Royal Mail Delivers Cost Savings

UK postal service achieves ROI with global supply management solutions

UK postal service achieves ROI with global supply management solutions

Pittsburgh — December 15, 2003 — Royal Mail Group plc, the United Kingdom's public mail service company, is working with global supply management (GSM) solutions provider FreeMarkets Inc. to lower the postal service's costs and reduce its supply risk.

The agreement follows the completion of a successful pilot project.

Under the terms of a recently signed agreement, Royal Mail is using the following GSM solutions: FreeMarkets FullSource, FreeMarkets QS and supporting services,

"We are reinventing our business to meet the changing needs of our customers and the demands of competition," said Peter Stevens, procurement head of Technology Development and Exploitation at Royal Mail. "In particular, Royal Mail is embracing solutions from FreeMarkets to generate major savings and efficiencies."

Under the terms of its agreement with FreeMarkets, Royal Mail is using a suite of FreeMarkets solutions, including FreeMarkets FullSource.

FreeMarkets said its FullSource set of services combines technology with expert services in hundreds of spend categories, industry-specific program management, global market operations services, information and knowledge about specific commodities and supply market dynamics.

Royal Mail said it has already identified savings of approximately GBP 2.5 million through three FullSource projects, of which it has implemented GBP 2 million. "That has given us a return-on-investment of approximately 17-to-1 based on the identified savings and 13-1 on the implemented savings," Stevens continued.

In one event for international air freight, Royal Mail said it achieved savings with the FreeMarkets software despite a tough market environment. "Due to the decline in transatlantic travel and consequent cancellation of many flights, air freight capacity has significantly decreased. So the buying team expected price increases on North American lanes in particular," said Stevens.

"We contacted 70 airlines and agents and 25 participated in the online event for more than 100 individual lanes connecting three UK origin points with 40 destinations in 24 countries," Stevens recalled. "Suppliers bid by lane, and by loose kilogramme or by ULD, allowing us to calculate the most efficient transportation mode through a built-in formula."

At the conclusion of the project, Royal Mail identified savings of 9.4 percent, and a 30-1 return on investment.

As part of its agreement with FreeMarkets, Royal Mail is also using FreeMarkets QS, a sourcing application. To date, Royal Mail has completed approximately 28 projects using FreeMarkets QS, and identified savings in excess of GBP 800,000.

"We've found that an extraordinary range of goods and services are suitable for online bidding events, from international air freight to pillar box locks," said Stevens. "All of these savings mean reduced costs and greater efficiencies."

Shane Tulloch, senior vice president and managing director, FreeMarkets Europe, said, "Royal Mail saw the value of technology-based sourcing early on, and has aggressively adopted and implemented a combination of software and services to drive savings and process efficiencies."