Thursday, April 10, 2014

The efficiency of the private sector

Via Priceonomics:
In 2004, UPS announced a new policy for its drivers: the right way to get to any destination was to avoid left-hand turns. ...

When better tracking systems emerged in 2001, the package delivery service took a closer look at how trucks performed when delivering packages. As a logistics company with some 96,000 trucks and several hundred aircraft, much of UPS's business can be distilled to a series of optimization problems around reducing the amount of fuel used, saving time, and using space more efficiently. (Trucks in UPS facilities park just a few inches apart with their side mirrors overlapping to save space.)

UPS engineers found that left-hand turns were a major drag on efficiency. Turning against traffic resulted in long waits in left-hand turn lanes that wasted time and fuel, and it also led to a disproportionate number of accidents. By mapping out routes that involved "a series of right-hand loops," UPS improved profits and safety while touting their catchy, environmentally friendly policy. As of 2012, the right turn rule combined with other improvements... saved around 10 million gallons of gas and reduced emissions by the equivalent of taking 5,300 cars of the road for a year.
It probably says a lot about me that I find this extremely cool. I love it when someone comes up with a better way to do something we've been doing the same way for years.

I also love pointing out that it's invariably in the private sector that these innovations emerge. Private companies exist to make a profit, and so they have a huge incentive to figure out more efficient ways to do things. Rethinking these types of things saved UPS a ton of money. That's not only good for their bottom line, but good for consumers as well, as it allows them to keep their prices very competitive.

Contrast this to the Unites States Postal Service, which operates in the red to the tune of a billion dollars a year. The USPS has little incentive to be efficient. It's not their money, and the people who run it aren't really answerable to anyone, so there's no real reason to seek out better and cheaper ways of moving packages.

UPS is able to make money because they provide a superior service. Their continued existence depends on their continuing to provide a superior service. The USPS continues to exist because tax payers are forced to fund it, and because federal law makes it illegal for companies like UPS to deliver first class mail. Who has the best incentive to, er, deliver the best service?

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