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Affordable automation

Postal and Parcel Technology International talks to Frank Cianciullo about what opportunities posts in developing countries have when it comes to investing in automation technology

 

Can automation be affordable for developing posts?
It depends on the definitions of ‘affordable’ and ‘developing’, as well as what type of ‘automation’ are we talking about. Generally, investing scarce funds in mail/parcel processing equipment is ill advised where labor cost is low and job creation is important.

‘Developing’ is a question of economic activity. In smaller markets, where there is low economic activity – measured by GDP at purchasing power parity (PPP) – there is corresponding low volume of lettermail and parcels; the bulk of the mail is from incoming international parcels. Middlemen are servicing the e-commerce markets – FedEx, DHL and other premium postal operators skim off the cream of the postal business in 34 out of 50 of the world’s poorest countries in Africa, Asia, the Pacific and the Caribbean, where the annual GDP-PPP per person is less than US$3,000. However, there is still great opportunity for posts.

When it comes to investing in automation, posts do have choices in point-of-sale software. There are numerous free and low-cost retail POS systems, although these are more applicable to restaurants, coffee shops, convenience stores and small retail. Even here, the ongoing cost for a network of 20 stores can cost about US$1,000 per month. The software covers sales, discounting, inventory, cash managements, reports, etc. However, these low-cost systems don’t have postal applications, particularly track-and-trace and postal boxes. Moreover, debit, credit and mobile money may be difficult to integrate. Most of these software applications are also limited to Android or iOS tablets or smartphones and are not hardware or operating system agnostic.

There are a handful of players in the lower-cost, postal-software space: Post Global (Reason Solutions), Swift Postal (Ascent Software), Escher Group, and others. The more robust solutions provide added functionality options.

The issue becomes what is included and how to pay for it. All companies have configuration, network setup, hardware configuration, admin, training and support. They are unlikely to sell without some funding up-front to cover these costs. Guaranteed payment can be challenging for some posts. Those that have automated have had to pay for the system themselves, through their government, and not usually through international organizations.

To address affordability, some suppliers will accommodate various financing options:

• Only buy certain modules: It costs less at first, but if posts add all the components required to actually grow the business and be self-sufficient and help the country develop its economy, it may cost much more than comparable software.
• Lease: This option comes with end-of-period purchase over a number of years. This will cost more in the end because of the added financing costs.
• Pay-as-you-go: This option is also called the pay-per-click or the operational/volume/transaction model. This model also has its challenges, particularly if there is no cap or an end-date to the continuing payments.

 

What automated solutions should the smaller/less developed posts invest in, if they only have money to invest in a few solutions? Which ones should they prioritize?
The primary focus should be on:
1. Track-and-trace to win back high-margin priority mail from the competition (many posts in smaller markets already use the UPU’s IPS Post Software for their EMS track-and-trace product).
2. Money-transfer/payment for remittances, which are a big opportunity in developing countries (the UPU’s International Financial System application or IFS is a standalone application, which takes care of the electronic transfer of international money orders).
3. Customs integration is important to increase exports, grow micro, small and medium enterprises (MSME) and spur the country’s economic development.
4. Addressing/delivery methods to improve service (it could include What3Words addressing; and delivery staff could use an app on their personal smartphones).

However, to thrive and help their country develop, these posts must diversify beyond postal into products and services that people need, want and are willing to pay for, such as mobile money transfers (MoneyGram/Western Union/RIA), postal e-services, Exporta Fácil (which simplifies the documentation needed to export products), agency services, financial inclusion services, micro-loans, micro-insurance, e-commerce, SMS marketing, internet, phone charging, bill payments, pension distribution, trade facilitation, selling competitor products (FedEx, DHL), selling needed retail products (solar lanterns and radios, water purifiers, reading glasses, health and beauty products, mosquito nets, etc) and more.

These posts need point-of-sale software that will help them standardize their processes and allow them to sell new products/services that can make them viable within 5-10 years.

 

How do you believe the less developed posts can invest in automation? Should government/unions be helping them?
It is clear that these posts can never move forward without international help. What is needed is a post-World War II type Marshall Plan or ‘Point-of-Sale Incentive Program’ led by the UPU:

1. The UPU obtains commitment for funds. Technical assistance aid given under this Incentive Program could be available from international organizations such as the UPU Quality of Service Fund, the UN and its agencies, the World Bank, development banks, donor posts, foundations and philanthropic institutions.

2. The UPU issues two RFPs – one for software and one for hardware. The UPU would negotiate and approve POS software and hardware that meets requirements such as:
• Basic services: postal services, PO Box management, track-and-trace, money orders, money transfer, methods of payment, sale of products, customs form and transfer, bill payment/agent services, banking and mobile money for corporate and franchise locations
• Reporting: End-of-day processing, balancing and reporting by post office, accounting for deposits, banking and inventory management;
• Reasonable cost to add new functionality;
• Software licencing at minimum charge per location per year;
• One-time set-up cost;
• Ongoing support;
• Hardware package that includes scanning, receipt printing, scale label printer report printer, UPS, customer display, touchscreen display.

3. Posts would fill out a template application for grant. Posts would be able to receive grants to cover software and hardware for their major post offices. However, the grant should be tied to postal reform and the UPU’s acceptance of a 5-10-year business growth plan leading to self-sufficiency, implementation plan and management performance targets with monthly, quarterly, semi-annual and annual milestones.

4. The UPU would approve the application for grant. The country would agree to return portions of the money if the annual milestones were not met.

5. The software and hardware would be installed and the UPU would pay.

6. UPU would provide ongoing coaching support to ensure that committed milestones are met.

 

Is it worth the smaller/less developed posts investing in automation? Or should they be focusing on different areas?
Mimicking the strategies of posts in industrialized markets is futile. These posts face significant and different challenges and have few opportunities. They must chart their own course in a very different direction.

It’s already a proven fact that progressive posts that introduced disruptive innovation strategies got ‘sustainable development’ results. All posts can be the economic driver for their country and governments should recognize this. For example:

• Brazil’s Correios launched Exporta Fácil. It gave over 10,000 SMEs access to foreign markets. In Ecuador, Exporta Fácil tripled the value and volume of exports in two years.
• Many posts have fostered financial inclusion by forming banks or partnering with banks. Correios partnered with the Bradesco bank creating Banco Postal. New businesses increased by 23% and job creation increased by 14%. Banco Postal now has over 11 million accounts. In four years, Poste Maroc’s Al-Barid Bank’s has increased the number of banking citizens from 34% to 62%, adding 500,000 accounts per year.

Emerging markets are poised for dramatic growth. Statista projects that, by 2019, out of the world’s 7.5 billion people, more than five billion will use a cell phone. Of those, 2.7 billion will be smartphones. The bulk of the growth is in developing economies. The smartphone is transforming internet access, mobile money, m-commerce, banking, government participation, agriculture, education, health, energy, farming, water management, and more.

Posts can play a key role as a trusted, intermediary institution to help accelerate economic/sustainable development, but they need expensive, standardized, international-quality retail technology.

Technology will also accelerate postal reform. Retail technology will impose reform and standardization, providing: a consistent sales and customer service process; accepted accounting and banking procedures; end-to-end track-and trace of parcels for security and control and for e-commerce credibility; enforcement of import and export controls; an internationally accepted reporting practice with KPIs; a consistent data structure for research and planning; and a wide range of services in support of financial inclusion and socio-economic development. It will also be the basis for postal franchising that will lower operating costs.

These posts want to survive and be relevant again. We must help them find a way to invest in automation.

 

Frank Cianciullo
Frank Cianciullo has over 25 years of experience in the postal industry and is lead advisor at Leapfrog Business Consulting. The firm focuses on postal reform, strategy, technological modernization, product diversification and retail franchising. It has worked with the Postal Administration in Haïti to redefine its USO and now implement its five-year growth plan.

 

April 11, 2018

Read more about affordable automation in the March issue of Postal and Parcel Technology International

 

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