The publisher can upload the source to Paperight, specify which countries they want to sell in, and how much they want. Paperight can then distribute the file to participation print shops, collect the royalties, and pay the publisher.
I find this particularly fascinating because of the many complaints I've heard about the major POD suppliers. I've lost count of the number of times I've seen proof copies described as cheap looking, amateurish, or frankly crap. A local print shop might not do better, but I don't see how it could do worse. At the very least the feedback loop will be shorter; looking someone in the eye and telling them they did a crappy job can be an effective motivator.
Does anyone know of an existing system like this? I don't know of one.