The "Gateway" Challenge
As noted in my previous editorial (Click here), the United States Postal Service’s proposed strategic plan shrinks its business focus to providing the link between households and the rest of the nation’s hard-copy communication and parcel distribution networks. Downsizing the postal vision entails significant management and marketing risks that the postal community needs to understand
Losing contact with customers As the carrier providing the final delivery link, the Postal Service becomes a subcontractor to consolidators who now become the mailer’s partners. The Postal Service could lose the direct knowledge of how changes in the mailing community’s needs affect the network of services they must provide. As a smaller portion of the mailer’s distribution bill will come from the Postal Service, the Postal Service may feel less pressure to keep costs under control. The consolidators and not the Postal Service could become the entities seeking to “delight” the mailing community.
Increasing complexity As letter and parcel delivery becomes a service that involves both a consolidator and the Postal Service, the service is a more complex than the single line service offered by its parcel and courier competitors. Increasing drop-shipments increases the activity around, and complexity of, the dock operations of carrier stations and sortation facilities near the final destination. The opportunities for delays and missed hand-offs between the long haul and the delivery portions of a transportation network are greater when no single management authority has responsibility for the entire process. The difficulties of integration are further complicated as information systems as well as the physical goods and document movements must be integrated. Furthermore, as the last mile for dozens of consolidators, the Postal Service will need to link into the information systems of each of its partners.
Cannibalizing existing Products Recently, Airborne announced that LL Bean would be the first major customer of its Airborne at home partnership with the Postal Service. The press release indicated that LL Bean would use the new service to replace its use of the Postal Service’s parcel post service. In this transaction, the Postal Service does not gain any new volume. However, both the revenue and resources required by the Postal Service to serve LL Bean decline.
Rightsizing the network To the extent that Parcel Select and other work-sharing programs have shrunk the Postal Service’s responsibilities, the Postal Service must adjust its network. For example, the LL Bean switch from Parcel Post to Airborne At Home should require a rethinking of the transportation, labor and other resources handling LL Bean’s postal products. At a minimum, the Postal Service needs to re-evaluate the amount of transportation from LL Bean warehouses and labor in plants currently receiving LL Bean’s parcel post volumes. The decline in productivity over the past five years, at a time of increasing work-sharing, suggests that the Postal Service has not been aggressive enough in reacting to the decline in work-content that work-sharing produces.
Increasing importance of fixed liabilities The fastest growing parts of the Postal Service’s budget are the payments on pension liabilities and retiree health benefit costs. These costs are unaffected by mail volume or the labor employed by the Postal Service today. Half of the cost saving gains from the breakthrough productivity proposed by the Postal Service is required to cover the increase in these fixed expenses. These rapidly growing costs will become an increasingly important proportion of product revenue if the unit revenue declines as the Postal Service’s responsibility for mail and parcel distribution shrinks to being the “Gateway to the Household.”
Durability of the economies of scale The Postal Service’s newest parcel initiatives assume that its partners cannot generate sufficient volumes to effectivel
