Controlling the supply chain

Firstly, let’s start with a few questions. Do you know absolutely how much it costs to fulfil an annual subscription to any of your titles? Do you account for your subs fulfilment costs in one big pot or do you break them down into their core functions? Do you know how much you spend on each function and with each supplier within the supply chain? Do you know how important you are to each supplier and their business? Do you understand how your suppliers operate and what’s important to their business operating efficiently? Do you monitor stocks of consumables such as polythene or carrier sheets? And, finally, do you think that managing a subscription fulfilment supply chain is a specialist skill in its own right or do you think a monkey could do it?

If the answer to any of the questions above is "No" or "I’m not sure", then this article is for you. Having been responsible for the wrapping and mailing of subscription copies for a large proportion of my career, I’ve seen first hand how poor management and a lack of knowledge of the subscription supply chain can cost a title dear. Consequently, I’m convinced that efficient, effective, transparent management of the subscription supply chain is a specialist skill in its own right that can add pounds to the bottom line profitability of any title.

Let’s take the first question above. Do you know absolutely how much it costs to fulfil an annual subscription to any of your titles? I bet many people reading this immediately went, "of course I do", and to my mind there’s no doubt that you should. So just think again if you will. We’re talking about a wide and varied supply chain here which starts with recruitment, moves on to receipt and processing of each order, wrapping, mailing and postage for each issue and ends with the final renewal efforts. With this in mind, can you in all honesty say that you know exactly how much it costs to recruit and fulfil each subscription sold?

Of course, all the extended supply chain is a fairly wide and varied beast. To get the full picture, we should also take into account run-on costs such as print and paper, recruitment costs such as DM, email and off the page adverts, bureau costs to receive, process and manage each account. And, what about haulage to transport printed copies to the mailing house, data extraction and sortation, polythene, carrier sheets, UK postage, international postage and couriers for office copies etc? All these costs should be taken in to get anywhere near to the true cost of fulfilling a subscription. Only when we understand and capture these costs can we say with any degree of certainty that we know how much it costs to fulfil each subscription sold and be confident that the price we are charging will turn the revenue generated into the profit margin we’re looking to achieve.

It costs how much?

For me, the best way to understand the supply chain and the cost base is to break it down at an invoice level to create a transparent accounting picture of the supply chain. Not an easy task, but more than possible if you’re able to follow a few simple rules which should provide you with the picture you’re after without creating shedloads of additional work. Unfortunately, in my experience, it will only work if you’ve got the support or your FD and / or business analyst who, let’s face it, are usually big picture people who get flustered when presented with too much detail. In my opinion, most FDs and BAs prefer to lump costs into one basket and say, "there’s your cost base, now tell me how much money we’re making". However, the rules I tend to follow which have been readily accepted by most of the BAs I’ve worked with are listed below.

Rule 1. Break the supply chain down into seven top line headings as follows:-

1. Recruitment (new orders only).
2. Bureau.
3. Couriers and haulage.
4. Wrapping.
5. Packaging.
6. Postage.
7. Retention (renewal efforts).

It is a relatively easy task to break each of the headings down into sub headings from here. However, each individual and / or company will / may have different requirements. It’s therefore a local decision as to what sub headings are required, although I would advise that you do not include costs which are un-associated with the subs fulfilment operation such as print and perhaps haulage etc.

Rule 2. Postage is by far and away the largest cost we incur and, as such, it’s vital that we know what we are spending it on. To achieve this, I prefer to break postage costs down into at least four sub-headings – recruitment postage, magazine postage, renewal postage and finally back issue postage. Ideally, to provide you with a complete picture of your postage costs, I would also advise you to go one step further and break this down into UK and Overseas as well, but from what I’ve seen in the past, this doesn’t go down so well with our financial colleagues. Either way, setting your postage stall out in this manner makes it easy to see at a glance how much is being spent by title, on each function and with each supplier.

Rule 3. Allocate a unique cost code to each of the sub headings you’ve decided on. Any costs that can be lumped together should be. For instance, with the exception of postage, recruitment costs can pretty much all be allocated to one code and still provide you with the financial picture you’re trying to achieve. Bureau costs and, for our purposes, print and production are other examples where I’ve never seen any benefit from breaking the costs down even further.

Don’t be a desk monkey

Breaking the supply chain down at a financial level in this way, will provide you with the answers to many of the questions I posed in the first paragraph of this article. However, understanding your cost base and finances is only half the job. The main bulk of the work comes when making the arrangements to get each issue mailed. This is where hands-on experience and a good working knowledge of the suppliers and their business comes into its own. As far as I’m concerned, too many publishers give responsibility for the subscription supply chain to people who know little about how it or their suppliers actually work. Worse still, there is little or no encouragement from a senior level to get these people away from their desks and into their suppliers’ offices and / or factory to find out. Consequently, they have little working knowledge to enable and empower them to challenge or question their suppliers, the prices they’re charging or the explanations they’re given when things go a bit awry.

If there is one thing I’ve learned during my subs fulfilment career, it’s that there is no substitute for an excellent working knowledge of the supply chain. Solid working knowledge of the suppliers working within the supply chain, how their businesses operate, how we affect their business and vice versa is worth its weight in gold. The best and the quickest way to gain that knowledge is to actually get out there and go see your suppliers and their businesses in action, preferably when they’re running one of your jobs. I’ve found that when I want to understand something better, my suppliers have been more than happy to not only have me on site and give me a verbal overview etc, but also let me do the job itself. As with most jobs, there really is no substitute for hands-on experience. I’ve lost count of the number of times I’ve been on site watching this or that job and being bored senseless in the process. To relieve the boredom, I’ve asked if they wouldn’t mind giving me something to do and they’ve been more than happy to oblige. Not only am I free labour, they also understand that I am gaining valuable experience that will enable me to see things from their perspective rather than just my own (which they love because they don’t have to explain things over and over) and they find it a great deal easier to talk to me because I understand what they are referring to and why.

You should find a number of benefits from your new found knowledge. Firstly, you will find that it is a lot easier to not only establish whether a potential new supplier is suitable for your needs, but also negotiate a fair and reasonable price with new and existing suppliers alike. This is partly where adding the pounds to the bottom line profitability of each title comes into play. You will also find it a great deal easier to identify, agree and measure key performance indicators with each supplier. One of the most useful benefits I have found has been the ability to write and agree a service level agreement with each supplier. A good, well written SLA will save many an hour negotiating because most of the negotiations should have been incorporated and covered in the SLA. Finally, an additional benefit comes when things go wrong. How many times have you suspected a supplier is trying to pull the wool over your eyes and put the blame anywhere but with them? A good working knowledge of the supplier’s operations will enable you to spot most exaggerations or inaccuracies and empower you to challenge anything that doesn’t ring quite true.

Obviously, the level of knowledge required to really challenge the suppliers takes years to gather. That said, please don’t think that you will learn or gain very little from a few hours with each supplier because you may be surprised as to how far a little knowledge can go. I’m sure many have heard the saying "a little knowledge can be a dangerous thing", and in some cases this can be true. However, there is another saying that "a little knowledge can go a long way", and in our industry I’ve found the latter to be true. I say this because our suppliers just aren’t used to coming up against customers who know what they’re talking about. The end result is that anyone who, rightly or wrongly, sounds like they know their stuff, will make most suppliers think twice before trying it on and encourage them to offer reasonable market rates instead of massively inflated prices.