Supplier risk management

Joanne Rivers, Adelaide Institute of TAFE

Risk management in libraries, what is it? We tend to think of risk management as disaster management, what to do in case of fire, flood or earthquake! And so does most of the literature. But the reality is that it is the day-to-day disasters that we most need to deal with, those situations that need to be sorted out immediately, so staff can continue working and patrons are being served.

What is risk management?
The CCH Macquarie dictionary of business says:

'Risk management : the identification and control of those risks which threaten the profitability or viability of an organisation. It embraces all areas of an organisation because every decision made entails some degree of risk, be it financial, physical or operational.

Risk management involves identifying, assessing and quantifying the degree of risk associated with identified hazards, designing viable programs to limit exposure to the hazards (risk avoidance), accepting certain levels of risk and adopting funding techniques to protect the financial position of the organisation from risks above the accepted levels (risk acceptance) and monitoring, maintaining and adjusting the risk management programs as required.'

So what do you do when the books aren't on the shelf? In any library situation it can be hell fielding the enquiries from the principal lecturer in human resource management or the professor of chemistry or even the president of your friends of the library when their requested edition of HRM in Australia, Biochemistry in the 21st century or the latest Bryce Courtney hasn't made it to the shelves! Our patrons rely on us to provide their information needs on a very regular basis. And isn't it even worse when you know where it should be, you have done all the right things to make sure its arrived, but it hasn't.

This is what happened to Adelaide TAFE LRC when a local supplier went out of business. Textbooks weren't supplied. We knew the orders had been placed. We knew when they should have arrived. We chased the suppliers but ultimately the books were not on the shelf!

The following is what happened...

History
The Bookshop had been an excellent supplier of textbooks for Adelaide Institute of TAFE for a number of years. Its proximity to AIT allowed staff and students easy access to a supplier and generally stocks were available or The Bookshop would quickly get stock in. They offered a discount 15 per cent, not something to be taken lightly!

Sales staff would visit all of the lecturing staff at AIT and help with determining the textbooks and recommended reading for the semester. They would then print The reading list, a leaflet which gave the ISBN, title, author and price of all subjects taught by the workgroup in that semester. The leaflet would be distributed by the workgroup to the students so everyone would know what books needed to be bought.

Of course this allowed The Bookshop to know approximately how many students had registered for the course and could place orders with the publishers, getting a great discount and have stock in time for the beginning of the semester. This arrangement worked very well for AIT and The Bookshop. Generally students could have their textbooks close to classes commencing. The Bookshop knew around about how many sales to expect and when they could expect payment to go to the publishers. Their store was located just across the road from AIT, which proved a great bonus for both staff and students.

The LRC benefited from this system as well. Traditionally at AIT the LRC staff do find it hard to get information from lecturing staff regarding the materials that are being used for the semester, so the work done by The Bookshop proved to be very helpful for us as well. We did have to place orders separately for library stock, but at least we knew what the students needed!

The collapse
Things started going wrong mid 2000. Orders weren't being filled, staff were not returning calls and the messages started sounding the same, '...I'll check with the publisher', or 'she's in a meeting...'. We heard differing stories from publishers and other suppliers, rumours started going through the institute about them going out of business. Still we didn't get a straight answer from The Bookshop. It seemed as though it was business as usual. 'Just wait until the end of the month...', or 'don't worry, things are being worked out'.

When textbooks and recommended reading titles were not being supplied and we didn't get a reasonable answer from The Bookshop it was time for action. A list of unfilled orders was raised and this list was given to the LRC manager and the suggestion that orders be placed elsewhere. Unfortunately this action didn't help either, as a decision was made to wait until 'things were sorted' with The Bookshop before any action was taken. Poor risk management!

What happened next?
The Bookshop finally came clean and told us they were going out of business, and let us know which orders could not be delivered. Those orders that were not filled (which was the majority of items placed on order) needed to be ordered from another supplier. Many were placed with another supplier, who has provided reliable service for many years and material started arriving. Another Adelaide bookshop approached AIT to replace the service The Bookshop was providing and a deal was made. Unfortunately they were not prepared for the volume of orders and many orders were misplaced and their delivery was irregular. However as we had the systems in place to deal with these issues, we knew what was outstanding, when they were ordered and things slowly have evolved into a reasonable service.

Without knowing that it was risk management we had already established some controls to manage risks. Reports are generated every couple of months to identify overdue orders and are then followed through with the supplier.

We also used a number of suppliers, so orders were spread over a number of companies. This strategy is called diversification.

The LRC was not taking an immediate financial risk, however we did risk not being able to supply material that was expected to be available, and this then creates an image of not being able to provide the services that should be available. This can have a devastating effect on a body which does not bring any profit into an organisation who prides itself on being able to provide a good service. Not spending an allocated budget also reflects badly on next years budget and also on your skills in managing that budget.

So therefore risk management is not just about floods, its about being able to supply a service so our stakeholders continue to support our services. Libraries depend on supporting those who support us. When a library cannot provide the service soon we will not be able to provide a salary to pay off our mortgage!

Risk management is about giving yourself options. We need to be able to identify where the risk lies, and design a program to reduce the risk. For Adelaide TAFE LRC, and for most other libraries I would imagine, this really is fairly straight forward. Be prepared!

The risk - suppliers not being able to supply
The program - know what and when an item should arrive and contact the supplier within a reasonable time-frame to track the item.

Make sure the supplier can supply - this means even though a book may be on their list, confirm that the book is still available. Most suppliers are happy to provide this information. They do believe that it part of the service.
Determine a delivery date - let them know if an item is needed urgently, they usually add an extra charge, but sometimes it's worth the extra cost.
If it hasn't arrived when promised, contact the supplier, find out the problems and get them solved.

Suppliers - how to treat them

Don't use a single supplier, spread your budget across a few suppliers.
Try new companies, ask around and find out who other libraries use.
Be prepared to be tough.
Don't give repeat custom to unreliable suppliers.
Talk to your suppliers and let them know what you want.

Acquisitions department - what can you do

Be prepared, have information easily accessible in reports, charts.
Don't leave things until that have become a disaster, be proactive in contacting the suppliers.

So when your lecturers, or professor or friends of the library president asks where their book is you will know why its not on where it should be and have done everything within your control, floods notwithstanding, to ensure its on the shelf!

Reference:

CCH Macquarie dictionary of business. North Ryde, NSW, CCH Australia, 1993

This paper was delivered at the Acquisitions SA Seminar 'Acquisitions - the new age' held in Adelaide, 1 November 2002.

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