Strategically Speaking: Should You Be Outsourcing Your Distribution?

As the second quarter of 2009 drew to a close and a subdued BookExpo America winded to a conclusion, the news from the book publishing industry continued to be mixed at best and, in some cases, downright depressing. The current environment is unique for many reasons. The challenges go beyond the implications of the global recession as the book industry faces changes in business models that have been in place for decades.

E-books, while admittedly still a rounding error in the context of the industry’s total revenues, are gaining ground in terms of both revenue and mind share.

Print-on-demand (POD) has indeed evolved from a specialty niche to a commodity service as equipment capabilities improve, prices drop, and publishers finally accept the notion that cash is indeed king and unit manufacturing cost matters little if the books don’t sell. R.R. Bowker’s recent report that the number of on-demand and short-run titles soared 132 percent in 2008 to 285,394 is proof positive.

While the changes represented by e-books and the growth of POD are indeed significant, there are clear signs of the growing importance of third-party distribution services to publishers as a viable alternative for reducing fixed costs and focusing limited resources on the publisher’s primary business—content creation.

The traditional view of outsourcing held by many organizations is much like the industry’s longtime “holy grail”—the hunt for the lowest unit manufacturing cost—i.e., the only justification for outsourcing is if it significantly reduces the publisher’s operating costs.

The recession has changed all this and requires that publishers take a broader view of the opportunities and risks in the current economic environment and the limits on resources, particularly: cash (a constraint faced by even the largest publishers); the growing importance of emerging technologies such as e-book delivery and POD; and the pressure to improve service levels as the time-in-process for orders decreases steadily. A more informed, longer-term evaluation of the rewards and risks of distribution outsourcing is essential and should be a required element of the strategic planning process.