Friday, July 24, 2009

Could the USPS Turn a jobless recovery into a job full recovery?

With the Dow climbing above 9,000, it appears that investors believe that the financial panic that began with the Lehman bankruptcy is over. Much of the recovery in stock prices reflect 2nd quarter earnings reports that are coming in higher than analysts projected. Unfortunately for the general economy, and in particular the consumer-driven segments of the economy that the drives the Postal Service's business, the improvement in company earnings come from aggressive efforts to cut costs, capacity and employment to match lower demand levels and not from growth in sales and revenue. Similar stories exist about how small businesses are surving by cutting capacity and employment.

For both large and small businesses to grow out their current depressed demand levels, they need to find ways to attract new customers at a time that new customers are harder to find. The challenge of finding new customers is exasperated as companies large and small have increasingly restricted sales and marketing budgets due to declines in business profits.

With restricted sales and marketing budgets, businesses are turning to new technologies that appear to offer a nearly cost free means of marketing services. Unfortunately, the internet has not proven particularly effective for businesses trying to find new customers or launch new products. The problem is even greater for small business who find that using electronic alternatives to media such as yellow pages and local newspapers may be cheap but their technical skills may not be sufficient to effectively use the internet and the internet has found it most challenging to successfully serve the advertising needs of small businesses with limited geographic reach Furthermore, firms that create on-line advertising opportunities often find small business too expensive to serve for the money they have to spend.

Mail could now make a difference for businesses seeking the new customers necessary to start growing again but only if mail can improve its value proposition. Improving the value proposition means more than just lowering the price of postage. It means simplifying the service and the process of buying the service so that more customers can use it Right now the products toffered by the Postal Service and the private sector mailing industry do not fully address the needs of small business in terms of product, price, service, or convenience. Therefore, even though mail is the best means for small businesses to find new customers very few small businesses take full advantage of mail to grow their business.

For mail to become a driver of small business growth, the Postal Service needs to rethink its whole process of pricing, accepting, and setting standards for the type of mail that would provide small business access to potential customers. The Postal Regulatory Commission may have to rethink the process for creating new products that would allow for a roll out of a product from one geographic market until it offered nationwide through an experimental proceeding and not requiring an evaluation of the experiment until the roll out is complete.

For purposes of illustration, a product targeting small businesses could be called "Flat Rate Business Mail," and would be designed for infrequent mailers that find the whole process of going from conception to delivery too expensive or too complicated.

What would the new product have to have to both improve the prospects of small business and attract volume for the Postal Service from customers that have not used mail before?
  • Mailers would pay a single price for a tray of mail (1/2 or whole would be options) regardless of how many pieces are in the tray.
  • The standards for this mail have to be simple enough that any retail clerk or letter carrier can tell that they are met.
  • The Postal Service will provide all packaging which would include a tray and sleeve.
  • The product would not require a permit. Instead, postage will be paid using the same technology for click and ship and label would be placed on the tray or a retail clerk could apply postage on the tray at any retail outlet. The postage label would tell the Postal Service where in the system it should first be sorted.
  • Mailers would have two addressing options. 1) Mail pieces could have a typewritten address that is machine readable.The evaluation of machine readability has to be something that can be done visually by a nearly untrained observer. Address quality will not be checked but customers would be provided information as to how they can improve their list quality and why it is important.
  • Mailpieces could have a printed intelligent barcode in the address area that designates a geographic area as defined by a set of 5, 9 or 11 digit barcodes with the barcode designed in such a way that a machine would know that one piece is to be delivered to every address in the geographic area.
  • The mail can be tendered to either letter carriers or retail clerks who will make sure that every thing is copacetic.
  • Once inside the Postal Service, the tray skips facing and canceling and goes directly to the appropriate automation operation in its originating plant or if the tray is to be first handled elsewhere it is cross-docked without sortation.
  • In the plant the mail will be handled without delay. The service will be sold would be with the expectation of sortation at the same time as all collection mail received by the originating plant.
The key here is simplicity. Just like the flat-rate Priority Mail boxes work for small businesses because they are simple, so would this. For each new customer, the product allows a small business to find, it would give that business growth where it had none.

The challenge would be implementation. Given the potential for both new revenue and the need to get everything right, it would probably have to be rolled out from one geographic market to the next. At each stage in the roll out the product would be tweaked to make it simpler and less expensive for the customer to produce and purchase, the training of postal employees modified and eventually standardized and the operating issues would be dealt with until the lowest cost method of handling the mail in the system while meeting service are determined.

Such a roll out would require cooperation from a cross-functional team within the Post Office that would include labor representatives with advice provided by potential and existing small-business mailers. Labor should be a willing participant in this process as the product's success would result in more jobs throughout the system and their input, particularly in the early stages would help management develop the new operating processes and training required for each subsequent stage in the product roll out.

Given the challenges now facing the economy, the potential that mail has to jump-start business activity, and the risks that declining volumes from existing customers has to postal labor, management and the taxpayers it is time for all parties to think creatively. It may be time for all members of the postal community in the United States to take the words of George Barnard Shaw to heart, "Some men see things as they are and say why, I see things that never were and say why not."

Tuesday, July 21, 2009

Reading for Postal Policy

I have been doing a bit of reading lately that people in the postal community may find both interesting and helpful in understanding the challenges ahead. The books and studies listed here all are easily accessible either for free on-line or from a number of used book stores. I have provided links to the appropriate websites for free items and Amazon for those that must be purchased. Other used book sites such as may provide better prices.

Books About The Transformation of the Bankrupt Railroads in the United States

Both of these books are very readable histories of the railroad industry in this period. Richard Sunders is a history professor at Clemson who is has written a number of books on railroad history. Rush Loving, Jr. is a journalist who has written about the demise of the Penn Central as well.

Main Lines: Rebirth of the North American Railroads 1970-2002 by Richard Sunders, Jr

The Men Who Loved Trains: The Story of Men Who Battled Greed to Save an Ailing Industry, Rush Loving Jr.

Strategies and the Post

Accenture has published a number of studies comparing the strategies of posts worldwide. These studies are generally well written and provides some helpful new information about what seems to work and what does not. The studies raise a number of questions about why a particular Post chose a particular strategy, the path that was taken that resulted in the current strategy, whether there is a path to a different strategy in the future, how political and capital constraints may have determined the strategies that were available to the Post's management at the time the study was written.

Achieving High Performance in the Postal Industry: Accenture Research, 2009

Achieving High Performance in the Postal Industry, Accenture Research, 2006

Now that I have started the dialogue on research for postal policy, it is now time for this blog's readers to spread their knowlege by adding additional books, studies, and articles in comments. I am particularly interested in the input of readers outside of the United States who can provide information on a number of topics where information is scarce. These topics include:
  • The role of politics in postal transformation. While most countries that have transformed their post offices are within a democracy, decision making in democracies do vary from country to country because of the relative power of the head of govenment and the individual legislators, the stability of governments during periods of postal transformation, the challenges the Post created for a government prior to transformation, and the competitiveness of elections for individual seats in a legislature or parliament among political parties ell as the importance of postal policy in competition.

  • The costs and challenges of transformation particularly at posts that had outdated delivery, processing, retail, communications or computer infrastructures.

  • The challenges of transforming the relationship with postal labor as posts m
    ove from labor rules, salary levels, and benefits offered to government employees to those negotiated with unions once a Post must develop its own pay and benefit packages.

  • How capital needs for covering the expenses of operating modernization affected postal policymaking and the decisions that individual posts have made regarding their operating and marketing strategies.

  • The opportunities for innovative labor-management initiatives to build volumes and revenue through work-rules and/or contracts designed to serve specific customers and/or postal submarkets.
Now it is your turn.

Thursday, July 16, 2009

Saving the 6th Day

The Federal Times recently reported that the Postal Service is now developing plans to reduce delivery to 5 days a week. To do so would require not just the implementation of these plans but also approval of Congress. Further reports from the National League of Postmasters and others indicate that the Postal Service's plan would have the switch to 5 days occur in Fiscal Year 2011.

The reduction of delivery days will clearly reduce postal costs although it is unclear whether it will be able to reduce the postal workforce fast enough to have the needed speedy cost relief given no-lay-off clauses in the Postal Service's union contracts. However it is not clear if eliminating the 6th day of delivery will save the Postal Service from increased competition and the economic downturn that has resulted in a cratering of mail volumes.

Therefore the question: "Can the 6th day be saved?" raises two additional questions.
  • Is eliminating the 6th day of delivery wise?

  • Are there alternatives?

The first question focuses on the issue of what service must the Postal Service offer to thrive. Looking at the service offered by Posts in the industrialized world provide little guidance as to what is required in today's competitive communications environment. Both 5-day and 6-day service offered in different countries and management of the individual Posts argue that the service that they offer is what their customers want.

Countries that have reduced their delivery frequency to 5-days per week, such as Canada Post, did so at time of significant financial crisis similar to what the Postal Service is now experiencing. The reduction in delivery days did allow Canada Post to shed costs quickly when its business was hemorrhaging cash. I do not know the impact on delivery volume but Canada Post made its decision over twenty years ago when competition from the internet did not exist and customers who adjusted only had to think about adjusting their mail production to the new delivery schedule and did not have the opportunity to consider electronic delivery as a means of replacing the mail.

At the same time, Posts with volumes far less than the Postal Service, as measured by pieces per recipient per day, are able to provide 6-day delivery and maintain levels of profitability that are sufficient to maintain the enterprise. There is no evidence yet that other Posts facing a similar increases in competition and the economic slowdown are contemplating reducing delivery frequency to deal with recession related reductions in profits or losses

Given the lack of guidance from other Posts, the question comes back to what does the Postal Service need to offer to compete. While the recipients of mail may not care if they receive 5-day or 6-day delivery, their opinion is less important here than that of the mail sender, for it is the sender that pays the bills. For the sender, the concern is how much does reducing the number of delivery days reduce the value of the mail and the return that they receive by using the mail. To the extent that reducing delivery days could slow bill payment or bill presentment , billers may increase the incentives they offer customers to pay bills electronically, accelerating the already rapid decline in bill payments through the mail and the nascent decline in mail delivered bills. For advertisers the question is simpler, "Does eliminating the 6th day reduce mail's return on investment to the point that sending mail is no longer worthwhile?

While the Postal Service's projections indicate that the cost savings will be greater than the loss in volumes, it is unclear if the projections on volume changes reflect the shock effect that a new delivery schedule would produce. The change to 5-day delivery will be a major news story in both the general and business press. Mail managers at companies that now send mail on a 6-day a week schedule or targeted for the delivery day being eliminated will be prodded by senior management to look at the viability of internet based delivery closely for not just the mail that would have been delivered on the day being eliminated but their entire mailing program.

The second question suggests that there are alternatives. Experience in other countries show that maintianing 6-days of delivery requires a cost structure that can support the service profitably. For the Postal Service, this would a restructuring of its costs to reflect the new reality of the value of mail and parcel delivery by its customers that reflects the ubiquity of internet access. While the Postal Service has done a much better job recently in reducing its costs and workforce in the past few years, the cost restructuring required to save the 6th day would require cooperation from both Congress and labor to make the cathartic changes in operations, operating network and labor-agreements.

The changes required are changes that all foreign postal administrations that both offer 6-days of delivery and are profitable have done. In addition, these are changes that all of the Postal Service's competitors in delivering parcels as well as the businesses that produce and prepare the mail that the Postal Service ultimately delivers have implemented to deal with today's challenging times. These changes include:
  • Implementing mail processing rationalization on an expedited schedule including consolidations that have already been rejected if significant cost savings exist;
  • Implementing retail rationalization on an expedited schedule;
  • Reducing non-union workforce to minimum required levels;
  • Reopening labor contracts with a focus on removing clauses that limit management flexibility including the use of part-time employees and the inability to lay-off employees at facilities experiencing improvements in efficiency and reductions in mail volumes;
  • Implementing wage freezes and if possible wage reductions of non-unionized employees;
  • Reopening labor contracts to implement wage freezes; and
  • Renegotiate and/or rebid all existing supplier contracts to reduce the prices paid for contracted service.
Clearly these are all unpleasant options and in all likelihood all would need to be implemented within a very short time period. Also, additional ones may be required to produce the required cost savings to save the 6th day. However, eliminating one day of delivery is also painful as it will reduce significant number of full time positions as well.

Before closing, two questions remain.
  • Is it possible that the 6th day would have been saved if the alternatives listed above had been implemented in less financially challenging times?

  • Is it possible that the current challenges are so great that both eliminating the 6th day and the alternatives listed above will be necessary to ensure the long-term viability of the Postal Service?