Recently I’ve been in on a conversation that once again strayed to the seemingly archaic world of book inventory management.  Having spent about 20 years working in inventory management for health care I actually had a basis to form an opinion (instead of making shit up like I sometimes do – it’s an old family skill).  You know the economics of book inventory is a peculiar thing. Almost as peculiar as my mind which wandered all over this topic the other day and came to a rather duh conclusion.  Endure…uh, I mean enjoy.

Economies of Scale

It doesn’t cost much more to ship one book as it does two as long as you use the same box.  If you ship a full truckload it is more economical than a partial truckload (when you break it down to unit cost). So for the publisher it makes a certain amount of sense to ship more units to its distribution points(presumably wholesalers).  Besides if there are more copies available on the shelves more may sell – a gamble but not a crazy one up to a point.

The more copies you print the less each copy costs, because like most consumer goods the bulk of the manufacturing costs are in the setup not the materials.  Bookstore buyers have a no risk prospect in terms of over-ordering because the return policies are liberal.  It’s almost a consignment relationship (though there are monies flowing back and forth throughout the exchange I expect, so technically not consignment).

Handling Costs

Sure for the bookstores and wholesale distributors there are some costs associated with handling of inventory. There’s the lost opportunity cost for both, associated with shelving the wrong titles. But the book buyers can only make their best educated guess as to what will sell.  So the way that it currently works does make a lot of sense in some respects.

Inventory is an asset

On the balance sheet inventory is carried as an asset increasing the value of the organization so holding more inventory doesn’t hurt at the end of the month or the year.  No rewards there for keeping inventory low.  I don’t know if they even measure days on hand inventory levels in publishing.  It seems kind of silly to do that but who knows?  Ok there are financial offsets but that’s never stopped…Yikes I hope that returns charged against the author’s royalties are net of production costs.

Efficiency

Is it efficient?  Certainly not in a classic sense.  There’s too much waste as a byproduct for that.  But the supply chain is working as designed.  Manufacturers and wholesalers provide competitive terms (incentives) to buyers to encourage them to purchase more and everyone hopes that the need for returns will be low.  The capitalist system working in all it’s glory.

So why not switch?

In most manufacturing and sales environments it is in everyone’s benefit to keep the inventory levels low, the production matched to buyers needs, delivered just before or right when they need it.

In publishing, the buyers (you and me in this case) patterns are not as predictable and a large variety of units must be available for sale in order to maximize profits to the bookstores.  This requires an inventory of considerable size. A few of each, of many book titles makes you and me – the browsers – happy.

So now publishers must produce a large variety of titles.  And that is good for authors in that more stories are published. Whether the number of units (books) sold remains constant, despite the number of titles published is a question I don’t know the answer to. But if publishers could sell the same number of books producing 1 title versus a hundred it would make better financial sense to produce just the one title.  Authors be damned.

I’d be interested to know what book store inventory turns are.  (the number of times inventory turns over (is bought and sold) in a timed cycle – a year for example, which indicates the rate at which goods are converted into cash).

A table of AMR top 25 supply chain 2009 can be found here.  Go! Apple with 45 inventory turns per year woooo!

Just In Time versus Just In Case

Now if we decide okay, we’re going to go “just in time” on the inventory (a ridiculous notion, but let’s pretend).  Let’s put Espresso Book Machines (r) (a book printing/binding machine) in every bookstore and only put a dummy copy of the book on the shelf (like movies at Blockbuster).  Let’s assume that for the sake of argument the machines worked perfectly every time.

That would allow us to have a just enough inventory right when we needed it, but I’m guessing a higher per unit cost for supplies than traditional publishing.  After all smaller batches higher costs right?  All duplication costs absorbed by the bookstores, but the initial setup and formatting still charged to the publishers.  That would be reflected in the royalty the bookstore would pay the publisher.  Yes, royalty.  The bookstore would be licensed to use the image of the book in the Espresso.  Espresso conveniently tracks that.

But buyers couldn’t browse the books the way they do now by picking them up and handling them in the stores.  If the buyer had to wait at the counter while their books were produced (say 2 minutes per book) would they buy that impulse title that is displayed so conveniently today on an end cap?

Probably not, if they had to wait for yet another 2 minute copy to be pumped out of Espresso on top of the six or eight minutes for the three or four other books they are having produced.  After waiting in line for half an hour during the Christmas rush.  Which face it.  It’s the browsers who shop in stores at christmas time desperate to find that last minute gift.  Even if the store gave complementary lattes while you wait.  Well, maybe I’d wait if I had a free latte.

God forbid Rawlings starts the Harry Potter Junior series and you have to wait in line behind 150 ipod wearing pre-teens to get your copy of the latest J.D. Robb.  (Shop for books on line anyone?).

The Espresso Book Machine (r) should be portable otherwise book signings require the author to stand beside the machine as it pumps out each copy.  It would be a different world indeed. Not unlike signings at RT for the e-book authors I imagine, except to get the hard copy autographed it would have to be printed first.  Hmmm Author could just pre-sign a bazillion covers – NO WAIT, they’re printed as the book is printed so that wouldn’t work.  Now back to your regularly scheduled programming…

So does lower sales and the reduced costs associated with material handling save enough to justify a change to something like a just in time model?  I dunno but it seems unlikely given the costs of turning over a store to a print on demand model.

I’m guessing it’s not even an option for the big box stores but it might contribute to saving the independents.  Think about it.  The reason so many people flock to the big bookstore chains is variety (and location – Espresso can’t do anything about that).  Well, if the lines are shorter during the Christmas rush at the little shop around the corner than the big box stores hmmm…not much of a decision there.  With an espresso machine if the book wasn’t in stock…make it.  Sorry another digression.

Probably bookstores, wholesalers, and publishers will come to some compromise to lower costs by experimenting with the supply chain.  Unless we get some uber smart inventory geek who’s looking for something to fill his empty hours to model the supply chain. And as a business problem publishing supply chain probably isn’t that interesting.

Have I got this wrong? Anyone?