Article: Wall St. Journal via Pittsburgh Post Gazette
Wow, here's a messed up Value Stream.
Book publishers end up taking back and destroying (or heavily discounting) 34% of all books sent to chains like Barnes and Noble because of poor forecasting or overly-optimistic forecasting. Publishers would argue that they have a limited “initial release” window that makes or breaks a book.
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“It is a system nobody likes, but no one knows how to change, even though the country’s largest book retailer says it would like to try.”
Ok, now there’s a start. Recognition that the system is broken. They don’t know how to fix it, but I would guess that’s because they don’t have knowledge of lean in the bookstore industry. The bookstores should push this lean change, since there are fewer of them then there are publishers. Barnes and Noble could play the role of Toyota in this value stream, since they are big enough to mandate lean methods for the publishers, I would bet. The current system isn’t a “Free Lunch” for the book stores. Every time a book is unsold and gets sent back, they have non-valued added activities that they pay for:
“There, employees manually scrape off the Powell’s barcode label on the back of each book. The staffers, who work in shifts, use a plastic scraper that looks like an inverted spoon. The work is so boring that “some people just can’t stand it,” says Mr. Wakeley, who listens to books on tape as he works.
Retailers, who pay millions in freight and handling for returns every year, have mixed feelings for the present system.”
Now I would suspect that Amazon is in a different situation. For one, it’s easier to handle and manage a few warehouse locations than hundreds or thousands of individual stores and stocking points around the country. I would assume that one cost advantage for Amazon is lower costs associated with returns, due to the inventory strategy and the website. I would expect that “pre-orders” on the Amazon.com website are a great forecasting tool for amazon and for publishers to take advantage of.
One challenging question — I assume amazon would consider all of that forecasting/pre-order data to be proprietary, but maybe there is an argument to be that by sharing that information more readily with publishers, they would make the whole book value stream more efficient. The benefits to amazon might outweight any benefits that also flowed to competitors through lower publisher costs.
The waste/costs to publishers are also pretty obvious:
“The reverse tidal flood of books hurts every aspect of the business, one already struggling with weak sales. Authors don’t get royalties on unsold books. Publishers sell returned copies at distressed prices after paying to truck them thousands of miles around the country. Books that can’t be sold at any price are pulped for a total loss. “The most expensive thing we do in our warehouse is process returns,” says John Sargent, chief executive officer of Germany’s Holtzbrinck Publishers, which owns such imprints as Farrar, Straus & Giroux; Henry Holt and St. Martin’s Press.
Worst of all, the increasing rate of returns has helped ignite a destructive cycle. So many books come back that publishers say they have raised prices to compensate for the anticipated lost revenue. That in turn makes many books harder to sell, creating more returns. Between 1985 and 2003, hardcover book prices rose 118 percent, far outpacing the 71 percent gain in the Consumer Price Index during that period, according to Fordham’s Mr. Greco.”
Seems like the publishers are completely ignoring the Toyota Cost Model (it really seems like I’m harping on that this week). Books should be priced at the level that the market will bear. I know I certainly won’t pay more for a book just because the value stream is inefficient and publishers want to maintain their profits by increasing prices.
PROFIT (that you deserve) = PRICE (market bearing) – COST
Not
PRICE (you want to charge) = COST + PROFIT (that you feel entitled to)
Read the article to trace the thousands of miles that a typical book will travel in this return process.
There is even a process where the bookstores send the book back to the publisher, so the publisher can discount it, and then SEND IT BACK to the bookstore. What waste!
The Barnes & Noble CEO has a reasonable approach to this problem:
“Steve Riggio, CEO of Barnes & Noble, the U.S.’s No. 1 bookstore chain, says he has a solution: He wants Barnes & Noble to start marking down books and selling them on the spot. Customers would relish the bargains, publishers would generate more sales and costs would be cut. He says eliminating returns would “revolutionize the book business and revitalize the book business.”
But Mr. Riggio says he can’t implement the change by himself, since it’s ultimately a decision for publishers. “We’d like to see this practice discontinued,” he says. “Any rational business person looking at this practice would think the industry has gone mad.”