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Pla n t o Profit a bilit y
5 Y e a r Busine ss Pla n
February 16, 2012
Introduction
The United States Postal Service (“USPS”) continues to endure the negative effects of electronic diversion combined with a weak economy and increased funding obligations
This confluence of events has had financial impacts on the organization which have become untenable
While the USPS has continuously sought to make operational improvements and improve efficiency, the organization’s current financial position requires additional action to ensure viability and self sufficiency
The following presentation has been prepared by the USPS in order to communicate its business plan (“Business Plan”) to key stakeholders
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Fixed cost base
Transactional volume
declining due to e-diversion Advertising mail is subject to more substitution options Mail volume highly sensitive to economic changes Mail mix changes – lost profit contributions These trends will continue to put pressure on USPS’s ability to provide affordable universal service
Price
Labor Costs
~80% of total costs COLA increases Benefits: pensions,
Capped by inflation
Price elasticities are in
flux due to growing alternatives Rising but capped Rising cost per hour
retiree health, health insurance Limited flexibility
February 16, 2012
4
Electronic Diversion is the Primary Driver of First-Class Mail Volume Decline
Diversion of communication and commerce to electronic channels is a principal contributor to declining First-Class Mail volumes
Diversion reflects a permanent secular shift in customer behavior and is more pronounced during periods of economic weakness
First-Class Mail represents 44% of mail volumes and 66% of contribution
Diversion exacerbates the loss of profit as revenues decline
The Economy is NOT the Main Cause of Diversion
180% 160% 140% 120%
Recent Examples of Diversion
Alternatives to bill payments by mail
Online presentment of bills and statements
E-mail as a substitute for mailed correspondence
Index
E-file of tax returns
100% 80% 60% 40% 20% 0%
Loss of 45 bn pieces
Electronic
If I were the current CEO for the United States Postal Service, I would be gravely concerned about the future of my business, as it has recently taken a steep plummet from its success and popularity in the 19th and 20th centuries. The USPS is now faced with the decision to renovate itself due to the extreme loss of business as technology takes over the 21st Century. Some say that the USPS should be entirely reconstructed because the business is only headed further downhill, while others say that paper mail is still very practical, more so than e-mail, and we must each write more letters to do our part in reviving the business to profitability again. Because the USPS has been such a vital part of our country through
In fact the United States Postal Service (USPS) is a form of legalized monopoly, or natural monopoly (Ayers & Collinge, 1995). In order to make this point it is important to identify the definition of a natural monopoly, and that is when economies of scale are so large that one firm can supply the entire market at a lower average total cost (Hubbard & Obrien, 2017). While the surface of this definition may imply that the USPS is so big because they are exceptional at performing the task of delivering mail, the reality of the situation is derived from law, and 19th century law at that (Ayers & Collinge, 1995). The United States Government has made it illegal for any entity other than the USPS to be tasked with delivering the mail (Ayers & Collinge, 1995). Additionally, the USPS is becoming more and more outdated every passing minute with the advancements of technology (Gómez, 2018). This leads to a failing business model that is continually funded, all be it minimally, by the federal government (Gómez, 2018).
In July 2009, the Government Accountability Office (GAO) listed the budget of the United States Postal Service as “high risk” and recommended oversight from Congress and the Executive Branch. Specifically, the GAO stated that “Amid challenging economic conditions and a changing business environment, USPS is facing a deteriorating financial situation in which it does not expect to cover its expenses and financial obligations in fiscal years 2009 and 2010” (“Restructuring”, 2009, pg. 1). The GAO claimed that the mail volume in 2009 would likely decrease by about 28 billion as compared to 2008 and that the USPS would likely see declining volumes for the next five years (“Restructuring”, 2009, pg. 1). Clearly, the USPS is currently facing a
In Daniel Stone’s editorial article, “Flying Like an Eagle”, he advises the USPS some guidance to boost up their profit and their usage to the community. One of his inputs on the
This accounts for the bureaucratic management of the USPS as represented by standardized procedures that guide the execution of most if not all processes with the organization. This being a strong culture, and according to Harvard Business Essentials, a strong culture is difficult to change without much effort, time, and substantial disruption (2005). The current Postmaster General (PMG) has been in place for the past nine years and has, according to Nocea of the New York Times, the PMG, Potter has had a very successful run (2009). He survived the anthrax crisis, overseen productivity gains and an increase in customer satisfaction (Nocea, 2009). During this time, he also eliminated a $11.3 billion
There are a great deal of changes that the USPS systems needs to make. For one, they need to stop bombarding their customers with junk mail. According to (SOURCE E), 44 percent of marketing mail isn’t opened. Nineteen states have opted to pass bills that would allow people to opt out
Due to the rising popularity of email and the easiness of scanning documents, less and less mail is being sent every year and because of competitors like FedEx and UPS the United States Postal Service (USPS) is having financial problems. All over the world there has been sweeping postal reform. New Zealand moved to three day mail delivery, Canada eliminated home delivery in cities, and the United Kingdom recently privatized their mail system. The United States Postal office has been losing money and reported a loss of $15.9 billion dollars in 2012. The USPS has been increasing stamp prices to make up for this financial loss, most recently increasing stamp prices from forty-four cents to forty-five. With congressing blocking the latest USPS
One way the postal service can become more useful is to become more involved in e-business(Source A). If more people are emailing and using internet for communication, the postal service should become more involved and get their name and business out there. Another way to rebrand the USPS is to make a play for control of government broadband[Internet Access](Source A). The government is making rapid plans to expand broadband access. If the government puts this underneath the postal service, this would be able to make create a new name for the postal service. It could be defined as a communications-delivery service rather than a perceived, “team of letter carriers”(Source A). A final way to help reconstruct the USPS is the rebrand. As simple as it sounds, the majority of the people in the United States today do not understand the importance of what the postal service means to our country. The brand of the USPS also does not give a good perception of what they do and how they do it. “Fly like an eagle, what does that even mean”(Source A). Many people do not know what this means. “A company’s brand is its most valuable tool, or its biggest liability(Source A). The USPS can easily reconstruct themselves as a communications-delivery service by changing and rebranding their company. Using e-business, government broadband access, and rebranding can all be steps and help grow and continually make the USPS a more useful source of
The Postal Service cannot continue to provide affordable, universal service to all areas of the country while maintaining mandated inflation-based prices without an increased ability to generate revenue and control costs. Therefore, bold changes to the business model are needed. All options – even those that have been dismissed in the past – need to be considered as part of the national discussion. In order to choose the best business model for the Postal Service, it is important first to establish the future role of the Postal Service and the mission the nation needs it to fill.
There are few remaining monopolies today. Apple and Wal-Mart are both world-renowned monopolies. Another monopoly is the United States Postal Service. The United States Postal Service is a natural monopoly in the delivery of first class mail, as 1970’s legislation prevents any other firms from delivering letter mail. The reason for this was to allow one firm to specialize in mail delivery; therefore being the most efficient way to ensure the rest of the country received their mail on time. After all, receiving mail in a timely manner is critical for society to function. Imagine if everyone received their bills and letters weeks late? However, the USPS has begun to face a dilemma in recent years, in that it is seeing a sharp decline in revenue. Critics have called for several methods to help the USPS cut its losses, one of which being privatization.
Another reason why, USPS should not be restructured because they are in debt. As stated in source F “ It delivered 17 percent of fewer piece in 2009 than it did
While reforming the USPS to meet the needs of today’s world could be a slight challenge, making adjustments to its structure could breathe new life into the country’s beloved postal service.
Another growing idea is the privatization of USPS and the removal of its monopoly on mail delivery. It seems the ultimate goal of this would be alleviating the government’s hold on the Post Office altogether, therefore reduce any burden that it has. Perhaps it would also allow the Post Office to expand its services in order to meet the growing needs of consumers and adapt to the
A governmental postal service existed before the states even ratified unity. Being used to inform and connect people across the country, the Postal Service reigned the supreme medium to communicate. Evolving from newspapers during the Revolutionary War and progressing through the Pony Express, the United States Postal Service held uncontended success for generations. But because of a severe money deficit in the recent decade, taxpayers demand the USPS to take action to increase profits, whether it happen from a positive spike in mail volume or a decrease in employees. The USPS should reduce their overall workers and increase the demand for specialized workers.
The evolution of the express mail industry had become a quick on-time shipping and delivery of packages. The service had become effective, reliable, and prompt, which most of the top companies could deliver on these guaranteed promises 96-99% of the time. But, delivery services were only a portion of the services being offered to their customers. Carriers had mastered information management that they shared with their customers. Customers were now able to fill out labels, track the route of their package, and assisted in billing using both via carrier provided software or the Internet.