The Challenge of Cutting Distribution Costs
Only clear solution is supply chain collaboration.
Distribution is where leaders throughout the production supply chain are looking to cut costs in 2008, according to opening remarks by Tom Fox, vice president of manufacturing and technology, American Express Publishing/Time Inc., at IDEAlliance’s Print Media Executive Summit in St. Petersburg, Florida last month. Fox, the conference chair, polled all attendees—top level executives in the paper, printing and magazine production fields—prior to the event and found that distribution trumped all other potential cost-cutting areas cited, including Asian paper import potential, improved print management through virtual tool adoption and finishing through automation and bindery productivity.
Newsstand distribution took a big hit in January when roughly 1,000 magazine titles were cut from Wal-Mart’s shelves, affecting small and large publishers alike. At the time, Wal-Mart accounted for more than 15 percent of total U.S. magazine retail sales. But Doron Grosman, president of the magazine print solutions business at Quebecor World, sees recent newsstand hits as an opportunity for groups of publishers and groups of printers to collaborate on ways to better utilize printers’ capacity and assets and impose real change to distributor and wholesaler arrangements. “Right now, distribution is the tail that’s wagging the dog,” he said at the conference. “We have to address this as an industry. We’re being held hostage by distributors in terms of what they’re intending to do.” He says increasing publishers’ visibility into printers’ plants can help.
Jerry Lynch, president of the International Periodical Distributors Association, a 37-year-old retail industry veteran and a Primex presenter, said the entire supply chain—publishers, printers, logistics, national distributors and wholesalers—needs to come together to find ways to add to retailers’ marketing messages. Retailers are contending with old pressures of space, gross margins, labor and inventory as well as new pressures of sustainability and simplicity of offerings, he says. Finding these types of solutions “will require commitment,” he said. “Unless the whole supply chain is engaged, it’s a challenge.”
Ideas for Change
Specific solutions the supply chain needs to come together on, according to Lynch, are improved sell-through rates; replenishment programs that offer an alternative to single drops of titles; product redesigns; improving speed to market; and scan-based trading, a process where suppliers own inventory in a retailer’s warehouse or store until items are actually scanned and purchased.
According to ABC’s Fas-Fax numbers released in February, seven of the top 10 magazines in terms of total paid and verified circulation showed decreased single copy sales in the second half of 2007 versus 2006. Even with postal reform capping rate hikes at the rate of inflation and the news that this year’s increase for periodicals will be below that at 2.7 percent, the postal service has an exigency clause, as David Riebe, vice president of distribution at Quad/Graphics, pointed out at Primex. The clause would allow for hikes above the CPI index. “The USPS believes that applies to any time they can’t generate enough revenue to run their business with the CPI increase,” he said. With first class and standard mail flats down 15 and 13 percent respectively, exigency could be a threat, which makes keeping volumes up crucial.
On top of that, presenters reminded the audience about the gravity of “Do Not Mail” legislation—a well-funded effort to restrict mail to requested-only pieces. “It’s an all or nothing situation that would lead to a drastically altered USPS and increased costs for all of us,” said Joel Quadracci, president and CEO of Quad/Graphics.
Digital edition distribution is not seeming like a strong alternative either, at least not for the crowd at Primex. Guy Gleysteen, SVP of production at Time Inc., said, “We have not seen any fit for exact facsimile digital magazines to complement print or replace print. It has a niche mostly as a marketing vehicle.” What does work, he says, is integrating subsets of for-download content into a magazine’s Web site.