Tuesday, March 12, 2013

The Need to Revisit The Supply Chain

Logistics always taught us that supply chains are only as strong as their weakest link. This is particularly relevant in a finely balanced chain such as the book trade, which is made complex by the many to many relationships and single source of product.

Publisher, former politician and founder of Biteback Publishing Iain Dale, made a strong speech at the Independent Publishers Guild conference last week claiming that the large retailers have publishers ‘over a barrel’. So what is the ‘barrel’ he was claiming and how does it impact today’s supply chain.

His points are nothing new:

Sale or return
This works well within a stable and predictable market, but becomes somewhat of a mare when the market becomes volatile and unpredictable. What started off as a good idea to ensure new stock was promoted and visible, can become a wasted journey when stock is not moving fast enough to support it. What was celebrated as a good sale one month, becomes a nightmare when it comes back two months later and still be in its packs opened. Sale or return has to be mixed with firm sales otherwise it can become a very weak link in that supply chain. An early logistics truth is that ‘every time stock moves or stands still it costs money and any cost is a cost to all.’  

High Discounts
Again these are fine if the volume is there to fuel them and generate the margin return. But high discounts, applied across the board are very questionable as many titles may not wash their face if they don’t sell. What tends to happen in markets with little price points is that the supplier just ups the RRP to compensate for the discount they have to give which in turn just creates an unsustainable cost spiral. Its easy to give stuff away it’s a lot harder to sell it.

Promotional marketing, or ‘pay to play’ and make a title visible is often a standard practice but again it has to be successful to recoup the investment made and when coupled with high discounts and sale or return begs the question of who is taking the risk. Some would suggest that being paid to fill shelves, merchandise and send it back if it doesn’t sell is a franchise and far from independent. Do book become like cards, where the stock is based on filling genre, or card type slots, more than true selection based on shared risk?

There are many challenges facing the trade supply chain today. As it shrinks and becomes less predictable, it must also learn to adapt and hone its practice. Merely continuing with the practices that were right yesterday is not the answer and will further provoke stone throwing from either side.

Sam Walton, who foundered Walmart, once described the dialogue between suppliers and Walmart as being like them being in two separate rooms and communicating ‘ by slipping notes under the door to each other.’ He realised the need to open the door sit down and work together and lets hope that Ian Dale’s comments now open doors.

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