Capitalize on Strengths
As one of the largest private sector customers of the U.S. Postal Service, we know all too well the serious need for sweeping operational reforms for this organization, which was saddled with rules set by Congress more than 30 years ago. We ship billions of catalogs, direct mail, magazines and packages for the country's major publishers and retailers. We interact with the Postal Service around the clock and see all its strengths and limitations.
As in any good business, the USPS should capitalize on its strengths. Those strengths surround the local collecting, sorting and delivering of the mail, ending at the mailbox of every American home and business, six days a week. But when it comes to the upstream processing and shipping of mail, the USPS must acknowledge its limitations. The Postal Service's historical core competency is in last-mile delivery to the home and office. This "last-mile" core competency begins at the local delivery unit, goes to the home and office and ends back at the local delivery unit.
The USPS can achieve enormous cost savings by using the private sector to share the workload of sorting, processing and shipping mail to local post offices and regional distribution centers. With the Postal Service capitalizing on its economies of scale and scope in local delivery and collection, we can then look at reducing postal processing costs by having the private sector prepare and enter the mail at that point in the postal stream where the USPS and the mailing industry operate with the greatest combined efficiency and security.
By utilizing the productivity, flexibility and capital of the private sector, the USPS can reduce processing costs by 50% or more. For example, the Bulk Mail Center network costs about $8 billion a year to operate a high-cost, inefficient ·
network that could be dramatically reduced by redesigning the handoff from the private sector to the USPS. The competition, which governs and maximizes operations for the private sector, can and should be employed by the USPS to meet the legitimate public-interest need of providing reasonably priced, universal service to all Americans.
Rather than focusing on covering rising costs through escalating postal rates, the USPS should do more to engage the best and brightest minds in the industry to optimize and secure the remaining USPS infrastructure. In order to be relevant in an economy that is increasingly global and digital, major postal reform is needed to maintain a competitive position with the likes of companies including UPS, FedEx and Deutsche Post. Many in the industry need to change their way of thinking about postal reform it is more than just a legislative issue. At R.R. Donnelley, we refer to comprehensive reform as the "Triangle of Postal Reform," which looks at reform from three vantage points: operational, regulatory and legislative.
Triangle of Postal Reform
1. Operational reform examines what can be done within the USPS to maximize the benefits of current law and drive costs out of postal operations.
Consider these facts:
By focusing on streamlining operations and controlling costs, much of the loss and debt can be mitigated moving forward. One operational change that must be made within the USPS is to collect and analyze information in which to better understand deficiencies and opportunities in its workflow. The Postal Service has too many facilities, or nodes, in its network. By optimizing processing and transportation tradeoffs, the USPS could significantly reduce facilities, labor and slow the rate of growth of future costs.
Additionally, the Postal Service could operate with less variability. It is currently operating at One Sigma for delivery guidelines for ground packages. Industry averages for similar products are around Three Sigma, and world-class performance would require Six Sigma. By striving to reach Six Sigma status, the USPS would effectively improve productivity, lower costs and reduce cycle time.
2. Regulatory reform builds upon current operations by pressing the bounds of current law, with Postal Rate Commission approval. Regulatory actions include implementing negotiated service agreements and working on product redesign or reclassification.
News out of the Postal Service says that product redesign, which was announced March 2001, will be filed by March 2003, with implementation by May 2004, after the PRC's review. This is too long. Product redesign is helpful because it can result in fewer, lower cost mail streams or deeper entry of the mail into the USPS's network. If this is truly important, it should be addressed in a more timely manner. However, for product redesign to be most useful, it must follow the aforementioned optimization process. One example of effective regulatory reform is implementing shape-based rates. With shape-based costing for flats, the USPS could eliminate costly and redundant infrastructure and remove steps from its internal process. Another way to approach regulatory reform is to simplify postal rates and classifications and to use efficient component-based pricing. The main message for regulatory reform is: If it doesn't lead to internal process improvements that result in lower costs within the USPS, it doesn't address the kind of sweeping postal changes we need. So we think the best way to approach it is to align our messages with the Postal Reform Triangle to ensure that the Postal Service remains affordable, reliable and universal for everyone.
3. Legislative reform requires new operating authority and approval from Congress.
The Postal Service is operating under legislation from the Postal Reorganization Act of 1970 legislation that is more than 30 years old. It's unrealistic to think that it could be efficient operating under legislation that is this outdated. With the delivery network growing at a rate close to two million new households and businesses each year, this pace of growth, combined with changes in the U.S. marketplace, makes it even harder for the Postal Service to operate under this old legislative charter.
The Postal Service does not have incentive to run like a business and does not follow the hallmarks or management practices of the private sector. Present law prohibits the USPS from making a profit. Postal reform needs to change the way the Postal Service is led so that postal management thinks and operates like private businesses.
We have been pleased with the work Representatives Danny Davis (D-Illinois) and John McHugh (R-New York) have been doing to drive legislative reform, and we hope their efforts will not go unnoticed by Congress. The mail provides an infra-structure backbone to our economy, but the system needs a chiropractic adjustment on a number of fronts.
Conclusion
The USPS helps bind the nation together when it provides universal service delivered in a consistent, reliable manner at affordable rates. Operational, regulatory and legislative reforms are needed to control the escalating costs of doing business with the Postal Service and ensure its continued viability and support of commerce in the United States.
John Campanelli has been with R.R. Donnelley for 21 years and has been president of R.R. Donnelley Logistics since 1997. For more information, visit www.donnelleylogistics.com, call 800-800-SHIP or e-mail logistics@rrd.com.
