I have long been puzzled by inventory policies that cause four-color titles to be printed in three-to-six-month quantities when every calculation I’ve ever seen suggests that printing 12–15 months’ worth would be more cost-effective. Recently, I’ve also been puzzled by some publishers’ tendency to print larger quantities in response to increasing print lead times instead of ordering earlier and more frequently. It may well be that these seeming paradoxes can be solutions to some of the industry’s inventory management woes, but publishers are choosing them for the wrong reasons.
Let me explain. Inventory is one of the largest assets on a publisher’s balance sheet, and printing is one of the biggest costs. Printing drives two important lines on a publisher’s profit & loss statement (P&L): paper, print, and bind (PPB) and inventory obsolescence. But publishers can’t afford to be miserly or overly conservative regarding inventory management. Insufficient inventory can delay or lose sales, leading many publishing salespeople to term their director of inventory management the “director of sales prevention.”
One thing is certain: discussions about appropriate printing strategies and resulting inventory levels consume a whole lot of industry time. And these conversations seldom resolve the symptoms of poor inventory management: high inventory levels with associated obsolescence from too many of the wrong titles and mediocre fill rates from too few of the right titles.
Recently this has become more problematic. During Covid lockdowns, the industry saw a significant increase in demand for books (which now appears to be falling back to more familiar levels). The industry also experienced extended printing lead times due to printer consolidation and reduced paper capacity. With these changes in demand and supply patterns, publishers’ intuition built over years of experience is now even less of a reasonable guide; we’re back to gazing at crystal balls.
Back to basics
While inventory policy consists of several critical decisions—including ordering, expediting, and disposal—the answers to key questions of cost, obsolescence, and investment are driven by the ordering decision. And in ordering, the two most critical decisions are when to order, often called the order point (OP), and how much to order, often called the order quantity (OQ).
A few factors drive these decisions—namely expected demand and probable variability, lead time length and variability, and total cost of ownership of the item. Because volumes vary significantly depending on life-cycle pattern and seasonality, it’s helpful to think of OP and OQ as weeks of supply. This approach works whether one uses a reactive approach or a forecast-based approach.
The OP should be based on how long it will take for the order to arrive and any safety stock a publisher thinks might be necessary to cover unexpected demand. Many publishers use digital printing programs such as GAP from Lightning Source or ISP from Amazon instead of explicitly including safety stock, calculating OP using expected printing and inbound transportation time. As lead times increase or decrease, the OP should go up or down dynamically. The objective is to order stock far enough in advance of projected out-of-stock to ensure the new order will arrive on time. Note that ordering more doesn’t protect one from the extended lead times: it just jacks up inventory levels and, once received, pushes the next reorder point further out into the future, with the risk of stockout remaining the same.
With adequate forecasting, planning, and visibility into orders, one can manage surprise changes in lead time more effectively. At the same time, one can’t avoid occasionally being surprised by out-of-stocks. GAP and ISP programs offer good ways to manage these surprises. Another method that can be effective is split-shipments in which part of a shipment utilizes premium transportation to fulfill immediate demand, or placing split orders, one with a long lead time but inexpensive supplier (maybe in China) and another with a faster but more expensive supplier (maybe in Mexico or domestic). The final method is to automatically begin to allocate orders to customers based on their historical demand and sell-through. While this doesn’t make customers (or salespeople) happy, it does reduce the probability of one customer running out of stock while another has excess supply.
The OQ should be based on the economics of fixed costs (ordering, inbound transportation, receiving, payment processing) and costs of manufacturing (setup and any costs incurred regardless of the quantity ordered), variable costs (paper and printing cost per unit), and the period costs of holding (storage, capital, insurance). Typically, these factors don’t vary based on lead times but on expected demand level and item economics. There are several possible methods used to calculate an OQ. A combination of two approaches works well in publishing: an Economic Order Quantity (EOQ) approach modified to reflect the realities of publishing and a Newsboy approach to ensure that one avoids ordering more than a lifetime supply of the title. (The Newsboy algorithm is named to reflect the problem that a newsboy in the early 20th century might have faced in balancing the purchase of enough papers to satisfy a day’s demand to avoid lost sales without buying too many that would need to be thrown away at the end of the day.)
In publishing four-color titles, there is generally insufficient attention paid to the fixed costs of manufacturing, which can often be significant. In a recent conversation with Larry Mallach, executive director of inventory management at PRH, he noted that it often comes down to considering whether a title should have a one, two, or multiple print run life cycle. Getting this wrong for more than a few printings per year can quickly add to a significant economic penalty. But he also pointed out that the difference can be obscured in the PPB line of the P&L, driven as it is by a mix of other factors beyond inventory decisions. The obsolescence line, however, is much more obvious as a potential area for improvement and is less obscured by other factors.
The bottom line
Getting back to the basics of inventory management can help to address any number of questions, including those currently facing the industry. We’ve seen how to address changing lead times by ordering earlier, not more. GAP and ISP programs using digital printing are useful alternatives to safety stock, particularly for books have been designed to allow for multiple print technologies. It is smart to source wisely with digital, conventional, and onshore/nearshore/offshore all as part of the mix. The solution is to increase one’s supply chain agility by investing in technologies that allow them to move among the alternatives easily.
Ken Brooks is the founder of the consulting firm Treadwell Media Group and is a founding partner of Publishing Technology Partners. He has served as chief content officer at Wiley and COO at Macmillan Learning.