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Chapter 5 Our 2007 Performance and 2008 Plan

Increase Efficiency

Increasing efficiency has long been a priority for the Postal Service because it enables affordable services even as the delivery network grows and some components of First-Class Mail volume decline. Price increases for market dominant product classes cannot exceed the rate of inflation, even when the attributable costs of resources consumed by those specific products rise more quickly.

The Postal Service currently measures efficiency using Total Factor Productivity (TFP)5. TFP compares postal outputs, such as weighted mail volume and the extent of the delivery network, against inputs such as capital, labor, and materials used to produce the outputs. Unlike partial productivity measures (e.g., labor productivity), TFP measures the productivity of all inputs. Consequently, when a project replaces one input with another (e.g., automation for labor), TFP captures the entire effect – both the reduction in one input and the increase in the other. This approach allows the Postal Service to measure overall productivity, and to separate out factors that it can control from those, such as the price of fuel or the volume of mail, that are largely externally driven.

TFP Performance


2003 Actual 2004 Actual 2005 Actual 2006 Actual 2007 Plan 2007 Actual 2008 Plan
Improvement 1.8% 2.4% 1.1% 0.4% 1.0% 1.7% 1.0%

Source: Postal Service Financial Reporting and Analysis

TFP has increased consecutively over each of the last 8 years. Because there can be a lag between the spending on certain strategies, such as capital investment, and their impact on productivity, TFP results are most appropriately judged within a long-term view. In 2007, TFP increased by 1.7 percent, 0.7 percentage points more than the Postal Service goal of 1.0 percent. The greater than planned performance was primarily due to a reduction of 36 million workhours.

The updated Strategic Transformation Plan 2006-2010 continues to include a goal of saving $1 billion each year. To ensure this goal is met, the Postal Service will continue to evaluate alternatives for measuring efficiency.

5TFP is similar to the multifactor productivity methodology used by the Bureau of Labor Statistics to calculate national and industry-level productivity. Each component of TFP outputs and inputs is very intricate. TFP assigns weights to different types of mail volume to account for variations in the amount of work it takes to handle a piece of mail. Mail varies by size, shape, weight, preparation levels, and transportation mode. Inputs include all labor, capital, and materials used. Capital includes buildings, land, and equipment. Materials include utilities, supplies, services, and other non-personnel items. Data are derived from a number of audited postal information systems, the Cost and Revenue Analysis (CRA) Report, and General Ledger. Analysis is validated by a leading independent firm of productivity experts.

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