Let’s say you own a store with a good clientele, but sales have
been slipping in recent years. A new store with new products has
faster service at lower prices and is open 24/7. You’re losing
money. What do you do?
You consider two approaches. You could slash costs and
service and hope the money saved would put you back in the black
over time.
Or, you could streamline your business, improve your
product and/or add new ones and give your customers better
service.
As a business person who understands human nature and the
nature of markets, you’ll choose the second approach.
The U.S. Postal Service, understanding neither, is
choosing the first.
Last year the USPS lost approximately $5 billion. It has
announced drastic cuts that it hopes will result in $20 billion
savings by 2015. It was once profitable, but the explosion of
internet traffic (especially in correspondence and bill-paying) has
sharply reduced the volume of First Class mail.
They have picked an odd way to try to turn this around:
Close 700 or more offices, cut Saturday mail deliveries,
systematically jack up the price of a First Class stamp and, now,
the pièce de résistance, “consolidate” distribution
centers.
USPS management thinks it will save $3 billion a year by
closing more than half of these centers, 252, across the country.
It has begun announcing the closings. Two examples:
Humboldt County, on California’s north coast, has more
square miles in it that either Delaware or Rhode Island. It has one
distribution center, in the county seat, Eureka. Letters
addressed within the city or to nearby towns in the county are
typically delivered the next day.
The USPS says it will “consolidate” this center with one
in Medford, Oregon, about 150 miles to the northeast over slow
mountain roads. Mail will be trucked nightly from Eureka to
Medford, sorted, then that bound for Humboldt County will be
trucked back to Humboldt post offices for delivery. Result:
Customers will lose at least one to two days in delivery of their
mail — not to mention the wasted truck fuel and overtime of the
drivers.
On the west coast of Florida, the Manasota Distribution
Center will be “consolidated” with one in Fort Myers, about 60
miles away. This will mean an extra day for delivery to an area
much more heavily populated than California’s Humboldt
County.
The inevitable result of this retrogressive action across
the nation will be to drive away even more First Class mail from
post offices and onto the Internet. It’s elementary: Cut service,
raise your prices, and make it inconvenient for your customers and
you will sell less of it.
What could USPS management have done? Instead of
sponsoring bicycle racing teams they could have spent some money on
truly creative management thinkers to come up with out-of-the-box
ideas for new services and products. And, if the thinkers came up
empty-handed, management should consider radical restructuring in
two ways: 1) Sell off package shipping by putting it out to bid.
Fed Ex and UPS and possibly others could do the job efficiently at
competitive prices — they already do. (2) Don’t expect a smaller
USPS would be profitable with only First Class, Second and Bulk
Mail. Instead of the U.S. Government lending it money every year
(as it has) to pay its bills, subsidize it via the federal
budget.
All this would take long-range thinking and plenty of
courage to sell it politically, but it could be done.
