overview of the book supply chain in english canada
TRANSCRIPT
OVERVIEWOFTHEBOOKSUPPLYCHAININENGLISHCANADA
PreparedforADELFAssociationdesDistributeursExclusifs
deLivresenLangueFrançaise
March29,2018
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CONTENTS1.0 Introduction|pg32.0 SupplyChainParticipants|pg33.0 IntegrationintheNorthAmericanSupplyChain|pg84.0 ConcludingNote|pg12
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1.0INTRODUCTIONEffectivemanagementofthesupplychain–theprocessofgettingbookstowheretheyneedtobe,whentheyneedtobethere,andasefficientlyaspossible–isacriticalfunctioninpublishing.Theterm“distribution”isgenerallyusedtorefertoawiderangeofsupply-sideactivities,includingfunctionssuchassalesandmarketing,warehousingandinventorymanagement,orderprocessingandadministration,logisticsandfulfillment,collections,datamanagement,andcustomerservice.WeshouldalsonoteattheoutsetthatbookdistributioninEnglishCanadaisheavilyinfluencedbyanimportantstructuralaspectofthedomesticmarketplace:Canadaisarelativelysmallmarket,withamodestpopulationspreadoveralargegeographicarea.Economiesofscaleareparticularlydifficulttoachieveinsuchamarket,andthishascontributedtoasupplychainwhereinventoriesforCanada’sEnglish-speakingmarketarelargelyaggregatedandstoredinandaroundtheGreaterTorontoArea–bothwithrespecttotitlesoriginatedinCanadaandthelargevolumeofbooksimportedtoCanada–withsupplyroutesrunningeastandwesttotherelativelylowerpopulationregionsintherestofthecountry.2.0SUPPLYCHAINPARTICIPANTSInCanada’sEnglish-speakingmarket,themajorparticipantsinthesupplychainare:1. publishers,whoacquirerightstotitlesandpreparethemforsale;2. distributors,whoprovidefulfillmentandwarehousingservicestothepublisherforafee,have
exclusiveterritorialrightstothepublishinglinesthattheyrepresent,andselltoalltypesofcustomers,includingwholesaleaccounts;
3. salesrepresentatives,whoprovidesalesrepresentationforarangeofpublisher-clientsandarepaidonacommissionbasis;
4. wholesalers,whobuyselectedtitlesfrommanypublishersanddistributorsonanon-exclusivebasisandthenre-selltoretailandinstitutionalaccounts;and
5. customeraccounts,includingretailersandinstitutions.
Anillustrationofthemajordomesticsaleschannelsthatarecommonlyservedbydistributors,wholesalers,andsalesagencies.
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2.1DISTRIBUTORSDistributorsgenerallyofferafairlycomprehensiveandcompleteservicetopublisher-clients,and,asnotedabove,theydosoonthebasisofanexclusivedistributionrightforagiventerritoryorterritories.Theseincludeafoundationofbasicfulfillmentservices,suchas:
• Warehousing• Receivingandprocessingorders• Orderfulfillment:picking,packing,andshipping• Datamanagementofinventoryandordersforclient-publishersandcustomeraccounts1• Returnsreceiptandprocessing• Invoicingandcollectionofaccountsreceivable
Mostdistributorswillofferoptionalmarketingservicesaswell.Thesemaybeprovidedonafee-for-servicebasisorasanoptiontobebundledwithbasicfulfillment2:
• Publicity• Salescatalogue• Tradeadvertising• Representationattradeshowsandsalesconferences• Administrationofco-opbudgets
Beyondthesecorefunctions,distributorsalsoprovideadditionalserviceoptions.Thesearegenerallychargedonafee-for-servicebasisoverandabovebasicdistributionfees,andmayinclude:
• Warehousingofpublisheroverstock• Packagingandshippingofpromotionaldisplays• Shipmentofadvancereadingorreviewcopies• Stickeringorotherspecialstockhandling• Specialpromotionsortitle-specificmarketingprograms
Thereissomeroomhereforconfusionbetween“distribution”asanimportantbusinessfunctionanda“distributor”asakeytypeofparticipantinthesupplychain.Anditishelpfultounderstandthatindividualpublishersapproachthisimportantfunctionindifferentways.Forexample,somewillcontractforsomeoralloftheirdomesticdistributionwithafull-servicedistributor.ThefieldofsuchfirmsisrelativelylimitedinCanada’sEnglish-languagemarkettoday,andcurrentlyincludesRaincoastBooks,GeorgetownTerminalWarehouses,FraserDirect,PublishersGroupCanada3,LitDistCo,andUTPDistribution.
1Notethatinmanycasesthisincludestheaggregationofbibliographicdatafrompublishersanditsonwardtransmissiontokeytradingpartnersorotherdataaggregatorswithinthesupplychain.2ThereisadistinctiontobemadeherebetweenCanadianandforeignpublishers,inthattheformertendtokeepsuchmarketingservicesin-house(thatis,theydothisworkthemselves)whereasforeignpublisherswillbemoreopentobundlingtheseserviceswiththeirCanadiandistributionarrangements.3NowawhollyownedsubsidiaryofRaincoastBooks.
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Otherfirms,suchasBC’sHarbourPublishing,self-distributefromtheirownwarehousefacilities.AndstillothersoperatetheirowncommercialdistributionoperationsandcontractwithbothCanadianandforeignpublisherstoprovidethemwithdistributionservicesinCanada.ExamplesofthislastcategoryincludeRandomHouseofCanada,NimbusPublishing,andFireflyBooks.2.2SALESREPRESENTATIVESPublishers’salesrepresentativesmakeregularsalescallsonbuyerswithretailaccountsacrossthecountry.Theysellthepublisher’sbooksintotheseaccounts–withordersgoingtothedistributorforprocessingandfulfillment–andplayacriticalroleinfieldsupportfortheirretailaccounts.Aswithdistribution,publishersorganizetheirnationalsalesrepresentationinavarietyofways.Somedistributorshavein-houseteamsofsalesrepresentativesworkinginterritoriesthroughoutthecountry,andsoclient-publishersofthosefirmswilloftenhavesalesrepresentationbundledwiththeirfulfillmentservices.Otherpublisherswillrelyonindependentsalesagencies,someofwhichareformallyorinformallyaffiliatedwithdistributors,fornationalsalescoverage.Thereareanumberofwell-establishedsalesteamsthroughoutthecountry,includingAmpersand,CanadianMandaGroup,HornblowerBooks,andmanyotherregionalandsubjectspecialistsaswell.Publishersmayalsochoosetoestablishamixofin-houseandcommissionedsalesrepresentation,wherethepublisherretainssomeregionsofthecountry,orcertainkeyaccounts4,foritsin-housestaff.Thiscanbeeffectiveincases,forexample,wherethepublisherhasaconcentrationofsalesinonepartofthecountry,sothattheseaccountscanbeeffectivelyservedbya“houserep”,andwhereisasufficientsalesvolumetosupportoneormoresuchpermanentstaff.2.3WHOLESALERSIncontrasttodistributors,mostwholesalersdonotactivelyselltoaccountsviasalesrepresentatives.Rather,theyreceiveorderstore-supplyretailers,provideefficientmechanismstoconsolidateordersforlibrariesandinstitutions,andinsomecases,managebuyingandfulfillmentfornon-traditionalretailaccounts.Muchofthevaluepropositionofthewholesalerarisesfromhowquicklytheycanre-supplytradeaccountswithin-demandtitles,or,inthecaseoflibraryormassmarketwholesalers,theadditionalspecializedservicestheycanprovidetospecifictypesofcustomers.Wholesalersdonotcompetewithfull-servicedistributors.Rather,theyareoneofthecustomergroupsservedbydistributorsandtheyhaveadistinctroletoplaywithinthesupplychain.Withrareexception–forexample,afast-sellingself-publishedtitlethatmayhaveitsCanadiandistributionviaasinglewholesaler–wholesalersdonothaveexclusiverightstothebookstheycarry.Rather,thoseterritorialdistributionrightsrestwiththeCanadiandistributorsfromwhichCanadianwholesalerssourcetheirinventories.
4Theheavyconcentrationofbookretailsaleswitharelativelysmallnumberoflargeretailaccounts–suchasIndigo,Amazon,andCostco–hasfurtherencouragedsomepublisherstohandlekeyaccountsin-house,whilecontractingforbroadersalesrepresentationwithanoutsideagency.
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Broadlyspeaking,thewholesalecomponentofthesupplychaincanbecategorizedintothreesegments–tradewholesale,massmarketwholesale,andlibrarywholesale–asillustratedinthefigurebelow.
Wholesalechannelsinthesupplychain.Tobemorespecificaboutthedifferenttypesofwholesalerswehaveidentifiedhere,therearetwomajortradewholesalersoperatingcurrentlyinCanada’sEnglish-languagemarket:North49Books,whichprimarilyservicesretailaccountsinOntarioandQuebec,andBookExpress5,whichmainlyservesclientsinWesternCanada.Speedofserviceiskeyforthesefirms.“Wedoonething,”saidonewholesalerweinterviewedforthisstudy.“Butwedoitreallywell.”Stockmanagementisanotherkeyfactoraswholesalerstypicallyinventoryarelativelysmallnumberoffast-sellingtitles(normalstockrangeforatradewholesaleris+/-2,000ISBNs).Incomparison,massmarketwholesalershaveabroaderserviceofferingfortheirretailaccountsbutarespecializedintheverydemandingvendorrelationscontextofthelargeretailerstheyserve.Infact,manyofCanada’smassmarketandnon-traditionalchainaccounts,includingWal-Mart,areservicedbyamassmarketwholesaler.EnglishCanada’stwomajorwholesalersofbooksandperiodicals–CanadianMassMediaInc.(CMMI)andTNG(formerlyTheNewsGroup)–providebuying,inventorymanagement,categorymanagement,andmerchandisingservicesformajornon-specialistretailersinthemassmarket,grocery,drug,andconveniencesectors.Bothfirmsaremajorplayersinthesupplychainforbooks.CMMIbuysallofthebooksmostWal-MartlocationsthroughoutCanada,andTNGsuppliesthousandsofretailoutletsnationwide,includingmajorgroceryanddrugchainssuchasLoblaws,ShoppersDrugMart,andOverwaitea/Save-On.Librarywholesalers,aswiththoseservingthemassmarketchannelsnotedabove,combinehighlevelsofservice,includingactivecurationandselectionofrecommendedtitles,withspecializedexpertisein
5AlsoasubsidiaryofRaincoastBooks.
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institutionalchannels.WholesalersinthiscategoryincludeLibraryBound,LibraryServicesCanada,SkylightBooks,UnitedLibraryServices,andTinlids.Thesefirmsreceivetitleinformationandreviewcopiesfrompublishersandselectthebooksthattheywillpresenttotheirpublicandschoollibraryclients.Selectedtitlesarepresentedtolibrariesthroughaseriesofthematicseasonalcatalogues,showrooms,andinthecaseofschoollibraries,inlistingsthatcorrespondtocurriculumrequirements.Thesewholesalersprovideanefficientorderingmechanismforlibraries,allowingforconsolidatedorders,invoices,andshipmentsofbooksfrommanydifferentpublishers.Further,librarywholesalersofferarangeofservicescustomizedtotheneedsofindividuallibrariesandlibrarysystems,includingprocessing(evenlaminating)andcataloguingofnewbooks.Tothesethreemaincategoriesofbookwholesalers,wecouldaddafourthandfinalcategory:thespecialistwholesalerthathasaparticularsubject,regional,ornichefocus.ThereareanumberofsuchfirmsoperatinginCanadatoday–includingFairmountBooks(publishers’overstock),B.Broughton(religioustitles),andCrown(governmentpublications).
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3.0INTEGRATIONINTHENORTHAMERICANSUPPLYCHAIN3.1MARKETCONTEXTItisimportanttohighlightaswellthatCanada’sEnglish-languagebookmarketisdominatedbyimportedtitlesandbybooksfromtheUSinparticular.Reflectingthehistorical(andcurrent)dominantmarketshareofimportedtitles,anumberofCanadiandistributorsandpublishersactasexclusivein-Canadadistributionagentsforforeignpublishers.GiventheincreasingintegrationoftheAmericanandCanadiansupplychains,alongwithfar-reachingtechnologicalchangeinbookmarketsglobally,Canadianretailersandbook-buyinginstitutionshavereadyaccesstoforeignsuppliersofimportedbooks.However,parallelimportation–or“buyingaround”aCanadianrightsholdertoorderfromaforeignsupplier–underminestheinvestmentthattheCanadiandistributorhasmadeinbuildingdistributivecapacityandinallocatingaportionofthatcapacitytodistributing,marketing,andsellingapublishinglineortitleinCanada.Totheextentthatsuchparallelimportationiswidespread,theviabilityoftheCanadiansupplychaincouldbeerodedascoulditsabilitytoprovidearichselectionofdomesticandimportedbookstoCanadianconsumers.Inafurthervariationonthisissue,CanadianretailandinstitutionalaccountsmayalsofinditadvantageoustosourceordersofCanadianbooksfromUSsuppliers,particularlyincaseswherenorth-southsupplyroutesoffermoretimelyorcost-effectivebuyingoptions.Inrecognitionofthepublicinterestinasustainabledomesticsupplychain,Canada’scurrentBookImportationRegulationscameintoforceinSeptember1999.Theirprincipalobjectivewas(andis)toextendprotectionstoexclusivedistributorsagainstparallelimportation—thatis,againstCanadianaccounts’“buyingaround”byimportingcopiesofatitlefromaforeignsupplierratherthanorderingthemfromtheCanadianrightsholder.Inpracticalterms,thepurposeoftheRegulationsistoestablisharequirementforCanadianbookstores,wholesalers,andinstitutionstosourceimportedbooksandCanadianeditionsfromexclusivesuppliersinCanada.Thisrequirementisnot,however,absoluteandthereareanumberofexceptionsanticipatedintheCopyrightAct.Forexample,individualconsumersarepermittedtoimportcopiesforpersonaluse,whileretailorinstitutionalaccountsmayalsoorderfromforeignsuppliersincaseswhereanexclusivedistributorinCanadahasnotmetregulatoryrequirementswithregardtopricing,deliverytimes,andnotification.Morespecifically,theexclusivedistributor’srightsareonlyprotectedif(a)theCanadianlistpricesforitsimportedbooksdonotexceedtheguidelinessetoutintheRegulations(i.e.,theoriginallistpriceplusthecurrentexchangerateplusaspecifiedpercentagewhichvariesbycountryoforigin),(b)thedistributorisabletoshipordersforimportedbookswithinspecifiedtimelimits,and(c)thedistributorprovidesformalnotificationofitsexclusiverightstosupplyitsimportedlinesinCanada.Incombination,theserequirementsareexplicitlymeanttoprotectretailaccounts,institutions,andconsumersagainstthepossibilitythattheincreasedexclusivityaffordedundertheRegulationscouldleadtohigherpricesorlowerservicestandardswithintheCanadianmarket.
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3.2NORTH-SOUTHSUPPLYROUTES3.21MovingDistributionOperationstotheUSTwoofCanada’slargestpublishersanddistributorsnowrelyheavilyonthewarehousesoftheirinternationalparentcompaniesforCanadianfulfillment.AthirdhasrecentlycloseditsCanadiandistributionaswellandnowservesCanadianaccountsviaathird-party,US-baseddistributor.PenguinRandomHouseCanadashipsstockdirectlytoCanadianaccountsfromRandom’sUSdistributioncentreinWestminster,Maryland.Thethen-RandomHouseCanadafirstmoveditscustomerservicedesktotheMarylandcentrein2003,butcontinuestooperateasmallerwarehouseinMississaugatore-supplykeytitlesandprocessCanadianreturns.Similarly,Simon&SchusterCanadacloseditsCanadianwarehouseoperationsin2004,movingtoasystemofconsolidatedshipmentsfromS&S’sdistributioncentresinPennsylvaniaandNewJersey.TheseshipmentsarefreightforwardedviaGeorgetownTerminalWarehouseforonwardshipmenttoCanadiancustomers.Morerecently,HarperCollinsCanada,whichwaspreviouslyanimportantdomesticdistributorforanumberofCanadianpublishinglinesinitsownright,closeditsCanadiandistributionoperationin2015.Atthatpoint,thecompanyoptedinsteadtofillallCanadianordersthroughanewdistributioncontractwithRRDonnelly(viaaDonnellywarehouseinIndiana).ForthesethreeCanadiansubsidiariesofmajormultinationalpublishers,thisstrategyoffersthefollowingbenefits:
1. ItavoidsduplicationinsystemscostsbetweentheCanadiansubsidiaryandtheinternationalparent.
2. ItallowstheCanadiansubsidiarytotakeadvantageoftheconsiderableeconomiesofscale
realizedthroughtheselargedistributioncentresintheUS.
3. Itprovidesaccesstoamuchlargerselectionofin-stocktitles.Mostdistributorswillestablishminimumsaleslevelstojustifykeepingatitleinthewarehouseforimmediateshipment.InthesmallerCanadianmarket,thisnecessarilymeansamorelimitedtitleselection.
4. ItrespectscopyrightprovisionsbothfortitlesoriginatedbytheCanadiansubsidiaryandforits
distributedlinesaswell(astheimporterofthebooksinsuchcasesisthecompanythatholdstheCanadianrights).
TheseintegratedsupplychainsfindtheirprimaryrationaleinthegreatereconomiesofscaleaffordedbyconsolidatedsupplyoperationsintheUS.Atthesametime,theyaregreatlyenabledbysupplychaintechnologiesthatstreamlineordering,orderprocessing,tracking,andallothertransactionalprocessesforthedistributorandretaileralike.
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3.22TheRoleofUSWholesaleIngramistheleadingtradewholesalerintheUSandiswidelyregardedasoneofthebestdistributionspecialistsinthebooktrade.Foundedin1964,IngramcurrentlyoperatesfourdistributioncentresintheUSinOregon,Pennsylvania,Tennessee,andIndiana.Thecompanyhasgrownitssalesinanumberofwaysinrecentyears.AlongwithitsshipmentstoretailaccountsintheUS,Ingram’sdirect-to-consumershipments(infulfillmentofbothonlineandofflineconsumerorderspassedfromIngram’sretailpartners,notablyAmazon),andinternationalshipments(toCanada,Australia,andEurope)haveexpandedsignificantly.AsoneofAmerica’slargestprivatelyheldcompanies,Ingramdoesnotreportitssalespublicly.However,anecdotalreportsclearlyindicatethatthecompany’sCanadiansaleshavegrownsignificantlyinrecentyears.Asoneofourdistributorrespondentsputit,“We’reseeingerosion[ofsales]toAmericancompetitionthatscale-wisenoonecantouch.”TherearetwomainfactorsthatencourageCanadianaccountstoorderfromIngram6:
1. Ingramisanextremelyefficientdistributor.ThroughitsnationalnetworkofwarehousesintheUS,itisabletomakenorth-southshipmentsmuchmorequicklythanmostdomesticdistributorscanshipalongCanada’seast-westsupplyroutes.Thisisacompellingfactorgivenboththeconsumerandretailerdemandforpromptdelivery.
2. DependingonUS-Canadiandollarexchangerates,theremaybeapriceadvantagefora
CanadianaccounttoorderfromaUSsupplier,andonethatiswithinthelimitsprescribedbytheBookImportationRegulations.Aidedbyelectronicorderingandinventorytools(thatallowbuyerstoquicklycheckpriceandavailabilitybetweendifferentsuppliers),CanadianretailerscannoweasilysourcethesebooksoutsideofCanadaatalowercostthantheycanbuythemfromCanadianrights-holders.
Whateverthereason,thestructuraleffectsofincreasedUSsourcingaresignificant.Firstandobviously,increasedforeignbuyingunderminestheterritorialrightsofCanadianrightsholders(byplacinglower-pricedUSeditionsinthemarketatthesametimeasaCanadianpublisherordistributoristryingsellaCanadianeditionwithaCanadianlistprice).ThisissueisrelevanttoCanadiansubsidiariesofmultinationalpublishingfirms,Canadiandistributors,andCanadianpublishinghousesthatalsoactasdistributorsforforeignpublishers(andsorelyondistributionrevenuestovaryingdegreestosupportdomesticpublishingprograms).Morebroadly,increasedparallelimportationcouldalsocontributetorelativelylower-pricedimportedbooks(relativetoCanadiantitles,thatis)claimingalargeroverallshareoftheCanadianmarket.Thefigureonthefollowingpageprovidesanillustrationofthiscontinuingpatternofnorth-southintegrationinthebooksupplychain.
6WeshouldnoteaswellthatthereisaparallelcaseintermsofCanadianlibraryaccounts,manyofwhichareservedinpartbyBaker&Taylor,whichisaverylargescalelibrarywholesalerintheUS.
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Patternsofnorth-southintegrationinthebooksupplychain.3.3THEAUTOMATIONOFTHESUPPLYCHAINTechnology,andwhatcanbebroadlyunderstoodastheincreasing“systematization”ofthesupplychain,isanotherfactorthatbearsonbuyingbehaviourwithintheCanadianbooktrade.Therearetwobroadimpactsofthisthatwecanobserveatthispoint.
1. Wholesale,retail,andinstitutionalaccountscanusesophisticatedbuyingsystemstoquicklyandefficientlymeasurerelativepricingacrossCanadianandUSsuppliers,andtothenplaceordersbasedonthebestavailablepricingandservices,particularlyincaseswhereCanadian-USpricegapsexceedthelimitsprescribedbyCanadianregulations.
2. Verylargeretailaccounts,suchasAmazon,areincreasinglyautomatingtheirproductsourcing
inwaysthatcandisadvantagein-Canadasuppliers,particularlyincaseswherethosesuppliersareunabletomatchshippingtimesorpricinginplacefromUSsuppliers.OnepracticaleffectofthisisthatAmazon.camayfinditmoreefficient(andwithinregulatoryprovisions)tofillCanadianconsumerordersoutofoneofitsUS-baseddistributioncentresasopposedtosourcinganitemfromaCanadiansupplier.
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3.4EFFECTSONORDERINGANDDISTRIBUTIONINCANADAThesebroadpatternsofnorth-southintegrationandtechnologicalchangehaveanumberofobservableeffectsonorderingbyretailandinstitutionalaccountsinCanada.ThechallengingissuesofscaleandefficiencythatweexploredearlierstillmeanthatformostCanadianaccounts,orderingfromCanadiansourcesremainsthepreferredandmosteffectivesupplyoption.However,itisalsoclearthatCanadianaccountsdonotalwaysobservetheexclusiveterritorialrightsofCanadiandistributors,andthereissomeindicationthatsourcingfromUSsuppliershasbeenontheincreaseoverthepastdecade.Itisequallyclear,however,thatatleastsomeproportionofthisUSsourcingisentirelysupportedandjustifiableinrelationtothelimitsonthedistributionrightsetoutintheBookImportationRegulations.Thispatternofcross-bordersourcinghasbeenfurthersupportedbyimprovedorderingandinventorysystemsinusethroughoutCanadathatallowforactiveandefficientpriceandservicecomparisonsbetweenCanadianandUSsuppliersonanISBN-by-ISBNbasis.WemightnoteaswellthattheincreasingintegrationoftheUSandCanadahasbeguntohaveoneotherobservableeffect–andonethatisalsofueledbytheincreasingautomationinorderingexhibitedbyverylargeretailaccountsinthebooktrade.WhileCanadiandistributorshavelongreliedonagentedlines,especiallythoseofUSpublishers,asanimportantrevenuestreamwithintheirCanadianoperations,thereisanincreasingcompetitivepressurefromlargemultinationalfirms,suchasPenguinRandomHouse,thatareactivelydistributingintheCanadianmarketviaUSdistributioncentres.ThoselargeplayersarenowcompetingforsomeagentedlinesinCanada,inpartonthebasisoftheirstrongermarketinfluenceandcompetitivepositioninrelationtodominantretailaccounts.4.0CONCLUDINGNOTEThereremainsastrongbusinesscaseforin-Canadadistributionandinsomeimportantrespectsthesupplychainismorestableandcompetitivetodaythanitwasadecadeago.Asthisoverviewsuggests,however,thebooksupplychaininCanadahaschangedconsiderablyoverthepastdecadeandmore,andparticularlysoasaresultoftechnologicalchangeandinrelationtosomeimportantstructuralshiftsinthemarketplace.Chiefamongthosearetheincreasingconcentrationofretailsaleswithinasmallnumberofkeyaccounts,andtheincreasingintegrationoftheUSandCanadiansupplychains.Lookingbackovertheseimportantdevelopment,wecanalsoacknowledgethatthesearethesamefactorsthatwillcontinuetoactonthestructureandshapeofthebooksupplychainoverthenexttenyears,andthatwillcontinuetotesttheregulatorycontext,tradingpractices,andcompetitivenessoftheCanadianbookindustrygoingforward.