Launched two and a half years ago, Simply Audiobooks (Toronto) has grown steadily from four to over 40 team members in Oakville, Ont., in Buffalo, N.Y., and in its newest operation in Las Vegas. Similar to the business model of Netflix (Los Gatos, Calif.), the company offers a subscription-based service allowing customers to borrow and return recorded books by mail without worrying about late fees.

“We’re in a position where our breadth of titles is very high and we’re on top of any new releases that come out,” says Steve Sorge, chief operating officer for Simply Audiobooks. The company has more than 6,500 different titles and 50,000 total audio books on CD. Two-thirds of this inventory is in circulation with customers at any one time. “Now the major challenge is ensuring that we have the right number of copies to support our customer base.”

The company added a distribution center in Las Vegas (1,500 sq. ft.) in March of 2005 to improve customer service. The U.S. Postal Service (USPS) could only guarantee 4 to 5 day shipments to West Coast customers from Buffalo, a location which company managers had chosen to serve customers in the eastern United States, and because it is only a 1.5-hour drive from its Canadian headquarters. The Las Vegas location makes it possible to deliver orders to a growing segment of customers in California in 1 to 2 days, without being located in that state.

“We just found the economics of Nevada a whole lot better for us,” says Sorge.

The order fulfillment process begins with each customer’s online queue. When books are returned, the logistics system--developed and updated in-house--compares the books that are available to the next one on customers’ priority lists, and automatically allocates them the highest available title. For $19.95 per month, users can “check out” two titles at one time, as many titles as they can listen to in a given month, and keep them for as long as they want.

In the distribution centers, Simply Audiobooks stores the audio books in filing cabinets specially designed for CDs. Employees process batches of returned books in the morning, opening the signature baby blue mailers, checking for damaged or missing disks or sleeves, and logging in each title. They set aside high demand titles to be picked and shipped out later that day. The remaining titles are returned to storage. Mailing out single DVDs is a piece of cake compared to mailing audio books.

“Most audio books are more than one CD. With that we have a packaging challenge and a cost challenge that Netflix doesn’t have to deal with,” he says. “We had to build a process that was flexible enough to handle one CD and 5 CDs at the same time in the most cost efficient manner. I think we’re on our eighth or ninth version of our mailer.”

To keep expenses under control, the company constantly updates its packaging to provide the best protection for the CDs at the lowest possible weight. It now uses sleeves made of Dupont’s Tyvek fiber with dividers to hold multiple CDs. It ships these in a light cardboard, resealable mailer that is about ½-inch thick. The box ensures that the postal service handles the audio books on its flat mail automation machines.

Shipment volume continues to grow every month. As an indication of this growth, the number of people handling audio book shipments in Buffalo--the 3,000 sq.-ft. operation is actually managed by Netex, a third-party logistics provider--has grown from 1 to 10 people during the busy season. To gauge performance, managers track average cost to ship, shipments per month and impairment rate. They’re constantly working to improve the fulfillment process.

“We need to make sure we deliver the product at a price within our economics of our model. Between the postage costs, the labor costs and the packaging costs, we’re always looking at what’s most effective for our business,” says Sorge.