Cutting Management at UPS

In announcing its expected strong earnings in the fourth quarter of 2009, UPS also announced significant cuts in its management structure.  

"Effective in April, UPS will reduce its U.S. Regions from five to three and its U.S. Districts from 46 to 20. As part of the realignment, UPS will expand its outreach to customers by strengthening local sales and marketing efforts.  The restructuring will eliminate approximately 1,800 management and administrative positions across the country. Normal attrition will minimize some job displacements, and approximately 1,100 employees will be offered a voluntary separation package. In addition, other impacted employees will receive severance benefits and access to support programs based on length of service."  [Emphasis Added]  (UPS Press Release)

The cuts are severe and the highlights above illustrate that the cuts will are deep and most likely will have significant one time costs for UPS.   The following bullets recast the information contained in the press release to illustrate how significant UPS's actions are

• UPS is cutting its regional management by 40%.
• UPS is cutting its district management by 57%.  For example, the reductions in the number of districts will put the corridor from Philadelphia to Washington DC into a single district.
  
• The number of employees laid off will depend upon attrition and the number of employees taking voluntary separation packages.
• The cost of this action for UPS will likely be between $100 and 300 million depending upon the number of people who leave under normal attrition and the cost of transfers for managers that are retained.  UPS expects that the charge will be offset by cost savings initiatives in its domestic ground delivery business.
  

Dow Jones  quoted UPS spokesman Norman Black explanation of the cuts as follows: "We're talking about adopting a leaner management structure for the domestic business," [The latest cuts have] "nothing to do with the economic recession." 

Mr. Black's comment illustrates how competition in the US domestic market has forced UPS to make cuts in its management structure.  UPS has few options in consolidating terminals as its existing terminal network has been honed using optimization models for the past 25 years.    It will likely have some excess capacity in a number of terminals, particularly terminals in the industrial Midwest where declining populations and economic activity most likely generates lower package volume than the network in that region was designed to serve.    

The scale of UPS's actions suggests the seriousness that it takes cost cutting, and its need to remain cost competitive with domestic competitors.  The scale of UPS's actions also reflects how information technology has changed the need for hands-on management which was the hallmark of UPS's culture since its founding.  

The scale of UPS's actions should provide a hint as to the changes in management structure that should occur at the Postal Service if it is to become financially self sufficient.    If UPS can manage its business with 3 regions, could the Postal Service do the same?   Could the Postal Service manage its business with half the districts that it now has?  Does the Postal Service have the cash necessary to cut its management to the extent that UPS did?  Could the USPS tell its shareholders and customers that its network is sufficiently streamlined to meet service commitments at the lowest possible cost?   All of these questions need answering.  Given the projected losses, the answers are needed now.