Streamlining Depository Services

Robert Pedersen embarked on an ambitious mission in 2007: to create a centralized and standardized nationwide system of depository services at the financially struggling U.S. Postal Service, where he serves as treasurer. Pedersen aimed to take a highly fragmented organization and centralize operations under the treasury department. In the process, he figured he'd boost efficiencies and cut some costs.

But even Pedersen, who started at the Postal Service in 1983 as an investment officer and was named treasurer in 2002, was pleasantly surprised by the outcome. After the system was implemented in February 2009, he slashed fees by 11%, saving about $3 million a year. He also reduced the number of employees responsible for reviewing account analysis statements and paying bank loans to two from 80. And he dramatically cut the number of people and amount of time needed to do research and reporting.

Robert Pedersen

The project involved big changes, and Pedersen knew he had to win the buy-in of the rest of the organization in order for it to work. In early 2007, he gathered about 30 Postal Service executives from throughout the organization for a day-long meeting in Crystal City, Va. Before the meeting, Pedersen and his staff prepared for any objections that might come up. Then, at the meeting, he laid out the plan and asked people to voice any concerns. "There was some really good healthy skepticism," he says, "But from my standpoint, I welcomed that." Pedersen credits that meeting with helping him to come up with a plan that "met everybody's needs."

The project started with a nationwide solicitation for business from banks, which would be responsible for storing and processing $160 million in cash and checks every day, and armored couriers, which would transport the money from pick-up locations to storage vaults. To handle the myriad bids likely to be made--banks could bid to service all 80 districts, just one, or any combination--Pedersen customized a software system usually used by supply chain managers that allowed the Post Office to track and analyze all the bids.

As it turned out, however, no single bank bid for all 80 districts, because even the largest institutions lacked the vault capacity for the $95 million in currency handled daily by the Postal Service. Even so, the project created substantial efficiencies by introducing one standardized contract, instead of using the previous system, which used separate agreements for nine different service areas throughout the country. To streamline the bidding process, Pedersen required that all bidders bundle prices into nine standardized categories; before, banks had charged a potpourri of prices for the same type of deposit, depending on the area of the country. Ultimately, the Postal Service's business was spread among 15 banks, with the top five handling 73% of deposits--a far cry from the approximately 5,000 depository banks used in the 1990s.

In addition, the Post Office negotiated directly with couriers, instead of having them bid through the banks. "We realized we wouldn't get their best pricing otherwise," says Pedersen. It was a wise move since, as it turned out, most of the ultimate savings came from reduced courier fees. The Postal Service also cut the number of couriers from 11 to seven.

More recently, Pedersen has used the bid-tracking software system to assess the energy efficiency of courier routes. He's been surprised by those findings, too, but isn't ready to reveal them. The system of pick-up and delivery points is, he says, "pretty darn efficient."

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