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Chapter 3
Financial Highlights

B.Total Factor Productivity

The Postal Service measure of productivity, Total Factor Productivity (TFP), includes all factors of production. TFP measures the growth in the ratio of outputs and the inputs, or resources, expended in producing those outputs. By tracking outputs and resource usage, TFP provides a historical measure of efficiency.

The Postal Service’s main outputs are mail volumes and servicing an expanding delivery network. To account for variations in resources used to process different types of mail, TFP weights each mail type according to its workload content. The weighting is determined by factors such as size; weight; mailer preparation, including barcoding and presorting; and mode of transportation used, such as air or highway. In addition to labor, TFP also measures capital and materials inputs such as mechanized and automated equipment, facilities, transportation, and other non-personnel costs. The Output per Workhour component of TFP uses only labor input as a measure of resource use.

Multiple factors may cause TFP growth to vary in the short term. Expenditures to enhance service and improve customer satisfaction may cause short-term declines in TFP growth. TFP can fluctuate from one year to another because of time lags between making major investments and realizing the associated savings. Consequently, when assessing short-term productivity performance, the factors affecting TFP growth should be taken into consideration. Because TFP can be volatile over the short term, analyses and assessments are best made over fairly long periods of time.

Traditionally, Postal Service TFP has been benchmarked against Multifactor Productivity (MFP), an index of private non-farm business productivity reported by the Bureau of Labor Statistics (BLS). In recent years, MFP has become less useful as a benchmark measure for comparison of Postal productivity because the U.S. economy has become more heavily weighted with high technology goods and services. Therefore, MFP results have been more heavily influenced by that business sector. Productivity growth in the high-tech sector far outstrips that of the industrial and service sectors that are more akin to the Postal Service.

Worksharing discounts for mailers, for example, impact Postal Service productivity performance as these incentives shift a greater proportion of the workload associated with automation compatible mail to business mailers. While worksharing discounts provide cost savings for the Postal Service and enhance the productivity of the economy as a whole, they do transfer the prime Postal Service opportunities for productivity improvement to our partners, the mailers. In contrast, the BLS measure, multifactor productivity, does not factor out self-service or worksharing on the part of the customer. MFP captures the whole of the economy, including productivity that has been transferred between segments.

Table 3-7 shows annual and cumulative TFP and Output per Workhour compared to MFP for 1990 through 2005. Over the long run, a successful organization will average positive growth in productivity, as has the Postal Service, but year-to-year fluctuations in TFP and Output per Workhour are common. Beginning with 2000, the Postal Service has achieved strong growth in both TFP and Output per Workhour.

The Postal Service’s TFP growth of 1.1 percent in 2005 marks 6 consecutive years of positive growth. Output per Workhour growth was 1.4 percent. This 2005 TFP result is equivalent to $749 million in expense reductions. Cumulative from 2000, TFP growth measures 10.1 percent, equivalent to $6.8 billion in expense reductions. Output per Workhour over this same period grew 12.1 percent.

In 2005 productivity growth was driven primarily by workload growth. Mail volume grew by 2.7 percent and delivery points grew by 1.6 percent contributing to a 1.8 percent increase in workload. The Postal Service was able to achieve TFP growth of 1.1 percent by managing an increased workload with a small increase in resource usage. Labor and materials usage increased by 0.4 percent and 2.6 percent, respectively.

The Postal Service plans to continue to improve TFP over time. It is now policy to develop an annual budget each year so that the net income target also yields positive and sustainable TFP growth. This objective is balanced against the need for service improvements to improve customer satisfaction and remain competitive in the marketplace.

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