The supply chain for book publishing is being changed by Coronavirus too

From veteran publishing consultant Mike Shatzkin:

One thing the pandemic has done is to make everybody more aware of “supply chains”: the path by which a thing gets made and delivered to its ultimate user. Many of us heard many times that a ventilator is constructed of 150 parts that come from all over the world, hinting at the massive logistical challenges of ramping up supply. And we’ve learned about how hard it is to get the toilet paper or the milk intended for offices and institutions packaged and delivered to stores for consumers instead. Supply chains were not talked about much, but they’re important in ways that lots of people are suddenly becoming aware of.

I doubt it was called a supply chain for books when my father started working on it in the late 1940s, but he recognized early that managing inventory title-by-title was both the achilles heel and the biggest opportunity in the trade book publishing business. Each book was not as complicated as a ventilator, but publishers did dozens or hundreds, and now thousands, of different books a year. Unlike most businesses, book publishers created unique products over and over again. Particularly in the days before computers, managing all this detail was a major logistical challenge.

The way book supply for trade worked for years was that the publisher ordered copies manufactured by a printer in bulk for delivery to the publisher’s warehouse. Then the publisher shipped orders for that book, usually combined for shipment with other books from that publisher, to bookstores and libraries and the wholesalers that served them.

So unsold copies sat on the shelves at the publisher’s warehouse, at a number of wholesalers, and on the shelves and stockrooms of book retailers. The rhythm for most titles was to push out copies in advance of “publication date” (the day on which reviews would run and the publisher would start to promote to the public). Then, for most books, the cycle would end a few months later and unsold copies would be returned. A minority of the titles initially shipped sell well enough across enough retailers to become “active backlist”.

But, all along, the publisher would pay for and receive the books from the printer and hold them waiting for orders from their customers. Over time, particularly as big accounts like chains and big trade wholesalers evolved, certain shortcuts were developed by which books might get shipped in bulk directly to major accounts. The basic configuration, whereby publishers ordered from printers, took the books in, then shipped them out to customers who sometimes sent them back, was the way it worked almost all the time in the book publishing supply chain.

. . . .

Doing all this well was critical to every publisher’s commercial success. Manufacturing books is — perhaps aside from rent and salaries — a publisher’s single biggest cash outlay. Managing that inventory, the publisher wanted to make sure they had the books that were ordered from their customers on hand at the lowest cost to them but with almost none left over when demand slowed down or stopped.

Feedback from accounts — advance orders before publication and actual movement and reorders once the title is active — is what informs print quantity decisions. When a book has a reasonably steady rate of movement, or at least has established its appeal as enduring rather than fleeting, publishers have to decide how much supply to reprint at one time. Print more and you get a lower unit cost but you tie up capital for a longer time and take the risk that you’ll fail to sell them all. Print fewer and you save cash and reduce the risk of waste, but you add to the risk that you’ll be caught short at some point. Something will create a surge in demand and you won’t have the books.

What makes that happen? John McCain picking Sarah Palin to be his running mate was one example; the book on her was not particularly active and large quantities were not in stock anywhere. The suicide of TV personality and author Anthony Bourdain in 2017 was another. No publisher would ever have enough inventory to satisfy that kind of a spike in interest, but taking even a week or two to deliver a reprint would predictably cost a very large number of sales.

. . . .

[A]bout 25 years ago, Ingram Book Company started building Lightning, a print-on-demand capability that could produce a single copy of any book in its database in a production line. The original vision focused on books that might otherwise go out of print or which were in very low demand, so it was challenging for Ingram to allot the capital and the space to as many as might be ordered. Indeed, even a single copy or two might sit on the shelves forever, and the thousands of books in the long tail could make that a prohibitively expensive proposition.

There are some compelling aspects of this for publishers. Most author contracts allow a publisher to maintain control of the book as long as it is “in print”, which is defined as being able to fill orders for the book. So when a publisher decided that the rate of movement on a book was too slow to support a minimum printing, which is in the low thousands of copies, they might have to relinquish all future rights. Lightning immediately solved that problem.

. . . .

The first big hint of the new possibilities was the Sarah Palin example I cited above. Of course, this occurred in 2008. McCain picked her, there was sudden demand for the book and the publisher was out of stock. They loaded the title up on Lightning and Ingram moved 40,000 copies into the retail channels before the reprint could be delivered.

This and other less dramatic examples inspired John Ingram to start pushing the idea that titles should be loaded into Lightning, not only for “just-in-time” delivery, but also “just-in-case” some spike in interest created sudden demand that could only be capitalized on by Ingram’s unique ability to deliver a book tomorrow that isn’t yet manufactured today.

Even before the present Coronavirus craziness that has strangled all supply chains, examples of how this could be beneficial abounded. One dramatic example was Bourdain’s shocking suicide in 2017 while he already had a bestselling book, “Kitchen Confidential”, in the market. It happened that publisher Ecco Press had set this 2007 title up with Lightning years before and the POD capability was used to deliver about 30,000 copies to customers in the wake of his death. I asked somebody at Ingram how often he saw opportunities like this, where publishers could capture substantial sales that would otherwise be lost by having set up at Lightning. He told me, “every day”.

. . . .

[S]omebody at Ingram showed me a graph of their “print-to-order” business: the POD books for which they received orders today and will ship tomorrow. It was the same graph, where today’s level was many many times the highest point ever before. Publishers in large numbers were suddenly discovering that this much simpler supply chain was, in the circumstances, much more effective. They can send down the book file today and have Ingram start shipping whatever quantity they need to the stores, or Internet resellers, tomorrow. The differences in the unit costs of delivery look smaller and smaller when you see those units delivering sales that would otherwise have been lost forever. Suddenly, and without any warning, the virus caused book sales to shift from where publishers had positioned inventory (in stores and on their own warehouse shelves) to online vendors, most of whom are supplied by Ingram. Nothing like a sudden crisis where normal sales suddenly evaporate and all the inventory is in the wrong places to encourage publishers to try the Lightning alternative which still worked!

. . . .

[I]t is very likely that when “normalcy” returns, it will be a “new normal”. Publishers are seeing for themselves that the higher unit costs may be real, but so is the reduction of waste (no returns), the more efficient use of cash (because books aren’t printed for future use), and the instant capture of perishable sales. The new Ingram-Lightning supply chain will undoubtedly be used in ways six months from now that were never considered six months ago.

Link to the rest at Mike Shatzkin – The Idea Logical Company

PG suspects that if book publishers performed a truly sophisticated analysis of all the costs including salary and benefits of staff associated with:

  1. printing,
  2. order-taking,
  3. shipping to a warehouse,
  4. warehousing,
  5. order fulfillment,
  6. shipping orders from the warehouse to store,
  7. shipping and restocking
  8. costs of returns,
  9. crediting and paying bookstores for returns,
  10. bookstore and bookchain bankruptcies and
  11. dealing with stock involved in the bankruptcies,
  12. etc., etc., etc.,

Publishers might conclude that not only is having Ingram do all that is cheaper, but taking those tasks out of the publisher’s hands would make for:

  • a simpler and smaller organization to manage and
  • allow everyone to focus on acquiring great titles then
  • doing sophisticated marketing to sell more copies of them.

19 thoughts on “The supply chain for book publishing is being changed by Coronavirus too”

  1. In the world you suggest, what would be the publishers’ competitive advantage? What would they do better than anyone else?

    • Supposedly (at least) they would be skilled in taking an unpolished book and turning it into something much better and more salable, and then selling it better. It is likely there is some truth to the contention that not every writer is able to do so. Some are good business people and managers and it would be no surprise if some were not. Just because you’re a good pilot doesn’t mean you would be good at fixing a plane, and vice-versa.

      • The issue isn’t that tradpub doesn’t add value to the product. Rather that the cost of their services is disproportionate to the value added. Not all tradpublishers charge tbe “industry standard”, predatory, life of copyright 85-95% of retail, but nobody in the industry is willing to divorce themselves from the predators and thus get tarred with the same brush!

      • I would agree that every writer can’t do that. However, in the last ten years we have seen that lots of writers can manage their project on their own, and deliver a product that can stand toe to toe with the publishers..

        So, I suppose I would speculate that for novels, the independents who can manage the project have a competitive advantage over publishers because of cost, and they also have a competitive advantage over the independents who can’t.

        Publishers would retain an advantage in terms of money devoted to promotion, but that money is focused on a very small piece of their offerings. I would be interested in total novel promotion dollars for Random House divided by the total number of novels published last year.

        For the past two hundred years the publishers competitive advantage has been in producing and distributing paper. If we look around, they have done a pretty good job. They did indeed do it better than anyone else. But paper is no longer a constraint. Today, I’d say the number of independent fiction writers who can manage their whole project is sufficient to satisfy the demand for fiction. Same for the publishers. At that point, the games begin.

  2. One thing the publishing press routinely forgets is tbe supply chain includes the authors.
    In fact, traditional publishers are just one step in the *authors* chain. And one that is optional.

    • I say authors are part of the Amazon KDP supply chain. Any author who disagrees is free to test it at home.

      • More like KDP is part of the indie supply chain.

        Who owns the product, Amazon or the author?
        The author own the copyright and, unlike othets, KDP doesn’t usurp control.
        It’s no different than BEST BUY being part of Microsoft’s XBOX supply chain.

        • Well, MS and the author are on the wrong side of the relationship to claim they are supplied by MS and Best Buy.

          Microsoft supplies stuff to Best Buy.
          Authors supply stuff to Amazon.

          Amazon’s supply chain isn’t for copyrights. And Best Buy’s supply chain isn’t for patents. They don’t care. Amazon’s supply chain acquires the rights to market the book. Publishers supply the book to Amazon. Authors supply the book to Amazon.

          Authors tend to overstate their importance in the larger system. They are necessary, but not sufficient, to sustain the current supply of books to the market.

          From a macro perspective we can say both Amazon and the author are part of the supply chain to the market, but when we start labeling a supply chain with smaller units, the buyer owns the chain. The supply chain looks backwards.

          • Well, MS and the author are on the wrong side of the relationship to claim they are supplied by Best Buy and Amazon.

            • Right.
              Because they’re the creators of the product, paying Amazon and Best Buy to distribute their product.
              Publishers claiming to own a book’s supply line is like tge supplier of cardboard packaging for the XBOX claiming to own that supply line. Even the asian manufacturer that builds the consoles for MS knows better than to claim ownership. And they provide a *lot* of added value.
              Only in publishing does the middleman pretend to be king.

              • Authors pay Amazon nothing.
                Amazon pays authors.

                We have heard authors claim the Amazon retail revenue is their money. This is easy and safe to test at home. Just refrain from paying Amazon and see how much is left.

                Nobody has property rights to a supply line. Nor does anyone make that claim. A publisher has a supply line that ends with supplies coming into the publisher. Same with a retailer. But that says nothing about ownership.

                In this case, the word “owns” simply indicates how we conventionally identify supply lines by where they end. It is an attempt to illustrate how economists conventionally label supply lines.

                So, instead of saying the buyer “owns” the supply line, let’s say the buyer is the final destination for supplies whose journey terminates with the buyer.

                It’s similar to saying an author has an editor, but that’s hardly a claim the author owns the editor.

                • No.
                  Read the KDP contractual terms: Amazon *charges* distribution fees. They work for the author. People refer to Amazon payments as “royalties” but that is wrong. They are providing a service and charging a price-based fee for it.

                  It makes a difference.
                  KDP isn’t APub.

                  Tradpub people pretend otherwise so they can refer to indie titles on KDP as “Amazon’s Books”, as if Amazon were the publisher. They’re not. The publisher is the author. Author, publisher, supply chain owner.

                • The royalty is a percentage of list price. That percentage is paid to the author by Amazon.

                  Another test. Look at gross revenue on an author’s income tax return. Does it include the (Amazon retail price x units sold)?

                  Does it list Amazon’s 30% as an expense?

                  Anyone take that safe and simple test any author can take at home? Just stop paying Amazon and keep all the retail price? Go for it! Don’t take it anymore. Reduce the amount you pay Amazon.

                  Authors over estimate their importance in the market.

        • A retailer has a supply chain, and that is it’s source of goods – its supply. Producers have a supply chain, and that is their source of raw materials. (In the case of authors, coffee shops – who have their own supply chain.) Supply chains move from the originator of the good to the consumer of the good. A trad-pubbed author is part of the publishers supply chain, which is part of various booksellers supply chain.

          • A more general definition is that supply chain for a given product is all tbe processes involved in the creation and distribution of that product.

            https://en.m.wikipedia.org/wiki/Supply_chain

            “…supply chain is a system of organizations, people, activities, information, and resources involved in supplying a product or service to a consumer. ”

            It’s not just about manufacture (not since the 50’s), nor does it only involve assembly so content and digital products also have a supply chain. Music, video, and ebooks have their own supply chains. And they are all owned by the creators, not their hirelings, regardless of their contribution.

            Think of the iPhone: Foxconn builds them and packsges and ships them using Apple provided software but nobody refers to it as a Foxconn product but an Apple product. Ditto for Kindles, XBOXes, and other ODM products. The IP and who owns it determines who owns the product and the supply chain.

            • The IP and who owns it determines who owns the product and the supply chain.

              So, given all the IPs involved in those Apple products, which IP owner has the power to define who owns what?

              Wonder how many IPs are involved in getting an eBook to a consumer? “all tbe processes involved in the creation and distribution of that product.”

  3. Heartwarming as this tale of the rise of Ingram is, there are risks associated with putting all one’s eggs in a single basket.

    There are real paper shortages from time to time. I have heard that currently much of Ingram’s paper supply comes from China and is not shipping…

    Not that there is any perfect supply chain, of course, but still…

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