Wednesday, February 10, 2010

Reworking the Postal Service's Thinking on Future Business Models

Last fall the Postal Service presented its approach to future business models in the paper: Assessment of United States Postal Service Future Business Models.  The Postal Service's approach was presented by Vice President of Strategic Planning Linda Kingsley and General Counsel Many Anne Gibbons at the Rutgers Conference in DC held last fall in a talk entitled A New Business Model for the United States Postal Service.

The Postal Service's approach retained the current governmental enterprise features of the Postal Service.   They wanted certain changes to improve their viability that have been repeated by Postal management multiple times.
  1. Adjust the retiree health care payment schedule
  2. Eliminate the 6-day per week delivery requirement
  3. Remove non-business reasons for stopping rationalizing the sortation network and modernizing the retail network
  4. Introduce market-based pricing for all customers
  5. Remove limitations on product diversification
  6. Remove the Postal Service from budget scoring
Given the political opposition to most of these changes, they appear to be pipe dreams. Given the new found concern about budget deficits, changes to the retiree health care payment schedule, no matter how warranted, would require offsetting budget cuts or additional sources of revenue for passage. Changes in service levels and operating and retail networks and introducing market-based pricing require hard information on the business plan that supports these changes. Removal of limitations on product diversification requires Congress to accept a government enterprise competing with the private sector.

Since the publication of the Postal Service's paper last fall, it appears to have taken some steps to revisit the challenges that it now faces in order to develop a more realistic proposal for a new business model.   The following three studies represent only some of the work that I have learned about that should be completed prior to the presentation of the Government Accountability Office paper to Congress this spring.  In addition, I am aware of two other contracted studies that the Postal Service has undertaken that may fill in the gaps in its previous work on business models relating to financial goals and objectives, financial needs in transition, and the future of mail volume in the world of digital documents. 

Study Content
Completion Date
1 Future Postal Strategies – Reshaping Network & Labor Changes Accenture March 2010
2 Recommendations for Reshaping Wholesale and Retail McKinsey March 2010
3 Future Rate Study Price Waterhouse (IBM?) March 2010

What I find most intriguing is how closely, the topics of the three studies listed above as well as the other studies that may also be underway follow the eight challenges that face the Postal Service which this blog noted last November in the post, Challenges Facing All Business Models.  They are re-posted here for your convenience:
  1. Maintaining Mail’s Importance to the Economy – The mail industry is responsible for over eight million jobs and $800 billion in economic activity. The business model can accelerate or retard economic growth depending on how well it serves customers that need mail delivery.
  2. Minimizing Financial Risks to the Federal Treasury – At the end of the third quarter of 2009, the Postal Service’s obligation to the Treasury for debt, retiree health benefits and workers compensation payments is $ 72.7 billion.
  3. Ensuring Financial Self Sufficiency – Since the passage of the Postal Reorganization Act, financial self sufficiency has been an objective of postal policy but was never defined much beyond the concept of accounting break even. While the Postal Accountability and Enhancement Act (PAEA) has as its objective that revenue and retained earnings of the Postal Service should be sufficient to endure financial stability, the current operating losses and limited cash reserves suggest that the Postal Service faces a significant challenge of being truly self sufficient.
  4. Adjusting to New Market Realities Serving Wholesale Customers – With the decline of the Postal Service’s business handling transactions and correspondence, both the Postal Service’s ability to provide universal service and its financial viability will depend upon meeting the service needs of its wholesale customers that send 500 or mail pieces at a time and will in the future generate more than 70% of revenue and 80% of the volume that the Postal Service handles.
  5. Adjusting to New Market Realities Serving Retail Customers – Over the next decade the Postal Service will see demand from retail customers declining below the 30% of revenue it is today.  Adjusting the retail interface and operating network serving these customers creates significant financial, operating and political challenges.
  6. Adjusting Operating Costs to New Competitive Realities – The market realities of serving postal customers requires a leaner processing and transportation network and a modernized retail network.
  7. Funding Transition and Modernization Costs Rationalizing - Postal Service operations to reflect new market realities in wholesale and retail markets will require substantial cash outlays to cover the costs of right-sizing the network and workforce, modernizing the retail network and optimizing the processing network. The business model must find ways to raise this cash when operating losses, retiree health care payment schedules, and debt to cover prior-year losses provide few options
  8. Creating a Workforce for the Long Term – The new market realities and the operating and retail networks that serve them can provide good jobs for postal employees.  However, the existing civil service based employment law framework, labor agreements and consultative requirements with management associations all reflect significantly different market and operating realities and the labor-management environment that existed four decades ago. These challenges are not unique to the Postal Service.
While I cannot predict what the consultants to the Postal Service will say in their reports, my sense is that their reports represent the logical next steps of the analysis presented in Examination of Potential Postal Business Models.

1 comment:

Anonymous said...

Just go to cluster boxes! It would save so much money in the long run.