From jhelmer@darkwing.uoregon.edu Fri Jul 10 13:30:32 1998
Date: Fri, 10 Jul 1998 12:39:05 -0700 (PDT)
To: Library Courier Service courier@lists.uoregon.edu
Subject: courier: Pricing for courier service under the Orbis contract

Courier contacts,

I'd like to seek your feedback on three courier pricing models and also announce a timeline for signing on to the Orbis courier contract.

As previously announced, Orbis plans to start courier service under the new contract beginning on August 1, 1998 with a first-year contract ending June 30, 1999. The timeline for signing up is as follows:

July 10-15 Discussion about appropriate price formulae, etc. on the courier list
July 17 Announcement of final terms for Orbis courier services
July 17-24 Open period to join the Orbis Courier contract
August 1 Service under the new contract begins
August 11 Participating libraries are billed for 11 months of courier service (August 1, 1998 - June 30, 1999)

As you may recall, Orbis will administer this service as a membership organization. Participating dropsites will sign a membership agreement with Orbis and be billed annually for courier service. Orbis will also make every effort to make it possible to add participants in the middle of the contract period.

As many of you will recall, one of the aims in going out to bid for a contract administered by Orbis is to make it possible for participating libraries to determine how costs are apportioned. Participating libraries have expressed a strong desire to be able to set their own pricing structure rather than simply accept the vendor's formula.

In the past few months I have received quite a bit of feedback about pricing. As you might expect there are many contradictory ideas concerning what constitutes a fair formula. Although in subsequent years Orbis expects that participating libraries w ill determine the appropriate formula, this first year poses a problem because we have very little time and do not know who will actually be participating in the contract. As with the rest of the courier RFP process we are asking that libraries and indiv iduals express their opinions and we will make every effort to take those opinions into account in deciding on the first-year pricing structure. As indicated in the timeline above, we expect to announce a final price on July 17 and then seek participants under the Orbis contract.

Below I have listed some of the pricing goals that have been communicated to me or discussed within Orbis. You may notice that some are contradictory.

• pricing should be easy to administer. It is in the best interest of all concerned if we can keep overhead low.
• continual measurement of volume (number or items, weight) should not be a requirement. Again, it is in our interest to keep down overhead costs.
• Orbis should be able to add or drop participants without recalculating fees
• high-volume users should pay more
• net-lenders (who are often high-volume users) should not be penalized for their willingness to share resources
• different types of libraries should pay at different rates (e.g., public libraries less, academics more)
• a flat rate should be preserved (status quo among most or all Oregon libraries)
• drop-sites serving a large number of forwarding sites should not be unduly penalized
• there should be an economic advantage to clustering. In other words, it should cost more to be a separate dropsite than it does to be part of a group using an internal shuttle system
• price should be dependent on how the courier service is used. (e.g., one price for traditional ILL, another for those with consortial resource-sharing systems)

Models for Apportioning Price
=============================
Below find three models that seem likely to form the basis of cost apportionment under the Orbis contract. None meet all of the goals listed above.

A) Flat Fee

Under this model, all dropsites pay the same fee. The fee would be calculated as follows

  (vendor costs) + ( administrative overhead)
  ------------------------------------------- = fee per dropsite
            number of dropsites

B) Fee Based on Vendor Formula

Under this formula we would accept the vendor's bid price and divide administrative costs as a flat fee.
You may recall that the bid price is as follows:

Thus the fee paid by a dropsite would be

                      administrative overhead
 Tier I or II price + -----------------------
                        number of dropsites

C) Weighted Distribution

Another model would determine price based on 4 components:

• type and size of all participating libraries (including forwarding sites)
• type of service (traditional ILL vs. resource sharing systems)
• extent of clustering vs. individual drop-site service
• administrative fee

This model is somewhat complex but, once some initial data gathering is completed, plugging the data into an appropriate formula is straight forward. It is important to note that the impact of Model C is dependent upon the selection of multipliers for library type and service level as well as a determination of the split between flat and weighted costs.

Finally, it is worth noting that a simplified version of model C could be employed by eliminating the service level multiplier or division between flat and weighted costs.

SPECIFIC EXAMPLE
----------------
An example of how these models distribute costs can be found linked through the Orbis courier Web site:

http://libweb.uoregon.edu/orbis/courier/

Please be aware that this is only an illustration. Final costs are dependent on the determination of administrative fee, multipliers, verification of FTE, etc.

Orbis is prepared to administer service starting August 1 but we would appreciate your advice on the best way to approach cost apportionment. Please use the courier list to post your reactions to the models presented here or suggest another model. Since Model C requires the determination of various weighting factors or multipliers, if you think this model has any merit you might suggest appropriate numerical values to plug into the formula.

Thank you for your patience and willingness to help develop a new approach to courier service.

-- John F. Helmer
Orbis & UO