A recent study by USPS’s Inspector General suggests that USPS has “failed to justify millions of dollars worth of worksharing discounts given to mailers” on grounds of efficiency improvements.
The worksharing program is based on a win-win arrangements whereby the costs avoided by USPS should come ahead of the revenues it foregoes in rates discounts. Meanwhile, mailers can exploit their operational capabilites and labor conditions to maintain sustainable gross operating margins.
A exception in the 2006 Postal Law allows USPS to maintain a discount when postal officials believe that curbing it, or altogether eliminating it, would affect overall postal operations efficiencies (the efficiency exception).
The IG study indicates that the “Postal Service failed to properly justify 19 out of 30 worksharing discounts that exceeded avoided costs by $104 million”. The majority of these 19 discounts were allowed under the efficiency exception.
The complexity of the postal network makes it very difficult to assign labor costs to the various processes with precision. Not to mention that a network-wide view (aka an enterprise view) of the aggregate performance is, today, totally absent. Thus, optimization/efficiency decisions are, more often than not, performed locally without much appreciation for the overall efficiency and costs impacts that these may have throughout the network.
Consequently, we whole-heartedly share the IG’s concern that “excessive discounts could cost the Postal Service money and lead to inefficiencies in mail processing”.
A smart/intelligent network management capability must be developed by the Postal Service. It must be accompanied by a radical simplification of the business processes in order to promote operational governance, preserve accountability, and be able to acquire visibility throughout the value chain.