Efficient solutions for the logistical challenges of book distribution and online book retailing
Anyone who deals more intensively with e-commerce has certainly come across this well-known industry myth: Book retailing was simple to digitalize – it was not for nothing that Amazon initially focused exclusively on this retail segment. But is this really the case? Are online bookselling and book distribution really as “simple” as they are generally regarded?
At one point, the described industry myth is certainly right: If you want to talk about book distribution in general and the online book business in particular, there is no way around Amazon. After all, the retail group led by Jeff Bezos has become the undisputed industry leader since that July day in 1995, when it sold its first book “Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought” by Douglas Hofstadter. According to estimates by the Börsenverein des Deutschen Buchhandels, the US company’s share of turnover in German online bookselling in 2016 and 2017 was between 50 and 70 percent. Despite this dominant market position, however, the book segment’s share of Amazon’s total revenues has fallen considerably in recent years. After all, over the years the group has expanded its product range by numerous product categories from consumer electronics to fashion and beauty to food, which are allegedly more difficult to digitize – and with this success story at least unconsciously contributed to the myth of the easy to digitize book trade.
Are online book retailing and book distribution really “simple”?
However, Amazon’s successful commitment is not the only reason why the digitization of bookselling is considered “simple” these days. In addition, in response to the rapid rise of the US newcomer, numerous classic booksellers with originally brick and mortar DNA have managed to expand their business to the new channel. As a result, the book trade was one of the first retail segments in which noticeable market shares were able to migrate to e-commerce. The share of online sales in the total German book market in 2017 was an impressive 18.8 percent. In addition, there are numerous mail-order booksellers such as Weltbild, who even today still generate a large part of their sales via traditional mail-order catalogues.
Is the opinion that the digitization of bookselling is “easy” to achieve justified in view of these facts? Indeed, in addition to the market developments of recent years already mentioned, there seem to be a number of reasons for this view:
- Books usually have small, rectangular dimensions and a manageable weight. For this reason, they enable a relatively uncomplicated picking and packing process. In addition, shipping is comparatively inexpensive.
- In numerous product categories, different sizes, versions or batches pose major challenges that can make customer information more difficult and lead to higher return rates. In the book trade, however, such questions are of secondary importance. Although books are constantly re-issued, publishers rarely change the content and presentation of the books in this process, so that the different editions often hardly differ from each other. Accordingly, in most cases the goods received correspond to the customer’s expectations. This is another reason why books are rarely returned.
- In contrast to groceries, books cannot spoil. Accordingly, no special prerequisites are required for working with books, either in the storage or in the shipping process. Theoretically, they can be stored for years without losing value – which also distinguishes them from other products such as clothing or electrical appliances, which are very strongly seasonally or innovation-driven and therefore fall in value after a certain time.
- Unlike complicated machines such as chainsaws or ride-on lawn mowers, books are only products that require limited explanation. Although many readers appreciate competent advice from a qualified bookseller, this is irrelevant for the later correct use of the book. In a digital environment, however, the evaluation and recommendation of books that a bookseller gives priority to during a consultation can be replaced quite well by summaries, reading samples, reviews and reader evaluations.
- Every year, German publishers produce an extremely wide range of titles in a wide variety of segments and genres. In 2013 alone, 93,600 book titles were first published or newly published in Germany. In addition, there are countless German or foreign-language titles by foreign publishers that are available in Germany. In view of this mass of different books, it is not surprising that no brick and mortar bookseller can reflect this diversity in its product range. This circumstance is in favour of the online book trade: Thanks to the book wholesalers, even brick and mortar booksellers can procure almost any deliverable item for the customer within a few days. However, there is no doubt that online retailers are better able to present the range of different publications at a glance in their web shops.
How the search for differentiation possibilities becomes a boomerang for many retailers
These facts are just some of the reasons why bookselling was able to shift to the World Wide Web, at least in part, much earlier than many other retail sectors. Even this short list seems to speak a clear language and to present the book trade as predestined for e-commerce. In reality, however, the online book trade and book distribution are much more difficult for retailers. The reason for this is simple: due to its special market conditions, the book trade offers its market participants only a few opportunities to differentiate themselves from their competitors.
Due to its special market conditions, the book trade offers its market participants only a few opportunities to differentiate themselves from their competitors.
On the one hand, the assortments available in the “books” category are very similar. Many booksellers are trying to place a special focus on content in their product ranges – for example by specialising in crime novels, children’s books or specialist books. The extensive range of services offered by the intermediary book trade, however, counteracts these efforts at least to a certain extent. This enables the German book wholesalers to make the majority of all books available in Germany within 24 hours available to their affiliated booksellers – and thus also to the end customer. Differentiation by product range is therefore only possible to a limited extent in book retailing.
On the other hand, books in many European countries such as Germany and Austria are subject to fixed book prices. Dealers are therefore not allowed to change the price fixed by the publisher before publication – a regulation designed to protect the “cultural asset of books” from discount battles. However, it deprives dealers of a common way of distinguishing themselves from the competition in other categories and of attracting customers’ attention through a particularly good price-performance ratio.
The only exceptions to the fixed book price system are marked defective copies with actual defects, used books – i.e. books already sold at a fixed price – and old editions that have been on the market for more than 18 months and whose fixed prices have been lifted by the publisher. The so-called Modernes Antiquariat in particular has specialized in the sale of these books that are not price-fixed. Since in this market segment competition is possible via price, a very small margin has to be worked with at this point. In order to avoid inevitable price wars and discount battles, dealers of the Modernes Antiquariat often buy up the remaining stock completely. This strategy offers them the opportunity to differentiate themselves in terms of the assortment they offer. To do this, however, dealers must also have the necessary storage capacity to work efficiently with larger residual items, which can sometimes comprise several thousand books.
However, it is not only the Modernes Antiquariat that has found ways and means in the past to differentiate itself from the competition within the narrow market conditions. For example, many representatives of the regular book trade have integrated particularly high-quality books such as facsimiles, exhibition catalogues or illustrated books, non-books – media that are not books – or book-related by-products such as groceries, accessories or furniture into their range. On the one hand, these serve as differentiators from the competition and, on the other hand, can often be sold at a higher margin, as many of the products integrated into the range are not subject to fixed book prices.
As positive as this strategic increase in product diversity has an effect on the product range and customer acquisition, the additional products make the logistics of supposedly “simple” book shipping very difficult due to their characteristics.
- While books generally tend to be low- to medium-priced products – and thus rather unattractive for thieves – the by-products integrated into the assortment can have a high value. For this reason, such goods can only be picked and packed in special security zones to which only particularly trustworthy employees have access.
- The by-products can be very small or very large, heavy or bulky. These unusual dimensions and weights can lead to particular challenges during both picking and packing. Specially trained and/or physically strong employees may be required who are experienced in handling large and bulky goods such as furniture. In addition, given the different dimensions, it may be necessary to distribute a customer order among several shipments – for example, if a book was ordered together with an oven.
- In addition, the many additional articles and residual items can push the storage capacities to their limits and the storage of all stocks in one place would reduce the efficiency of the logistics processes.
Some solutions for stockpiling and replenishment
In order to meet these challenges effectively, booksellers must develop appropriate solution strategies. An essential component of these approaches is the organization of inventories and the development of efficient stockholding strategies. As shown in the previous section, the many additional items and residual items that booksellers use as differentiation features can quickly push standard warehouse capacities – and thus the efficiency of processes within the warehouse – to their limits. This is particularly evident in picking: with every additional meter of shelf space, the picking routes that employees and machines have to cover increase, and so does the time required to compile customer orders.
In order to enable the most efficient possible work within the warehouse, a separate picking warehouse may therefore become necessary, in which the stock quantities of the stored articles are deliberately limited in order to avoid too long picking routes. The main part of the stock, on the other hand, is kept in a reserve warehouse. Since the stocks in this scenario are physically separated from each other, it is particularly important for the success of this strategy to develop suitable replenishment strategies that allow the picking warehouse to be replenished quickly and smoothly.
If, for example, catalogues have been sent or special discount campaigns communicated to customers, the advertised products must be available particularly quickly in order to avoid delivery bottlenecks or delays. For this reason, large numbers of predicted bestsellers should be transferred to the picking warehouse as soon as the first orders are received. For these fast-moving items, for example, separate replenishment zones can be set up within the picking warehouse in which the products can be picked directly from the pallet. In this way, employees are spared tedious sorting processes and unnecessary routes.
In addition, there are other supportive stocking strategies that booksellers can use: For example, online pre-reserved stocks could be stored directly in the picking warehouse so that these orders can be shipped as early as possible. In addition, planned replenishment transports from the reserve warehouse to the picking warehouse could include additional items in addition to the replenishment actually required in order to replenish the picking warehouse “on the fly” before real bottlenecks occur.
Drop-ship business can be a viable way to expand one’s own product range while minimizing the associated risk and potentially damaging impact on warehouse processes.
The stocking strategies do not have to be limited to the actual physical stock levels in the warehouses. Instead, drop-ship business can be a viable way to expand one’s own product range while minimizing the associated risk and potentially damaging impact on warehouse processes. Drop-ship transactions can therefore make sense, especially for articles that are rarely sold and products or goods that are difficult to store and involve high transport costs. Of course, when setting up drop shipments, it must be borne in mind that suppliers must also be convinced of the advantages of this step and integrated into the entire process. After all, not every supplier is willing and/or technically and process-wise in a position to supply individual products to end customers.
Some solutions for picking and packing
In addition to these stocking and replenishment strategies, the picking and packing strategies in the warehouse should also be optimized in order to improve the overall processes there. For example, it is advisable to analyze orders based on their composition and then process them differently:
- Orders with several standard articles: Two-stage picking is particularly suitable for orders with several standard articles such as books. The pickers first collect the articles on optimized picking routes, independent of the order. At the sorting points, they then distribute the articles to various compartments that are assigned to the respective orders. As soon as an order has arrived completely at the sorting point, the employee there receives a message so that he can send the articles to the packing line together with the shipping label.
- Solo orders: Orders with which the customer only orders a single standard article do not, of course, have to be sorted in a time-consuming manner. The corresponding products are therefore also collected on the picking routes and individually packed at special packing stations.
- High-quality articles: In order to protect particularly high-quality products from theft and damage, they can be stored within the picking warehouse in a security zone to which only authorized employees have access. They can collect the corresponding articles on their regular picking routes and in turn hand them over to sorting points where trustworthy employees are also employed.
- Large and bulky goods: Particularly large, heavy or bulky items such as furniture cannot be adequately moved by every picker. Therefore, it can make sense to have these goods picked separately from other orders by physically particularly strong and/or specially trained employees.
In view of these different requirements, supporting IT systems are of central importance both with regard to stocking and with regard to the picking and packing processes. They should be able to decide in detail how individual orders are to be processed without any major manual work on the part of employees.
A multi-level process can be helpful here: First, the goods ordered by the customer are reserved in the total stock. The system then creates partial quantities of orders that must be ready for shipping at a specified point in time based on various predefined criteria. At this point, factors such as the different pick-up times of the various shipping and logistics service providers must also be taken into account in the prioritization. Within the partial quantities described, the system then decides at which storage bin the articles are to be picked by which employee. Particular attention is paid to optimizing the pickers’ routes so that customer orders can be processed as efficiently as possible. In order to keep the distances as short as possible despite large storage areas, the picking warehouse is therefore often divided into zones. In addition, the factors described above, such as access authorization to the security zone and the employee’s ability to handle large and bulky goods, must also be taken into account when assigning articles to specific pickers.
Another field in which IT systems can have a demonstrable effect on business is freight cost calculation. If the individual items can be assigned appropriate indicators, IT systems are usually able to calculate freight costs during the ordering process and automatically assign the appropriate shipping method to orders. In this way, not only can merchants save cash when shipping goods to customers, but the customer also has full transparency of the costs incurred.
Is the set-up of a digital book distribution really as “simple” as it is often presented compared to other product categories? In view of the numerous challenges outlined above, the initial question posed in this article can only be answered in the affirmative to a limited extent. In particular, the necessity for retailers to differentiate themselves from the competition by means of by-products within a difficult market environment that is strongly regulated by the fixed book price has a noticeable impact on logistics.
In order to ensure efficient logistics despite these effects, booksellers must design clever stocking strategies and flexible picking, packing and shipping processes. Powerful IT systems can be a valuable help in meeting these challenges.
Image source: Pixabay – EliFrancis