To Cut or Not to Cut: That’s the Negotiating Question

Filed under Supply Management  

Picture of scissors cutting dollar sign

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.

Will this cost cutting initiative work for the Postal Service?

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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).

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Permalink | Comments (29) | Jun 15, 2009

 

 

29 Responses to “To Cut or Not to Cut: That’s the Negotiating Question”

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  1. 29
    Joe Says:
    July 20th, 2009 at 9:16 pm

    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.

  2. 28
    mike1870 Says:
    July 20th, 2009 at 7:58 pm

    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?

  3. 27
    RARC host Says:
    June 20th, 2009 at 11:34 pm

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

  4. 26
    RARC host Says:
    June 20th, 2009 at 11:30 pm

    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.

  5. 25
    RARC host Says:
    June 20th, 2009 at 11:25 pm

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

  6. 24
    RARC host Says:
    June 20th, 2009 at 11:23 pm

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

  7. 23
    RARC host Says:
    June 20th, 2009 at 11:20 pm

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

  8. 22
    RARC host Says:
    June 20th, 2009 at 11:18 pm

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

  9. 21
    George Says:
    June 18th, 2009 at 11:02 pm

    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.

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