Business

Japan Post to cut procurement costs by 10% to stay in black, Ikuta says

Japan Post aims to slash procurement costs in its mail delivery operations by 10 percent this fiscal year, according to Masaharu Ikuta, president of the new government-affiliated corporation that took over the Postal Services Agency on April 1.

The proposed cost reduction is required to turn around the mail delivery division, which is losing money hand over fist, according to Ikuta, former chairman of Mitsui O.S.K. Lines, Ltd., a leading shipping line.

“There is considerable room for raising productivity through cost-cutting measures,” Ikuta said in an interview this week, although he admitted it will be difficult to drastically increase revenue in the mail business due to the widespread use of e-mail.

The agency’s mail service division reported deficits in fiscal 1998 through 2000, although it returned to profitability in 2001. For fiscal 2002, which ended in March, it is estimated to have sunk back into the red. Japan Post estimates the losses could be as high as 37 billion yen for the year.

How much might be saved with a 10 percent cut in procurement costs, however, is not yet clear. The new company will make top-down decisions to set numerical targets for percentage cuts, while individual sections will then work out concrete measures to meet the targets, Ikuta said.

In fiscal 2001, procurement costs in the government’s mail service included 188.1 billion yen for deliveries and 44.3 billion yen for the purchase of office supplies.

Prime Minister Junichiro Koizumi regards the new body as a stepping stone to the organization’s privatization. Japan Post is still owned by the government but can operate much more flexibly than its predecessor.

Japan Post took over three businesses from the agency: delivery of mail, postal savings and the “kampo” life insurance program. It has some 280,000 employees, 360 trillion yen in funds and a network of about 24,700 post offices across the country.

Ikuta faces a daunting task. He said he must turn the former government agency into a customer-oriented firm by getting rid of its overly bureaucratic culture and at the same time introduce healthy management, just as a private company would.

The organization needs to become “attractive to everybody,” Ikuta said, referring to users, employees and the government.

In its four-year management plan, Japan Post has set a goal of generating 4 trillion yen in cumulative profits, including 50 billion yen from the mail business, by the end of March 2007.

To achieve this, it plans to cut back on costs and increase productivity through a number of measures, including reviewing its procurement methods and streamlining working processes.

Some measures are already being examined. A pilot project to improve postal worker productivity is under way at the Koshigaya Post Office in Saitama Prefecture; the post office is cooperating with Toyota Motor Corp. to determine the most efficient ways of working.

As part of its efforts to reduce wasteful spending, Japan Post will increase the scope of its competitive bidding system for procurements, while an internal committee will examine each procurement that exceeds a set figure.

Ikuta underscored the importance of changing employee attitudes from being bureaucratic to more customer-oriented and freer in expressing an opinion, regardless of their rank. In that sense, Japan Post has made a smooth start, he said.

Because its employees have experience in offering services to end-users, they already have customer-oriented concepts, he said, adding there have already been active discussions among members of the company.

Japan Post employees remain government officials. “But our culture is changing and becoming that of the private sector,” Ikuta said. “I’m not so uncomfortable with that.”

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