With postmaster general Patrick R. Donahoe’s somewhat desperate plea to congress to bail out the listing and outdated agency, what impact does the USPS’ precarious financial situation have on supplier relations?

Posted on September 5, 2011


The United States Postal Service is a federal agency, like the other 125 agencies that make up the federal government; so by definition it operates at a deficit.

It is partially funded by proceeds from the sale of mail delivery and associated services but it is also funded in the millions through the OMB for capital improvement projects and related services.

I have worked many government contracting projects to small and large businesses who supply products and services supporting the USPS. Their contracts are governed by the Federal Acquisition Regulation (FAR).

I have found the USPS about the same as any other federal agency – inefficient, in the business of spending money, not saving it, and generally staffed by unmotivated personnel that relish retaining their GS salary ratings and benefits until they retire.

The USPS buys from 61 Offices in the US and as of today has 7 full pages of notices open for supplies and services.

Kenneth Larson’s LinkedIn answer to the question With a $9.2 billion deficit in tow, should the U.S. Postal Service be bailed out by Congress?

As I read the above response to my 49th Parallel Forum post from earlier today something within me tweaked . . .

I can remember a few years ago reading about the purchasing industry accolades the U.S. Postal Service had received for their innovative approach to procurement and overall contracting.

While there was and perhaps still is much for which the agency can be proud pertaining to their accomplishments in this important area, a more pressing question regarding their possible demise is simply this; can a sound purchasing strategy reverse or at least reduce the effects of poor management decisions in other parts of the business and, what happens to those suppliers who in working with USPS over the past few years suddenly find their revenue streams substantially reduced as a result of financial uncertainty?

Specifically, and related to the second part of my question, USPS’ purchasing success can in large part be attributed to their supplier relationship strategy in which the selling side of the equation invested considerable resources to contribute to a more efficient contracting process.  The expected return of course is the realization of revenue from this same relationship.

What happens if the revenue ceases to flow?  Will this have an impact on vendor decisions in the future to make the necessary investment in the relationship with a USPS, especially if some suppliers are left holding the proverbial bag for unpaid invoices by a failing entity?

Let’s face it, the traditional draw of government contracts is that even if paid late, receivables were a sure thing as was the revenue that was generated through the agreements under which agencies and departments acquired goods and services.

Given that many governments are now on the precipice of financial collapse, a fact that was stressed when numerous reports from last year (including posts right here on the Procurement Insights blog) indicated that a number of municipalities and possibly states would have to declare bankruptcy for the first time since the Great Depression, the impact on supplier relations is indeed worth contemplating.

In this week’s series, I will examine the shifting paradigm that is government procurement in the context of troubling fiscal realities in which the financial picture will likely get much worse before it gets better, as well as what it means from both a buyer and supplier perspective.

In the meantime, the following is an excerpt from the September 5th, 2011 49th Parallel Forum blog post titled U.S. Postal Service Shuts Down: Neither snow nor rain nor heat nor gloom of night . . . just a lack of money and responsible management!  Use the following LINK to access the article in its entirety.

The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.

from September 4th, 2011 New York Times article Postal Service Is Nearing Default as Losses Mount

Citing the declining use of conventional means of communicating through regular or snail mail as it is often referred, coupled with an onerous and quite frankly irresponsible no layoff agreement with its workers’ unions, the U.S. Postal Service may not be able to carry on operations by early 2012. The real question is whether or not that is a bad thing?

Somewhere along the line it seems that government-run organizations and more specifically those employed by the government have cultivated an attitude of too big to fail entitlement.

In what is one of those rare, well researched and reported traditional media articles, Steven Greenhouse indicated that Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. He also went on to write that Postal workers also receive more generous health benefits than most other federal employees.

I cannot help but wonder, in what realm does an organization with declining revenues provide its workforce with guaranteed employment and caviar benefits. This is tantamount to a buggy whip company offering its employees a raise after the introduction of the automobile. It just doesn’t make sense!

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