Supply Chain Management Questions

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  1. Avatar Patrick
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    Just offhand, I’d guess that the default engineering approach to their supply chain was quite like Wal-Mart’s… minimize the time between when the thing is ordered by the customer and when you deliver it.

    Preorders are a different kettle of fish.

    Think about it this way… the normal “order stuff we have in stock” is like moving traffic through a traffic circle. They got that shiznit down, yo.

    The “preorder stuff we don’t have yet” is queuing up people in a line to go on the brand new ride at Disneyland.

    Except you’re using the same systems and processes to do the same thing. Can you imagine if cars were queued up to use a traffic circle, through the traffic circle? You say “go”, but nobody can move until the folks already at the exits move.Report

    • Avatar Saul Degraw in reply to Patrick
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      says:

      I suppose this makes sense but it seems like this is the kind of problem that tech should be able to solve if they really want to prove they are better than traditional retail.Report

      • Avatar Patrick in reply to Saul Degraw
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        says:

        They *are* better than traditional retail.

        I can solve any problem you want. I just need the right budget.

        The tricky part is that preorders aren’t going to be anywhere near on the same level of priority as daily doin’ business. The numbers aren’t there.

        You can design modular systems that solve different problems. You can design modular systems that solve different problems using different processes. You can design modular systems that solve different problems using different processes with increasing efficiency.

        If you regard “efficiency” only as “getting goods to customer” and discount “how much it costs us to do that”, anyway.

        Polymorphic systems are tough, because they still have to have enough business logic embedded in them to be useful. If you don’t, you get something like this, a system that is so polymorphic that it doesn’t do anything until you tell it what to do.

        So you need to have systems processes that can do some finite number of things (also, the more of these things you have them do, the more you rely upon people instead of the systems to make the switches and recover from bad states, etc., so that adds to your costs….)

        Each additional finite thing costs more money, introduces more complexity, etc., etc.

        Presales just aren’t worth it. It would make more sense to have a portal to a subsidiary that handled presales, and let them solve the problem independently of screwing with your main business model…Report

      • Avatar morat20 in reply to Saul Degraw
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        says:

        Pre-orders are, by definition, not in stock. And when they come INTO stock, there’s generally quite a lot of them going to quite a lot of places.

        It’s not “grab the box in the warehouse, slap a label on it, and send it out”.

        It’s “take delivery of 50,000 units, inventory them, get them into the system, then start rolling them out to customers in order”.Report

      • Avatar James Hanley in reply to Saul Degraw
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        says:

        Patrick, Morat,

        “The numbers aren’t there” and “50,000 units” seem like wondrously contradictory explanations.Report

      • Avatar Saul Degraw in reply to Saul Degraw
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        says:

        @james-hanley

        I am pretty sure Amazon did not receive 50,000 pre-orders for the new Murakami novel. I am still unsure of how many books one needs to sell to get on the bestseller list but my understanding is that the number is pretty low.

        But you bring up a good point, there are probably things where they did receive tens of thousands if not hundreds of thousands of pre-orders for stuff like a new Game of Thrones or JK Rowling novel and it would be in their best interest to get those out as soon as possible so customers did not get annoyed. I don’t see why the lessons from the big pre-orders could not be transferred to the smaller pre-orders.Report

      • Avatar aaron david in reply to Saul Degraw
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        says:

        @saul-degraw
        “But you bring up a good point, there are probably things where they did receive tens of thousands if not hundreds of thousands of pre-orders for stuff like a new Game of Thrones or JK Rowling novel and it would be in their best interest to get those out as soon as possible so customers did not get annoyed. I don’t see why the lessons from the big pre-orders could not be transferred to the smaller pre-orders.”

        With GoT and HP, they knew that they would need a team of people set aside just to handle the multitue of those orders. With Murakami, all 12 of us* who ordered it aren’t going to dent Amazons other operations, assuming that Amazons order came in a timely manner from Knopf. The shear number of imprints for GoT and HP (actual copies printed) just to keep up with first day demand undoubtedly went into multiple editions of 500K, while Murakami will more than likely get only one pressing in hardcover ever.

        All of this is to say that when HP came out in the latter volumes, Amazon received it by the semi trailer, and knew that they were in direct competition with Walmart, Target etc. With Haruki, the only real competition is B&N, who will get approx 5 copies per store.Report

      • Avatar Saul Degraw in reply to Saul Degraw
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        says:

        @aaron-david

        I really do wonder how many people eagerly await Murakami. Colorless Tazaki is currently #3 in Amazon Best-Sellers. How many copies is that? Surely more than 12 but potentially under 1000?Report

      • Avatar aaron david in reply to Saul Degraw
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        says:

        @saul-degraw
        Mmm, did you look at who is number 2? Publication Manual of the American Psychological Association, 6th Edition. It’s a slow week.

        I did a little research, and it actually had a massive print run, 300k first ed, with an additional 150k before publication. So I was wrong, which is nice in this context. That said, HP 7 had 12,000,000 copies printed before publication.

        It is very nice to see someone good on the best seller list, as opposed to most of the crap that gets passed off as literature.Report

      • Avatar Saul Degraw in reply to Saul Degraw
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        says:

        @aaron-david

        Well school is starting soon.

        IIRC Kafka on the Shore and IQ84 also spent time on the NYTimes bestseller list. IQ84.

        Maybe I have a unique set of friends but I always thought of Murakami as being one of the few high-brow authors who also have wide-popularity and acclaim. Most people I know seem to love him. I even have friends who are kind of snide against him for being “2nd rate Rushdie”Report

      • Avatar aaron david in reply to Saul Degraw
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        says:

        @saul-degraw
        2nd rate Rushdie? I would think other way around…

        Murakami is very accessible, and there seems to be a group of readers that sees this as a mark of lesser artists. To me that only adds to the appeal, as it allows others into the world the author creates, as opposed to creating barriers that only the literati can cross. Out of curiosity, which of his works is you favorite? Do you prefer his earlier works, or later? Have you read this: http://literatori.files.wordpress.com/2013/08/pinball1973.pdf ?Report

      • Avatar Saul Degraw in reply to Saul Degraw
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        says:

        @aaron-david

        People who perceive themselves as high-brow always are troubled by what can be called “middle-brow”. I admit to haughtiness of my own on other things.

        My favorite is Sputnik Sweetheart which was also my first Murakami in 2003. My second favorite is a tie between Dance Dance Dance and The Wind-Up Bird ChronicleReport

      • Avatar Jonathan McLeod in reply to Saul Degraw
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        says:

        @james-hanley re: “contradictory”. I believe Patrick is talking about order to ship and Morat is talking about supply being received. So they’re not necessarily contradictory (emphasis on contradictory).

        But even if Morat is overstating things, receiving, unloading and cataloguing will still take some time, and that’s even before you get to the order fulfillment process.

        Or Amazon hates @saul-degraw .Report

      • Avatar Jonathan McLeod in reply to Saul Degraw
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        crap, that was supposed to be “emphasis on necessarily”.

        Idjit me.Report

      • Avatar Kim in reply to Saul Degraw
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        Actually, automatically defragging the warehouse is the type of problem that tech needs to solve to prove that they’re better than traditional retail.
        *Guess the Store!*Report

  2. Avatar Patrick
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    says:

    @james-hanley

    “The numbers aren’t there” and “50,000 units” seem like wondrously contradictory explanations.

    They do seem that way, but

    “Selling 50,000 units of a preorder nets us $2 in proft” == $100,000 in profit

    Amazon’s daily accounts receivables probably makes that look like statistical noise.

    If you’re building a system to process $53 million dollars of one type of order in a day, a $9.95 book with 50k preorders is $497,500 in sales, or just under 1%.

    Not that it’s not real money.

    But from the standpoint of the business logic embedded in all those IT systems, I guarantee you that’s optimized for the other $52.5 million.

    Indeed, think of this tradeoff:

    Improving the efficiency of those IT systems to handle those orders 10% faster and cheaper, but it will make preorders go 50% slower.

    That lowers your costs considerably and probably doesn’t cost you any sales, because your analyst says that the preorder biz folks aren’t going to Barnes and Noble anyway. So you care about which outcome?Report

    • Avatar North in reply to Patrick
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      says:

      And they’re right. I knock off around 25-35% of the price when I pre-order. That’s a pretty sweet deal if you ask me. I’ll take a couple days delay with equanimity, I’m already waiting weeks or months.Report

      • Avatar Saul Degraw in reply to North
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        says:

        @north

        How long would you wait before being somewhat miffed at making a pre-order and having the product come too late?Report

      • Avatar Kazzy in reply to North
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        Too late for what?Report

      • Avatar Kazzy in reply to North
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        says:

        Wait… pre-orders are discounted? And @saul-degraw is complaining that they aren’t delivered as efficiently as full-priced items or items delivered via a premium service? Really? Of course they’re going to be prioritized last. What do you expect? “Pre-order” doesn’t mean “I get it right away”. It means, “I ensure I get a copy before the initial inventory sells out”.Report

      • Avatar Saul Degraw in reply to North
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        says:

        @kazzy

        Almost everything on Amazon is discounted.

        Your comment feels a bit harsh for reasons unknown. Haven’t you ever really wanted a package to arrive and felt like it was taking forever to do so? Or are you always a master of Zen cool and keeping all desire in check at all times?

        No, it won’t kill me if the book doesn’t arrive until early next week but there is nothing wrong with a little anticipation and that made me just think about Amazon’s delivery system and the boosting they do for themselves in the media or tech does for themselves in general and asking about why the lag exists. This is not an area I know much about but I figured that other people would and people did answer pretty well.Report

      • Avatar Saul Degraw in reply to North
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        says:

        @kazzy

        Prime books are also discounted, possibly more so. Prime is just an annual payment plan which gives some goodies.Report

      • Avatar North in reply to North
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        says:

        Saul, I guess I’ve never pre-ordered a book with a set deadline in mind. I was out of school before I started using Amazon, for instance, so my book orders are for pleasure only. Also I’m enormously absent minded so it’s not like I was waiting on the release day for my book. I honestly have not even noticed that pre-ordered books arrive “late”.

        Kazzy: Amazon typically will lop off a not insignificant chunk of the cost of a book (or at least trade paperback comic book) if you pre-order. This is above and beyond their standard discounts. I’m sure there’s all kinds of reasons for that: they get to hold my money while they wait for the book; they have essentially sold an item they don’t’ have yet; it helps with calculating demand; I’m not certain but it’s a bargain that I have enjoyed. Note, I don’t use prime; I don’t buy enough books to merit an annual fee.Report

  3. Avatar Maribou
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    says:

    FWIW, both I and a friend of mine get our pre-orders on the release date or the next day, pretty much every single time. (He started reading the Murakami days ago.) So, they have a mechanism to make sure the Prime folks get theirs when they are supposed to…Report

    • Avatar Saul Degraw in reply to Maribou
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      says:

      @maribou

      Which makes me wonder whether they have a mechanism to slightly delay orders for people who are not prime members.

      I don’t order enough from Amazon to justify a prime membership.

      Most of my books come from the library or used bookstores.Report

      • Avatar Hoosegow Flask in reply to Saul Degraw
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        Amazon Prime is insidious. When I first got it, I barely ordered enough to justify it.

        Now, if I want a new item but don’t need it in my hands immediately, I’ll go for the 2 day shipping rather than deal with the hassle of brick-and-mortar stores. The amount I purchase through Amazon has increased significantly.Report

      • Avatar Glyph in reply to Saul Degraw
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        says:

        @hoosegow-flask Preach it, brother. The convenience factor is just stupid and the prices are generally more than competitive. I don’t like driving or shopping in stores* all that much anyway.

        *Well, certain stores, bookstores among them, I actually like shopping at very much. But right now, with very small children, it’s no longer the relaxing, leisurely, almost-meditative activity it used to be, since there is someone constantly talking in my ear, which kinda makes it hard to *think*, let alone browse.

        And that’s a shopping experience I previously enjoyed, unlike, say, buying cable splitters or something, which was *always* a “task to be completed”, never an “activity to be savored”.

        Bezos owns my lazy butt.Report

      • Avatar Saul Degraw in reply to Saul Degraw
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        says:

        @glyph

        Are you saying you are guided by voices?Report

      • Avatar Glyph in reply to Saul Degraw
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        says:

        @saul-degraw This may be TMI, but what the hell.

        In the late ’90s I was experiencing a moderately-serious bout of depression (though thankfully less-serious than many I have witnessed in friends and family) and went through a round of talk therapy because my insurance would pay for one.

        The therapist spent a chunk of one session attempting to get to the bottom of why I would wear a shirt reading GUIDED BY VOICES to a meeting with a mental health professional; he was sure that there was some meaning or intent being communicated by me.

        I had to explain, no, it’s just a band I like and a shirt I wear a lot. Frankly, getting dressed was a challenge at that point and I probably couldn’t have said *what* I was wearing, let alone *why*. Had my first-ever panic attacks at that time; up ’til then I had assumed the term “panic attack” was sort of a figure of speech (spoiler: it’s not).Report

      • Avatar Kim in reply to Saul Degraw
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        says:

        Glyph,
        try having to explain to someone having a panic attack that “no, there are not wolves outside, they are not trying to get you, I’m not going outside to look for them”

        … first and last time on Vicodin.Report

      • Avatar Patrick in reply to Saul Degraw
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        says:

        @glyph

        Back at idealab, over a decade ago, we incubated all sorts of dotcoms. One of them was called “paymybills.com”. Every opco got a t-shirt for team design for team-building purposes.

        The Pay My Bills T Shirt’s front said:

        “Tiny Green Monkeys Are Eating My Toes”

        And the back said:

        “We’ll help you pay your medical bills
        paymybills.com”

        I came in too late to get one (I had most of the other opco t-shirts from my tenure there), but it was always one of my favorites.Report

      • Avatar Gabriel Conroy in reply to Saul Degraw
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        says:

        What I like about Amazon is not just the convenience fact, which I like, too, but also the fact that I can get things I normally couldn’t. For example, there’s no Skyline Chili in Chicago, but a couple months ago, I ordered four cans off amazon. It’s not quite as good as what you can get in Cincinnati (where my in-laws live), but it’s surprisingly close.

        I haven’t yet been able to find any “throwback sour cream and onion doritos” on Amazon, or anywhere, yet. (Sub-thread bleg: if anyone knows of where I can score some, I’d be much obliged 🙂 )

        I don’t order enough to justify a prime membership, but I’ve known people who claim to do a lot of their regular shopping–e.g., diapers, etc.–with a prime membership and save a bundle.Report

  4. Avatar Plinko
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    says:

    Inventory systems are not my area of expertise in the supply chain world, but I bet the reason is more or less as morat stated.

    From what I do understand, the order management and inventory systems of most places are only somewhat, if at all, integrated with their supply/purchasing systems. That is to say, you buy stuff from vendors in one system, but take customer orders and ship out of another. Sometimes this is 3 (or more!) separate systems.

    When you get your stock from a supplier, you receive the inventory in your supply system to close that out and then enter it in your inventory system. Before that happens, that item is not in inventory to be picked and shipped to a customer. There’s usually minimal/no logic around ‘release dates’ that is built around being prepared with orders ready for the second that inventory is in and able to fulfill pre-orders.

    So, the issue of how long it might take to fulfill pre-orders surely depends on a lot of things such as: how often pre- and/or back- orders run a check against inventory to see if those orders can be picked. At Amazon’s live-order volume, I would assume running such a query frequently would probably be pretty big waste of server resources and they set it to happen once or a few times a day.
    Next it would matter how long it takes for them to bring in the inventory itself – as a process this could be minutes or hours or even a full day or more depending on how their receiving processes work. It’s unlikely that the trailer of the latest book release is any special truck, it’s just another of dozens or hundreds received at each warehouse each day. So, it could easily be that the item comes into inventory with a long time to go before your pre-order is checked against inventory to see if it can be filled.

    Then there’s the question of how quickly the publisher really wants Amazon delivering their new releases. The item-level margins on selling to Amazon are surely razor thin – why would you dilute your sales to higher margin customers on one of the few things that those brick and mortar stores can actually deliver – the promise of that item the very first minute.
    As an aside, I remember working Target retail as a teenager and getting boxes of new release stuff weeks before the list dates. Over time, those moved closer and closer to the actual date because so many stores (unintentionally as often as not), started selling stuff early all the time. The last thing I would want would for tens of thousands of people to get their orders from Amazon BEFORE my in-store customers got them, so I would make sure Amazon got their shipments as late as I possibly could.

    Then, from Amazon’s side – why build in extra work to service pre-orders minute one anyway? They already have your money!

    On a less evil-corporation version of things, it’s incredibly likely that the different Amazon warehouses around the country end up getting different items at different times, maybe even on different days depending on the publisher – if the item is shipped from a warehouse in Virginia to the entire country, Amazon distribution facilities in Pennsylvania are probably getting theirs a day or two earlier than ones in Oregon. If your most-local distribution facility is far away from wherever the supply is, you’re probably going to see a few days worse turn time than others.Report

    • Avatar Road Scholar in reply to Plinko
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      says:

      If your most-local distribution facility is far away from wherever the supply is, you’re probably going to see a few days worse turn time than others.

      That’s likely the issue right there, Saul. You’re in San Francisco waiting on a driver like me to haul a load of books from a publisher in New York to the Amazon fulfillment center in Oakland or thereabouts. A cross country haul of 3000 miles or so is at least five days for a solo driver. A team would be faster of course, but shippers pay extra for that so most won’t.Report

      • Avatar Kim in reply to Road Scholar
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        says:

        Getting my coffee from Oakland is supposed to take 5 days. It always takes seven, and winds up sitting somewhere in an overheated warehouse (it’s why I don’t order in the summer). UPS hates Tom (from Sweet Marias) is all I can figure.Report

      • Avatar Mike Dwyer in reply to Road Scholar
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        Kim – if they’re shipping your coffee via UPS Ground that’s a max of five business days which is 7 actual days. California to Pittsburgh is always going to max that timeframe out.Report

      • Avatar Kim in reply to Road Scholar
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        says:

        Mike,
        by my way of thinking, if it’s packed and ready to ship monday morning, isn’t there some chance that it arrives before the end of the day friday?

        Even SmartPost has managed a same day delivery (once, it is smart post, and due to “active malfeasance” on the part of a (postal?) employee — this package says it wants to go to an address in this town — but first it wants to hit Michigan? Maybe I should just give it to the mailman, instead?).Report

      • Avatar Mike Schilling in reply to Road Scholar
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        says:

        if they’re shipping your coffee via UPS Ground

        Of course you’d ship coffee ground.Report

      • Avatar Kim in reply to Road Scholar
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        says:

        Nah, ground coffee spoils too quickly (rx with oxygen at a remarkable rate).
        I ship green coffee, which keeps for 6months to a year (enough for a new crop)Report

      • Avatar Mike Dwyer in reply to Road Scholar
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        says:

        Kim,

        If you lived somewhere further west you could probably expect it sooner. For example, Amazon’s fulfillment center is very close to Louisville so I can request ground service and usually get stuff in 1-2 days. If your coffee was coming from New York you could expect similar speed. Going from CA to PA though is maxing out UPS’ transportation capabilities for ground service so that puts you at the full 7-day transit time.

        Same day shipping is only available with UPS for a high premium. Those shipments run around $500+.Report

    • Avatar Mike Dwyer in reply to Plinko
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      says:

      I’ve been in Supply Chain Management for 14 years and Plinko’s explanation is on the money. The pre-orders should create a backorder within Amazon’s system. When the inventory is received that order should drop for picking in the their next wave. 90% of the time when there is a shipping delay it was caused by a late receipt on the inbound side. If it was the Call of Duty game they would staff for heavy inbound and outbound. With some small batch item they are just going to rely on their normal system. It could be that they had some kind of Inbound delay or it could be that the publisher shipped it late.Report

  5. Avatar Vikram Bath
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    says:

    I wasn’t going to say anything because I don’t actually know the answer. Somehow the more you know about a subject, the less eager you are to speculate about it. But Will encouraged me to, so here’s what I know.

    There is a very important problem in the production of almost all manufactured goods. It is guessing how many to make. If you make too many, you have excess stock that you can’t sell at the desired price (and maybe not even at a severely discounted price). If you make too few, the customers can’t buy even if they want to, and they might go buy something else instead. Or, they might wait for a while and then decide later they didn’t want it after all.

    It’s hard to overstate how big a deal this is. There are a lot of companies that were just fine when they were small, but when they became more successful, they actually ended up with cash crunch issues because they screwed up this problem. Jobs was so optimistic about the Apple Lisa and actual demand was so low that many of them were shipped directly to the dump (though I can’t remember where I read that).

    Ultra-conservative companies like Nintendo have made the opposite mistake. When the Wii was really popular, Nintendo nevertheless refused to open a new plant. It was backordered for well over a year.

    Pre-orders are helpful because they provide a way for companies to gauge ultimate demand for their products. If pre-orders are higher than expected, they can revise their estimates, and vice versa. There are other benefits, like it serving as a type of pre-commitment for that particular customer.

    Moving to books in particular, excess books that aren’t sold are remaindered. You can identify them by a black mark on the bottom. These are not to be sold and actually are supposed to be sent back to the publisher for destruction. Also noteworthy is the fact that books typically need to be printed in relatively large batches. I don’t know what the minimum feasible printing size is considered, but they typically want to run off as many as they can all at once to keep printing costs reasonable. They certainly don’t want to running batches of 10 books at a time (though this might be slowly changing as small batch book printing and on-demand book printing costs keep coming down).

    So, by offering pre-orders, Amazon can offer valuable information to publishers, which I am fairly sure they use to wring further price concessions from them. Rather than guessing based on how positive advace-copy reviews in the newspaper are, they can get an actual number of real customers who have already decided to spend their money.

    The reason I mention all this is to communicate the idea that to Amazon [I speculate], pre-ordering is more about cost rather than speed. Pre-ordering is not the online equivalent of waiting in line outside the bookstore for the midnight unveiling of the eighth Harry Potter novel. Rather, it’s a convenient, cost-reducing option. Amazon has several warehouses throughout the country now, and it is quite likely that these warehouses only begin to be stocked when a book is released, not in advance of its release so that orders can be shipped the day before the release date. By the time your local warehouse actually gets the book stocked, it’s quite believable that the better part of a week has gone by and it will be a full week before it ships.Report

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