• on Aug 12th, 2013 in Finances: Cost & Revenue | 6 comments

    Performance-based contracting lets government agencies acquire services using contracts that define what is to be achieved, not necessarily how the work is done. The idea is that contractors have the freedom to define how they will achieve the objectives, which allows them to use innovative approaches. The government benefits by receiving best-value products and services.

    Procurement professionals believe performance-based contracting makes acquisitions better by helping government procurement officials be good stewards of taxpayer dollars — which government contracting is all about. At first glance, it might appear that performance-based contracting transfers a large share of responsibility from government to contractor by requiring the contractor to come up with the actual solution to meet the government agency’s metrics. However, the government procurement official’s responsibilities are not less, they are just different. Performance-based contracting has four attributes: a statement of objectives that describes the desired outcome, measurable performance metrics, a quality assurance plan to monitor the contractor’s performance, and incentives to encourage better performance. Government officials need to be educated in methodologies and metrics to ensure success.

    The U.S. Postal Service uses performance-based contracting for some of its contracts, but not all. A recent Office of Inspector General audit found that the Postal Service does not have adequate controls to oversee performance-based contracts and it does not track this method in its data systems. Thus, it does not always take advantage of the benefits of performance-based contracting. Although officials did not track these contracts, our audit identified six performance-based contracts with incentives valued at $602 million. We also identified two additional contracts that could have been awarded as performance-based contracts but were not, even though postal policy encourages their use because of the potential benefits, such as cost reduction and revenue generation.

    The Postal Service has worked to streamline and improve its procurement process to create a more business-like approach to purchasing and to reduce purchasing costs. The performance-based contracting approach gives the Postal Service an opportunity to further the goals of streamlining and reinvention because it gives contractors more latitude for determining methods of performance, with more responsibility for performance quality.

    What do you think is the best way for the Postal Service to monitor contract performance? How should the Postal Service determine what to monitor and how frequently? What other ways could the Postal Service improve the procurement process?

  • on Aug 5th, 2013 in Delivery & Collection | 2 comments

    Global e-commerce sales topped $1 trillion for the first time in 2012 and they are expected to grow another 19 percent this year, according to data from research firm eMarketer.com. While North America leads the world in online sales, Asia is expected to take the mantle by the end of this year. China drives Asia’s growth and this year it should surpass Japan as the world’s second largest e-commerce behind the United States and its $385 billion in online sales.

    This global boom in e-commerce has helped to fuel growth in the package delivery market, prompting the shipping giants, including the U.S. Postal Service, to jostle for shares of this market. The global e-commerce surge has also benefited American companies, who are looking to foreign customers to expand sales and revenues. Surprisingly, a number of well-known retailers only began offering international shipping from their websites a few years ago, including Macy’s, Williams Sonoma, J. Crew, and Crate and Barrel. One reason for the late entry is that shipping beyond the United States is not so simple. As a New York Times article noted last year, the problems include customs, addressing, and postal and shipping fees. In some cases, the cost to ship the package could double the total cost of the order.

    Another hurdle is package returns. Even as retailers figure out how best to reach their overseas customers, they are discovering that customers find it difficult to return packages. The Postal Service recognized an opportunity to simplify that process for online retailers and later this month it will begin a market test of a new international e-commerce return service. International Merchandise Return Service will allow foreign consumers to return unwanted products purchased from American retailers’ websites back to the U.S. The service creates return labels with postage payment, allowing the buyer to print off a label and return the item through the post.

    Modeled after its domestic returns service, the Postal Service expects International Merchandise Return Service to simplify international returns for customers and improve their overall experience, which should encourage even more online shopping. The Postal Service will test the service for 2 years on online sales to Canada and Australia, negotiating prices and agreements with American companies that participate.

    What other ways could the Postal Service improve the international shipping experience for retailers and their customers? How else could the Postal Service tap into the global e-commerce market? Do any of its domestic services provide good templates or lend themselves to adoption for the international market?

  • on Jul 29th, 2013 in Products & Services | 9 comments

    The U.S. Postal Service uses a variety of strategies and media – including direct mail, television, radio, and sponsorships – to advertise, market, and promote its products and services. These efforts also help to build brand awareness for the Postal Service. Some campaigns have succeeded, such as the Priority Mail Flat Rate box campaign, “If it fits, it ships®.” Other efforts have been less successful.

    Over the years, the Postal Service has faced an advertising conundrum. Some have complained that a government monopoly shouldn’t be spending money to advertise. Others have grumbled that the Postal Service isn’t doing enough to promote its products and services, particularly compared to its competitors. Certainly, the Postal Service’s current financial condition restricts its advertising budget. Then, there have been concerns about how well the Postal Service has managed and monitored advertising contracts, which one of our audit reports documented earlier this year. The Postal Service took corrective actions and has new contracts in place.

    Undoubtedly, we live in an age of competitive advertising. Every product the Postal Service has faces competition, even the monopoly products. The Postal Service needs to use advertising to promote its products, services, and the brand itself. The question might be: What is the most effective way for the Postal Service to advertise? Should campaigns focus on traditional media, or focus on new media, like Facebook, Twitter, and YouTube?

    The Postal Service’s upcoming launch of an ad campaign might provide insights on the best possible strategy. It plans to kick off a nationwide multi-channel advertising campaign in August to promote its Priority Mail changes, which include a “simplification” of Priority Mail services and a name change for Express Mail. For some customers, the new longer name of Priority Mail Express, and the revised Priority Mail service offerings of 1-, 2- or 3-days might actually seem more complicated than simplified. A successful advertising campaign would reduce that confusion.

    Share your thoughts on the Postal Service’s advertising strategy and its recent campaigns. How effective have they been? What changes would you like to see?

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