Strengthening the backbone

<p>Bob Shingleton</p><p> Improved efficiency, faster response times and better customer service are the aims of every business in our increasingly competitive book market. Electronic trading offers all these benefits, and many leading companies have already adopted it to considerable advantage. Yet, apart from a select group of early adopters, the spread of e-commerce has been disappointingly slow. Why? What are the obstacles preventing smaller publishers and booksellers from using electronic trading? </p><p>First, let's define electronic trading. We already have an industry standard order-routing service in TeleOrdering. This unique service is supported by the whole supply chain; last year it handled a staggering 35 million order lines for everyone from large distributors to independent booksellers. </p><p>But TeleOrdering does not deliver the full benefits of electronic trading. To do this a service must use file standards defined by BIC, and handle two-way message traffic. By this definition, the book industry has so far failed to establish electronic trading across the supply chain. </p><p>The reasons for this failure can be identified from recent research carried out by Nielsen BookNet with 121 independent publishers. </p><p>To understand the obstacles to electronic trading one has first to understand the supply chain. It is a mistake to assume that the supply chain is linear, that interconnections are direct and that decisions are rational. While it makes life much easier, when discussing returns, electronic trading and other topics of the moment, to use the accepted, grossly simplified model of the supply chain as a linear channel along which books move from publisher to reader, it is wrong. So there is a real need for the e4books research project to fully understand the process, and to get to grips with why so many smaller book businesses have not embraced e-commerce. </p><p>Chaos theory model</p><p>There are, in fact, serious reasons for suggesting that chaos theory, rather than the distribution of baked beans or CDs, may be the best model for books. There is little vertical integration in book supply; and decision processes are complex and difficult to predict. This closely fits with the key concept of chaos theory: that it is possible to obtain completely random results from normal equations. </p><p>The book market is really a grouping of diverse and very loosely connected sub-markets--such as public library users, academic communities, children and book club subscribers--each using different processes and operating under different and unpredictable business rules. Indeed, the diversity of the book business is its unique and defining characteristic--diversity of authors, publishers, distributors, retailers and customers. </p><p>And this diversity is the first obstacle to electronic trading. More than 10,000 distributors still receive their TeleOrders by fax or post, generating considerable friction and overhead in the supply chain. Electronic trading is a vital tool for reducing that friction. But we must not eliminate the diversity itself, because that means tampering with the very genetic coding of our industry. </p><p>Blockbusters such as Zen and the Art of Motorcycle Maintenance and Life of Pi, not to mention Eats, Shoots&amp;Leaves, are the children of diversity. We need this diversity just as much as the "Richard and Judy" effect.</p><p>Diversity is everywhere in the supply chain. To trade electronically, back-office systems (the software used for sales processing, stock control and accounting) have to talk to back-office systems, and there is a huge range of these. The market-leading small business system Sage Line 50 is used by less than 25% of independent publishers. </p><p>On the bookselling side, the systems developed by wholesalers--Gardlink, Bertline and THEsis--dominate the market. But that brings a different problem. To lock bookshops in, the wholesalers supply these systems at very attractive prices. In return, the systems favour, in varying degrees, orders sent to the wholesaler which developed the software. So the decision about using e-commerce cannot be made by booksellers. It is a strategic decision for the wholesaler. </p><p>The second obstacle identified by the Nielsen research was that back-office systems are "king". There is a high level of resistance to changing these systems because of the inertia of users ("if it ain't broke, don't fix it") and practical factors such as the loss of historic data. There is also considerable resistance to adding layers of business processes, such as web services, to the back-office system. The uptake of e-commerce diminishes in direct relation to the changes users must make to their current systems.</p><p>The third obstacle is that good software must be user transparent. Small businesses are much more likely to adopt electronic trading if data can be imported and exported seamlessly into their back-office systems. But most current services are unable to do this, and most independent booksellers and publishers are weak in IT skills. This is a big drawback. Electronic trading services targeted at smaller businesses, but requiring a level of IT knowledge (no matter how small) will run into serious problems.</p><p>No numbers, no e-commerce</p><p>But probably the biggest single barrier to e-commerce among independent publishers is that many back-office systems (including Sage Line 50) do not hold ISBNs, or GLN (Global Location Number) electronic trading addresses: the research revealed that 51% of systems do not use ISBNs, and 90% do not use GLNs. An electronic trading service delivering a Tradacoms message to a publisher's system that does not hold ISBNs or GLNs is as useful as a cat flap on a submarine. </p><p>And the problem goes even deeper. Most systems used by smaller publishers do not produce the vital business messages required for e-commerce, such as order acknowledgements. </p><p>The fourth obstacle is that electronic trading only takes off when cost and benefit coincide. Smaller users expect the cost of electronic trading to be offset by equal benefits to them. Small businesses are usually run by their owners; there are few staff. This means percentage cost savings cannot easily be turned into bottom line gains. And the argument that an independent publisher should trade electronically because it benefits its large trading partners is not a winning one.</p><p>The proposition that electronic trading works for groceries, therefore it must work for books is also flawed. There are crucial differences between the supply chains. If a sausage supplier does not trade electronically, Tesco can buy from other sausage suppliers. If a bookseller wants a copy of Cycle East Anglia they buy it from me, the publisher, without using electronic trading. If they insist on trading electronically they may be lucky and find it stocked at a wholesaler (only 20% of published titles are). If not, the customer cannot have it. </p><p>The reason why I don't trade electronically as a small publisher is that the outlets that make up most of my sub-market (for example, tourist information offices) don't trade electronically either. That is the diversity of the book supply chain for you and, with more than 10,000 exclusive suppliers, it will not change overnight.</p><p>So do all these obstacles mean the outlook for electronic trading is gloomy? Not at all. The drive to increase its use is right, and the leadership provided by BIC through the e4books initiative is essential. But the project must recognise the importance of protecting diversity. Three of the project sponsors--Nielsen BookNet, PubEasy and Vista--make their money from selling e-commerce services and software. BIC should be aware that if the only tool in your toolbox is a hammer, everything looks like a nail. e4books must stand for efficiency and equality as well as e-commerce. </p><p>Electronic trading is standards based, and the first phase of implementation by large companies was driven by "one size fits all". This worked because the large companies had the required budgets, IT skills and flexibility. But as our market is really a number of interconnected sub-markets, e4books must recognise this, and also that one size will, in fact, fit few.</p><p>Electronic trading services need to be customised to meet the specific needs of each sub-market, rather than expecting smaller businesses to adopt the standards imposed on them. The catchphrase should be "many sizes to fit many customers". The roll-out of electronic trading will be slower and costlier than any of us would like, but it will achieve the goal of widespread adoption. Already we have seen examples of customisation, such as Batch developing an interface specifically for Sage Line 50 users.</p><p>But segmentation should not mean fragmentation. Electronic trading must remain standards based. The last thing we need is a proliferation of system interfaces. BIC must establish interface standards and work with system developers to include them in future releases. XML, SOAP, BizTalk and other integration tools will assist. But they are not a magic solution for systems that do not hold ISBNs or GLNs.</p><p>The key to opening up these systems is affordable data mapping and translation services. These convert data from the electronic data interchange standard to a form which a user's back-office system can understand. We need a range of these, from automated online translators to the semi-manual bureau services offered by Sweetens and others. Each sub-market will be opened up by a key-holder, who will be connected to a standards based backbone. </p><p>The "radiant" model (see simplified chart opposite) is the norm for networks operating across users of varying size and technical capabilities (for example mobile phone networks). In our market each key-holder will unlock the business systems of a group of smaller retailers or publishers. </p><p>The key-holder model using translation and bureau intermediaries is used in other markets. Several years ago, McDonald's started an EDI roll-out so it could receive invoices electronically from its volume suppliers. However, it discovered that, after initial success, most suppliers could not justify the high cost and complex requirements of electronic trading. McDonald's continued to receive large volumes of paper invoices. So it commissioned a company specialising in business-to-business document exchange to become a key-holder, and act as data translator for its suppliers.</p><p>The key-holder model does not have the elegance of pure e-commerce. But other markets use it successfully to expand electronic trading--and it works. The strategically important key-holders in our business will include wholesalers, system developers, bureau operators, mapping and translation services, and even trade organisations such as the Independent Publishers Guild. </p><p>Communication over the backbone will be standards based, but differing methods will move data between small partners and the key-holder, The aim will be to connect smaller partners directly to the backbone, but in the short term the key-holders have an essential role.</p><p>When simple is wrong</p><p>Electronic trading must complement the rich diversity of our industry. There is no "one size fits all" method for smaller businesses to trade electronically. For every complex problem in e-commerce, there is an answer that is simple, short and wrong. </p><p>To succeed, BIC's e4books initiative must focus on inclusiveness, and enable smaller publishers and bookshops to join the electronic trading community without substantial changes to their processes and systems. Electronic trading will become the norm in the book industry, but it will not happen overnight, and it will not be simple. </p><p>This article is based on a presentation by Bob Shingleton, then head of business development for Nielsen BookNet, at the 2004 London Book Fair BIC Supply Chain Seminar. He now runs the Wymondham Learning Initiative in Norfolk, a pioneering community organisation which uses computer-based learning to improve adult skills. He can be contacted at bob@wymondhamlearning.org.uk.</p>