FLAT OR FLOAT? A STUDY OF VENDOR DISCOUNTRATES APPLIED TO FIRM ORDERS IN A

COLLEGE LIBRARY

HUI-MIN KUO

Technical Services Librarian

Nancy Thompson Library

Kean College of New Jersey

Union, NJ 07083

Internet: hkuo@turbo.kean.edu

Abstract—Library book vendors generally provide two types of discount rates toinstitutions for firm orders: flat—fixed rate for all books, and float—book-by-bookdiscount. A perplexing question for acquisitions departments is which discount scale isbetter. This article summarizes a study conducted in a medium-sized, public, collegelibrary for the purpose of ascertaining if there is a difference in savings between thetwo schedules. The results indicate that, at Kean College, float rate (0%–33.3%) gainsslightly more savings (0.7% of $35,795.84) than flat rate (12%) based on 870 bookorders distributed between university presses (38.4%) and nonuniversity presses(61.6%). However, if the flat rate is 13% or higher, for the same distribution, the flatdiscount is considered monetarily more advantageous. These findings suggest optionsand flexibility for acquisitions personnel in obtaining the most cost-effective arrange-ment for the institution. © 1998 Elsevier Science Ltd

Keywords—Acquisitions, Book prices, Book vendors, College libraries, Discountrates, Firm orders

INTRODUCTION

In recent years, universal economic trends have impacted public-funded libraries with contin-uous budget constraints and personnel downsizing. In a medium-sized college setting, the librarystaff at the Kean College of New Jersey has worked to optimize day-to-day operations with limitedhuman and monetary resources. As part of team efforts, the Acquisitions Department has appliedtechnology to streamline workflow, resulting in closer working relationships with book vendors toconsolidate firm orders as effectively as possible. Phelps states that “using a vendor to purchasebooks has advantages of gaining greater efficiency in time and labor consumption than dealing with

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Library Acquisitions: Practice & Theory, Vol. 22, No. 4, pp. 409–414, 1998Copyright © 1998 Elsevier Science LtdPrinted in the USA. All rights reserved

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publishers directly” [1]. Kean has maximized these advantages by working directly with vendors,except for expensive reference sets or titles not handled by jobbers.

Library book vendors commonly offer either a “sliding-scale discount (wherein the library’sdiscount is determined by the individual publisher’s discount) or a flat discount (wherein thediscount for each title is the same irrespective for the publisher’s discount),” as described by Smith[2]. To compare these two methods in general, Nagel comments that “for libraries the sliding-scalediscounting method provides flexibility, optimal title-by-title discount, and greater fulfillmentrates.” Flat discount rate provides the advantages of simplicity and predictability in processingorders. Nonetheless, “the disadvantage of flat discounting is that vendor loses incentive to fillorders for high-priced, nondiscounted titles” [3]. It is up to the individual library to determinewhich arrangement is the best.

The vendors Kean has worked with provide both discount schedules. Since materials budgetshave become so tight, the Acquisitions Department has been confronted with critical questions: Isthere a significant difference in savings between the two discount rates? How should book ordersbe processed with effectiveness between the two scales? Should both discount rates be utilizedsimultaneously? To ascertain answers to the above questions within a rational context, a study wasneeded, not only for clarifying uncertainties, but also for making rational decisions.

Although this study focuses on cost analysis, Kean still concurrs with Lynden’s comments that“the service from a book dealer is much more significant than any discount one might obtain, paymore attention to the services. If you don’t get service, your discount is not worth very much” [4].Fortunately for this study, services were not an issue because the services received from both ofvendors are of the highest caliber. They both provide online ordering, prompt delivery, regularstatus reports, easy-to-process invoices, and timely customer service. Since their services areequally satisfactory, the question concerning which rate offers better savings is a major concern.Kflu’s survey indicates that “libraries with tight budgets tend to look more for high-discount-offering vendors” [5]. Kean is no exception. Moreover, the Acquisitions Department wants toassure the discount is truly beneficial, and is able to negotiate with practical and realisticconsiderations for future agreements.

METHODOLOGY

This study was conducted from September 1996 to September 1997. Book orders weregenerated from faculty members’ requests as well as librarians’ selections from book reviews foundin professional sources. Book requests covered a full range of disciplines in undergraduate studiesfor both reference and circulating collections. All titles were domestic. Orders were first verifiedin Books in Print, and then sent to vendor A without pre-sorting or pre-determination as to howvarious discounts might apply to each title. Vendor A offered sliding discounts based on categoriesof publishers with no shipping charges, e.g., 16% on university press titles, 0% to 33.3% on otheracademically-oriented publications from non-university presses. For comparison, vendor B, whooffered a flat 12% discount on all publishers and no shipping charges, was used to calculate thedifference in savings between float and flat rates. Both vendors, A and B, rendered equally goodquality control in speed of delivery, fulfillment rate, and customer support. A total of 870 bookorders were filled and invoiced applying sliding discount rates, 0% to 33.3%, by vendor A. Everyitem listed on the invoices was carefully examined and calculated to demonstrate the followingresults.

410 H.-M. Kuo

RESULTS AND DISCUSSION

Table 1 shows the number of orders supplied by vendor A by various discount rates and thepercentage of total orders represented for each discount rate. Secor presents a detailed listing of“types of discount” supplemented by discount scale for each type [6]. Summarized by the sameconcept and from vendor A’s invoices, the description of float rates offered to Kean are outlinedbelow:

0% Applies to reference publishers, not-for-profit publishers, societies, e.g., CRC, ABC-CLIO, Congressional Quarterly, National Learning Co.

5% Applies to associations, scientific and scholarly publishers, small presses, e.g., Amer-ican Psychological Association, Greenwood, Lawrence Erlbaum.

10% Applies to scholarly, technical and professional publishers, e.g., Butterworth-Heinemann, Ivan R. Dee, Jossey-Bass.

16% Applies to university presses, e.g., Princeton University Press, State University of NewYork-Albany, University Press of Kentucky.

33.3% Applies to trade and general interests publishers, e.g., Random House, Basic Books,Henry Holt & Co.

Table 1 reveals that Kean’s acquisitions from September 1996 to September 1997 were distributedamong reference, scholarly (8.3%, 18.3% and 20.7%) and trade (14.3%) publishers with a strongfocus on university presses (38.4%).

According to Stebelman’s study, the publisher breakdown of 7,262 titles reviewed inChoiceisseparated by two groups: “university presses, 42 percent; non-university presses, 58 percent.”BecauseChoice“is probably the best single source an academic library can use in monitoring itsacquisition program” [7], Table 2 shows a ratio of university press to non-university press(38.4:61.6) for Kean’s acquisitions following the same division. Interestingly, the distribution ratio

TABLE 1Distribution of Book Orders by Float Discount Rates (Total Orders5 870)

Discount rate 0% 5% 10% 16% 33.3%

Number of orders 72 159 180 334 125Percentage of total orders 8.3 18.3 20.7 38.4 14.3

TABLE 2Distribution of Book Orders by Publisher Groups (Total Orders5 870)

Publisher group University press Non-university press

Discount rate 16% 0%, 5%, 10% & 33.3%Number of orders 334 536Percentage of total orders 38.4 61.6

411A Study of Vendor Discount Rates

of Kean’s 870 titles is quite similiar to that of Stebelman’s larger-scale study of 7,262 titles withonly a slightly higher percentage of non-university press publications (61.6% vs. 58%).

As mentioned, the range of discount rates offered to nonuniversity presses by vendor A is from0% to 33.3%. An interesting question is raised—what is the average discount rate of thisnon-university press group? Table 3 indicates that the savings achieved by various scales for non-university press publications is $2,319.91. Dividing this figure by the list price of $21,973.84 gives a10.6% average rate of sliding discounts based on Kean’s distribution of non-university press orders.

To compare the savings gained by the two discount rates, Table 4 shows the total expendituresof 870 book orders based on list price, float discounting and flat discounting scales.

Although 870 books are ordered from vendor A (float discount rate) with an actual expenditureof $31,264.41, a comparison is made with vendor B (flat discount rate) to see if there is a significantdifference in savings. If the 870 books were purchased from vendor B, at a flat discount rate of12%, the library would have been invoiced for $31,500.34. The difference in savings betweenvendor A ($4531.43) and vendor B ($4,295.50) is $235.93. The savings is considered marginal forthe total list price of $35,795.84 between the two discount rates. Float discount rate gains $235.93more in savings, and represents a 12.7% average rate. As a result, 0.7% is the overall differenceof savings between float and flat discounting methods based on Kean’s 870 orders at the publisherdistribution ratio of 38.4 to 61.6, university press to non-university press.

This finding confirms a hypothesis made by Boissonnas, “book sellers negotiate different termswith different libraries, but it doesn’t much affect what the libraries pay” [8]. Consequently,acquisitions personnel need to assess the broad spectrum of orders, to understand the coverage andscope of orders, and to determine what is the primary type of publisher they purchase from. Withthe aforementioned information, libraries would be better prepared to negotiate the most advan-tageous pricing structure to meet their demands. It appears, for example, that the float discount rate

TABLE 3Comparision of Average Discount Rates by Publisher Groups (Total Orders5 870)

Publisher group University press Non-university press

Number of orders 334 536List price $13,822.00 $21,973.84Savings $ 2,211.52 $ 2,319.91Average discount rate 16% 10.6%

TABLE 4Comparison of Total Expenditures Using Float and Flat Discount Rates (Total Orders5 870)

Totalexpenditure Savings

Averagediscount rate

List price $35,795.84Cost of vendor A (float discount) $31,264.41 $4,531.43 12.7%Cost of vendor B (flat discount) $31,500.34 $4,295.50 12%Difference in savings between vendor A & B $ 235.93 0.7%

412 H.-M. Kuo

provides for more savings if the acquisitions staff can sort and distribute orders by categories ofdiscounts. As a result, the library could send higher discounts orders to the float-rate jobber andlower discounts orders to the flat-rate jobber. However, such sorting might be time-consuming andrequire extensive knowledge of publication types. Vendors may not accept this kind of practice,and may not be able to offer significant discounts if the mix of orders is not adequate. If sortingorders is not practical, it may be beneficial for a college library to negotiate a better flat discountrate. This study indicates that float rate generates an average discount rate of 12.7% for Kean’s 870orders when the distribution ratio of university press to non-university press is 38.4 to 61.6.Therefore, any flat discount rate higher than 13% with no extra charges, at the same publisherdistribution ratio of 38.4 to 61.6, could be a good starting place based on this study.

As always, monitoring a vendor’s performance is the most important and crucial element inhandling acquisitions procedures. It is also essential that close attention be given to vendors’invoices to ensure discounts and other charges are applied as agreed. Maintaining working andfriendly relationships with vendors provides opportunities for institutions to express needs and tomake constructive suggestions without delay. Additionally, the library should regularly request thevendor’s latest discount rate offerings. Often vendors do adjust discount rates to be more compet-itive and attractive to customers. Finally, libraries must be alert to publishers’ special discounts,especially for reference books. It is time well spent in working directly with sales representativesto obtain better deals and faster delivery.

CONCLUSION

In conclusion, when Kean purchases books at the publisher distribution ratio of 38.4 to 61.6(university press to non-university press), the float discounting method gains marginal savings of$235.93 compared to the 12% flat discount rate. It represents 0.7% of the total list price of$35,795.84. On the other hand, because the average discount rate of floating method is 12.7%, itappears that Kean should consider utilizing the flat discounting method when a vendor offers a flatrate higher than 13% for the same distribution of orders. Since the savings gained from either flator float discount schedules is not significantly different, it underscores the expectation that bookvendors do maintain parallel levels of profit-making. Therefore, it is incumbent upon libraries,especially acquisitions departments, to understand the business of purchasing materials. Keepingup with literature, communicating with colleagues for new developments and trends, and beingknowledgeable about vendors’ business conditions are powerful resources. Most importantly, theacquisitions personnel have to be flexible, honest and sincere in dealing with vendors.

ACKNOWLEDGMENTS

The author thanks Barbara Simpson-Darden, Director of Library Services, Kean College of NewJersey for her support for this research and valuable editorial assistance; and Jean Sheviak, SystemsLibrarian, Union College, for her significant suggestions and comments.

REFERENCES

1. Phelps, Doug. “Publishers’ Discounts—But at What Price?”Library Acquisitions: Practice & Theory, 14 (1990),289–93.

413A Study of Vendor Discount Rates

2. Smith, Scott A. “The Cost of Service: Understanding the Business of Vendors,”Understanding the Business of LibraryAcquisitions,ed. Karen A. Schmidt. Chicago: American Library Association, 1990, pp. 95–103.

3. Thomson, Mary Beth, and German, Lisa. “ALCTS Acquisitions Librarians/vendors of Library Materials DiscussionGroup,” Library Acquisitions: Practice & Theory, 18 (1994), 313–16.

4. Lynden, Frederick C. “Prices and Discounts,”Library Acquisitions: Practice & Theory, 12 (1988), 255–58.5. Kflu, Tesfai. “Vendor Performance Evaluation: Numeric Formula,”Library Acquisitions: Practice & Theory, 14 (1990),

307–12.6. Secor, John R. “Ignorance Is Bliss,”Library Acquisitions: Practice & Theory, 15 (1991), 379–83.7. Stebelman, Scott. “UsingChoiceas a Collection Assessment Tool,,”Collection Building, 15 (1996), 4–11.8. Boissonnas, Christian M. “When We Buy Books, We Know What We Pay For—Or Do We?”Library Acquisitions:

Practice & Theory, 13 (1989), 87–101.

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