In our last post on the US Post Office, we asked will Darrell Issa save the US Post Office. Given that the US Post Offices need to identify immediate savings of almost 20 Billion plus (as it keeps bleeding red with losses of 15.9 Billion in 2012 and 3.2 Billion in the first two quarters of 2013), something needs to be done fast.

In response to this need, as chronicled in our last post, we noted how Darrell Issa, a Representative of California and chairman of the US House Oversight and Government Reform, signed off on H.R. 2748, the Postal Reform Act of 2013, designed to bring the United States Postal Service (USPS) to financial solvency with cost-cutting reforms and innovative new sources of revenue. While the plan had a couple of good points, SI’s conclusion was that it was not going to be enough to generate the savings required.

Not that Royal Mail is in much better shape. As per an article in the Economist last summer, chronicled in this SI post that asked who’s in worse shape, Royal Mail racked up a £s;10 Billion deficit in unfunded pension liabilities. They may have saved over 300 Million in the first phase of their Procurement Transformation, and may expect to save over 600 Million in the second phase of their Procurement Transformation, but that’s a far cry from the 10 Billion they need to save.

However, as per this recent article over on CNN Money on how
“U.K.’s Royal Mail Goes Public” (Sep 12, 2013), the British Government is planning to sell a majority of its take in the Royal Mail through an IPO (initial public offering) that will be one of the U.K.’s largest in decades. The sale will certainly help, but given that the postal service IPO is likely to be valued around £s;3 Billion, that’s less than 1/3 of the shortfall and not a quick fix.

Still, it might indicate the only solution for the U.S. Postal Service that is now losing an estimated 25 Million daily. Specifically, the US should consider selling the US Post Office to a private equity group that can do what private equity groups do – turn struggling businesses with a lot of profit potential around into profit making machines. There are arguments both ways on this topic, some of which are summarized in this Research Roundup, but given that the USPS did 65 Billion in Revenue in 2012, the potential valuation could easily be in the 200 Billion range, and any group that could raise that kind of equity could definitely afford to make up the unfunded liabilities. It’s an interesting thought.

Everyone thinks the Department of Homeland Security (established by the Homeland Security Act by Congress in November 2002), which opened its doors on March 1, 2003, was the beginning of the U.S. focus on homeland security, but nothing can be further from the truth. The U.S. focus on Homeland security started on this day in 1789 when the U.S. Department of Foreign Affairs changed its name to the Department of State. The inward focus has continued and progressed since that day while the rest of the world still deals with foreign affairs.

It’s a simple question. Have you?

I’ll give you 5:1 odds that you’re not. Why? It’s hard to know what the right stuff is, and, these days, there seems to be an overwhelming focus on quantity, and not quality, and savings, and not value.

For example, if we’re talking about e-Procurement, many organizations measure the number or percentage of invoices processed through the system. (As many of the “leading” analyst firms report that as a good measure.) Sounds good, but since the 80/20 rule is just as applicable here as anywhere else, the reality is that 20% of your invoices take up 80% of your time (due to number of line items, number of amounts that need to be checked, number of errors that need to be fixed, etc.) and 20% of your invoices represent 80% of your spend. If those invoices are not being put through the system, then it hasn’t really reduced your processing costs all that much as the most significant cost associated with PO processing is the cost of the personnel doing the processing. What you need to be measuring is the % reduction in human interaction time. If a new system only reduces human involvement by 20%, it’s not working. Sorry.

If you’re measuring year-over-year savings, you’re not measuring the right thing. If your price went down 10%, but the market price of the raw materials dropped 20%, did you do a good job? No. And if your price went up 5% while market indices went up 15%, you did a bang-up job. You have to measure performance against market average, otherwise, you don’t know how good you’re really doing.

And if we’re talking about Sourcing, if you’re measuring the percentage of spend strategically sourced, you’re definitely not measuring the right thing. While it’s true that an organization will not have the resources to strategically source 100% of spend, and that 100% of spend should not be strategically sourced, there is a percentage of spend that needs to be strategically sourced, and a percentage of that which needs to be sourced while the market opportunity is good. You need to determine, with good spend analysis, what that percentage is and make sure you get to that spend – not just the next ten categories on the high volume spend list. The near-decade of near-zero inflation is over. We’re back to inflationary times, and we will probably stay there for the rest of this decade. It’s time to measure what is costing you, and focus on optimizing that.