on Jun 15th, 2009 in Strategy & Public Policy | 30 comments
 
The Postal Service has asked suppliers to cooperate in efforts to reduce contract costs in light of the current financial crisis by identifying scope reductions, process improvements, and price reduction opportunities. In his March 25, 2009 Statement before the Congressional Committee on Oversight and Government Reform, Postmaster General John E. Potter stated:

The Postal Service, with a physical presence in communities from coast to coast, including 37,000 facilities, spends almost $15 billion on supplies and services each year, from air transportation to building rental, from motor vehicles to computer systems, from processing equipment to Priority Mail envelopes in our lobbies. We are working to renegotiate contracts with our suppliers to reflect our reduced needs and to obtain even better value for each dollar we spend. Across the organization we are also constraining spending in every area possible.

With the economy in a slump, many suppliers may be equally suffering financially. Will this work for or against the Postal Service’s contract renegotiation initiative? Some suppliers may be unwilling to renegotiate contracts because they cannot afford the reductions. Others may be motivated to renegotiate, reasoning that some business is better than no business.

What do you think?

This blog topic is hosted by the OIG's Risk Analysis Research Center (RARC).

30 Comments


We should start chargig a handling fee for Priority boxes sent by Mail to customers. People just do not appreciate something they don't pay for, even if an insignificant amount. Also should be some way to limit what can be requested based on how much they Mail, etc. Continue to see to many eBayers requesting free Priority boxes, then covering them and Mailing Media Mail. The recent fiasco where the students ordered boxes and filled their school hallways with them show the folly of sending any amount of packing products to anyone, no questions asked.

If an Ebayer is using Priority boxes, they are supposed to be charged the Priority rate, regardless of how they intend to send it. There have been plenty of inverted tyvek envelopes that I marked postage due because I know the shipper was trying to pull a fast one.

Thanks for your comments. Free supplies are a really great benefit, but it is important to make sure customers use them appropriately.

Sucking 15 billion out of the economy will hurt suppliers even more, deeping the recession. We are in a no win situation. My kids will seldom use the USPS as they get older. UPS and FEDX will take Market share as our fiscal troubles will have customers scrambling for the exist. Placing our plight in the Media is speeding up the downward spiral we are now facing. Sad the company I love is going way of the telegraph.

No, when you have management spending $73 million for "relocation" services and they are the ones that write the rules that support it, renegotiating contracts wont make a dent!!! Its time to hold management to the fire for their fraud and mismanagement!!!!

I think that it would send the wrong message, a contract should be honored. The Postal Service has built a reputation of trust, this could undermine that, we are often judged on our actions during times of adversity versus times of plenty and to renege on this before the contracts expire is unfair and not good business practices. Although, I do believe that once contracts have expired the next round should be focused on a more cost effective model whereas it would better serve the needs of the Postal Service, but for now the Postal Service should continue to streamline, consolidate and extend Vera opportunities.

You make a good point Trust Me. Renegotiation should be done in a way that does not hurt the Postal Service's reputation.

I have never seen a place such as the postal service! They will spend millions to save thousands! The motto should be, "We're going to save money no matter how much it costs us!" I am down to 7 1/2 months until I retire & I will be running for the door. This place is a bureaucratic nightmare on a collision course with its destiny, total failure. Good riddance!

The postal service will not, and should not survive, unless it rids itself of the petty bureaucrats that have a strangle hold at every level. The postal service has the means to operate efficiently but those that actually do the work are stifled. In my office no one is in possession a credit card; therefore we cannot procure supplies and/or services locally. Every day we are forced to contract out work that we could do in house because we have no way to pay for parts or supplies. The district finance manger will not authorize a cash payment or a no-fee money order. Perhaps one day they will figure out that not everything is available through ebuy and that in small town American not all can or will wait for a PS8230 to be processed. Local management doesn’t care as long as it doesn’t come out of their supply and services budget.
Don’t kid yourself, it all about ego and power; survivability of the postal service does not enter into the equation.

I couldn't have said it better myself. There are too many administrators making sure you are "IN COMPLIANCE" for stupid things like making sure a checklist is filled out, or your clerk recited the sale spiel word for word. Yet when you have a problem you get passed around like a hot potato.

Successful companies are run from the bottom up, not from the top down. We all know where the PS falls.

Joe and Skippy, thanks for your comments. People should be able to take action at whatever level (local or headquarters) is most efficent. Although I wonder if sometimes things that look inefficient at the local level are actually more efficient when looked at overall.

Its is all about ego, power and compliance. Good ideas are usually treated with disdain. They will require work and possibly make the management appear short sighted. Therefore if your ego comes before your desire to increase efficiency then most ideas will be trashed. There are absolutely no educational requirements for even top level PCES orhigher level EAS 20 and above. Why? Can the Post Office survive with uneducated executives in charge of this so called National Treasure?

Why should companies renegotiate with the Postal Service, when the Postal Service would not renegotiate when they were failing or the price of salt doubles and the contract snow removers asked the Post Office to renegotiate. What comes around goes around. I don't feel sorry for when you are homeless but I beg you to help me. Hypocrites

SEEMS LIKE THIS IS WHAT SHOULD HAVE BEEN DONE,
ALL THE TIME. MAYBE, GM & CHRYSLER WERE MORE
FORWARD THINKING THAN THE SERVICE HAS BEEN. IT
SEEMS A BIT LATE TO BE LOCKING THE BARN DOOR.

Depends on what the incentive is to the business' involved. I don't think "just be good guys and sell to us for less" is much of a strategy. Perhaps long term contracts with the business' involved or buying other products also from the business' involved. Why doesn't the postal service go to their customers and say we know how hard it is we're reducing the cost of a stamp from .44 to .40 cents. This is what the postal service is asking the business' they buy from to do. Rollin' On

pretty good analogy

Smart suppliers will decrease margins if at all possible. Getting/having a contract with USPS is attractive due to their guaranteed, timely payment... Walmart leverages it's presence to squeeze suppliers knowing they will do almost anything to get their products placed...USPS should do the same

Careful on that line of thinking......Walmart has products and services that are NECESSARY and priced sensibly.
The USPS is finding out that it is becoming more and more UNnecessary. And suppliers will NOT negotiate what s shaping up to be an ever accelerating downward spiral.

As long as you have management not accountable, for just about everything they do. They are allowed to mismanage, that cost the Post Office 100's of millions of dollars every year, they give their selves bonus's even when they lose almost 3 trillion dollars. Most of the supervisors couldn't manage a little league baseball team. Until the USPS starts listening to all employees, the only way the USPS is going is DOWN.

In conjunction with this subject, we are paying to much for rent also, and FSO seems to be their consistnatly obvilious selfs. Case in Point, in the Northern Illinois District we have one small building where we have been for 45 years. We are paying $38 a square foot, for a totally awful building without a dock. This building is 1.1 miles from next PO, that we own. The building right next to the existing PO, is about the size we currently rent, but is available for $25 a square foot. Other real estate is available for rent in town. Move the carriers to the Postal Owned building 1.1 miles away and lease a small retail space, if we need a retail space at all. This building is 1.1 miles from the south PO, and no more than 2.0 miles from the PO on the north side. Get the landlord to lower rent, or get out.

The USPS just spend over a million dollars on t-shirts for employees to wear to work on Wednesdays to help promote Priority Mail Flat rate shipping. What a waste of money. Who will see these shirts if employees only wear them to work?

I agree with most everyone, especially Greg. What a joke on the T shirts. A total wate of money. And why are we spending money on the mystery shops. It can be done in house. It is just nonsense. Who are the people that are making these stupid decisions? Are they purposely trying to run the Postal Service into the ground, so they can justify closing post offices and cater only to the big mailers and coporations? just a thought. What happened to the actual purpose of the Postal Service? To provide service to our customers. And by the way do you know how much revenue is lost from the APCs, I would guess millions.

Cost saving negotiations are part of the reality of doing business in our current economic situation. Major customers of the USPS regularly meet with their suppliers and even demand a 3% or more documented cost reduction/savings or they threaten to take their business elsewhere. Now this can't be done in every situation, but it is the drum beat of a consistent message that Suppliers must work together to keep the customer viable or face facts, the contract will cease to exist if the customer can't pay the bills. From my experience, USPS has not even had a drum to beat in this arena. Private industry is far more aggressive in demanding these kind of documented contributions to the bottomline.

I agree the Postal Service should use the best practices of private industry when negotiating.

When the PS equalizes work-share discounts so that they are actually saving money instead of losing money, maybe it will be able to get out othe red. Until you grow a pair and stand up to the big mailers you will be nothing but their tools.

As a contractor, I am willing to renegotiate to a point. My business and my ability to efficiently manage it is almost completely controlled by the USPS.
Per the contract, I am told what I must pay employees per hour, the number of hours I must pay them for, (even if it takes less time to complete the job) the amount and kind of benefits that I must provide to each employee and the kind of uniforms that I must purchase and exactly what suppliers (only 3) that I can choose from. Yet they want me to renegotiate my costs downward without removing the "chains" in the contracts that "bind" me to it!

If management would allow me to operate my business based on market conditions and my own judgement, I most certainly could reduce costs and improve efficiency and in turn improve customer service to the USPS customers that I serve.

I'm affraid that as long as the bureaucrats are involved with operating the USPS, this will NEVER change and we WILL in the near future see the complete breakdown and failure of the USPS.

Thank you for your comment. It's interesting to hear a supplier's perspective.

Thanks to everyone who took the time to comment on this issue.

RARC host, this is in rebuttal to your comment on my earlier post. I don’t think you get it; viewed from whatever perspective the status quo is driving us to bankruptcy. When I have to do the work of disassembling a piece of equipment, transporting parts to be welded and the reassembling the equipment and then go to a contractor to pay the welder because we have no means to pay the bill, something is wrong. There is no reason we could not have done an ebuy transaction and paid with a no fee money order other than some petty bureaucrat being incapable of independent thought. You will never convince me that going through FSO to pay our bills is cost effective. The actual cost of the welding was approximately $50.00, how much do you think the postal service paid out? If this were an isolated incident I could grumble a little and forget about it, but this is how business is done.

I think it is step in the right direction whenever a government run organization opens itself to public opinion. Perhaps there is hope that the few that govern will listen to the many that pay their salaries.

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