Daily Archives: February 23, 2012

Too Bad the US Post Office Did Not Follow Royal Mail’s Lead

The US Post Office is in dire straits. So dire that, as per the transcript of this PBS.org Newsmaker Interview from December 5, 2011, on how the U.S. Postal Service Faces Big Changes Amid [its] Struggle to Deliver on Profitability, the post office is planning to shutter almost half of the nation’s mail processing centres next spring. Given that it is currently 15 Billion in debt and owes about 5 Billion for retiree health benefits, it needs to save 20 Billion fast and it’s solution is a significant restructuring that it hopes will allow it to save 2 Billion next year and 20 Billion by 2015.

This is pretty drastic, and we’ll talk more about it in a bit, but it’s also surprising given that it’s counterpart across the pond, Royal Mail, at the same time, was discussing the results of its first major Procurement Transformation in Special Delivery, which ended in 2009 and saved 300 Million pounds. This was followed by a cost management program that doubled the savings number about a year later, which led into a second major transformation project, currently underway, where Royal Mail expects to save significant dollars yet again. 600 Million pounds, or roughly 1 Billion dollars, is very significant when you consider that the Procurement organization only influences about 1.7 Billion pounds of spend out of the 2.3 Billion pounds spend by Royal Mail. That means that, in roughly a 4 year period, as the transformation initiative was only announced in 2006, the organization averaged about a 9% savings a year in the public sector where it is under tight public procurement law, compliance, and regulatory demands. When you think about it, this is an absolutely amazing result.

In contrast, the U.S. Postal service is projecting a 14 Billion loss this year if it does not get legislative relief. 14 Billion! (Note that last year’s budget gave them 11 Billion legislative relief! Source: Red Dog Report And that this year’s budget is recommending another 11 Billion in relief. Source: Washington Post) And this is the tip of the 238 Billion budget deficit it is predicting over the next decade if it doesn’t cut costs. (Source: United Liberty) Given that it’s annual budget is about 68 Billion, based on expected Revenue for 2011, this represents a 20% loss! While Royal Mail was saving 9%, the US Post office was losing 16%, on track to lose 20% this year (and, based upon the projection of a 238 Billion deficit if nothing is done in 10 years, probably 30% plus in a few years).

Now, it’s tough when you have to deal with a drop in regular first class mail that amounts to 27% when compared with volume levels 10 years ago, especially when that is your primary source of revenue, but this drop was visible years ago, and efforts to reduce costs could have been underway years ago. The network should have been optimized 6 years ago, re-evaluated, and then optimized again last year. And, like Royal Mail, which was also dealing with increased competition and revenues declining at 5% a year for similar reasons, it should have focussed on vehicles and operations, business services, facilities management and property, IT and telecoms, and sourcing and demand management to do what it could to keep costs in line as much as possible year over year. Since network reorganizations of the type that the U.S. Post office has to undertake can take years, some losses were unavoidable, but this blogger finds it hard to believe that 14 Billion in losses were unavoidable. And, like Royal Mail, it should be making a hugh effort in Supplier Performance Management to help suppliers keep their costs down.

However, the most fascinating fact that is overlooked in all the news reports is the lack of focus on Supply Management. Back in 2007, the U.S. Postal Service licensed CombineNet’s advanced sourcing platform. While for years this platform, in the doctor‘s view, had usability issues in that self-service just wasn’t an option for most organizations, as per SI’s extensive coverage on CombineNet back in 2006/2007, when they were undergoing their first major transformation of the decade, this was one of the most powerful strategic sourcing decision optimization platforms on the planet. If the U.S. Post Office was properly applying this platform, the doctor believes they should have been saving money hand-over fist. After all, Royal Mail used Iasta, which only introduced its advanced sourcing platform in the 2007 timeframe, about 7 years after CombineNet, and saved big-time. (Note that this is not a knock against Iasta, as the platform they introduced was rock solid, but an attempt to make a point that the platform CombineNet had was seasoned and powerful enough to do what the U.S. Post Office needed it to do, including re-optimizing the entire U.S. Post Office service network.)

Supply Management can save just about any organization, but the organization has to be willing to use Supply Management, and the tools and techniques Supply Management brings to the table, and used Supply Management aggressively if the organization is serious about staying above water.