USPS Mail Serving as a Viable Business Model - Essay Example

March 20, Finance Introduction USPS is a mail serving business entity. The paper delves on the USPS model. The paper focuses on the proposing a viable business model. The online email and PayPal type payment business model improves the company’s net profit picture. Business Model The current USPS business model is not feasible (USPostalService, 2012). The current business model is grounded on the concept of making ends_meet. Under this concept, the company tried to reduce its operating expenses. By reducing the same expenses, the company has a higher probability of generating a net profit (Besley, 2008). However, reduction of certain required expenses will lead to a decline in the company’s service quality. For example, the Post Office decides to cut the services of the one of the mail sorting employees. The cut is based on the company’s decision to reduce its huge employee salary payments. The employee reduction will trigger a slow customer mail services. The current business model includes a ballooning debt figure. The debt included an unpaid $5.5 billion amount on its defaulted loan schedule. In fact, the current business model is characterized as not a profitable self-maintaining business entity. Likewise, the current business model is described as needing to sacrifice its services in order to reduce its operating expenses. For example, the lone postman is hired as a part time employee to deliver mails on a Wednesday and Friday. Consequently, mails that arrive on a Monday will be delivered two days later, Wednesday. Similarly, mails that arrive on a Thursday will be delivered on a Friday (Ross, 2012). The same article described the current business model is grounded on low stamp and parcel rates. The current rates of mailing the correspondences were not high enough to surpass the breakeven point. Consequently, an increase in the stamp and other post office rates will lead to the increase in the company’s overall revenue (Ross, 2012). The current business model fails to generate enough revenues needed to pay for the maturing debts (Epstein, 2011). A business is normally set up in order to generate revenues. This is the first step. The USPS accomplished this first business task. Next, the company must generated net profits. The net profit amounts are arrived at by subtracting operating expenses from the gross profit amount. Based on the company financial report, Table 1, the company failed to generate enough revenues needed to arrive at the bottom line. The bottom line is the passing grade of any company. The bottom line equates to a net income figure. Table 1 shows the company did not generate net profits for both 2012 and 2011. Instead, the same table shows that the company’s business model failed to achieve its passing or bottom line benchmark. The current business model does not allow significant cost reduction (Weygandt et al., 2009). The current business model focuses on implementing its prescribed mission. The current mission output is characterized as a decline in sales volume. With the decline in sales volume, the total sales amount similarly declined. Likewise the current mission-based strategies precipitated to cash shortages. Further, the company’s business model produced business losses. The continuance of the current business model triggered the total debt amount increases. From 2007 to 2009 alone, the total quantity of mail dropped 17 percent. The percent’s figure drop is 35 billion pieces of mail. With the current mail customers shifting to emails from hand-carried mail, USPS revenues during the same 2007 to 2009 accounting period dropped by as much as $ 12 billion (Herr, 2010). The company’s reducing its global workforce by as much as the estimated 85,000 employees during the economic crisis of 2008, the company could not eliminate the costly capacity excesses (Herr, 2009). Similarly, the reduction in the company’s investment amounts as well as the raising of the mail service charges paid by the customers, the company could not reduce its avoidable capacity excesses, actual costs. During 2009, the United States Congress required USPS management implement a $ 4 billion reduction of its retiree health benefits. The USPS looming losses triggered the health benefit reduction. However, the company continued to loss $ 3.8 billion (Herr, 2010). The new business model should include several strategies were implemented to improve USPS’ revenue outputs. Statistical projection showed USPS will suffer from a continuing drop in mail sales revenues. One such previously implemented strategy is the better alignment of costs to the relevant revenues. One strategy is to reduce the number of employees. Employee reduction translates to lesser salaries and wages. Another strategy is to decrease the number of full time regular employees while increasing the number of part time employees. The new business model will include a reduction of avoidable operations cost amounts. The operations costs include electricity expenses, water expenses, transportation expenses, gasoline expenses, oil expenses, repair expenses, maintenance expenses. Another strategy is the closing down of some cash-draining facilities. The facilities include some of the mail sorting mail centers (Herr, 2010). Privatization should not be implemented. As a government owned company, the USPS should continue to run as one of the government’s income generating entities (Epstein, 2011). With the advent on protecting people from both external threats and internal threats, the government owned company, USPS, will do its best to prevent any terror-laden letters from reaching the United Kingdom, United States, or any country. Some terrorists may send terror messages through the post offices. The messages may include ransom messages, kidnapping messages, and harassment letters. In response to the United States Congress instructions, the United States Post_office will improve its delivery performance statistics. An improved mail service will surely encourage more current and future business customers to send their mails through the post office. The actual performance reports will be used as basis for improving areas that need further strategic improvements. One such performance statistics factor is efficiency. Efficiency is defined as the use of lesser time to deliver the same letter or parcel from one destination to another destination. Similarly, the performance statistics efficiency will include using the least possible expenses or costs to deliver the same letter or parcel from the sender’s location to the receiver’s destination. Further, the improved business model should focus on ensuring revenue increases. USPS should reduce its mail charges. A reduction in the mail charges will increase the customers’ demand for the USPS mailing services. The economic principle of demand states that as the prices of products and services increase, the customers’ demand for the products and services decline. The reason is logical. As the price of goods and services increase, more poor or cash-strapped current and future business customers can no longer afford the higher mailing charges, more and more people are forced to shift to alternative products and services. This is the same with the post office market segment. As the prices of the mailing services increase, more and more post office clients can no longer afford the higher mailing charges. Some poor customers may reduced their letters and parcels from a once a week mailing sequence to once every two weeks mailing sequence. Consequently, the postmen and post women deliver fewer mails within their assigned communities (PriceWaterHouse, 2013). When there is a decline in the number of letters sent through the post office, the post model must include drastic reduction in the postmen and post women. The post office should hire part time letter and parcel carriers. The company must avoid hiring full time regular employees during times of low mail volume. When the mail volume starts to increase during peak months, the post office can hire the services of part time postmen and post women. Product Market Conditions The current market condition is bleak. Using the GDP economic factor, the 2013 GDP was estimated to increase by 1.2 points. During 2014, the GDP economic factor increased to 2.1 points. The estimated GDP growth rate for the period starting 2015 until 2023 is pegged snugly at 2.4 points. However, time has shown the GDP increase is grounded on the faster message sending triggered by the online email website. The slower snail mail services similarly slowed down the economic wheel as the receiver of the message takes several days or weeks to receive the senders’ post office sent mails (PriceWaterHouse, 2013). Capital (fund) market conditions. The table 1 shows the capital market condition of USPS. The capital fund shows that the company was able to generate the higher $65,223 million operating revenue during 2012 compared to 2011’s $65,711 million operating revenue. Likewise, the above table indicated the company’s $5,067 million net loss incurred during 2011 had unfavorably ballooned to the more unfavorably $15,906 million amount. Further, the company’s $ 13,000 million debt used to increase cash inflows from capital fund amount acquired during 2011 had increased to $15,000 million during 2012. Additionally, the capital contributions during 2011, $3,132 million, remain pegged at the same amount during 2012. The same table indicated that the 2011 deficit, $22,072, had increased to unfavorably $37,978 during 2012. The company’s 2012 total net deficit, $18,940 million, had unfavorably dropped to only $34,846 million during 2012 (US Postal Service, 2012). Internal Architecture The company’s internal structure focus to comprehend its challenges is grounded maximizing its scarce resources to generating the required bottom line profits. However, the financial statement, Table 1, shows that the scarce resources were not enough to generate profits. Likewise, the company’s innovations were not enough to achieve the required benchmarks. Additionally, the company’s current snail mail knowledge was not used to achieve profitable operations (Epstein, 2011). Further, since the historic measurement, the financial report for 2011 and 2012 indicates the company was not able to generate the required net profits, the share price is expected to be low because no one wants to invest in a company that is not able to meet its bottom time target. Likewise, the forecast for 2013 to 2015 is expected to similarly generate net loss (deficit) figures. If no external factors will significantly change the net loss to net profit picture, the company is expected to reap similar net loss or deficit pictures (Epstein, 2011). Furthermore, the company is serving the snail mail needs of United States residents and other countries. The residents send parcels, letters, and other items through the United States Postal_Service or simply USPS. The company sells stamps to its customers the customers paste the stamps on the envelopes. The company sends the mails to the receiver shown in the front of the envelope. With the advent of emails sent through the internet email accounts like www.gmail.com, www.yahoo.com, and other preferred email sites, more individuals prefer their rush mails through the internet compared to the post office. The online email sites allow the receiver to answer the email messages sent. The advantage of the email services over the snail mail, post office mail, is that the emails have lesser chances of being sent to the wrong person. The snail mail may be sent to another person due to the lazy or lackluster postman’s work. Likewise, the emails stand a lesser chance of being stolen than snail mails sent through the post office (Herr, U.S. Postal Service: USPS has Taken Steps to Strenghten Network, 2009). With the above two advantages the internal_architecture to comprehend the current challenges are ineffective. In terms of enhancing the current business model, the current internal architecture should be revised to include email services. The United States Postal_Service should introduce an online email service framework. With the United States government backing the company, people will immediately trust the email services offered (Herr, U.S. Postal Service, 2010). Further, the company’s new business model mail services should include paypal type transactions (Ross, 2012). Under the strategy, current and future business customers can receive payments using the USPS paypal type website. Likewise, the current and future business customers can send money or make payments through the USPS paypal type website. With the success of the real www.paypal.com account in the money sending business, the USPS should join the bandwagon of many businesses engaging in the online money transfer sites. Another competitor money transfer site is www.zoom.com. Furthermore, the prior United Kingdom mail service market segment was bleak. From the year 2005 to 2008, the United Kingdom volume of inland letter volume mails sent through the United Kingdom post office had dropped by an estimated 3.1 percent. From 2008 to 2013, the same snail mails sent through the United Kingdom post office was expected to drop further to 6.3 percent. The unfavorable economic conditions had led to the drop in the snail mail volume. The main reason for the decline in the number of parcels sent through the post office had increased by 4.3 percent from2005 to 2008. From 2008 to 2013, the increase in the number of parcels sent through the post office had dropped to the unfavorably lower 4.3 percent. Moreover, the main reason is that the online websites allowed the shoppers to pick out their chosen online products. After making an order and paying for the purchased item, the websites send the parcels containing the online customers’ purchased production through the post office. With the proliferation of online shopping sites, more parcels are passed through the post office. Consequently, the post office must hire more postmen and postwomen. The postmen and postwomen are paid to personally deliver the parcels to the receivers stated in the parcel’s surface. The United Kingdom market includes an increase in the people’s trust in the snail mail processes. Due to the possibility of emails being hacked, many individuals are expected to trust the safer message delivery services of the Post_office. With the increase in the GDP, some sectors of society may prefer to send their confidential mails through the post office. However, the overall volume of snail mails will follow the unavoidable path of declining popularity. However, the rise in the online shopping websites creates an unavoidable trend of increasing post office parcel deliveries (Epstein, 2011). With more people placing their trust on the online email message delivery alternative, the post office suffers from the unavoidable drop in the number of letters sent through the post office. The 2013 to 2013 projected declines in the number of snail mails is estimated to be 5 percent during 2013. Likewise, the 2018 to 2023 operating period projected estimates show that there will be a 4 percent per year decline in the number of letters. In terms of parcel mails, the 2013 to 2018 projected increases in the number of parcels is estimated to be 3 percent during 2013. Likewise, the 2018 to 2023 operating period projected estimates show that there will be a 4 percent per year decline in the number of parcels (PriceWaterHouse, 2013). Conclusion The USPS mail serving business entity includes two major business model propositions. The best business model should not include privatizing the company. Privatizing should only be as a last resort. Currently, the company should embark on prioritizing the online email service. The company should likewise pursue setting up the online Paypal type payment system. Evidently, implementing both email servicing and online payment servicing will generate high probable that USPS will finally generate the elusive net profit figures in the foreseeable future. References: Besley, S. (2008). Essentials of Managerial Finance. London: Cengage Learning. Epstein, M. (2011). Advances in Management Accounting. London: Emerald Press. Herr, P. (2010). U.S. Postal Service. Buckinghamshire: Diane Press. Herr, P. (2009). U.S. Postal Service: USPS has Taken Steps to Strenghten Network. New York: Diane Press. PriceWaterHouse. (2013). The Outlook for UK Mail volumes to 2013. London: PriceWaterhouse. Ross, I. (2012, August 5). What the Postal Service Cant Deliver. Fortune . USPostalService. (2012). Progress and Performance Annual Report to Congress. New York: US Postal Service. Weygandtetal. (2009). Managerial Accounting. London: J. Wiley & Sons . Appendix Table 1 Capital Fund Market Conditions Read More