A Question of Survival: How Postal & CEP Companies are transforming their business models

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  Based on a SAP sponsored survey by Pierre Audoin Consultants, this White Paper describes how Postal & CEP companies are transforming their business models and monetizing digital services to offset declining revenues from traditional postal services.
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  • 1. White PaperA Question of Survival: How Postal &Courier Express Parcel Companiesare Transforming their BusinessModels • Challenges of Postal & CEP Companies • A Selection of Innovative Solutions to meet these ChallengesMarch 2012
  • 2. White Paper Postal & Courier Express Parcel Companies March 2012Table of Contents1. Introduction........................................................................................................................ 42. Executive Summary .......................................................................................................... 43. State of the Postal & CEP Industry.................................................................................. 54. Major Common Challenges and Trends in the Postal and CEP Industry .................... 6 4.1. Market Liberalization .................................................................................................................6 4.2. Technological Change...............................................................................................................7 4.3. Changing Consumer Behavior ..................................................................................................7 4.4. Compliance With Regulations ...................................................................................................8 4.5. IT Challenges ............................................................................................................................95. Responses to Challenges: Diversification and Innovation......................................... 10 5.1. Business Diversification ..........................................................................................................10 5.2. Save Costs – Raise Efficiency.................................................................................................14 5.3. Reorganization of Business Processes ...................................................................................14 5.4. Sustainability ...........................................................................................................................15 5.5. Diversification vs. Core Business ............................................................................................166. DPD – Success Story ...................................................................................................... 177. Conclusion ....................................................................................................................... 198. About SAP........................................................................................................................ 20© PAC 2012 www.pac-online.com
  • 3. White Paper Postal & Courier Express Parcel Companies March 2012Table of FiguresFig. 1: Major business challenges for postal and CEP companies impacting the business model.......................................................................................................................... 6Fig. 2: Contribution of postal services, parcel services and banking to the overall revenue of La Poste in 2003 (inner circle) and 2010.................................................................... 7Fig. 3: Highly secured end-to-end shipping process ............................................................. 9Fig. 4: Classification of selected postal and CEP suppliers ................................................ 10Fig. 5: How strongly are these challenges influencing your current business? (answers from interviews conducted with big postal and CEP companies) ..................................... 15© PAC 2012 www.pac-online.com
  • 4. White Paper Postal & CEP Sector March 2012 1. INTRODUCTION 4 The purpose of this white paper is to point out the main challenges of postal and CEP suppliers and what kind of capabilities companies require to stay competitive in this rapidly changing market. PAC conducted a number of interviews with business decision makers from Strategy & Innovation, Marketing, Pricing and Financial departments as well as IT managers in order to obtain the whole spectrum of the changing requirements and market drivers influencing the organization, processes, and finally IT systems. Numerous examples will provide you with insights into how diversified the market and its services already are and what impact this has on the internal processes of companies in this sector. The graphs presented in this white paper provide you with the most important trends. However, they do not fulfill statistical investigation rules, they rather provide a deep insight into the challenges and resulting business models/ services. 2. EXECUTIVE SUMMARY The challenge which the postal sector is facing is that competition is increasing through market liberalization. At the same time markets and competitors are becoming more international and long-standing business models have come under pressure from new digital opportunities. Postal service providers are therefore obliged to actively adapt to change, as their traditional mail business has been declining for many years. The CEP market is a rather fast growing sector, profiting from the ongoing increase in international trade. In addition, the online retailers gaining ground are generating further growth in the national and international parcel segment. Competition is intensifying and thus there is a need to enhance and change business models, by creating new services. This shift is pushed and enabled by the use of modern technology. In this white paper you will find a number of examples describing the diversification process in this rapidly changing industry and some recommendations on how to expand the business portfolio. The paper is complemented by a case study of DPD GeoPost (Deutschland) GmbH, a company that managed to streamline its applications for changing business needs.© PAC 2012 www.pac-online.com
  • 5. White Paper Postal & CEP Sector March 2012 3. STATE OF THE POSTAL & CEP INDUSTRY 5 Postal institutions are part of a regionʼs capital infrastructure and transportation networks. The companies have an intermediary role and effect the exchange of goods, information and money between consumers and companies as well as social communication. Courier Express Parcel (CEP) services mostly operate distinctly from traditional postal services, providing a higher level of speed and reliability. The main tasks of courier services are the seamless and efficient coordination of collection, transportation and delivery of all kinds of items. They have explored and developed a niche for urgent exchange of physical communications, making it into a billion-dollar global business. Postal and CEP services are part of the fabric of peopleʼs daily lives. Even in the digital and electronic age, postal and CEP remain the most accessible means of communication, parcel and message delivery available. Since the mid-1990s, a wide variety of influencing factors have caused postal services to re-think their role in the communications market. Impacts such as direct and indirect competition, the privatization of postal services, especially in industrialized countries combined with the separation of operator and regulator roles, customer demand for better and more reliable products, as well as the emergence of new communication technologies, have forced postal services to change their operational and financial strategies in order to remain competitive. In an increasingly liberalized market, postal and CEP services have become more vulnerable. At the same time, opportunities have arisen to exploit new markets by taking advantage of technological advances.© PAC 2012 www.pac-online.com
  • 6. White Paper Postal & CEP Sector March 2012 4. MAJOR COMMON CHALLENGES AND TRENDS IN THE POSTAL AND CEP INDUSTRY 6 4.1. Market Liberalization The European Union, for instance, will have completely deregulated the postal sector by 2013. In this liberalized market, the main challenge for the legislator and postal companies is to create the preconditions that will make it possible to continuously guarantee high-quality, self-financing basic postal and logistics services. In recent years postal companies worldwide have been forced into reforms by the emergence of the private sector as a dominant force in the transportation and communications sector. In addition, lobbying groups composed of private couriers claimed that a level playing field was needed, and thus actively pushed the reduction of the postal monopoly. The most important point confirmed by all interviewees is that an open postal and CEP market leads to more players in the market and cut-throat competition, and thus forces the players to meet the rapidly changing buying behavior of their customers, reduce costs and drive innovation at the same time. The increase in HR costs, which is the case in many countries, can hardly be offset by pricing measures. Lower Margins! Market Cost Cutting Liberalization! Issues! Technological Business Compliance Change! Model Regulations! Innovation! Changing Globalized Customer Markets! Expectations! Sustainability! © PAC 2012! Fig. 1: Major business challenges for postal and CEP companies impacting the business model© PAC 2012 www.pac-online.com
  • 7. White Paper Postal & CEP Sector March 2012 4.2. Technological Change 7 Rapid technological change has enabled a huge variety of new services through all kinds of channels. Some harbingers have created new services, which forces the whole industry to be innovative as well and make use of these new solutions. Mobile technology has made it possible to handle any kind of service from mobile devices. The creation of digital signatures makes it possible to handle and authorize all kinds of mail online. With the USPS (United States Postal Service) for example, the customer can personalize and buy stamps online and via mobile devices. Not least of all, consumer habits have forced postal and CEP companies to change their business models and diversify their offers. 4.3. Changing Consumer Behavior“We cannot just sell Customer demand for simple solutions is further increasing. There is also astamps.” growing focus on traditional values, such as quality, reliability and security, not least through compliance regulations. The “digital natives” are increasingly“Lawmakers should influencing business models, communication channels and the service levelgrant this agency agreements of postal and CEP services offerings. For some time now, changinggreater flexibility to customer needs have increasingly challenged many postal services. This istarget new revenuestreams and also particularly evident in the decline in over-the-counter business. From 2006 tocontrol operating 2010, USPSʼ overall mail volume dropped by 20 percent, from 213 billion piecescosts” of mail to 170 billion1. The following graph shows the change in the business of Jack Potter, United States La Poste Group in France from 2003 to 2010. Postmaster General Revenue 2010:! €20.9bn! 23.0%! 52.1%! 24.9%! Revenue 2003:! Postal Services! €18bn! Parcel Services! 18.1%! 58.9%! Bank! 23.0%! Source: La Poste Fig. 2: Contribution of postal services, parcel services and banking to the overall revenue of La Poste in 2003 (inner circle) and 2010 1 Source: USPS © PAC 2012 www.pac-online.com
  • 8. White Paper Postal & CEP Sector March 2012 Traditional physical postal and payment transaction services in many areas are subject to pressure from new electronic alternatives, such as email, text messaging, e-banking/mobile banking and social media. The digitalization of our 8 everyday lives is being driven by the exponential development of technology, such as processor and memory capacity, bandwidth, wireless communications and mobile devices. This is leading to increased efficiency and a steady reduction in the threshold for replacing physical data media. The diversification of the market and new technologies enable new services to be offered to customers. In order to stay competitive, it is necessary to integrate services in bundles, which is a further move to diversification. The bundling of services results in a requirement to optimize the pricing and rating of services; pricing must be as flexible as possible to meet customer expectations and business goals. Some services also include partners that deliver content or services; sophisticated revenue sharing models are necessary to ensure payment of partner commissions and royalties. In addition, billing and invoicing processes must be optimized to manage the transaction volume resulting from the introduction of new services and bundles. Enterprise customers need an immediate response within 24 hours to requests for quotes, and expect highly personalized services. 4.4. Compliance With Regulations Another challenge is the interplay between competition and the basic service, i.e. the need to fulfill not only the requirement of the legislator and the government to provide a basic nationwide service, but also international compliance standards. After 9/11, postal and CEP providers are no longer allowed to deliver items to all countries in the world. Moreover, every item sent must be traceable. A parcel is initially checked by cross-checking with terrorist lists. Then the freight will be picked up at the supplierʼs site (only indoor) and every single step is checked and documented via scan. Track and trace requires modern technology solutions and, in the best case, scanning of various different items from different suppliers can be done from only one device. The billing of the service takes place after parcel delivery.© PAC 2012 www.pac-online.com
  • 9. White Paper Postal & CEP Sector March 2012 Security check of the parcel! 9 Send to the receiver! scanning! scanning! Sender: Hub! Company / Private Shipments! Receiver! Customer! Send to the hub! scanning! scanning! Only in-house pick- Only after the final up and scanning delivery and last at customerʼs site! scanning the bill will be processed.! Fig. 3: Highly secured end-to-end shipping process 4.5. IT Challenges Many postal and CEP suppliers have a highly heterogeneous IT landscape, with multiple solutions from different IT suppliers, combined with homegrown IT solutions. In addition, many companies have decentralized IT systems or are in the process of centralizing the solutions. Compliance to regulations needs to be reflected in business applications. With the rapid evolution of products and services, IT needs to support their introduction to the market and most importantly support all kinds of customer-oriented processes. A customer-centric approach implies the use of CRM solutions, which especially in the postal and CEP industry need to integrate all marketing/sales channels. CRM solutions can be leveraged to help offer the most appropriate quotes and pricing for each customer. Finally, effective billing/charging and revenue and expense management solutions as well as partner financial management need to be in place and integrated into the ERP systems. In order to be able to perform seamless billing, an integrated end-to-end solution is required including pre-paid and post-paid charging models. Many billing applications have been built in-house so far and require modifications or even replacement in order to support new business models and help maintain competitive advantage in the long term.© PAC 2012 www.pac-online.com
  • 10. White Paper Postal & CEP Sector March 2012 5. RESPONSES TO CHALLENGES: DIVERSIFICATION AND INNOVATION 10 5.1. Business Diversification Postal operators are diversifying in two ways – by products and services or geographically. Many players add new services to their core business or even innovate their core business services by using new technologies. Postal operators can be classified according to their chosen mix of diversified services (financial, CEP, government services, mobile services, direct marketing, etc). Deutsche Poste Austrian Swiss Classification Post /DHL Italiane La Poste Post Post TNT DPD Mail 27% 18% 52% 59% 32% 56% 8% Parcels 21% 5% 23% 24% 7% 41% 75% Logistics & Freight 27% - - 10% 5% - 10% Telecommunication - 1% - - - - - Postal Financial * 74% 25% - 27% - - Services Online Services < 1% 1% - - - - - Others 25% 1% < 1% 7% 29% 3% 7% International Business 68% n.a. n.a. 31% 14% 32% 24% * Deutsche Postbank generated about 15% Deutsche Posts revenue before it was sold to Deutsche Bank © PAC 2012 Fig. 4: Classification of selected postal and CEP suppliers CEP Competition is becoming more intense in the national and international CEP market, leading to growing pressure on prices. Business customers are especially sensitive to prices, but continue to expect a high level of quality. The parcel sector continues to evolve in a very competitive environment. Posts in many countries have seen their domestic and international parcel volumes grow for over a decade, in particular thanks to quality-of-service improvements and eCommerce developments. In the European Union (25 states) the number of domestically sent parcels increased by 43% from 2000 to 2010. Private operators own a large share of this market. Standardization of parcel sizes and weights has resulted in higher volumes. The CEP market as a whole has huge growth potential, which will be enhanced by the increase in cross-border commerce. AT Kearney, for instance, expects an© PAC 2012 www.pac-online.com
  • 11. White Paper Postal & CEP Sector March 2012 annual increase of the CEP market in Europe by 4%2. Other industry analysts forecast a CEP CAGR (compound annual growth rate) from 2005 to 2015 in Asia of 15%. The challenge for CEP companies is to convert customersʼ global 11 procurement requirements into new, profitable value-added business models. TNT, a global express, logistics and mail services company, was able to respond to the need for flexibility by diversifying and proposing new services, such as the transport and exchange of hard disks. The company also provides an on-site repair service for computers with the delivery of spare parts at the same time. The partner engineer is instructed by TNT and goes to the customerʼs site, repairs the computer and returns e.g. the hard disk. Another example is the pick- up of a flat-screen television, its transportation to the company where it is repaired and the subsequent redelivery to the customer. The partnerʼs share of service revenue needs to be calculated in the pricing/charging of the service and finally payment needs to be made to the partner. Depending on the customerʼs requirements and priorities, the pricing model is different. Some customers want prices to be calculated by total time, some want to have travel costs calculated by distance, other services are charged at a flat rate including any hardware parts. These highly complex processes require a flexible pricing/rating and charging model, in order to fulfill a multiplicity of pricing models. TNT has developed a further value-added service in order to create another revenue stream, which is called the “Clinical Express” service for doctors and laboratories: For instance, blood samples must be shipped nationally and internationally at a certain temperature level in a strict and highly secure timeframe. This service is of high value and can thus help finance other service developments. The service can be booked online, via e-mail or SMS, is traceable at any time and guarantees delivery on time. Included is the parcel kit, which guarantees the stable conditions required by blood. This service represents an add-on business, in a high-value segment and needs to be integrated in the whole pricing/billing structure. Financial Services Many postal companies have set up financial services in the last two decades, in order to diversify their business models. The Fre
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