Nelson Education | November 2010

Our first edition features Mike Andrews, Chief Financial Officer of Nelson Education Ltd., a North American leader in printed educational materials and curriculum instruction. See the interview below for Mike’s interpretation of the challenges and opportunities in supply chain management in his industry.

   In your opinion, what are the current and upcoming trends within your industry that are shaping the future strategy for business in your industry? How will these trends affect your supply chain?

I believe the following trends are shaping the publishing industry today:

The move to digital, portable reading devices

This move is happening more in the traditional, consumer sector right now, not in our niche – educational publishing – but it will eventually affect us. Currently, there is only a small percentage of digital books being sold in North America – less than 5% in Canada and less than 15% in U.S.

As this move becomes more imminent, however, we will have to re-work our supply chain because there will be less demand for print books.

New rules in copyright act

The proposed language in Bill-C32 contemplates that the copying of copyrighted material for Education purposes is “Fair Dealing”. A potential interpretation of this language is that Educators will be able to copy and use copyrighted material without compensating authors and copyright owners. This could significantly reduce sales in the Education Publishing market.

Amazon ruled a Canadian warehouse

The federal government has granted Amazon approval to set up a warehouse in Canada. Amazon is a growing channel for purchasing books within Canada and the new centrally located warehouse will create competition for other retailers and distributors – Indigo, Chapters, Nelson Education, etc. Prices for books sold on Amazon will come down, therefore there will be more pressure on us to lower our prices.

Not only will we have to lower the prices on our books, but we will need to explore other types of consumers, such as the individual consumer, which will require a huge re-work of our supply chain.

Infrastructure turning to digital

With digital books becoming more common, we will need to develop and expand the infrastructure needed to distribute these books and accessories. However, print books will still need to be printed, so there is a need for dual infrastructure that could be very costly for us and could double the cost structure.

Pricing pressure

As the world goes digital, customers struggle to see the price value in digital books - why do I have to pay a perceived high price for a digital book relative to a paper book if there is no printing involved? The most significant cost involved in a publication is the creation of content. The physical print product is a small component. We struggle with the idea of lowering the price of a digital book when the cost structure isn’t dramatically lower.

   What is next, in terms of supply chain initiatives, for the industry based on the trends?

   We do not have any short-term supply chain initiatives in progress at Nelson at this time, however we realize that, long-term, we  need to be more proactive and innovative in coming up with ideas to offset declining sales  of print books.  For example, we are not there yet, but is there a possibility of sharing facilities with another distributor to share facility/equipment costs?  We just need to be smart about how we are going to move into this new age of digital books.

We need to sell to individual consumers as well as selling primarily large orders to organizations. The business model is evolving, both on a supply chain side and a pricing side – how can we charge an economical price and make a reasonable return? Individual customers are also seeking custom solutions. Can small quantity one-off books be developed and distributed economically?

   How is your company addressing these needs?

   Our efforts are focused on enhancing our digital products and related delivery mechanisms. Digital is only a small component of the business today but is accelerating. We need to anticipate the future and build the infrastructure now. This is especially challenging for our K-12 School market. Government spending on educational resources is down dramatically because of budgetary pressures. At the same time educators are demanding digital products to support the latest trends in learning.

We also need to develop products that can be accessed on any digital device.