Strategically Speaking: Outsourcing Your Distribution—The RFP Process Made Simple
Editor’s note: In the August issue, David Hetherington explored the reasons why publishers should periodically review their sales, warehousing and fulfillment operations, and examine the potential long-term merits of outsourcing to a third-party provider. (You can find the column, titled “Should You Be Outsourcing Your Distribution,” here.)
If you are already working with a third-party provider, Hetherington advises that it may be equally valuable to re-bid your business as your existing contract nears renewal.
In this column, he examines the request for proposal (RFP) process, and details the information you should share with potential distributors, and that distribution candidates should provide to you.
The first step in the RFP process is to identify the companies you wish to consider as potential bidders for your distribution business. You have, essentially, two options: specialist firms that provide distribution services to book publishers, and book publishers who handle distribution for other publishers.
Each of these options has its pluses and minuses. Consider both—the broader you cast your net, the better your options, as well as your understanding of the range of services available.
Regardless of the players you consider, your RFP should be sent to a minimum of four bidders, and you should allow ample time (four months, minimum) for the entire process from RFP creation to final vendor selection.
Protect Your Information
Before you exchange any information, all prospective bidders should be required to sign a non-disclosure agreement (NDA). The NDA should not only include prohibitions against divulging confidential financial and operational information provided by either party, but should contain a clause clearly prohibiting the discussion of the RFP with unauthorized parties within the publisher’s organization. Moving to a third-party distribution business model is a significant step, and until the decision is finalized and a transition plan confirmed, the details of the effort should be shared only on a need-to-know basis. Beyond the potential anxiety and disruption to your business, your negotiating leverage is diminished if your effort is plagued by information leaks.
Part One: Your Needs and Expectations
An RFP should have two major sections. Section 1 should contain information about your existing operations and your expectations for your business over the three to five years following the transition to the third-party provider.
The latter is particularly important—especially if you see your organization embracing the operational opportunities presented by print-on-demand (POD) and short-run digital printing. As POD pricing continues to decline to near-commodity levels, printing technology improves and inventory becomes virtual, the demands on distribution facilities will undergo dramatic change—all of which should translate to reduced operating costs for publishers.
Section 1 also should include, at minimum, quantitative details for your business’ last full, fiscal year, including:
- Number of active customers
- Number of invoices and credit memos issued annually
- Calendarized gross sales and returns—in both dollars and units
- Transaction details, including number of units per invoice and number of lines per invoice
- Number of titles in active backlist
- Number of new titles published annually
- Examination copy volume
- Average number of books in storage
- Specialized service requirements, including kitting, international shipments, sticker application, re-jacketing, etc.
- Publisher service expectations, including time-in-process requirements for major processes such as revenue and complimentary-copy order fulfillment, returns processing, check-in and availability of incoming inventory, etc.
Be Accurate and In-depth
The quality and quantity of the information you provide will have a direct bearing on the accuracy of the bid and the quality of the working relationship between you and your distribution partner. It is a good idea to include a multiyear view of the information listed above that illustrates both historic trends and prospects for the future.
Part Two: Ask the Right Questions
Section 2 of the RFP provides the prospective distribution partners with detailed questions regarding their organizations, the services you would like them to provide and, of course, the
The RFP should, at minimum, request the following:
• Distributor background, including history, ownership, organization chart, client list and financial statements.
• Operational descriptions. Request a list of critical warehouse, fulfillment and service processes, and written descriptions including workflow diagrams. The operations should include order intake, pick, pack and ship, customer service, invoicing, credit and collections, and processing of incoming shipments.
• Service-level standards. Request that the distributor provide details of service-level standards (e.g., time in process) for critical business operations.
• Inventory management, including physical inventory processes, shrink-
control procedures, back-order reporting and management, and audit controls.
• Digital services. Several major distributors have established strategic alliances with POD specialists, digital asset management service providers and e-book distributors to offer a broader range of services. These services offer the smaller publisher a remarkable opportunity and should be fully explored as part of the RFP process.
• Computer systems, including a complete description of the hardware and business software in place, plans for any upgrades or replacement of the business systems, EDI/ONIX capabilities, client information access and reporting capabilities.
• Contingency plans, including
disaster-recovery plans for the facility and business systems, and a readiness plan in the event of a pandemic flu outbreak. A surprising number of publishers have asked their suppliers to provide their business continuity plans for managing through a flu epidemic.
• Customer references. While references provided by the distributor will only be from satisfied customers, they are nonetheless valuable and should be thoroughly researched.
• Fee structure. Distributors typically will quote services on a transaction basis or as a percentage of net sales. The publisher should specify the preferred pricing method, but for ease of comparing prospective costs with historical spending, the percentage of net sales method is recommended. In addition to the base costs, the distributor should be asked to provide a detailed list of costs that are not included in the base fee, such as excess returns charges, excess inventory, customized reporting fees, etc.
• Transition costs. The move from your existing distributor to your new provider will not be without costs. The distributor should be asked to provide an estimate of the transition expenses that will be billed to you—if any—including inventory transfer, data upload and any other expenses for which the distributor will expect to be reimbursed.
• Sample contract. You should have your legal advisor review the distributor’s sample contract.
A Service Indicator
A carefully crafted RFP is essential to effectively evaluating the potential value of third-party distribution. The time you invest in it will be time well spent.
No less important is the quality of the bidder’s response; a detailed proposal—one that answers your questions directly and with a minimum of marketing fluff—is a good indicator of the quality of the service the publisher can expect.
David Hetherington is director of major account sales for Baker & Taylor’s Digital Service Group and an adjunct professor at the Pace University Graduate School of Book and Magazine Publishing. He was previously managing director for strategic business development for Integrated Book Technology, and has held senior positions in finance, operations and manufacturing with some of the industry’s largest firms, including Simon & Schuster, Reader’s Digest Association, BearingPoint Consulting, Wolters Kluwer Health and Columbia University Press.