Why Do Publishers Outsource Book Fulfillment Services?
There are a number of different factors that drive publishers to outsource fulfillment services. Some of these reasons are organizationally driven and others are improvement driven. But today, we are going to discuss maybe one of the most important factors that cause publishers to seriously consider outsourcing – their “bottom line”, or financial and revenue driven reasons.
Financially Driven Reasons
Outsourcing fulfillment services allows you to reduce your investments in assets such as buildings and equipment, which will help free up those dollars for other purposes. It often helps to stop and think about whether you are better off with a building or with the development of additional titles for sale; whether you want to make your money selling books, or as a landlord. Another important question to consider is: Are you charging your warehouse market rates or is your publishing division carrying the expense of the warehouse?
Let’s be honest, the publishing industry is in a state of rapid change. Many publishers have suffered during the economic downturn caused by the current global pandemic and lost a percentage of their revenue, depending on their niche in the industry. Publishers who have their own warehouses have found how difficult it can be to reduce the expenses of owning and running a fulfillment center.
The single largest cost for a fulfillment operation is the cost of the facility; the second highest is the labor costs of running the warehouse. When your business revenue is down, you simply cannot cut the rent by that amount, and in many cases, it is nearly impossible to reduce the costs of labor. Many of the publishers I have spoken with tell me it is necessary to outsource because it allows them to change their fixed cost of warehousing into a variable cost. By outsourcing the fulfillment operation, as orders decrease, the warehouse costs are reduced as well.
Another factor to consider is that e-books and e-ink reduce the demand for printed books. Those who own your own warehouse will find it extremely difficult to reduce costs if you have the fixed costs of a warehouse on your hands. Our industry is changing and it is hard to predict what the demand will be in one or two years, let alone five or 10 years. Outsourcing your fulfillment operation now will allow you to take advantage of the changing industry and reap the rewards of selling more books electronically.
One additional item to consider is the equipment in the warehouse. You will want to know if it is being utilized to its fullest extent. Take a look at all the different pieces of equipment that has accumulated over the years, and determine what equipment you still have. For example, do you really utilize that shrink-wrap machine, or the forklifts? If so, how many hours per day are they being used? Know how many hand-jacks you have in the warehouse, as well as mailing systems and packing material machines. You may be able to generate some additional cash by transferring these under-utilized assets to a third party fulfillment provider.
Revenue Driven Reasons
When it comes to revenue, there are really three main benefits to publishers who outsource warehousing and fulfillment:
- Gaining market access and business opportunities through the provider’s network. As a publisher you may want to ask yourself these three questions: Does your warehouse assist in selling more books? In what markets are you actively selling? What markets do you need help to penetrate?
- Expansion can be accelerated by tapping into the provider’s developed capacity processes and systems. When a publisher experiences growth, warehouse space can become an issue. That growth can potentially hinder the ability to process orders in a timely manner. Whether it is sales of one million or twenty million items, publishers should know the capacity their systems can handle.
- Sales and production capacity can expand during periods when expansion could not otherwise be financed. As a business runs its cycle, different departments will put pressure on the investment capital that is available. By outsourcing warehousing, all available capital can be devoted to the development of quality books.
Thank you for checking in and reading! Do you agree that financial and revenue driven reasons are probably most important for publishers when deciding to outsource? Why or why not? Let us know in the comments below!