1. (35 points) The United States Post Office provides an array of services which according to recent reports to Congress has resulted in billions in annual losses. A special committee has identified potential services that could be reduced or eliminated as follows:
a. Reduce days of delivery from six to five days i.e. eliminate Saturday delivery for residential and commercial customers
b. Eliminate special delivery services such as express mail and certified mail
c. Change the pricing structure for bulk (aka junk mail) to discourage use and encourage digital distribution to save costs on transportation, storage and labor
d. Consider eliminating other services such as passport and Post ...view middle of the document...
Let us examine the reduction in days of delivery from six to five days. In my opinion, the loss of revenue would be quite small. Most United States commercial business customers work from Monday to Friday and so eliminating Saturday delivery would not make much of a difference because most of these businesses are closed on the weekend. These commercial business customers would be just as happy to receive the same package on Monday, when they are open again. As far as residential customers are concerned, again eliminating Saturday delivery would not make a difference to most of them. These customers would still use the Post Office’s Monday to Friday service even if the package does not get delivered on Saturday.
In terms of the costs, the relevant costs would be the delivery costs incurred in making the Saturday delivery. Rest of the other costs would be fixed in nature and so it would not change. Given the size of the country and the number of postal offices, each day delivery cost would be substantial in terms of wear and tear and fuel costs. If the same mail can be delivered on Monday without any additional cost, then there would be full cost savings on the costs incurred on Saturday delivery. In terms of qualitative factors, customers may feel a slight degree of annoyance when they would hear that Saturday delivery is being eliminated. Getting mail as soon as possible would be something the customer’s usually desire. Initially, there may be some resistance, but gradually the customers would get used to this new delivery system. In my opinion, savings would outweigh the benefits and USPS may consider eliminating the Saturday delivery.
The USPS should eliminate all other non delivery services because services such as money order, PO boxes and passports require specially and bonded trained individuals to always be on staff thereby changing the USPS’s variability in staffing capabilities. They will have to hire additional people to keep a rotation of having one person trained in these tasks and others to handle the normal workflow. If the USPS had five people working full time one of these people through USPS policies would have to be in charge of these additional services. Also by concentrating employees on their core business services operating efficiencies should arise because of the learning curve principle and economies of scale which should decrease the variable cost for delivered items. Many of these additional services should be eliminated because they are also readily available at many other private firms for less money or hassle. Money orders can be obtained from many local retail stores, Western Unions or departments of large chains such as Wal-Mart at a cheaper price who also provide other forms of money wiring services. Passport services provided...