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Our Annual Report
2000 Highlights
Letter from
the Postmaster General/CEO
2000 Year
in Review
Delivering
the Future
The Governors
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Audit Committee
Financial
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2000 Annual Report
- page 34 of 70
Expense Growth in 2001
We expect the cost pressures that made a major impact on our 2000
bottom line to continue. We estimate that our total expenses will
increase 5.6% in 2001. The majority of this growth, however, is
due to inflation in labor cost or related to servicing an ever-expanding
delivery network, which will grow by approximately 1.7 million new
delivery points, the equivalent of 3,400 new delivery routes.
Approximately two-thirds of our expense growth is driven by compensation
and benefits, which will increase because of new labor contracts,
health benefits and other pay-related expenses and not from a growth
in work hours. Our planned 1.5% reduction in work hours in 2001
will be the second year in a row we will have reduced work hours.
Including this decrease in work hours, we have built productivity
improvements of over $1 billion into our 2001 plan. The major portion
of the remaining expense growth is for nonpersonnel increases, including
depreciation, interest expense, fuel cost growth in programs such
as eBusiness and the expansion of our infrastructure, such as our
Point-of-Service (POS) ONE equipment.
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As we increase productivity and reduce our number of work years,
we will achieve cumulative savings of over $1 billion for 2000
and 2001. The red bars indicate added costs as a result of the
increase in number of workyears. The green bars indicate a substantial
savings. |
Productivity
Productivity is a measure of our internal efficiency. We use several
measures to track productivity, including the Total Factor Productivity
(TFP) measurement system. During 2000, our TFP improved by 2.5%,
which is equivalent to reducing our expenses by $1.6 billion. This
is the highest productivity growth we have achieved since 1993.
TFP tracks changes in productivity over time by measuring the changes
between outputs and the resources used to produce those outputs.
As our output measure, we use the mail volume we process and deliver,
and the number of delivery points we serve. The TFP system takes
into account workload factors such as size (e.g., letter, parcel,
magazine), preparation (e.g., prebarcoding and presorting) and speed
of service (e.g., Priority, First-Class and Standard Mail (A)).
Our resources measure consists of all the labor, capital and purchased
goods and services (materials) we use in providing our services
and supporting our operations, including all our equipment, facilities,
transportation, other nonpersonnel costs and indirect costs such
as headquarters expenses. It is not uncommon for TFP growth to fluctuate
from one year to another. Over the long run, a successful organization
will average positive growth in productivity.
When compared to other years with strong positive TFP growth, our
achievement in 2000 was significant. During the 1990s, our TFP grew
an average of 0.2% annually, while our workload grew an average
of 1.9% annually. In 2000 we achieved TFP growth of 2.5% in spite
of a below average workload increase of just 1.9%. In previous years,
our strong TFP growth was fueled largely by the growth in our workload.
In 2000, we substantially reduced the resources we used, which led
to a strong growth in productivity. During the 1990s, we laid the
groundwork for future increases in productivity by investing heavily
in upgrading our infrastructure and improving and expanding our
use of automation and mechanization. In 2000 we saw the results
of these investments.
Our productivity can be benchmarked against Multifactor Productivity
(MFP), a productivity measure used for the nonfarm business sector
of the economy, which is reported by the Bureau of Labor Statistics.
Both TFP and MFP are best used to analyze long-term trends and are
not effective as short-term measures or snapshots in time. From
1990 through 1999, MFP grew an average of 1.1% annually, while TFP
grew an average of 0.2%. When benchmarking Postal Service TFP growth
against MFP growth, we must take into account the impact of the
worksharing discounts we offer mailers. With the worksharing discount,
the mailer receives the prime productivity improvement opportunities
that go with automation-compatible mail. Thus, our worksharing discounts
improve the productivity of the economy as a whole but are not reflected
in our TFP.
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