Distribution Technology: Human Error

Folio: The Magazine for Magazine Management, Sept 1, 2004 by Karen Holt

Byline: Karen Holt

Can technology fix what magazine executives routinely refer to as the "broken" newsstand distribution system? Yes and no. Yes, the key technology is available to turn around the scary fall in newsstand efficiency (sell-through has fallen from 50 percent a decade ago to an all-time low of less than 34 percent in 2003, according to the International Periodical Distributors Association). No, it won't happen until retailers install more advanced systems and work with publishers to use data gathered at the checkout - known in the industry as scan-based trading - to put magazines where they will sell.

The structural problems in the retail system, including consolidation among distributors, changing shopping patterns that cut down on how much time consumers spend at grocery stores and a loss of shelf and rack space in those stores are trends that are not likely to be reversed. So, the need for technology to improve efficiency is critical.

Better use of scanning data promises the most immediate payoff. At present, the data provided by retailers varies greatly and can be tough to put to practical use, says publishing consultant Peter Kreisky. "First, there's a considerable effort that's required to clean up the data so it's useable, so it's a question of maintaining the commitment to put the systems in place to do that," he said. "Second, you need people to understand what information to use and how to use it." To find those people, Kreisky recommends looking outside the magazine business and recruiting managers from industries that have used supply-chain data effectively.

According to John Harrington, of John Harrington Associates, which tracks newsstand performance, a lack of reliable data is less of an issue for publishers than the ability to know what to do with it. "Today, through instant scan data you can provide virtually daily or weekly information, so that to anybody who is statistically capable, it's not a big deal to make some comparisons to that data, make reasonable projections and follow through on it." The problem is not technical, but behavioral, he says.

In theory, magazine publishing can follow the lead of other businesses to monitor sales as they occur and ensure that the right amount of copies arrive at the right racks in the right markets. But this kind of real-time inventory management - which is becoming standard in other retail categories - has yet to be applied widely in magazines distribution. Two years after Barnes & Noble became the first retailer to go to a scan-based trading system for magazines, most other retailers are still holding back, says Mike Porsche, president of DSI, the distribution arm of American Media. (Wal-Mart, the single largest magazine retailer, has tested the setup.) The problem: most retailers haven't invested in systems that read issue codes, a prerequisite for scan-based trading, he says. At most stores and newsstands, the point-of-sale computers can only tell what magazine was sold, not what issue. Distributors have a disincentive to go to scan-based trading, says Don Burke, senior vice president of Management Science Associates. "I don't see that happening until the retailers are willing to absorb all or part of the shrink," he says, referring to the discrepancy between the number of copies a retailer records and the number of covers it returns. Under scan-based trading, distributors would have to absorb the cost of copies that get stolen, lost or disappear into the employee lunchroom.

If the industry can work out the issue of who absorbs the shrink, experts say, the lure of improved efficiency - and profitability - for publishers, wholesalers and retailers, should lead to widespread adoption of scan-based trading within the next two to three years.

By the time that happens, other retail merchandise categories may be on their way to the next technology beyond the barcode systems that have been used for three decades. That next frontier is RFID (radio-frequency identification) tagging, a tracking technology that uses electronic tags that carry much more data and can be "read" from a distance. At a per-time cost between 10 cents and15 cents, RFID tags would be prohibitively expensive for magazines on an individual basis, but would be quite affordable on a pallet, says Pete Abell, senior partner and co-founder of the ePC Group. "If you can put it on a tote, you can use it over and over and over again," he said. "The tags can last for 15 years." That certainly has potential to help in the printing plant, the wholesale distributor and at the post office. Abell forecasts that magazine publishers will begin implanting RFID tags on single copies once the per-item price drops to a penny, which he expects to take about six or seven years. Magazine bundles, though, will start sporting them by 2006, he predicts