Fortunately, the conceptual model needed to replace the unit cost model is readily available for adaptation: "total cost of ownership" or TCO. Rather than using unit cost as the primary determinant of print quantity and profitability, TCO introduces additional inventory related carrying costs that act to constrain the attractiveness of lower unit costs that stem from higher print quantities.
What print decision-making strategies complement a TCO model? The most fundamental is that "less is more." Printing fewer copies more frequently is the basic premise. To do this involves finding a new balance between simple p & l cost analysis (unit cost is a key driver), and a more inclusive review of the implications of purchasing inventory (TCO). Reducing the size of inventory investment occurs transaction by transaction. TCO is an approach that requires consistency and discipline, as well as timely access to relevant demand and inventory data. Book publishers need to realign metrics, accounting, and incentives to reinforce the TCO vision.
The drawing below shows the extent of inventory carrying costs that are in addition to unit cost. As the shift to digital accelerates, capital, service, risk, and storage costs need to be considered with greater rigor rather than be treated as "external" to a print quantity decision (as was the case too often in the growth era). Of all of the cost factors shown below, the inventory risk costs, primarily the risk of obsolescence, are huge in a disrupted environment. Customer demand for print is rapidly changing, and is much less predictable than before.
Depending on the level of activity for the title, reducing print quantities typically triggers the need for short-run digital print solutions. Book printers need to increase their capabilities/capacity to make economical digital print books. Publishers and their printing partners need to utilize distributed print networks to enable printing closer to where the book is needed, saving shipping time and cost. As more print titles move towards being considered "long tail", print on demand services (combined with direct fulfillment) will comprise a larger piece of the pie. TCO also calls for better demand forecasting for titles where inventory must be held. The forecasts should be based on updated market models that reflect the new realities of the print book marketplace.
Additionally, given shrinking print revenues for the foreseeable future, publishers are also challenged to financially support the staff and systems required to manage the print side of the business. This could open the door to investments supporting more automated, streamlined print transactions. Pressure to reduce staff costs could lead to mutually advantageous transfer of staff and functional duties from publishers to printers or other 3rd parties. Whether this takes the form of limited business process outsourcing or more comprehensive vendor managed inventory programs, it's clear that there are many opportunities for creative solutions to the challenge of sustaining the print book ecosystem.
(Part 1 of a multi-part series) originally published 3/5/12 on 'From the Whiteboard"