Supply chain politics

Newspapers in the UK (and elsewhere) are generally supplied on full sale or return thus protecting both wholesalers and retailers from the risk of sales failure. This is an entirely sensible arrangement that helps newspapers achieve the extensive market availability that they enjoy and need. While this statement is true it still begs the question why newspapers do not invest more in measuring the effectiveness of this copy placement and indeed in forecasting future sales patterns.

Most newspapers – although they might not admit it - trust in the expectation that their wholesale and retail partners are making the best possible decisions on their product’s supply. Measurements of the effectiveness of this process are thin on the ground. This is not to say that this subject is totally ignored in every publishing house but there is a clear deficiency in this crucial supply area. If this part of the business is underperforming this could be hugely expensive in terms of waste copies and lost sales.

Sell outs & unsolds

It is quite normal in the UK national market for a title to sell out of between 20% and 30% of all newsagents while accepting 15-20% returned unsold copies for the same issue. In fact this can be beyond normal and into the arena of budgeted expectation. The market’s waste copies alone represent hundreds of million pounds per year of newsprint costs and that is without calculating the potential of extra sales in those shops where sell outs have occurred. While the lost sales are pretty difficult to quantify we can reasonably expect this figure to be significant given the ease of product substitution that operates in this market.

The simple solution would be to move supplies from the shops returning copies to those selling out but naturally life is more complex than that because of course they change every single day. This is a job for advanced time series statistical analysis of the kind that traditional circulation folk find pretty bewildering. The wholesalers will claim, with some force and justification, that this is their USP and they have invested heavily in systems that maximise the sales potential of all titles. Is this true? How closely has this claim been measured? Can it be right that the same software that allocates a massive title like the Mirror can also adequately maximise the spread of a niche title like Bear Trappers Monthly? If so they are to be applauded. The key to this flexibility, according to the wholesalers, is in parameters that can be adjusted to take into account huge variations in sales patterns. I remain to be convinced that any general system can be tweaked to maximise the potential of these smaller titles and eventually all publishers may decide to set their own supply levels according to their own economic drivers.

Supply setting

As things currently stand publishers (with one or two major exceptions) do not set their own supply levels for political rather than operational reasons. To do the job properly publishers need access to all net sales information by outlet early the next day so that sales trends can be updated and new forecasts made. This is all absolutely possible and with the new open software interfaces this should not cause a great problem feeding these supply levels back into the centralised wholesale packing systems. It does not happen generally because either, publishers do not believe they can improve on the current job or, they are dissuaded from attempting the task by protective and unwilling wholesalers.

I can understand why wholesalers would be unwilling to encourage this behaviour because they will be the ones required to co-ordinate this massive amount of information transfer. They will also feel that supply setting is one of their key pillars of service that helps justify their place in a crowded publishing chain. Both points are valid but they pale against the economic drivers in this business and chief amongst these is a publisher’s need to maximise its own position relative to its competitors.

Despite their desire to provide a good service there is no driving economic incentive for wholesalers or retailers to get the supplies of any single title right. As long as prices and discounts are roughly even it makes no financial difference to them whether title A or title B is ultimately sold. Getting the supplies of one title wrong can cause minor customer annoyance but given the ease of short term substitution in this market this has little effect on overall sales.

To the publisher this obviously makes rather more of a difference! One day’s substitution may lead to a lifetime customer lost and we all know how tough and expensive it is to recover lost customers.

Publishers should take control

So despite operational difficulties I am suggesting that publishers should exercise more supply side control and take a more critical approach to copy allocation decisions. The first step would be to measure in detail the historic performance of the trade in choosing supply levels. This can be done weekly or monthly by feeding all of the supply and returns figures by outlet into a simple statistical analyser. This will show up instances of good decisions and bad ones that can be discussed in detail with trade partners. My guess is that it will show up a significant number of bad decisions over a trading cycle the like of which few other FMCG industries would put up with.

The next step would be to create a platform for forecasting that is flexible and accurate. (There are a number of specialist software packages in this area.) This would allow the publisher to set their own levels of market risk and integrate this output automatically back into the packing systems operated in every wholesale house. Newsagents would be the only part of the chain that might have the local knowledge necessary to override this guess and even so acceptance of this would be according to publisher pre-set rules.

What this change would do is to marry the risk and the control in the business in a fairer way. As publishers currently carry all the risk of failure then I believe that they should be able to exercise more control over the supply levels. If, for instance, the risk was passed down the chain to newsagents then they would control supply levels very closely indeed.

The regional picture

It is not just national newspapers that need to invest more in supply management. Many regional newspapers with direct retail relationships still operate maximum allowances for unsold copies which cloud the true sales picture. This appears to be a good thing for the publisher at first glance because it not only shares some of the risk but it also inflates the sale figure by the amount of copies unsold but which remain un-credited. This can increase the audited sale by a reasonable percentage (1-3%) and reduce the unsold bill at the same time.

My feeling, however, is that this is a false economy and one that costs the publisher far more in the long run than the immediate figures will show. If these allowances were lifted then the true sale by edition and by issue would be known and then the supply forecasting techniques could perform an even more accurate targeting job. The immediate effect could be for a short term fall in the headline figure back to actual levels – not a bad thing for advertisers! – but I would expect that these would be replaced by genuine sales in a short time once the supplies were more accurately targeted. At the same time this would be a great PR move with the publisher’s retail partners who would now move to full SOR with their high volume local title.

I would also question the need for multiple edition accounting of the type that we have been used to in the past. Local newspapers traditionally supply several editions throughout the trading cycle to main retailers. Each edition would be treated as though it were a separate title with its own returns and allowances. Apart from the fact that this confuses supply allocation processes it may not be as relevant, as a publishing manoeuvre, than it once was. The reasons for having later editions have been blurred by internet access particularly when it comes to financial news or sports results. I would guess that treating all supplies to an outlet as part of a single issue would make more publishing and accounting sense. If the news agenda demands later editions then these extras should be treated as top ups to the main supply and not separate editions.

Overall the main thrust of this message is that newspapers have both the tools and incentives to take more control over newspaper supply. They already carry most, if not all, of the risk and this is an expensive business. The political difficulties of wresting power should not be a barrier in these days of flexible open architecture systems that can interface more easily than ever before. This is more a question of whether publishers recognise a simple truth that supply levels are a vital part of the marketing armoury and that investment in this area can be as important as any promotional spend.