703 97,494
1,436 1,409 1,378
84% 84% 83%
1995 1994
10
39 No. of Publishers
Source: P.A. KPMG, Book Marketing Ltd, retail participant
> 15,000
Notes: Larger imprints are those publishing more than 10 titles in a year Large publishers may own many imprints Not all imprints publish each year (16,742 different imprints have published in the last three years) 48,000 imprints are recorded on Whitakers Bookbank
Source: Whitakers
There is a low concentration ratio in the UK industry – the market share of the leading publisher is less than 9% by value The difficulty of controlling information about titles grows year on year
Almost 17,000 “imprints” published titles between 1994 and 1996
Analysis of current situation
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The retail base is more concentrated than the publishing community, but there is still a long tail of smaller accounts
Retailer Sales
100
700 600
UK Independent Booksellers by Book Turnover
(source: The Booksellers Association)
% of sales
80
No. of outlets
70%
500 400 300 200 100
60
42%
40 20 0
5
25
Number of Retailers
3,312 *
0 0-50 50100 100200 200300 300400 400500 500750 750- 1000+ 1000
Source: B.A. KPMG (* 3,312 = B.A. membership)
Sales £ 000's
With a few notable exceptions, localised store buying and direct delivery to store is the norm EPOS system penetration is not complete, but initiatives by chains should see major gains in 1998 Small deliveries are required for both smaller and larger retail customers
Analysis of current situation
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3% of titles sold make up 50% of the total volume Sales analysis by title
50000
Number copies sold 40000
30000
20000
10000
0 1 51 101 151 201 251 301 351 401 451 501 Ranking of title
The remaining 50% of volume is derived from a long tail of slower moving product The “tail” includes titles aimed principally at the non retail market, or whose economics depend on international co-editions These figures do not include those titles for which no sale was recorded!
Source: Booktrack, based on data from their “£600m” high street bookshop segment, which excludes supermarkets, multiples, academic and religious bookshops, over three month period
Analysis of current situation
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Booksellers can source 80% of their requirements from 29 distributors and 53 publishers, yet individual stores still deal directly with a multitude of smaller suppliers
Comparison of number of publishers and distributors making up 80% market share of £600m high street bookshop market
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53
Market share
M arket share - publishers M arket share - distributors
Number of companies
Consolidation of distribution is still comparatively low leaving an industry characterised by many-to-many trading relationships
Source: Booktrack, again based on data from „high street bookseller‟ segment
Analysis of current situation
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Industry stock levels are driven up by the tendency to focus on unit print costs rather than title life cycle costs
12
10
Cost / unit (£)
8
6
4
Hardback Paperback
2
0
250000
Print run size
Source: KPMG sample data, fully illustrated titles excluded
The print decision is still often dependent on achieving target unit costs, not on actual forecasted demand
Average paperback print runs are half their levels ten years ago but many more titles are printed annually
Minimum print quantities can only be further substantially reduced by implementation of digital and on-demand technologies Experts suggest that within 5 to 10 years, printing on demand will be cost effective for books currently printed in batches of 5,000 to 10,000
Analysis of current situation
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The UK book supply chain is more costly and wasteful than most other consumer goods sectors
FMCG manufacturer logistics costs
20
15
% of sales
10
5
0
FM CG manufacturers average
Publishing equivalent
Stock holding in consumer products
70 60 50 40
No of weeks
30 20 10 0 FM CG Best Practice Records Books
Sources:
KPMG Supply Chain Excellence Awards 1997 KPMG participant data 1996 calendar year
Analysis of current situation
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Despite the reduction in print run sizes, there remains at least 60 weeks of inventory in the book supply chain
Retailer Distributor
559m units 41 weeks
W/saler 8m units 7 weeks
41.4m units
16 weeks
Source KPMG participant data
Industry feedback suggests that 64 weeks inventory may be understated Whilst the bulk of stock is held at the distributor, 16 weeks of stock at retailers is high for the retail sector These „average‟ figures distort individual companies‟ performance
– – academic publishers would typically have substantially more than 41 weeks inventory for large booksellers, stock levels of between 20 and 40 weeks are more frequent
Analysis of current situation
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There is a wide variation in processing efficiency across the industry
Distributor sales orders* Average order size
Processing cost per order Processing cost per book % electronic orders
Wholesaler sales orders* 34 units
£13.61 40p 78%
Retailer purchase orders 22 units
£2.18 10p 80%
53 units
£20.35 38p 35%
Source: KPMG participant data - *all orders received, home and export
Penetration of electronic commerce is mainly in the orders area
– faxed and telephoned orders are common especially at peak seasons
–
–
some retailers report telephoned orders are processed quicker than EDI orders
publishers report examples of bad practice usage of EDI at retailers
Similar average processing costs per book mask the difference in efficiency between distributors and wholesalers
–
–
distributors' orders include a larger proportion of high volume export, bookclub and centrally shipped orders which are cheaper to process than orders from core bookshop business wholesalers' consignment sizes to the retail channel are on average much larger than equivalent distributors' figures
Distributors report that the „small order problem‟ is just as acute from major and medium sized chains as it is from smaller retailers
– 60% of one major distributor‟s invoices are for less than £60
Analysis of current situation
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Wastage in the book industry appears very high at up to 20% of total production
Returns Returns units
(as % total sales)
Returns destroyed
(as % total returns) at customer at distributor
Returns back to stock
(as % total returns)
Publishers sample Distributors sample
7-14% 7-14% 6-10%
59-98% 12-75%
2-44% 25-88%
Source: KPMG participant data - home & export
Wastage Remainders Returns destroyed Total wastage
As % of total production
5-8%
8-12%
13-20%
Source: KPMG participant data - home & export
Total returns reported at 9% of gross units for all home and export sales
Returns for UK retail trade reported in range of 14 to 20%
Total wastage is combination of overproduction and returns
Analysis of current situation
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Service level requirements are unclear and show wide variation both in delivery and in perception of delivery. The difference in the roles of distributors and wholesalers in serving the retail channel is unclear
Retailer Distributor
(service provided) (service received)
10% 24 hr 59% 72 hr 31% > 3d
W/saler
(service provided)
2 % 24 hr 12 % 72 hr 86 % > 3d
?
49 % 24 hr 46% 72 hr 5% > 3d
C o n s u m e r
Source: KPMG participant data
No real industry understanding of consumer service requirements
Distributors are competing with wholesalers to offer next day delivery
“Hotlines” are becoming more dominant at peak selling seasons Retailers report delivery ranges between 3 and 14 days
One major chain reports that 30% of deliveries received are incorrect
Analysis of current situation
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Our analysis indicates that the cost of the “common processes” is almost 40% of sales
The cost of the UK Book Industry Supply Chain (1996)
39
100
Figures in £ m
214 £m 327 153 202 57 739 % Sales 17 8 11 3 39
90
80
Logistics Costs * Sales & Marketing In Store Customer Service** Obsolescence from returns and financing cost *** Total Cost of common processes
*
% Total cost
70
161
60
50 40
258
30
20 10
67
All costs excl. sales & marketing, retailers customer service cost, obsolescence and stock financing Balance of customer service costs, those incurred by distributors and wholesalers, included in logistics Financing cost of 10% assumed on inventory at printed cost
** ***
Distributing
Order Processing
Returns handling & destruction
Customer service
Selling
Source: Participant data 1996 Calendar year
Analysis of current situation
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The cost of returns to the industry is circa £100 million
The cost of returns to the UK book industry (1996)
100
90 80
39
Figures in £ m
% Total cost
70
60 50
15
13
Outbound Logistics Inbound Logistics Sales & Marketing Obsolescence from returns and financing cost * Total cost of returns
£m 25.6 28.2 13.8 28.4 96.0
40
30 20
9 20
Returns cost = 12.9% of total cost
* Financing cost of 10% assumed on inventory at marginal cost of production
10
Distributing
Order Processing
Returns handling & destruction
Customer service
Selling
Source: Participant data 1996 Calendar year
Analysis of current situation
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At root are fundamental issues about the nature of the publishing and bookselling process
There is an inevitable tension between the creative processes in publishing and bookselling and the technical disciplines of supply chain management There is little exploitation of opportunities for economies of scale in physical distribution and transaction processing
Trading relationships are complex, largely adversarial, with little partnership activity There is little joint planning across the supply chain The competition for retail exposure causes Publishers to push stock into the supply chain, accepting the risk of returns this creates. Partly this is due to the following:
– – – – dependency on new titles shortcomings in the responsivness and efficiency of the supply chain perceived limitation of retailers‟ re-ordering policies retailers not incentivised to resist because they carry little stock risk
Analysis of current situation
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The current book industry supply chain structure is complex and costly, characterised by high fragmentation, few economies of scale, and manyto-many trading relationships
The structure is the legacy of an age of large batch sizes and infrequent orders and is not relevant to today‟s little-and-often ordering patterns The industry is dominated by the long tail of slow moving titles which is responsible for a disproportionate share of costs and wastage
The very high number of new titles is dealt with inefficiently, creating high sales and buying costs, and causing lost sales, high costs and wastage
Little-and-often ordering has reduced returns somewhat, but sales are being lost in the process Category management and demand planning, techniques which have been developed and widely adopted in other areas of consumer retail, are not properly understood or applied in the book industry Opportunities for electronic commerce are not being seized
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Areas of change
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The industry needs to take co-ordinated action in five interrelated areas to improve industry performance . . .
Partnership trading arrangements in list and demand management
Improved stock management & better use of printing & distribution capacity
As Is / Current
Reduction in the level and cost of returns
To be / Vision
Improvements in transaction processes
Distribution efficiencies
Action in any one area will deliver significant benefits but
maximum benefit will be achieved by addressing all 5 areas
Areas of change
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. . . and move from high cost trading conditions to more efficient and effective trading relationships
From:
Transaction processes
To:
High transaction processing costs; partial use of electronic commerce; a high level of labour intensive query resolution
Simplified low cost transaction processing based on electronic commerce; reduced level of queries and cost of query resolution
Partnership in list and demand management
Adversarial trading relationships; limited use of shared sales and stock data for marketing and planning; problems around ownership and integrity of bibliographic data
Cooperative trading relationships based on partnerships; differentiation between innovative and functional product types; marketing and planning based on common data sets; consistent and accurate bibliographic data
Management of stock and capacity
Fragmented supply chain planning processes making limited use of EPOS; print runs dictated by conventional technology
Supply chain planned as an integrated process based on EPOS, stock and capacity data; flexible use of digital printing technologies
Distribution efficiencies
Fragmented distribution operations, with excess capacity and stock; multiple stocking points, limited exploitation of economies of scale; and cost and performance poorly understood
Simpler, more consolidated distribution arrangements; exploitation of economies of scale; flexibility in supply strategies; trading terms reflecting cost-to-serve and performance
Returns
Lack of accountability coupled with supply chain inefficiencies generates excess returns; processing and handling of returns are complex and high cost
Reduced level of returns by alignment of accountability and decision making and improvement in supply chain efficiency; simplified returns processing and handling systems
A. Transaction processes
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Partnership trading arrangements in list and demand management
Improved stock management & better use of printing & distribution capacity
As Is / Current
Reduction in the level and cost of returns
To be / Vision
Improvements in transaction processes
Distribution efficiencies
A. Transaction Processes - Changes proposed
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Major benefits can be achieved by designing processes for ordering, paying and query resolution which increase standardisation, make use of the economies of scale available, and release the power of electronic commerce
From:
To:
Many unique processes between individual players adding complexity, delay and cost in order processing
Standardised, systematised processes supported by common procedures, forms and data sets
Unique and multiple arrangements between retailers and publishers for returns and debit notes
Standardised, systematised processes for returns and debit notes
A majority of small value transactions (e.g. <£60) incurring excessive administrative cost
Develop low cost processes and systems across the industry to reduce small order transaction cost
Partial application of EDI/e-commerce applications; standards and technologies largely in place; inconsistency in data management giving an excessive number of queries
Implementation of standardised message formats; agreed trading incentives for EDI use; revised data management guidelines
A. Transaction Processes - Trends and comparisons
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Despite early availability of electronic ordering and agreed standards, there are substantial benefits available from full implementation of electronic commerce across the range of transaction processes Book industry trends
Examples from other industries
Electronic ordering has been in existence for many years, but its penetration is still low in comparison with other sectors (and countries) Standards and systems are in place to allow other messages
Some players are developing ad hoc electronic commerce solutions with major trading partners (not always based on purest standards) BookEasy initiative provides Internet based solution to customer queries and ordering Slow take-up of electronic invoicing and payment; plans to automate Booksellers Clearing House
Retail productivity: Tesco reports a step change in productivity through the introduction of technologies such as EDI, EPOS and bar coding
36
98%
92% 7
13
2
Securicor Omega introducing parcel tracking and electronic Proof of Delivery service
Wholesalers offer simple information and ordering system Distributors are addressing some root causes of queries by
–developing post-invoicing (matching to actual contents delivered) –improved labelling
Stockturn
Delivery Accuracy
Order lead times/days
Source: Management Today, Nov 1996. Coca Cola Research Group 1994
Purchase cards: are proving beneficial for transactions under £1000, and being used in many large corporations.
–
big reduction in transaction processing costs by use of purchasing cards - up to 50% savings are being achieved. Major benefits come from including smaller suppliers/customers into automated payment systems
Fed Ex. launched an Internet shipment tracking service in 1994
–
cost to handle tracking enquiry by Internet is $0.08 against over $1.00 through customer telephone centre
A. Transaction Processes - Benefits and implications
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Publishers
Increase in operating
Printers
Potential to be
Distributors
Reduced administrative costs
Wholesalers/RDC/ Library Supply
Reduced
Retailers
Greater simplicity in
margin flowing from lower distribution costs
Reduced burden to
sales force from improvements in returns processing
Smaller publishers to
brought into “loop” of e-commerce particularly as printing-ondemand evolves
from increase in electronic commerce traffic
Reduction in error rate
resulting from keying errors and “pre-invoicing”
Increased customer service
administrative costs of purchasing from suppliers
Improved ability to
buying and settling invoices, particularly from smaller suppliers
Improvement in
levels through automated query procedures
Improved real lead times
benefit from improved ease of purchase through extended role of Booksellers Clearing House
(warehouse to shelf) by reduction in invoice errors
Reduction in cost of invoice
deal with smaller publishers through extended Booksellers Clearing House
Increased
accuracy of invoices increases speed of goods-in to shelf
Improvement in lead
times available through best practice electronic ordering
Simplification and
matching, checking, and settlement procedure
Agreement in debit note
procedures improving debtors position and reducing costs and write offs
Reduction in cost of processing
challenge from improved service levels from distributors
See also retailer
consolidation of payment processes to reduce administrative burden
Procedures for debit
and distributor
returns claims
Inclusion of smaller customers
notes streamlined
Ordering from smaller
into electronic settlement of invoices through extended role of Booksellers Clearing House
suppliers simplified by extension of Booksellers Clearing House role
A. Transaction Processes - Estimated financial benefits
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Redesign of transaction processing and application of electronic commerce creates an opportunity for cost savings in the range of £20 to £25m
Benefits are derived from a combination of:
– – – – – – reduced purchasing and invoice process costs reduced settlement costs, particularly through automatic invoice matching reduced costs of small order transactions elimination of distribution and stock wastage from incorrect keying reduced returns and debit note processing costs reduced query burden
Savings are based on the assumption of:
– – 38% reduction in processing costs 25% reduction in order related queries
A. Transaction Processes - Actions
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Transaction processes offer a number of opportunities for quick wins and process redesign
Quick Wins - actions which will have material impact within one year
Simplify and rationalise returns processes
Standardise current debit notes procedures through agreement on how to handle discrepancies
Develop penalties for the non-use of electronic commerce BIC benchmarking review of electronic commerce usage Strengthen current use of EDI by retailers through in-store training
Recommended projects
Map and redesign all transaction processes e.g.
– – – returns processing invoicing and settlement debit notes
Low cost transaction processes for low value orders
Address root causes of query burden, e.g.
– post invoicing
Integrated change programme to develop electronic commerce
B. Partnership in List and Demand Management
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Partnership trading arrangements in list and demand management
Improved stock management & better use of printing & distribution capacity
As Is / Current
Reduction in the level and cost of returns
To be / Vision
Improvements in transaction processes
Distribution efficiencies
B. Partnership in List and Demand Management - Changes proposed
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Cooperative planning between retailers and publishers can improve sales and profitability for all parties
From:
To:
Fragmented data sets leading to limited analytical and forecasting capabilities
Data sharing between key trading partners to allow the whole supply chain to understand customer demand patterns and to build analytical and forecasting capabilities
Inconsistencies and inaccuracies in bibliographic databases leading to excess queries and administrative costs
Consistent and accurate bibliographic data providing a foundation for simplified trading and marketing based on electronic commerce
Adversarial trading relationships with value destroyed and complexity introduced by lack of communication and accounting behaviour
Co-operative trading relationships between major players based on cross functional communication and reduction in value destroying behaviours
Production planning in publishers, distributors and wholesalers based on sales in to retailers
Production planning based on actual title retail sales and list segmentation into functional and innovative products; category demand patterns understood leading to improved forecast accuracy and reduced returns
B. Partnership in List and Demand Management - Trends and comparisons Transaction Processes
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The increasing availability of EPOS data provides opportunities to improve planning processes by trading partners working co-operatively
Book industry trends
Examples from other industries
Investment in EPOS and use of BookTrack to enable better demand tracking
Retailers increasingly delaying firm orders for new titles until very close to publication date, while demanding more product/marketing information earlier Sales reps incentives shifting to achieve “selling to plan” rather than exceed short term sales revenue or subscription targets Some publishers reducing their „tail‟, and focusing effort on fewer titles with improved financial results
Increased number of specific line item negotiations causing increase in publisher selling costs and retailer buying costs Some publishers tracking sales & profitability for new titles over the whole life cycle Some retailers moving to, others moving away from, firm sales deals Increasing reliance on bibliographic database providers Understanding of segmentation of product into functional and innovative categories based on the relative certainty of demand. This is then used as a basis for developing a more effective and responsive supply chain
Sport Obermeyer: design and manufacture of ski-ware, for sale through 800 retailers. 95% of products are new each year, producing uncertain demand profile. Sport Obermeyer developed an effective production planning model to manage the uncertainty by working with key retail customers. Service levels increased from 80% to 99%, production wastage and underproduction was reduced by 50%, and profits rose by 60%
6 Demand Models
Under/Over Production Cost Model
Consolidated Demand Model
Production Planning Model
Source: Harvard Business Review, March-April 1997
2 Production forecasts Pre season plan Derived from actual orders
Mail order operators: a new order is placed on a supplier in two components, with a typical split of 50:50 – a firm order to meet initial stock requirement – an option over the remainder of the forcasted demand
B. Partnership in List and Demand Management - Benefits and implications
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Publishers
Printers
Distributors
Wholesalers/RDC/Library Supply
Retailers
Finding the right balance between pull vs push marketing strategies Improved ability to offer collaborative promotions Reduced burden on field sales and administration function Improved success rate in new product introduction Reduction in level of returns Implications for list management as result of improved understanding of retailers‟ category management policies Understanding of demand patterns and ability to manage certainty and uncertainty
Potential reduction in print volumes through reduction in level of returns Potential benefits for capacity planning if publishers have greater control of, and confidence in, forecasting
Improved access to retail sales and stock data Potential to move from „reactive‟ to „proactive‟ management through sharing forecasting information Improvement in ability to plan capacity and stock
Improved access to retail sales and stock data Opportunities for wholesalers to work more closely with publishers to serve agreed retail segments
Reduction in buying and merchandise management burden because of improved communication with publishers and more focused offer
Improved ability to offer collaborative promotions
Reduction in level of returns Reduction in working capital requirements through stock reductions
Reduced burden from returns
Opportunities for distributors to work more closely with retailers as part of more co-operative trading partnerships
Requirement to identify shadow forecasts alongside initial purchases
B. Partnership in List and Demand Management - Estimated financial benefits
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The benefits of increased partnership between publishers and retailers could amount to £30-£50m
Benefits are derived from a combination of:
– – – – – – – reduced stock wastage and improved stock turn from better forecasting improved responsiveness to titles whose demand is inherently uncertain greater efficiency of supply for titles where demand is more certain ability to manage more titles more effectively reduced administrative buying burden through information being available accurately and on time opportunity to provide information which delivers better capacity planning at printers and distributors increased potential to make the sale from information about a book rather than actual physical stock
Improved forecasting could lead to benefits of £15 to 25m
– resulting from a 10% reduction in returns rates and associated reductions in stock, queries, transaction processing and distribution costs
Category management provides major component of benefits identified from “efficient consumer response” programmes
– we have assumed a further £15 to £25m in benefit from increased sales as a result of better targeted marketing, list segmentation, category management and more focused list management as publishers and retailers co-operate strategically
B. Partnership in List and Demand Management - Actions
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Actions to be taken in co-operative demand management lie in improved use of EPOS data in forecasting, improved understanding of the nature of the demand of different titles and greater control of title information
Quick Wins available from improved partnerships Eliminate distortions of both sales and returns driven by accounting or cash pressures Commitment to resourcing the supply of accurate and timely bibliographic data and the development of the role of bibliographic agencies Recommended projects Develop joint forecasting based on list/category lifecycles and demand characteristics – evaluate current forecasting capabilities and use of shared EPOS data – develop industry scorecard to measure retailers EPOS system capabilities – segment lists according to title/category lifecycles and demand characteristics – optimise display quantities and stock location to meet demand patterns Improve title information management and data integrity – define bibliographic and marketing information best practice and implement across industry – develop strategies for use of information about books as proxy for actual stock Implement co-operative relationships between trading partners – minimise accounting based distortions to selling and returns behaviours – develop buying and selling strategies through joint planning – agree lead times for placing of estimated and confirmed pre-publication orders – align publishers‟ lists more closely to retailers‟ category management – integrate planning strategies with stock and capacity management systems Develop industry-wide capabilities in data warehouse management, integrating with decision management processes
C. Management of Stock and Capacity
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Partnership trading arrangements in list and demand management
Improved stock management & better use of printing & distribution capacity
As Is / Current
Reduction in the level and cost of returns
To be / Vision
Improvements in transaction processes
Distribution efficiencies
C. Management of Stock and Capacity - Changes proposed
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Integrating supply chain management planning systems across the industry will improve the efficiency and responsiveness of supply to consumer demand through improved management of stock and use of available distribution and printing capacity
From:
To:
A few retailers using EPOS for their own stock management, with little sharing of sales & stock data
EPOS and stock data made available by both parties and routinely used in joint supply decisions
Separately managed functions & systems for forecasting, demand monitoring and stock replenishment
Supply chain managed as a complete process, using supply chain management systems and data shared between partners
Print runs dictated by conventional technology and batch economics, with few long term supply arrangements
Publishers and printers working in partnership, investing in and exploiting new short run technology
C. Management of Stock and Capacity - Trends and comparisons
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The closer matching of supply to actual demand is made possible by smaller manufacturing batch sizes and distribution strategies which make little-and-often replenishment cost effective
Book Industry Trends
Examples from other industries
From push to pull: retailers have co-operated with suppliers to
Major reductions in initial print runs, and advance subscription order quantities
Reduction in reprint quantities to better match supply to demand
Print run quantities reduced to “recognised economic minimum” Some examples of postponement e.g. printing book blocks in larger quantities and binding as late as possible in different formats Electronic transfer of copy to printers located close to centre of demand Some printers using combination of technologies to offer onestop-shop of short and long run printing over the product life cycle
implement continuous replenishment programmes based on: – daily exchange of demand and stock data – agreed inventory targets – little-and-often ordering patterns This has maximised the efficiency of supply for products where demand is relatively certain, with consequent reductions in inventory and an increase in margin. Retailers who have partnered with suppliers in this way have grown at twice the rate of retailers who prefer to operate more autonomously
4
2
2%
Use of digital printing for high value professional & academic publications
1%
Source: Harvard Business Review March/April 1997
Before
After
Before
After
Weeks inventory
Margin
EMI music segments products according to life cycle characteristics
and plans supply accordingly to optimise capacity usage
C. Management of Stock and Capacity - Benefits and implications
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Publishers
Printers
Distributors
Wholesalers/RDC/ Library Supply
Retailers
Potential to reduce working capital requirements through stock reduction
Reduction in wastage through supply more accurately meeting demand
Improvement in capacity utilisation
Reduction in physical capacity requirement Ability to increase both responsiveness and efficiency of supply Requirement to manage more little-and-often deliveries at goods-in as well as pick, pack & ship levels Opportunities to develop communication with printers to improve stock and capacity management Opportunities to act as print brokers for client publishers
Growth opportunities as provider of responsive supply
Ability to leverage digital print technologies Develop strategies for print-on-demand
Reduction in working capital requirements through stock reduction
Improved delivery lead times Fewer stock outs Requirement for management of littleand-often deliveries
Develop partnerships with retailers to improve stock management
New partnerships with publishers providing improved stock management in segments served
Potential for more co-operative stock management with retailers
Requirement for co-operation with printers to improve capacity planning in context of more, smaller print orders
More co-operative supply agreements and systems with suppliers
C. Management of Stock and Capacity - Estimated financial benefits
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Benefits to the industry of improved stock management alone could be in the order of £20 to £30m
Benefits are derived from a combination of:
– – – – – – – – improved speed of stock replenishment improved efficiency of stock replenishment reduced total stock-holding across the supply chain more effective use of printing capacity elimination of excess print runs and consequent wastage, including a reduction in returns potential to reduce distribution capacity requirements over time development of capabilities required to manage printing on demand effectively ability to fulfil special orders for previously out of print titles through digital printing
Savings are based on the assumption of:
– – – – – 608 million units of inventory currently in the supply chain inventory can be reduced by at least 5% average marginal cost of production of 50 pence financing cost of excess 5% of stock is eliminated more efficient replenishment and digital printing resulting in increased sales
C. Management of Stock and Capacity - Actions
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Action should be taken by the industry to integrate supply chain planning processes
Quick Wins to improve capacity usage
Publishers to agree with printers standard sizes for common formats of books to reduce print set-up costs and improve use of capacity
Recommended projects
Develop use of EPOS – co-operate to understand how retailers use EPOS – develop best practice guide for EPOS usage by trading partners – evaluate data and systems available for sharing data – integrate EPOS into decision making cycles Implement integrated planning process – develop models for supply chain planning – establish and implement joint planning systems based on EPOS – integrate stock with EPOS data where appropriate Integrate printers into supply chain planning – develop publisher/printer/distributor partnerships – jointly evaluate opportunities provided by digital technologies and e-commerce – integrate short-run printing and supporting processes
D. Distribution Efficiencies
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Partnership trading arrangements in list and demand management
Improved stock management & better use of printing & distribution capacity
As Is / Current
Reduction in the level and cost of returns
To be / Vision
Improvements in transaction processes
Distribution efficiencies
D. Distribution Efficiencies - Changes proposed
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The industry can improve distribution efficiencies and effectiveness by understanding the cost of supplying different market segments and speeding the migration to more consolidated distribution arrangements
From:
To:
Stock sub-optimally located across the supply chain, with multiple stocking points
Stock levels reduced and held where needed, at fewer locations
Limited initiatives to improve handling of returns and format of product delivery to retail outlets
Jointly implemented storefriendly delivery systems and returns handling systems
A mis-match between service levels needed and provided, with costs and performance poorly understood or measured
Service levels agreed, costs understood, and trading terms reflecting cost-to-serve and performance
An excess of distribution capacity, operating a variety of processes and models
Fewer, more consolidated and standardised distribution arrangements to retailers, realising the benefits of scale
D. Distribution Efficienciesm - Trends and comparisons
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Distribution strategies require consideration of both the cost-to-serve a particular market segment, and its cost-to-be-served. Trading arrangements should reflect these costs, and efforts made to provide „friendly‟ deliveries
Book Industry Trends
Examples from other industries
Slow moving versus fast moving inventory: some sectors have developed
Continued trend to smaller, more frequent orders with shorter lead time requirements Increasing use of fast service (e.g. Academic Hotline) to order large quantities at short notice Wholesalers have taken the lead in providing simplicity for retailer:
distribution strategies based on keeping the slowest moving stock in one central international depot, with the fastest moving, which make up the bulk of sales, closer to the end consumer. For example: – half the call-outs of computer maintenance engineers involve 0.1% of stock items. 5% of total stock value is kept by the engineer. A single international centre holds 60% of the inventory value, shipping to order when requested. Similar models exist in the car maintenance sector
Location of stock No of SKU‟s held % stock value % service events 200 5% 50%
– – – –
consolidated source of supply for large part of retailer‟s requirements some early actions from wholesalers to provide store friendly deliveries independent retailers are increasingly relying on the wholesalers to provide the full range of requirements, including slow moving tail wholesalers fulfilling customer orders for some larger chains
Regional depot
10,000
15%
30%
National depot
30,000
20%
12%
International depot
Internet and mail order booksellers charge for P+P Some publishers considering charging for freight and premium for faster service
150,000
60%
8%
Store friendly delivery: British Shoe Corporation made significant savings
through store friendly picking – orders picked by line, in size sequence – sequence of lines correspond to stockroom layout Benefits – 10-15% reduction in store delivery labour hours – improved stock availablity
D. Distribution Efficiencies - Trends and comparisons
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Economies of scale are delivering major efficiency gains in warehousing, shipping and transaction processing Book industry trends
Examples from other industries
Strategies to integrate distributors and wholesalers: the
More publishers outsourcing distribution to third parties
Two models of outsourcing developing
– –
consolidation to one-stop distribution solution provider retention of customer service and transaction processing in-house and outsourcing of physical distribution
electronics components industry has developed strategies to serve different sizes of account either through distributors or through wholesalers, depending on the cost-to-serve that channel
Large Manufacturers
(Few) Global Distributors Large
Oem‟s
(Few)
Academic and professional sectors preparing for consolidation as a result of asset swaps and increased market concentration Some overlap developing in services offered by distributors & wholesalers, especially consolidation and payment Growth of those distributors & wholesalers offering wider range and faster customer service Larger operators investing in warehouse technology to improve performance and reduce costs Main industry carrier achieving economics of scale through consolidated high street delivery including pick-up of returns
(Few) Small/Medium Manufactures
Small
(Many) - Niche
Oem‟s
Local (Many)
Components
Wholesalers
(Many)
End Major Wholesalers
User
(Many)
(Few)
– large customers deal direct with manufacturers or via global distributors and avoid dealing with the tail of smaller suppliers – large manufacturers avoid dealing with the end-user tail, and sell via intermediaries – low margin distributors compete on price; high margin wholesalers compete on service
D. Distribution Efficiencies - Benefits and implications
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Publishers
Printers
Distributors
Reduced operating cost from more efficient supply chain
Different models of „control‟ required from ownership to key performance indicators and partnership
Simplification through consolidation of client base
Improved cooperation with distributors leading to reduced cost and opportunities for value-added activities
Consolidation delivering major economies of scale in distribution Understanding cost-toserve better will allow pricing to be aligned with agreed service requirements
Reduction in returns handling costs Changed order pattern can achieve volume economics Store friendly delivery will improve customer service levels and real lead times
Wholesalers/RDC/ Library Supply
Retailers
Opportunities for growth as premium service provider or as one-stop shop
May need to pay for different service level requirements Consolidation of supplier base leads to simpler ordering and payments Reduction in complexity and opportunity to reduce store non-value adding activities
Carry only faster moving inventory
Investment requirements in automated warehouse management systems and other process/IT improvements Carry major burden of slow moving inventory
Understanding cost-tobe-served will drive supply strategies and requirements
Store friendly deliveries improve goods-in and customer service staff productivity
D. Distribution Efficiencies - Estimated financial benefits
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Reducing the cost-to-serve different channels, and their respective costto-be-served could lead to benefits of £40 to £60m
Benefits are derived from a combination of:
– – – –
–
reduction of in-store customer service costs as a result of store friendly deliveries reduction in distribution costs by incentivising better ordering patterns and pricing for premium service lower transport costs as the trend for consolidation of distribution operations reduces the complexity of the distributor-transporter hub clearer definition of the roles of distributor, wholesaler and regional distribution centre improving efficiency and cost economies of scale in distribution continuing to deliver lower logistics costs - there being as yet no sign of an end to such economies
Our assumptions are based on:
– – – store friendly deliveries reducing in-store customer service staff costs by 5% a halving of returns handling costs through improved processes and consolidation reducing publishers‟ logistics costs from 13% to 11% of sales through improved processes and further economies of scale
D. Distribution Efficiencies - Actions
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The industry should focus on actions which will reduce the complexity of both serving and being served, and improve service levels as well as reducing cost
Quick Wins Study into the segmentation of the supply chain to meet the differing needs of different categories of books, including the use of wholesale versus distributor supply
Recommended projects
Develop distribution strategies informed by the cost-to-serve and the cost-to-be-served – consumer research to ascertain service levels expected and perceived – agree real service needs – establish supply strategies based on service needs – locate stock in supply chain at optimal points (eg slow moving upstream in the supply chain) Joint initiative to improve returns handling
Develop and implement store friendly delivery systems
Establish cost-to-serve by channel and develop new trading arrangements Retailers to evaluate supply from smaller publishers and develop consolidation preferences Publishers to identify cost and service benefits from further consolidation – evaluate outsourcing or pooling options – evaluate industry-wide consolidation options – implement preferred consolidation options
E. Returns
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Partnership trading arrangements in list and demand management
Improved stock management & better use of printing & distribution capacity
As Is / Current
Reduction in the level and cost of returns
To be / Vision
Improvements in transaction processes
Distribution efficiencies
E. Returns - Changes proposed
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Returns have become a major driver and distorter of both buying and selling behaviour
From:
To:
Current accountability for stock and decision making processes and inefficiencies in supply cause excess returns (7-15% of volumes)
Alignment of accountability and decision making processes, together with more efficient supply, reduce overall returns level
Returns processing unacceptably complex, inefficient and high cost
Simplified and standardised returns agreements and processes
Systems for physical handling of returns are varied and expensive and impact efficiency of outbound supply chain
Handling and destruction of returns at optimal points in supply chain
E. Returns - Trend and comparisons
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Returns cost the UK book industry around £100m
The price of a return
Assume a retailer buys a £5 book at 45% discount:
Illustrations
Using a retail distribution centre (RDC) Centralised buying in one retailer with the use of RDC has reduced stock levels in store through increased trust in the certainty of next day supply. However this has had no impact in reducing the overall returns rates
Consistency of behaviour One publisher reports that acting consistently with customers reduces returns rates, e.g. through „open returns‟ policies operating in the context of agreed limits Continental comparison In Holland, Centraal Boekhuis‟ returns are less than 5% of gross sales. Certainty and speed of supply reduces the need for risky buffer stock, and activity based charging disciplines purchasing behaviours
If the book is sold:
-the publisher makes a contribution of £1.94 -the retailer makes a contribution of £2.08
If the book is returned:
-the publisher makes a loss of £1.01
-the retailer makes a loss of £0.49
(Publisher‟s contribution is before author, sales and marketing costs, and retailers contribution before customer service, marketing and overheads)
Comparison with music industry Firm sales are common, and standard on bestselling, established chart artists. Returns range from 8-20%, depending on category. Restricted remaindering avoids undermining long term product value
E. Returns - Benefits and implications
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Publishers
Printers
Distributors
Wholesalers/RDC/ Library Supply
Retailers
Reduction in volume related production costs
Reduction in print volumes
Greater number of smaller batch quantities
Reduction in both outbound and returns volumes Reduction in destruction activities Reduction in returns processing costs Reduction in queries arising from returns
Reduction in processing burden on sales force
Avoidance of „pushing‟ risky stock into chain without clear understanding of costs Trade-off of print run size with certainty of demand Develop returns agreements in context of cost-toserve different retail channels
Reduction in outbound & returns volumes Reduction in destruction activities Reduction in returns processing activities Reduction in „buffer‟ stock holding to reduce risk of obsolete stock and thus need to return
Reduction of in-store physical handling and processing activities More accountability for purchases, particularly where certainty of demand is greater Development of returns handling strategies which do not involve moving stock back up the chain
Opportunities for returns consolidation activities
Reduced subscription quantities
E. Returns - Estimated financial benefits
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A concerted and co-ordinated programme to substantially drive down the costs of returns to the industry could deliver benefits of £36m
Benefits are derived from a combination of:
– reduced logistics costs – reduction in the cost of stock returned – simplified monitoring and authorisation procedures
Our assumptions are based on:
– improved forecasting, planning and supply strategies reducing returns by one third from current level of 54m units – redesigned processing and handling costs being reduced by 25%
Reduce logistics costs at £1.02 outbound and returns cost for 18m units Eliminate financing cost on 18m units Avoid cost of stock (assuming marginal cost of production of £0.50) Reduced processing costs on remaining 36m units by 25% Reduce sales and marketing administration cost by 25%
£18.4m £0.5m £9.0m £4.6m £3.5m
£36m
In addition, improved certainty of sale brings other, less tangible benefits to publishing
and bookselling management, e.g. in title acquisition decisions
E. Returns - Actions
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An industry pressure group will provide the momentum and focus for a coordinated action plan to reduce the value lost to the industry from returns
Quick Wins
Simplify and rationalise returns processes
Recommendations for the returns pressure group
Changes to current returns policies
Ability to dispose of stock at end of chain
Sign off on work from other workstreams, e.g. – standard forms & processes for transaction processes
–
– –
production planning/forecasting process and its impact on returns
impact of sales and inventory data sharing on returns cost-to-serve analysis and supply strategies
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Our recommendations
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We have identified a number of quick wins that industry players can initiate immediately, that could have material impact within one year
Simplify and rationalise returns processes Standardise current debit notes procedures through agreements on how to handle discrepancies Develop penalties for the non-use of electronic commerce BIC benchmarking review of electronic commerce usage Strengthen current use of EDI through in-store training Eliminate distortions of both sales and returns driven by accounting or cash pressures Commitment to resourcing the supply of accurate and timely bibliographic data and the development of the role of bibliographic agencies
Publishers to agree with printers standard sizes for common formats of books to reduce print set-up costs and improve use of capacity
Study into the segmentation of the supply chain to meet the differing needs of different categories of books, including the use of wholesale versus distributor supply
Our recommendations
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A strategic change programme for the book industry supply chain would include the following projects
A. Transaction processes B. Partnership in list and demand management C. Management of stock and capacity
D. Distribution efficiencies
E. Returns
A1 Priority projects
Debit notes and returns processing simplified
5 months
Forecasting based on list/category lifecycles B1 and demand characteristics
D1
3 months Develop use of EPOS C1 in decision making 9 months
Consumer research into service expectations
4 months
D2 5 months B2 Bibliographic best practice defined and dummy stock options evaluated 3-14 months D3
Service and distribution strategy defined
5 months
Develop low cost A2 transaction processes for low value orders
Returns handling optimised
9 months
Full implementation of A3 electronic commerce in 12 months transaction processes
D4
Cost to serve established and new trading arrangements implemented
9 months
B3
Implement partnership in list and demand management
21 months
Supply chain C2 management systems implemented
22months
D5
Store friendly systems established
18 months
Longerterm projects
C3
Integrate printing into supply chain 18 months management processes
D6
Distribution of smaller publishers consolidated
10 months
D7
Distribution options evaluated and preferred options implemented
24 months
Our recommendations - Benefits
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Benefits to be realised from a collaborative strategic change programme could exceed £150m
Estimated financial benefits Improvements in transaction processes
Partnership trading arrangements in list and demand management Improved stock management and better use of printing and distribution capacity
£20 to £25m
£30 to £35m £20 to £30m
Distribution efficiencies Returns
£40 to £60m
£36m £145 to £185m
Each area is interdependent with others, particular in the area of returns The greatest impact of these programmes will be felt in distribution and transport costs Maximum benefits in any one area will only be achieved by tackling all five
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Obstacles to change
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Phase I of the Book Industry supply chain project has highlighted a number of obstacles to change . . .
Mistrust of trading partners motives
Complacency
Property commitments Difficulty of funding industry-wide initiatives and needs
Difficulty of balancing requirements for individual versus industry-wide benefits Lack of solidarity and industry commitment
Short-termism
Ability to manage and control major change programmes
. . . and action is needed within the change programme to remove these obstacles.
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KPMG recommends a high level industry pressure group be appointed to drive forward the change programme
The Booksellers and Publishers Associations should also create formal liaison mechanisms to reflect a common supply chain
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
The case for change
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There is a pressing need for action by all players in the industry
Real growth in consumer and leisure spending has been strong in the late 1990‟s, yet books have struggled to maintain share of spend Fundamental lack of adequate profitability at publishers and retailers
Increased pressure to meet financial expectations of shareholders and other stakeholders
Competitive pressure from non-retail channels
The need to compete in global export markets
Contents
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Summary of main conclusions and recommendations
Introduction
Objectives and scope
Approach Participants
Analysis of current situation
5 areas of change
–
– – – –
transaction processes
partnership in demand and list management management of stock and capacity distribution efficiencies returns
Our recommendations
– quick wins
– –
strategic change programme: benefits
priority projects longer term projects
Obstacles to change
The case for change
Next steps
Next steps
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To unlock the supply chain‟s hidden prize, the industry must commit to action, recognising that the greatest gains can only be made through collaborative action
Communicate and promote Phase I findings to industry
Implementation Define and scope priority projects
Industry pressure group
Individual and bi-partisan company actions