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Good afternoon.
I have spoken at several of Vista's London and New York Conferences and written in a
number of places before about the concept of Vendor-Managed Inventory applied to the book
business. This is the first time I have done it for a truly international audience. I want
to apologize in advance for presenting these ideas almost entirely within an
Anglo-American, with an emphasis on the American, context.
In the British and American markets, it is clear to us that our supply chain is not nearly
as effective as we would like. Returns are high, possibly as high as fifty percent of the
copies of new titles shipped for many consumer segments in the US. Returns are not as
dramatic, but they are climbing, in Britain.
So what we are doing isn't working.
Vendor-Managed Inventory, by which the responsibility for choosing the content and timing
of shipments to each location moves from the buyer to the seller, is the best hope to
improve that performance to the benefit of the entire supply chain. VMI would be helpful
whether it were offered by a wholesaler across the range of possible titles or by
individual publishers for their titles alone. VMI would improve a store's performance, and
sharply reduce their operating costs, whether some or all of their books were supplied
this way.
Here's how VMI works. The supplier -- the publisher or wholesaler -- agrees on inventory
limits with the store. Those limits can be across-the-board, or can be assigned by subject
section. Of course, the limits would change with the calendar, just as a store's sales do,
and just as a store tries to make its inventory do to be in step with its sales.
Granularity to the level of store sections is optional, but it is a requirement that
inventory limits be set for each individual retail location in any circumstance where an
agreement is being made centrally for a group of stores.
Then, somehow, the publisher or wholesaler must know what actual sales are in each of the
locations being controlled. In the past, like when my father first installed VMI at
Doubleday in 1957 or even when we did it at Two Continents in the 1970s, the only way to
do that was to send in a sales rep to take a physical count of books on hand. Today, that
data is retrieved effortlessly by EPOS systems, making it efficient for an offsite
supplier to get up-to-date sales information as often as desireable, even daily.
Based on the sales and inventory reporting, the supplier then calculates the next shipment
and makes it. On a periodic basis, a scorecard of the actual results will demonstrate
whether the supplier's control is sufficiently profitable. A store using this system with
many publishers would, of course, regularly adjust the inventory limits to give more
profitable publishers a larger inventory allowance, taking shelf space away from less
profitable ones.
The suppliers would achieve better results to the extent that they used sound statistical
prediction methods to calculate future stock needs from sales data. You need a good buying
system to maximize the opportunity. They would also achieve better results if they ship
more frequently, which will permit them to address out-of-stock situations faster and to
avoid shipping big quantities in anticipation of future sales. It is precisely those
shipments which result in a disproportionate share of the books returned. Shipping more
frequently is the most obvious leverage provided by VMI, which eliminates the need to put
a selling bureaucracy in touch with a buying bureaucracy to trigger a purchase ordering
mechanism. That clears the most significant barrier to frequent shipment.
Obviously, VMI cannot work without controls. If the store sets no inventory limits or
there is not some other control like a consignment payment arrangement, there will be no
discipline to force publishers or wholesalers to pick the right books, or to avoid
"loading" the store. And if there is no benchmarking of what the performance was
when the store did the buying, and no scorecard of the supplier's performance, there will
be no reliable way to confirm that the situation has actually been improved.
Time does note permit elaboration today on the many ways VMI actually works to increase
sales and reduce returns. I would refer those of you who want more detail on that point to
some of my prior speeches, which are on both Vista's and Idea Logical's Web sites. But,
frankly, any technique that increases the frequency of inventory replenishment will
increase sales and reduce returns. VMI offers enormous efficiencies in addition. It cuts
the need for selling staff and buying staff. It eliminates the need for the elaborate
marketing preparations that are now required for publishers to sell the books into the
stores before publication. It enables instant publishing and distribution in ways that
cannot be conceived in today's marketplace.
Our company is now deeply involved in one VMI development and on the cusp of another. Our
client, The Butterick Company, is a creator of patterns for sewing garments. They have
almost universal distribution into the stores that sell fabric. Starting in early 1999,
the newly formed Butterick Book Distribution Company will place the books of all
publishers into that marketplace in the US. The initial customer, JoAnn's Fabrics of
Hudson, Ohio, has 1200 stores for which Butterick will become the exclusive books
supplier. All shipments, and there will be a shipment each week to each store, will be via
VMI.
Butterick could not have made this deal with JoAnn's if they had not offered VMI. The
ceding of control is not a barrier with the account; it is seen as a great advantage by
the account.
We have also been asked for help by the Canadian arm of a global book publishing company
that wants to begin offering VMI to its domestic bookstore network in 1999.
In addition, VMI is being tentatively introduced at the margins of the US book trade by
publishers at the edges of true trade publishing, specifically publishers of calendars,
computer books, and mass-market juveniles. And it is tending to be introduced in non-book
outlets, which would otherwise require a big investment in the personnel and systems
necessary to manage book inventories, and which show little inclination to accept such
substantial costs. One wholesaler, Advanced Marketing of San Diego, which is a supplier
primarily to mass marketers, has begun to stock books for their customers using VMI and is
claiming great success.
But while take-up of the concept seems to be increasing, it is certainly not pronounced
enough to be labelled a trend. Despite widespread recognition of the ills in the supply
chain, there is real built-in resistance to the concept. Chain stores and multiples have
invested heavily in buying staffs, buying systems, and an infrastructure, often including
warehouse and shipping capabilities, to service the status quo. That represents a core
constituency in their organizations to maintain it.
And the changes that would be wrought by VMI threaten many in the publishing companies
too. The whole catalog-and-sales conference, seasonal selling cycle would be changed. So
would the placement of large speculative quantities of books in advance of publication,
preceding any true consumer reaction. The compensations for these changes: faster and more
direct access to the consumer, the ability to keep books alive easily even at low sales
levels if bookstore customers are indeed buying them, will take awhile to prove out and
provide relief from the discomfort of losing established professional rhythms and
expectations.
VMI is a sensible idea for a supply chain that is desperately looking for one. It gets
easier every day as EPOS technology spreads to universality. VMI has become is a concept
that no publisher concerned about the level of its sales, the level of its returns, or its
costs of doing business, can afford to ignore. |
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