By John Sheehy. President, NSRMCA.
Have you ever wondered what the difference is between lowest price and best value? On the surface, it would seem in most cases the lowest price is the “best value”. I can think of many instances where the lowest price is not always the best value. For example, there was a test I read about recently where two tires were compared. One tire was significantly lower in price than the other tire. One would think that the lower priced tire was the best value, except that during operational tests the more expensive tire proved to offer better fuel economy. The improved fuel economy when extrapolated over the life of the tire showed the more expensive tire had a significantly lower total cost of ownership than the cheaper tire. Can a process like this really be a successful way to evaluate a contract?
During the very well attended Las Vegas Regional meeting, the 5 contracting officers tag teamed a very informative presentation revolving around best value in postal contracting. Preparing a transportation proposal today is much more involved than just presenting your best price. Price is certainly a very important factor but the ability to show lowest cost or best value looks to be what the contracting officers are challenged to evaluate today. I believe this is great news for an industry that has been driven to very low to zero operational margins over the past 10 years.
As a supplier, you are now challenged to present a case that you are the best value to the USPS. This still may be lowest price, but the other factors that will come into play. An example will be Environmental Sustainability. In a proposal, the supplier will need to present their plan to be environmentally sustainable. This may mean the ability to use alternative energy, which was another topic discussed in depth at the meeting. Or it may mean the supplier needs to present a plan on how their company plans to be more fuel efficient or how tires or other items are recycled. Sustainability is not just the use of alternative fuels it can be way more involved than that. Past performance will be documented and evaluated to make sure the supplier can provide the service standards required in the solicitation.
Another item that will have a bearing on a successful offer will be the capabilities and the financial strength of the business. The USPS wants suppliers that have organizations that promote good business practices, are able to evolve and make changes and can survive financial challenges as needed during an ever changing business environment.
These are great strides being made in the industry, but like all other evolutions there can be some pitfalls. Eval- uations if not completely quantified can be very subjec- tive. One need not go far to find great examples of the difference between subjective and objective. In sports a good example of objective would be a football game where the winner is the team with the highest score, while a figure skating event is subjective to the judges scores. I would contend the new bidding process is more like the figure skating event, and could lead to some unintended consequences down the road.
Working in this new environment will certainly have its own set of challenges. Learning how to make a very objective proposal will be key to your future success. This will mean a supplier will need to track more data, know how to present that data and run the business very professionally. Understanding of the operational requirements of a proposal; knowing what is most important to the contracting officer for a specific proposal. What things have the most value in a proposal; does sustain- ability have more value than lowest price for example. Will you be able to show the contracting officer that over the term of a contract that a higher initial price has a lower overall cost similar to the tire example above? These are the challenges facing all of us.
I am very encouraged by the direction the industry is heading. It will not be without its challenges, but we are on a new and exciting path. Working cooperatively is moving the industry forward. Thank you to all who attended a very successful Western/Central regional meeting.
By John Sheehy; President, NSRMCA
Postal suppliers who have been around for a few years know that the changes occurring around the Postal Service has definitely increased the number of service change requests. The stability the industry once enjoyed has been replaced by a much more fluid system. The suppliers and the Contracting offices have all struggled to keep pace with the direction of the USPS.
In any changing climate, adaptation is one of the hardest things to control and perfect. As participants in this process, everyone (suppliers and USPS) has had to relearn how to work together. Many of the processes have changed or have been adjusted. In many instances suppliers were not accustomed nor equipped to handle the multitude of changes being requested. Contracting offices were severely understaffed causing delays in negotiations, renewals and payments. To say the climate has been tense is probably understating the magnitude of the situation.
The association and the leaders of the USPS have challenged each other to work closer together. Decisions have been made to educate each other, understand the goals and challenges that need to be addressed. The environment that has been created over the last few years is a healthy cooperative one. The business partnerships that are developing will serve the industry well moving forward.
A discussion of changes cannot be fully developed unless an understanding for “what” and “how” is addressed. Most of the industry understands the common acronyms used. SCR for example means “Service Change Request”. Most are familiar with this term, but do we understand what it means. An SCR is a process wherein the Contracting Office notifies the supplier that a change in the service is requested. The change might include a schedule change, stop changes, addition or subtraction of work being done, equipment modifications etc. In this situation the contracting office and the supplier are required to come to a mutual agreement for the service and the future payments. (Dave Hendel has written and presented on this topic many times) What is important to understand is that this request has to come from the Contracting Office.
Unfortunately the Contracting Office does not make the changes that the supplier is being asked to do; that comes to them from operations or networks. There is confusion of who needs the changes, who orders them and who is ultimately responsible for changing the contract. This is what has caused the industry many of its heartaches recently.
Getting to the point, as suppliers we need to understand the process. Recently a new acronym was introduced that may help all of us understand how to deal with all the requests and how to insure they are being executed correctly; UCC (Unauthorized Contractual Commitment). There is a distinct difference in an SCR and a UCC and understanding the difference can make all the difference working together with your CO and local offices.
Many of the Suppliers work very closely with the local offices, which in most cases this a great thing and keeps the mail moving effectively. However, if a local office or someone from networks asked you to change the service you provide on your contract and it is not a temporary change (backed up by a 5397 form for exceptional service) then you are most likely in a UCC situation. The contracting office cannot deal with a UCC because in many cases they do not know the UCC exists, and the opportunity for a mutual agreement did not take place. The supplier now is at risk of not being paid for this additional work, and the USPS may not get the financial benefit of reduced work.
So what should the supplier do when this happens? The contracting officer is the only person that can change your contract. Understanding this will greatly improve your chances for a successful mutually agreed future contract and a continued good relationship with your local offices. If a supplier is asked to change the work being done going forward by someone other than their contracting officer, the supplier should inform the requester (in a businesslike respectful manner) “I am happy to provide the service as soon as I get permission from my contracting officer.” Then the supplier should contact the contracting officer preferably by email, noting the contract number in the subject line, outline the change that has been requested, estimate the potential cost differential caused by the change and the timing of the start of the service requested. This will provide you and the contracting officer a written trail of the transaction. The contracting office will respond to your email as soon as possible with a yes or a no. Only after the supplier gets the nod from the CO should they start the service. Once the service is started, the SCR should follow then negotiations for a mutually agreed change should take place. Of course negotiating the change before operations is the best and least risky scenario for both the supplier and USPS.
The United State Post Office is rolling out the Dynamic Routing Optimization (DRO) contracts in select cities in the US. The DRO contracts are cost-saving measures designed to minimize the total mileage and equipment requirements for the area-wide deliveries to postal facilities.
LoadTrek is currently involved with the DRO project in Dulles, VA, and through this project, we have refined our understanding of DRO contracts. In this post, we discuss our insights and important implementation details to consider in executing DRO contracts.
Read the entire article here……
The National Star Route Mail Contractors Association will hold their annual Western/Central meeting in Las Vegas January 12-14. The NSRMCA is the association that represents contractors in all states, provides a forum for contractors and the USPS to work together, delivers education opportunities, and advocates on behalf of USPS contractors.
LoadTrek is integral to the success of USPS contractors – helping plan, execute, and analyze postal operations. LoadTrek will be represented by Egor Korneev, Laurel Ghosh-Roy, and Joel Beal.
To arrange a meeting while in Las Vegas, contact us.
To learn more about the NSRMCA, click here.
The National Star Route Main Contractors Association will hold their South/Central region meeting in Memphis. We will be meeting at the Memphis Marriott East Hotel; 5795 Poplar, Memphis TN. We start at 0830 on Thursday November 13, and finish at 1200 Friday November 14.
Joel Beal will explain the upcoming Hours of Service exemption request for US Mail. Egor Korneev will present ELD Basics.
From the Post Office side, Jennifer Stevenson will present the USPS’ new Dynamic Routing Plan. Contract Officer Keith Harris and Highway Specialist Doug Veatch will be speaking about their respective areas.