Should We Outsource Fulfillment Now?
This is a well-worn question with publishers, and in this article, we review the arguments for and against outsourcing to specialist third-party fulfillment providers, post-pandemic. We are confining this discussion to the fulfillment of physical books — Amazon dominates the sale of e-books and we will address that side in a future blog.
Most people think of warehousing (pick, pack, and ship) when we discuss outsourcing fulfillment, although other services may be additionally included. The first question is why do we need a warehouse at all? They are necessary, of course, only because print, pack and ship lead times for books are far too long to satisfy consumer demand, and so publishers need a buffer, a place to store finished product that has been produced in anticipation of forecasted demand. Yes, Print-On-Demand (POD) strategies can provide a good alternative in many cases, and we discuss that below, but let us assume for a moment, that a buffering distribution point is required.
Where do we print the books?
At its core, the question of warehousing is heavily influenced by where we print the books. The vast majority of publishers have outsourced book printing to specialist printers, often offshore, as costs were significantly lower. Consequently, the number of domestic book printers has been gravely diminished. The pandemic revealed the weaknesses in that strategy, and although there are moves afoot to increase domestic capacity, it is not a problem that can be resolved quickly.
So, the printed book is typically delivered to a warehouse or distribution facility. Big publishers usually have their own integrated distribution facilities, however medium-sized publishers, to whom this article is mainly addressed, need to consider how much of the distribution process they want to handle themselves. Outsourcing involves developing a strong and financially secure relationship with either a third-party outsource provider or a full-service distributor. These parties then sell the books to wholesalers, who in turn fulfill orders from independent bookstores and retail chains.
Most publishers in Europe have long-since outsourced fulfillment to third parties, who, depending on the publisher’s needs, will offer not just warehousing, but also sales and marketing, order to cash, royalty management or even book manufacturing services. Outsourcing of fulfillment is much more common in North America today, as the industry has become more complex and publishers push their core focus onto the profitable acquisition and curation of content, and not the distribution of that content.
The other critical aspect of the new publishing business is the need to develop a deep understanding of the consumers and their behaviors, to nourish and retain a long-term relationship with each individual customer, using data from social media and other vehicles. For that reason, the outsourcing of sales and marketing (an essential part of building community with the reader) is less often outsourced to third parties. Publishers have realized that too much power has been relinquished to on-line retailers like Amazon in that regard, especially since the pandemic, and so we are seeing many publishers developing their own Direct-To Consumer channels where they can control the customer journey and the vital data on it.
Benefits of Outsourcing vs. On-premises
The benefits of using an outsource provider or full-service distributor as opposed to your own warehousing facility include:
- Economies of scale at the outsourced warehouse that take advantage of automated technologies such as ASRS systems, AI (Artificial Intelligence) and robotics, along with highly trained staff, to lower the cost of pick, pack, and ship activities
- The ability to scale up (and scale down) human resources and square footage when delivery volumes vary significantly from season to season, or when consumer demand for books is unclear or unsteady. Most providers’ fees are flexed on sales or service activity.
- Easier, flexible budgeting, compared to the fixed costs of your own warehouse operation
- Providers warehouses are usually located close to major highways and trucking routes for more efficient delivery to different destinations.
- Providers that specialize in books understand the returns processes common in the book industry.
- No real-estate, equipment, or staffing management
- Clear advantages from a cash perspective
The benefits of managing your own warehouse and fulfillment center include:
- You are in control of the entire activity, racking, systems, and performance management.
- Your own warehouse is an asset that can potentially grow in value.
- There is no need to integrate your systems to third parties.
- If demand is steady and predictable, your warehousing requirements are mostly predictable.
Overall, the ability to flex and scale budgets, resources, and warehouse costs is a significant reason for outsourcing fulfillment, especially in the face of unsteady consumer demand. Fulfillment providers are alert to these concerns and can provide KPIs that are responsive to publishers’ changing needs. And many ERP (Enterprise Resource Planning) systems for publishers, including knkPublishing, can provide good real-time integration between the publisher’s internal systems and the inventory management and demand/supply systems at the fulfillment provider.
Print On Demand
When combined with a POD strategy, where content is practically “always available,” there are other significant benefits. When a customer places an order, it can be passed directly to the POD partner for printing and distribution, with no intermediate warehousing required. And with large-scale, international POD providers who have access to a network of printers, the order can be encrypted and dropped to a printer who is geographically close to the location of the end consumer, resulting in a huge reduction in book-miles and consequent improvement in sustainability metrics. The systems are secure, and the print files are deleted after printing. If an order needs shipment to Singapore, the system enables printing and shipping from a printer in Singapore.
POD may not be the solution in all cases today, but it is fast becoming more capable and widely acceptable, and moves publishing to a more desirable Sell-First-Print-Later model compared to traditional methods of Print-First-Sell-Later. POD clearly demands much less focus on storage and is much more sustainable long term. If one focuses on the cost of net units sold (that includes the cost of pulped unsold units), rather than simple unit manufacturing cost, POD is competitive. It used to be that POD could not produce the same quality as offset printing, however today, the difference between offset and POD is just about print run quantity. As the balance continues to shift, most publishers still use a hybrid of POD and offset printing.
In summary, the industry is complex, and customer expectations are evolving. Publishers are focusing on their core competencies which, in most cases, do not include fulfillment. Sebastian Mayeres, CEO of knk Software LP sums it up, “The operating environment of the book publishing industry has permanently changed and will continue to do so. Only the largest publishers and distribution specialists will have the scale or functional expertise to manage the increasing demands of today’s fulfillment marketplace.” Stay tuned!
Photo by Jacques Dillies on Unsplash
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