Does the Postal Service Suffer From MIDS?

I recently had an opportunity to read Thomas L. Friedman’s best seller “The Lexus and the Olive Tree” (Farrar, Straus & Giroux, 1999). It’s a fascinating and insightful book that compares, as the title implies, old and new economies, old and new political systems and old and new corporate structures.

In his book, Friedman coins the acronym MIDS to stand for Microchip Immune Deficiency Syndrome. But Friedman is not writing about computer chips; he is discussing governing a country or running a company. He says that MIDS is “a disease that can affect any bloated, overweight, sclerotic system in the post-Cold War.”

The symptoms of MIDS “appear when your … company exhibits a consistent inability to increase productivity … and becomes too slow to respond to the challenges of the fast world.” According to Friedman, “the only known solution is … deconcentration of power in ways that allow more people … to share knowledge, experiment and innovate faster.” Friedman continues by saying that changing this decision-making process permits keeping up with “a marketplace where consumers are constantly demanding cheaper products and services tailored specifically for them.”

While I tend to agree that the U.S. Postal Service’s symptoms would tend toward a diagnosis of MIDS, I do not agree that the solution merely requires a deconcentration of power.

But before we develop solutions, we need to reach some consensus on the problems. I believe that there are many causes of today’s postal problems, and this recent rate filing showed what many of them are.

First, we note from the filing that it included minimal incentives to keep in the mail stream those mail volumes most at risk of leaving the postal system. In addition, senior postal managers have stated they will opt for a very early implementation of these new higher rates.

The postal service has long discussed incentives for keeping First-Class mail, the mailing class most at risk to leave the mail stream. The incentive most prominently under consideration was some kind of drop-entry discount. It was assumed that, with this incentive, a hybrid mail industry would develop with mail sent electronically to a service bureau close to a delivery destination post office. The electronic transmission would be printed by that service bureau and then delivered to the local delivery post office for mailing.

The benefits of this incentive to the USPS are that it would reduce the volume of two- and three-day service area mail in the system and convert that mail to one-day service. One would think this is a decided plus since the service has done a good job of meeting its delivery standards for overnight (one-day) mail, but has had difficulty meeting two- and three-day service area standards. You may recall that overnight service delivery results are in the 93 percent to 95 percent range, while two- and three-day delivery results are about 85 percent of standard.

Today two- and three-day First-Class mail is most likely to be flown close to its destination. Therefore, another advantage of a hybrid mail discount is that it makes the postal service less sensitive to increases in fuel prices.

The other issue noted is the postal service’s intention to rush the new rates into place just two months after the Postal Rate Commission’s recommended decision. Many, if not most, mailers will not have tested software in place when the new rates are to become effective.

My conclusion on the lack of incentives is that the postal service doesn’t really believe its own studies that First-Class mail is at risk and also is not concerned about major customer reaction to a rapid introduction of new rates.

Another area of concern to the rates is the significant increase proposed for automated flats, whether in the Periodicals or Standard-A class. Here the direct cause is fairly obvious: the failure of the postal service’s flats automation program to produce savings.

There appear to be two main causes for the failure: One is a disconnect between those who select the flats processing equipment and those responsible for running the equipment in the field. The other seems to be a lack of understanding of the direction that flat mailers are taking. Flats mailers are making big investments in polywrap equipment, with increasing numbers of flats now being mailed in poly (check your own mailbox for confirmation). Yet the flats processing equipment being placed in service has difficulty processing the polywrapped flats being mailed.

It seems that there has been a lack of communication between those responsible for purchasing the flat-sorting equipment (USPS) and those responsible for supplying the equipment’s feed stock (customers). In years past there was a joint USPS/Industry Committee known as the ABC Committee (ABC stood for Automation and Bar Code). In my view, one of the reasons for the success of the letter mail automation program was the ABC Committee. That committee served to ensure that the Postal Service’s letter mail automation program was consistent with customer directions and desires. Since flats make up 30 percent of USPS volume, it seems clear that an ABC Committee for flats, with customer involvement, is sorely needed.

The flats processing situation does track back to Friedman’s MIDS conclusion for the need to tailor services for consumers (i.e., mailers).

There is another issue concerning this rate filing that needs to be raised. It deals with a resolution that the USPS Board of Governors passed in 1995. That resolution, appropriate at the time, noted that the Postal Service had accumulated almost $9 billion in losses since being established in 1971 and that it was the board’s intention to recover these losses and eliminate the negative equity on the Postal Service’s balance sheet. Five and a half years of Postal profits have reduced this negative equity to less than $3 billion.

It seems, to this writer, that while the elimination of negative equity is an important long-term goal, the board resolution may be pushing the Postal Service to propose an overly aggressive rate increase. This increase may well accomplish the negative equity objective; however, it may be done at the risk of a more rapid deterioration in postal volumes.

Perhaps, given the rapidly changing economy and the challenges the Postal Service is facing, the board needs to reconsider its 1995 resolution. It does seem that fixed policies are inconsistent with Thomas Friedman’s view of rapidly changing economies.

Conclusion: The USPS may indeed be suffering from MIDS. Stay tuned to see the outcome.

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