Companies Save Millions By Transitioning Tasks To The Internet


Commentary By Keith Bernard

CaribWorldNews, NEW YORK, NY, Fri. May 8, 2009: Sally is an administrative assistant at a large and successful law firm located in New York City. She spends approximately an hour and a half each day tracking and shipping mail and packages using the websites of UPS, FEDEX, USPS, and DHL.

Several years ago those companies employed hundreds of customer service reps to provide clients like Sally with the services she now performs. In many cases the customer service reps were fulltime employees that earned a decent wage. The law firm now pays for the portion of wages or labor costs associated with that part of the shipping process instead of utilizing the services of freight companies. Moreover, the unit costs of labor for Sally’s portion are far more expensive since her wages are at a higher rate.

Evidently, what has occurred is a shifted of costs associated with wages and benefits from freight companies to Sally’s employer and all the customers doing business with freight companies. The shift is ubiquitous in every aspect of the services provided by these companies. Sally inputs the pertinent information using her company’s computer via an online service paid for by her company; she prints the labels on the company
printer with company bought paper. The indirect costs are sometimes overlooked because customers feel they are in control. In addition, the freight companies entice their customers to use the internet via a `reduction` in shipping rates.

According to a BusinessWeek article dated 2/21/00, `A UPS Self –Service Package tracking system for customers (that IBM built) saves the shipping company $450,000 a day in customer service expenses.` The number could be in the millions for the industry as a whole.
The enormous amounts of savings enjoyed by the freight companies have not gone unnoticed by other companies in other industries. Airlines have shifted the wage costs to customers by giving them the ability to book, purchase, and print their tickets and boarding pass using their personal computers or kiosks.

According to a BusinessWeek article dated 7/7/03, `industry wide online ticket sales save carriers an estimated $200 million [in 2003] a year. By eliminating steps such as printing and mailing tickets for less than $1, vs. $6 to $8 for paper ones.`

Is this really the case? What about the costs associated with connecting to the website and resources to print the tickets? As aforementioned, there are indirect costs associated with the shifting of tasks to the customers. There is enough evidence that companies continue to shift costs associated with workers, especially costs of wages and benefits. Moreover, there is a defacto loss of income tax revenues (to governments) in the aggregate associated with the `temporary
employment` of customers by companies.

The commoditization of many tasks has had a negative impact on the wage rates of those currently employed in the respective sectors. For example, the airlines shifting ticketing to the internet has resulted in the decline in the demand for employed travel agents; consequently the wage rates offered to travel agents seeking employment have reduced overtime.

Besides, technically the customer has assumed the duties of a travel agent i.e. the profession has now been made extinct. Moreover, if you call your local cable or internet provider regarding a service problem you will be directed by some rep to unplug the connection from the respective boxes; count to ten then plug the cable back into the connector in the center then click some switch or read off the serial number on the box then download the upgrade off the internet albeit you called about a connection problem – the rep ( he/she) is sitting in a comfortable chair while reading the `fix it ` manual to you. Wages and benefits are the largest line item on a company’s P&L.

As such, it becomes the `low hanging fruit` when it comes to reducing operating costs. Nonetheless, shifting a portion of those costs to the customer is not really solving the issue of efficiency. However, passing the buck to another employer would cause him to reduce his costs (wages) since the company’s core competence sufferers due to valuable
resources being utilized on other tasks such as shipping etc. Unless the customer becomes enlightened with the indirect costs associated with the shifting of tasks by suppliers to customers, I see this trend continuing because of the perceived savings on prices.

Is there the potential for a class action suit by customers for lost wages associated with being temporarily employed by service companies? At least we are able to calculate the unit price of labor (wages) given that companies still employ workers to service those who refuse to accept the responsibilities of doing it themselves. This attempt to go against the flow causes angst given the lengthy time it takes to speak with a human, that in most cases are employed by a third-party, in a foreign country. The latter is known as outsourcing i.e. another way for employers to reduce wage costs.

EDITOR’S NOTE: Keith Bernard is a Guyanse-born, NY-based credit analyst.

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