Transcript The UK Book Industry Unlocking the Supply Chain’s Hidden Prize

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CONFIDENTIAL
The UK Book Industry
Unlocking the Supply Chain’s Hidden Prize
16th February 1998
Working together for a more profitable industry
Management report
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CONFIDENTIAL
Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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Book Industry Supply Chain Project Phase 1 - Conclusions
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

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
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

The long tail of slow moving titles is responsible for a
disproportionate share of costs and wastage

Trading relationships are complex, largely adversarial, with
little partnership activity

The very high number of new titles is dealt with inefficiently
and cause lost sales, high costs and wastage

There is little joint planning across the supply chain

Little-and-often ordering has reduced returns somewhat, but
sales are being lost in the process

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:

Category management and demand planning are not
properly understood or applied in the book industry
–
–

Opportunities for electronic commerce are not being seized
–
–
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
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Book Industry Supply Chain Project Phase 1 - Description
Project description
Project objectives
Identify the opportunities available to
the book industry to reduce operating
costs and increase service levels
through improved supply chain
management

Project scope
Project deliverables
The focus is on the UK retail book
trade, and encompasses publishers,
printers, distributors, wholesalers and
retailers

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
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
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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Objectives and Scope
The scope of the study focused on the core components of the UK
retail supply chain
Supply chain
Library and
school
supplier
Institutions
Printer
Wholesaler
Author/
illustrator
Publisher
Distributor
Retailer
Book
Club
Scope definition
Flow in scope
Flow out of scope
In scope
Out of scope
Export
channels
Consumer/
reader
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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Approach
Our study focused on those processes which were common to
participants in the chain
Buying
Publisher
Printer
Distributor
Wholesaler
Retailer
Distributing
Selling
Customer
service
Returns
Informations
flows
     











     
     

Process shared
across industry
Process not
shared by player
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Approach
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
Phase 2: Design an optimal supply
chain model and recommend a
procedure for realising benefits
identified in Phase 1 including:
 Analyse the cost of common
 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
outline scenarios for alternative
solutions
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
the identified benefits
 Clear and implementable action plan
showing ease and cost of
implementing each element
Phase 3: Implementation of
recommendations from
Phases 1 and 2 through
multiple projects
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Approach
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
Conduct
discussions with
management of
participants
and other
industry players
Agree
information
requirements
Mobilisation
Agree
participation
criteria
Validate
information
request
Step 3:
Data analysis and option development
Identify opportunities
and potential barriers to
change
Validate and
analyse
information
Identify
potential
benefits
Roll out to
participants
Agree
participants
Develop
options and
approaches
to change
Compare with
best practice
parameters
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CONFIDENTIAL
Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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Participants
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)
Participating
companies
PA Council
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
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Participants
Quantitative and qualitative data was gathered from a representative
sample of the industry
Data providers
Interviewees (from data providers except as specified)
Publishers
Printers
Distributors
Wholesalers
/RDC/Library
Supply
Retailers



TBS
 Bertrams

WHS Retail

Macmillan
Distribution
 THE

Waterstone’s

Random
House
Macmillan
Press

Clays
(St Ives)
Bath Press




Little, Brown

Wiley

Faber & Faber

Kogan Page
Distributors
Wholesalers/
RDC/
Library Supply
Retailers
 Simon Master
 Gary Iceton
 David Pemberton
 Julian Rivers
 Beverley Hodson
 Adrian Soar,
 Peter Palframon &  David Smith
Dominic Knight &
Liz Warner
 WHS Swindon

Dillons
 Thomas Cork

Tesco
 David Young

Devizes
 Peter Ferris
Marston
HarperCollins
Printers
Publishers

Independents
‘panel’
Chris White
 Charles Ashford
 Jeff Prince
 Tony Wagstaff
 Ian Walker
 Les Higgins
Biblios
 Desmond Clarke
(ITPS)
 Alan Giles &
Martin Lee
 Joe Sinyor
 Fiona Kennedy
 Michael Johnson
 Mark Wait
(Heffers)
 Mark Clutterback
 Toby Faber
 Philip Kogan &
 Richard Tucker
 Alan Martin (IBD)
Gordan Watts
(Johns
Booksellers)
 Matthew Huntley
 Mark Barty-King
(P&G Wells)
(Transworld)
 Malcolm Gibson
 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
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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Analysis of current situation
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*
Mark up
c £0.95 bn
c £0.95 bn
£0.55bn
£0.25bn
UK total consumer and
institutional expenditure on
books (1996)
Via retail
Via non retail*
£1.5 bn
£1.2 bn
UK expenditure £2.7 bn
Export
£0.9 bn
Total
£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
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Analysis of current situation
The UK book industry is characterised by the huge range of
publishers selling through the retail channel
Publisher Sales
The size of the publisher tail
100
% of sales
Number of imprints
publishing in year
80
60
40
56%
33%
Number of titles
published
Larger imprints
% titles published
by larger imprints
1996
9,188
108,625
1,436
84%
1995
8,844
102,703
1,409
84%
1994
8,509
97,494
1,378
83%
20
0
10
> 15,000
39
No. of Publishers
Source: P.A. KPMG, Book Marketing Ltd, retail participant
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
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Analysis of current situation
The retail base is more concentrated than the publishing
community, but there is still a long tail of smaller accounts
Retailer Sales
UK Independent Booksellers
by Book Turnover
(source: The Booksellers Association)
100
600
80
70%
No. of outlets
% of sales
700
60
42%
40
20
500
400
300
200
100
0
25
5
3,312 *
0
0-50
Number of Retailers
Source: B.A. KPMG
(* 3,312 = B.A. membership)
50100
100200
200300
300400
400500
500750
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
750- 1000+
1000
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Analysis of current situation
3% of titles sold make up 50% of the total volume
Sales analysis by title
Number copies sold
50000
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
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Analysis of current situation
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
Market share
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%
M arket share - publishers
M arket share - distributors
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
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
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Analysis of current situation
Industry stock levels are driven up by the tendency to focus on unit
print costs rather than title life cycle costs
12
Cost / unit (£)
10
8
6
Hardback
Paperback
4
2
>250000
100000 249999
50000 - 99999
10000 - 49999
5000 - 9999
2000 - 4999
1000 - 9999
500 - 999
100 - 499
<100
0
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
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Analysis of current situation
The UK book supply chain is more costly and wasteful than most
other consumer goods sectors

FMCG manufacturer logistics costs
20
% of sales
15
10
5
0
FM CG manufacturers average

Publishing equivalent
Stock holding in consumer products
70
60
50
No of weeks
40
30
20
10
0
FM CG Best Practice
Records
Books
Sources:
KPMG Supply Chain Excellence Awards 1997
KPMG participant data 1996 calendar year
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CONFIDENTIAL
Analysis of current situation
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
41.4m units
W/saler
16 weeks
8m units
7 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
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Analysis of current situation
There is a wide variation in processing efficiency across the industry
Distributor
sales orders*
Wholesaler
sales orders*
Retailer
purchase orders
Average order size
53 units
34 units
22 units
Processing cost per order
£20.35
£13.61
£2.18
Processing cost per book
38p
40p
10p
% electronic orders
35%
78%
80%
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
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CONFIDENTIAL
Analysis of current situation
Wastage in the book industry appears very high at up to 20% of total
production
Returns
Returns units
Returns destroyed
(as % total sales)
(as % total returns)
at customer
at distributor
Publishers sample
7-14%
Distributors sample
7-14%
Returns
back to stock
(as % total returns)
59-98%
6-10%
2-44%
12-75%
25-88%
Source: KPMG participant data - home & export
Wastage
As % of total production
Remainders
Returns destroyed
Total wastage
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
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Analysis of current situation
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
(service received)
Distributor
(service provided)
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
a5490 - 30 - FINAL
CONFIDENTIAL
Analysis of current situation
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
214
Figures in £ m
90
Logistics Costs *
Sales & Marketing
In Store Customer Service**
Obsolescence from
returns and financing cost ***
Total Cost of common
processes
161
70
60
50
258
£m
% Sales
327
153
202
57
17
8
11
3
739
39
40
30
20
*
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
Returns
handling &
destruction
Customer
service
Selling
Distributing
10
67
Order
Processing
% Total cost
80
Source: Participant data 1996 Calendar year
a5490 - 31 - FINAL
CONFIDENTIAL
Analysis of current situation
The cost of returns to the industry is circa £100 million
The cost of returns to the UK book industry (1996)
39
100
90
Figures in £ m
70
Outbound Logistics
Inbound Logistics
Sales & Marketing
Obsolescence from
returns and financing cost *
13
60
15
50
40
Total cost of returns
£m
25.6
28.2
13.8
28.4
96.0
20
30
Returns cost = 12.9% of total cost
* Financing cost of 10% assumed on inventory at
marginal cost of production
20
9
Returns
handling &
destruction
Customer
service
Selling
Distributing
10
Order
Processing
% Total cost
80
Source: Participant data 1996 Calendar year
Analysis of current situation
a5490 - 32 - FINAL
CONFIDENTIAL
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
a5490 - 33 - FINAL
CONFIDENTIAL
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
a5490 - 34 - FINAL
CONFIDENTIAL
Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
a5490 - 35 - FINAL
CONFIDENTIAL
Areas of change
The industry needs to take co-ordinated action in five interrelated
areas to improve industry performance . . .
Improved stock
management & better
use of printing &
distribution capacity
Partnership trading
arrangements in list
and demand
management
As Is /
Current
To be /
Vision
Reduction
in the level
and cost
of returns
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
a5490 - 36 - FINAL
CONFIDENTIAL
Areas of change
. . . and move from high cost trading conditions to more efficient
and effective trading relationships
From:
To:
Transaction processes

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

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

Supply chain planned as an integrated process based on
EPOS, stock and capacity data; flexible use of digital
printing technologies

Simpler, more consolidated distribution arrangements;
exploitation of economies of scale; flexibility in supply
strategies; trading terms reflecting cost-to-serve and
performance

Reduced level of returns by alignment of accountability and
decision making and improvement in supply chain
efficiency; simplified returns processing and handling
systems
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
Management of stock and capacity

Fragmented supply chain planning processes making
limited use of EPOS; print runs dictated by conventional
technology
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
Returns

Lack of accountability coupled with supply chain
inefficiencies generates excess returns; processing and
handling of returns are complex and high cost
a5490 - 37 - FINAL
CONFIDENTIAL
A. Transaction processes
Improved stock
management & better
use of printing &
distribution capacity
Partnership trading
arrangements in list
and demand
management
As Is /
Current
To be /
Vision
Reduction
in the level
and cost
of returns
Improvements in
transaction processes
Distribution
efficiencies
a5490 - 38 - FINAL
CONFIDENTIAL
A. Transaction Processes - Changes proposed
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
a5490 - 39 - FINAL
CONFIDENTIAL
A. Transaction Processes - Trends and comparisons
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
Examples from other industries
Book industry trends

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

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

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
Stockturn
2
Delivery Accuracy
Order lead
times/days
Source:
Management Today, Nov 1996.
Coca Cola Research Group 1994

–developing post-invoicing (matching to actual contents delivered)
Purchase cards: are proving beneficial for transactions under
£1000, and being used in many large corporations.
–
–improved labelling

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
a5490 - 40 - FINAL
CONFIDENTIAL
A. Transaction Processes - Benefits and implications
Publishers
Printers
 Increase in operating
 Potential to be
margin flowing from
lower distribution costs
 Reduced burden to
sales force from
improvements in
returns processing
 Smaller publishers to
benefit from improved
ease of purchase
through extended role
of Booksellers Clearing
House
brought into “loop”
of e-commerce
particularly as
printing-ondemand evolves
Distributors
 Reduced administrative costs
from increase in electronic
commerce traffic
 Reduction in error rate
resulting from keying errors
and “pre-invoicing”
 Increased customer service
levels through automated query
procedures
 Improved real lead times
(warehouse to shelf) by
reduction in invoice errors
 Reduction in cost of invoice
matching, checking, and
settlement procedure
 Agreement in debit note
procedures improving debtors
position and reducing costs
and write offs
 Reduction in cost of processing
returns claims
Wholesalers/RDC/
Library Supply
Retailers
 Greater simplicity in
 Reduced
administrative
costs of
purchasing from
suppliers
 Improved ability to
deal with smaller
publishers through
extended
Booksellers
Clearing House
buying and settling
invoices, particularly
from smaller suppliers
 Improvement in
accuracy of invoices
increases speed of
goods-in to shelf
 Improvement in lead
times available through
best practice electronic
ordering
 Increased
challenge from
improved service
levels from
distributors
 Simplification and
consolidation of
payment processes to
reduce administrative
burden
 See also retailer
and distributor
 Procedures for debit
notes streamlined
 Inclusion of smaller customers
 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
a5490 - 41 - FINAL
CONFIDENTIAL
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
a5490 - 42 - FINAL
CONFIDENTIAL
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
a5490 - 43 - FINAL
CONFIDENTIAL
B. Partnership in List and Demand Management
Improved stock
management & better
use of printing &
distribution capacity
Partnership trading
arrangements in list
and demand
management
As Is /
Current
To be /
Vision
Reduction
in the level
and cost
of returns
Improvements in
transaction processes
Distribution
efficiencies
a5490 - 44 - FINAL
CONFIDENTIAL
B. Partnership in List and Demand Management - Changes proposed
Cooperative planning between retailers and publishers can
improve sales and profitability for all parties
To:
From:

Fragmented data sets leading
to limited analytical and
forecasting capabilities

Inconsistencies and
inaccuracies in bibliographic
databases leading to excess
queries and administrative
costs

Adversarial trading
relationships with value
destroyed and complexity
introduced by lack of
communication and
accounting behaviour

Production planning in
publishers, distributors and
wholesalers based on sales in
to retailers

Data sharing between key trading
partners to allow the whole supply
chain to understand customer demand
patterns and to build analytical and
forecasting capabilities

Consistent and accurate bibliographic
data providing a foundation for
simplified trading and marketing based
on electronic commerce

Co-operative trading relationships
between major players based on cross
functional communication and
reduction in value destroying
behaviours

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
a5490 - 45 - FINAL
CONFIDENTIAL
B.
Transaction
Partnership
Processes
in List and Demand Management - Trends and comparisons
The increasing availability of EPOS data provides opportunities to
improve planning processes by trading partners working co-operatively
Book industry trends

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
Examples from other industries

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
Consolidated
Demand Model
Source: Harvard Business
Review, March-April 1997

Under/Over
Production
Cost Model
Production
Planning
Model
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
a5490 - 46 - FINAL
CONFIDENTIAL
B. Partnership in List and Demand Management - Benefits and implications
Publishers
Printers
Distributors









Finding the right balance
between pull vs push
marketing strategies
Improved ability to offer
collaborative promotions
Reduced burden on field
sales and administration
function

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 success rate in
new product introduction

Reduced burden from
returns
Reduction in level of
returns

Opportunities for
distributors to work more
closely with retailers as
part of more co-operative
trading partnerships
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
Wholesalers/RDC/Library
Supply

Improved access to retail
sales and stock data

Opportunities for
wholesalers to work
more closely with
publishers to serve
agreed retail segments
Retailers

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

Requirement to identify
shadow forecasts
alongside initial
purchases
B. Partnership in List and Demand Management - Estimated financial benefits
The benefits of increased partnership between publishers and
retailers could amount to £30-£50m

Benefits are derived from a combination of:
–
–
–
–
–
–
–

Improved forecasting could lead to benefits of £15 to 25m
–

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
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
a5490 - 47 - FINAL
CONFIDENTIAL
B. Partnership in List and Demand Management - Actions
a5490 - 48 - FINAL
CONFIDENTIAL
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
a5490 - 49 - FINAL
CONFIDENTIAL
C. Management of Stock and Capacity
Improved stock
management & better
use of printing &
distribution capacity
Partnership trading
arrangements in list
and demand
management
As Is /
Current
To be /
Vision
Reduction
in the level
and cost
of returns
Improvements in
transaction processes
Distribution
efficiencies
a5490 - 50 - FINAL
CONFIDENTIAL
C. Management of Stock and Capacity - Changes proposed
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
To:
From:

A few retailers using EPOS
for their own stock
management, with little
sharing of sales & stock data

Separately managed functions
& systems for forecasting,
demand monitoring and stock
replenishment

Print runs dictated by
conventional technology and
batch economics, with few
long term supply
arrangements

EPOS and stock data
made available by both
parties and routinely
used in joint supply
decisions

Supply chain managed
as a complete process,
using supply chain
management systems
and data shared between
partners

Publishers and printers
working in partnership,
investing in and
exploiting new short run
technology
a5490 - 51 - FINAL
CONFIDENTIAL
C. Management of Stock and Capacity - Trends and comparisons
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

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

Examples from other industries
 From push to pull: retailers have co-operated with suppliers to
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
Use of digital printing for high value professional & academic
publications
2%
Source: Harvard Business Review
March/April 1997
1%
Before
After
Weeks inventory
Before
After
Margin
 EMI music segments products according to life cycle characteristics
and plans supply accordingly to optimise capacity usage
a5490 - 52 - FINAL
CONFIDENTIAL
C. Management of Stock and Capacity - Benefits and implications
Publishers
Printers
Distributors
Wholesalers/RDC/
Library Supply
Retailers


Improvement in capacity
utilisation

Reduction in physical
capacity requirement

Growth opportunities as
provider of responsive
supply


Reduction in working
capital requirements
through stock reduction
Ability to leverage digital
print technologies

Ability to increase both
responsiveness and
efficiency of supply

Develop partnerships
with retailers to improve
stock management

Improved delivery lead
times

Fewer stock outs

New partnerships with
publishers providing
improved stock
management in
segments served

Requirement for
management of littleand-often deliveries

More co-operative
supply agreements and
systems with suppliers



Potential to reduce
working capital
requirements through
stock reduction
Reduction in wastage
through supply more
accurately meeting
demand

Develop strategies for
print-on-demand

Requirement to manage
more little-and-often
deliveries at goods-in as
well as pick, pack &
ship levels
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
Opportunities to
develop communication
with printers to improve
stock and capacity
management

Opportunities to act as
print brokers for client
publishers
C. Management of Stock and Capacity - Estimated financial benefits
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
a5490 - 53 - FINAL
CONFIDENTIAL
C. Management of Stock and Capacity - Actions
a5490 - 54 - FINAL
CONFIDENTIAL
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
a5490 - 55 - FINAL
CONFIDENTIAL
D. Distribution Efficiencies
Improved stock
management & better
use of printing &
distribution capacity
Partnership trading
arrangements in list
and demand
management
As Is /
Current
To be /
Vision
Reduction
in the level
and cost
of returns
Improvements in
transaction processes
Distribution
efficiencies
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D. Distribution Efficiencies - Changes proposed
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 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

Stock sub-optimally located
across the supply chain, with
multiple stocking points

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D. Distribution Efficienciesm - Trends and comparisons
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
Examples from other industries
Book Industry Trends

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:
–
consolidated source of supply for large part of retailer’s
requirements
 Slow moving versus fast moving inventory: some sectors have developed
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
–
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

Internet and mail order booksellers charge for P+P

Some publishers considering charging for freight and premium for faster
service
No of SKU’s held % stock value % service events
200
5%
50%
Regional depot
10,000
15%
30%
National depot
30,000
20%
12%
International depot
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
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D. Distribution Efficiencies - Trends and comparisons
Economies of scale are delivering major efficiency gains in warehousing, shipping
and transaction processing
Book industry trends

More publishers outsourcing distribution to third parties

Two models of outsourcing developing
Examples from other industries
 Strategies to integrate distributors and wholesalers: the
–
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
Large
Manufacturers
Oem’s
(Few)
(Few)
Global
Distributors

Academic and professional sectors preparing for consolidation as a
result of asset swaps and increased market concentration
(Few)
Small/Medium
Manufactures
Small
Oem’s
(Many) - Niche


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
Components
Local
(Many)
Wholesalers
(Many)
End
Major
User
Wholesalers
(Many)
(Few)

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
– 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
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D. Distribution Efficiencies - Benefits and implications
Publishers


Reduced operating
cost from more
efficient supply chain
Different models of
‘control’ required from ownership to
key performance
indicators and
partnership
Printers


Distributors

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


Investment
requirements in
automated warehouse
management systems
and other process/IT
improvements
Carry major burden of
slow moving inventory
Wholesalers/RDC/
Library Supply

Opportunities for growth
as premium service
provider or as one-stop
shop

Carry only faster
moving inventory
Retailers

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

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
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E. Returns
Improved stock
management & better
use of printing &
distribution capacity
Partnership trading
arrangements in list
and demand
management
As Is /
Current
To be /
Vision
Reduction
in the level
and cost
of returns
Improvements in
transaction processes
Distribution
efficiencies
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E. Returns - Changes proposed
Returns have become a major driver and distorter of both buying
and selling behaviour
From:

Current accountability for
stock and decision making
processes and inefficiencies
in supply cause excess
returns (7-15% of volumes)

Returns processing
unacceptably complex,
inefficient and high cost

Systems for physical handling
of returns are varied and
expensive and impact
efficiency of outbound supply
chain
To:

Alignment of accountability
and decision making
processes, together with
more efficient supply,
reduce overall returns level

Simplified and standardised
returns agreements and
processes

Handling and destruction of
returns at optimal points in
supply chain
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E. Returns - Trend and comparisons
Returns cost the UK book industry around £100m
The price of a return
Assume a retailer buys a £5 book at 45% discount:

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)
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
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
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E. Returns - Benefits and implications
Publishers





Reduction in volume
related production
costs
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
Printers
Distributors



Reduction in print
volumes
Greater number of
smaller batch
quantities



Wholesalers/RDC/
Library Supply
Retailers
Reduction in both
outbound and returns
volumes

Reduction in
outbound & returns
volumes

Reduction of in-store
physical handling and
processing activities
Reduction in
destruction activities

Reduction in
destruction activities

Reduction in returns
processing costs

Reduction in returns
processing activities
More accountability
for purchases,
particularly where
certainty of demand
is greater
Reduction in queries
arising from returns

Reduction in ‘buffer’
stock holding to
reduce risk of
obsolete stock and
thus need to return

Development of
returns handling
strategies which do
not involve moving
stock back up the
chain

Opportunities for
returns consolidation
activities

Reduced subscription
quantities
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E. Returns - Estimated financial benefits
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
£18.4m
Eliminate financing cost on 18m units
£0.5m
Avoid cost of stock (assuming marginal cost of production of £0.50)
£9.0m
Reduced processing costs on remaining 36m units by 25%
£4.6m
Reduce sales and marketing administration cost by 25%
£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
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E. Returns - Actions
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
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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
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Our recommendations
A strategic change programme for the book industry supply chain
would include the following projects
B. Partnership in list
and demand
management
A. Transaction
processes
A1
Debit notes and
returns processing
simplified
C. Management of
stock and capacity
Forecasting based on
3 months
5 months B1
list/category lifecycles
and demand characteristics
Develop use of EPOS
C1
in decision making
Consumer research
into service expectations
4 months
D2
Service and distribution
strategy defined
5 months
D3
Returns handling
optimised
9 months
3-14 months
Full implementation of
A3 electronic commerce in 12 months
transaction processes
D4
B3
Longerterm
projects
D1
9 months
Priority
projects
Develop low cost
Bibliographic best practice
A2 transaction processes 5 months B2
defined and dummy
for low value orders
stock options evaluated
Implement partnership
in list and demand
management
E. Returns
D. Distribution efficiencies
21 months
Supply chain
C2 management systems
implemented
C3
Cost to serve established
9 months
and new trading
arrangements implemented
22months
D5
Store friendly systems
established
18 months
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
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Our recommendations - Benefits
Benefits to be realised from a collaborative strategic change
programme could exceed £150m
Estimated financial benefits
Improvements in transaction processes
£20 to £25m
Partnership trading arrangements in list and demand management
£30 to £35m
Improved stock management and better use of printing and distribution
capacity
£20 to £30m
Distribution efficiencies
£40 to £60m
Returns
£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
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
The case for change
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
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Contents

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

Obstacles to change

The case for change

Next steps
priority projects
longer term projects
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Next steps
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