Part of the USPS OIG series on Five Elements of a Postal Solution

The record on competitive postal services is mixed. Private postal operators in Latin America are thriving, while in the U.K. they are lagging. Theoretically, competition increases efficiency. However, the U.S. postal service can now deliver cheaply because it visits every house and every office in the U.S>. six days a week using regularly scheduled routes. Splitting the volume among competing carriers would dramatically increase the cost of delivery per piece, perhaps forcing operators to go to on-demand delivery, like the parcel and express companies.
The Postal service has successfully opened its infrastructure to mailers through work-sharing. To continue to deliver value, extend the useful life of the mail, and bring volume back to the USPS network, the Postal Service should further open its infrastructure (distribution network, data, real estate) to innovative, entrepreneurial private activities that will generate mail. As we show in a recent Mail and Express Review article, these activities could include parcel stations operated by private operators, targeted, customized multi-media campaigns that capitalize on the mail moment, government services, and other innovative uses of the mail yet to be discovered. They key for the Postal Service is to open its infrastructure and make it attractive for the private sector to innovate and invest in the mail.

The International Postal Corporation (IPC) and the USPS’ Office of Inspector General (OIG) have both recently shown interest in the concept of digital platforms and their applicability to the postal world. Professor Marshall Van Alstyne, Associate Professor of information economics at Boston University/MIT, provided both organizations with overviews of his research in this area. Typical examples of digital platforms include desktop operating systems such as UNIX, Mac and Windows; PDAs such as Palm, Psion or Newton; game consoles; payment systems; and mobile devices such as iPhone, Android, Symbian or Blackberry. The success of these platforms has relied on the presence of networks of users and providers, and common components that create sustainable eco-systems. The diagram to the right shows the four key stakeholders of a platform and its supporting eco-system.

• Users, the demand side. These are the target consumers of the platform solutions and services.
• Solution developers, the supply side. They provide services that attract users to the platform.
• Providers. The Microsoft Windows operating system was mainly provided to users by PC manufacturers when they acquired their computers, not directly by Microsoft.  Providers are typically the contact point for the developers and the users.
• Sponsors. Sponsors are usually responsible for providing the overall organizing structure for a platform, its rules and governance.  This may include the original design of the platform and control of its underlying technology and the overall intellectual property rights. A sponsor’s objective is to make other participants see how they are better off by being part of the system rather than outside of it.

What renders a platform successful is the network effect. Users are attracted to the platform because of the innovative solutions it makes available to them. Entrepreneurs and solution developers are attracted to the platform because of the potentially lucrative number of users looking for solutions and value. These desirable network effects do not happen by chance. They are the result of well engineered, well designed rules upon which these platforms are built, and which encourage solution developers to bring their innovative ideas and energy to a platform. These rules basically open the platform to outside private investors by sharing revenue and intellectual property, and by providing the right amount of central development and strategic guidance.

Research shows that the level of openness in governance rules plays an important role in the success of the platform. For instance, the MySpace social network was a closed platform where management required all development to be performed within the company. Facebook, on the other hand, made the decision to open itself to outside applications
and developers. A comparison between the two platforms shows that Facebook’s number of users shot up considerably compared to MySpace once they decided to do this.

Implementing eGov is, by all accounts, a complex and time consuming undertaking.  A recent survey conducted by the UN shows that high income countries are in the lead and that the gap in eGov implementation is widening between developed and emerging countries.

Postal organizations can play a prominent role in extending their core mission and their universal service obligations by offering eGov services on behalf of Government Agencies.

Building on their assets and core capabilities postal organizations can simplify the process of transacting with Government:

• Their network of post offices can serve as a portal to Government.
• Their workforce can be trained to use customized eGov solutions and assist citizen in the process.
• Their distribution and delivery capabilities can serve to pickup, distribute, and deliver the hardcopy documentation that must accompany any Government transaction.

Offering Government Services through the Posts will reduce the complexity that is commonly attributed to transacting with Government.  This, in turn, can help contribute to economic development and extend the societal responsibilities of the Posts as a universal service provider.

As the winds of change blow through the industry, diversification into Government Services should be seriously considered as a natural extension of the Posts’ mission and capabilities.

decision/analysis partners was recently asked by a large post to perform a study on mail bundling technologies. The study consisted of two parts: a test of bundles on sorting equipment within a plant, and a survey of trends in mailers and bundle equipment manufacturers. The study revealed that significant savings could be achieved beyond selecting the right bundling method by taking an integrated approach to mail preparation and handling.

Strings jammed in conveyor belt.

This particular postal carrier, like many other posts, created mail preparation standards, including standards for bundles of publications sent to a common destination. Savings from handling bundles rather than single mail pieces are typically passed on to the mailers. These standards, however, are mainly concerned with the ability of a bundle to remain intact after mechanized sorting (bundle integrity) and the sorting equipment’s ability to smoothly process the bundle (machineability). Mailers, on the other hand, are mainly concerned with product protection and the cost of bundling; bundle integrity and machineability are considered only insofar as they impact shipping rates. These differing perspectives lead to a variety of bundling techniques, preferred by each party for their own reasons. Smaller mailers, for instance, still use string to tie bundles: our study found that it provides adequate product protection and bundle integrity, and because it is an older technology, equipment is inexpensive. But string-tied bundles can easily snag on sorting equipment, and loose string from broken bundles can jam in sensitive components such as rollers or conveyor belts, causing downtime and delays for postal operators. Plastic strapping, on the other hand, is a popular alternative, and our tests determined that it provides superior bundle integrity and machineability, but may also cause additional product damage. Shrink wrap, another common bundling option, has the opposite problem: strong on product protection, but weak on bundle integrity. To compensate, we found that some mailers combine plastic straps and shrink wrap, but this is more difficult for posts to remove and requires significant additional investment by mailers in equipment, materials, labor and other production costs – an investment that many small mailers cannot justify.

USPS Auto-Ready Pallet - image courtesy lettercarriernetwork.info

These bundling technologies all seem to have distinct weaknesses, but by thinking beyond the bundling, their effects can be reduced. The U.S. Postal Service (USPS) has worked over the past few years with mailers to develop one such integrated approach. It turns out that many handling steps that may damage bundles could be avoided in postal plants if bundles were prepared on palettes and presented in a way that could be processed straight into the mailing equipment. As part of their Bulk Flats Processing strategy, USPS has worked with mailers to develop specifications for an “Auto-Ready Pallet” which incorporates bundling guidelines as well as instructions for pre-sorting and palletizing mail. By defining how bundles should be presented in palettes, it allowed the USPS to design equipment that gently processes these bundles and skips pre-sorting tasks, improving preparation and mail handling times and reducing in-plant footprint. It turns out that these savings more than offset the cost of preparing the pallet, resulting in the lowest combined cost to both parties.

More of this kind of integration between posts and mailers can lead to further innovations between mail production and processing. Current designs use these new standards to prepare mail for existing equipment, but they could be used to define entirely new sorting processes. And the idea can be taken further – a careful examination of printing technologies, for example, could allow postal operators to one day accept mail straight from a printer with minimal presorting and handling. Continuing to integrate mail preparation and delivery could realize substantial savings for both mailers and postal operators.

An Operations Management View…

The debate about the five-day delivery reflects the limitations of the USPS’s current paradigm – one that is predicated on what we would call a ‘fixed-state operating model’: every day, mail destined to your house is sorted somewhere in the postal network to the same delivery route, using the same sort scheme pointing to that specific route, on a sorting machine assigned to that same sort scheme (or vice versa), for distribution by a carrier who will visit every address on that same delivery route.

Under that fixed-state operating model, the five-day delivery debate makes sense: cost reduction versus customer/consumer-service. But both sides of the coin are not in conflict! They can be easily reconciled using ‘delivery-point economics’. Today, in the United States, mail is sorted in one location then pushed to its next handling point until it reaches its delivery unit where it is scheduled for delivery. Typically, mail is pushed along and is delivered as soon as it gets there. Under delivery-point economics, mail is delivered not as soon as it gets there, but when it has to! This is a critical difference, because, in our days of changing customer needs, significant cost can often be avoided by holding and staging mail sometimes as little as 24 hours to avoid delivery without the mail being late.

More details

Standard Mail is today the leading class of mail delivered to U.S. households. However, Standard Mail’s contribution to operating margins is lower than First Class Mail, and therefore a higher density of mail per destination point is necessary to cover its costs. Standard Mail, however, offers more flexibility in service commitments. Using ‘delivery-point economics’, the USPS can manage and hold standard mail short of its delivery unit until it positively maximizes delivery economics, or until it must deliver it because of service commitment.

The Power of the Grid

A move to a delivery economics model will require an adaptive approach where large sorting machines in a processing plant are operating equally on a grid within a geographical area, and mail flows are modulated between plants and delivery. Inventory (mail piled up somewhere) is no longer considered a sign of failure, but the result of deliberate and adaptive decision making. Ultimately, delivery routes are no longer fixed, but delivery points are adjusted, skipped or combined to minimize cost subject to meeting service requirements.

Any Day Delivery

This model would implement what we call ‘any-day’ delivery, a policy designed to meet customers service requirements while focusing on reducing the single most expensive part of USPS’ operation.

for more information on delivery point economics, please contact us

I was intrigued by the unveiling of AeroVironment, Inc.’ s tiniest spy drone, the nano hummingbird. With a 6.5 inch wingspan, the nano hummingbird is the latest in the trend to go smaller and more autonomous:

• Digital modeling systems like Dassault Systèmes’ Catia and Siemens’ TeamCenter now make it faster, easier and cheaper to prototype new ideas,
• Rapid processors, 3-D software libraries and affordable geo-positioning and sensing technology now provide foundations for automated, vision- and sensor-based guidance
• Many schools such as Princeton are now involved in the development of autonomous vehicles, participating in annual contests.
• Google ‘s fleet of seven self-driving cars have driven over 1,000 miles over California roads without any human intervention using cameras, radars, lasers and…Google maps.

There are plenty of other interesting examples, like the Italian automated trash-collecting robot and the widespread use of automated equipment for storage and fulfillment in warehouses.

It is my belief that the use of automated equipment for the delivery of mail is all but inevitable. Most, if not all of the technical difficulties have been solved:

• In the U.S. nearly 95% of addresses on mail are read and understood by machines,
• Nearly all addresses are geocoded on maps,
• Vehicles now know how to drive themselves, if only we could deal with the bad human drivers,
• Robotic arms exist to manipulate mail of all shapes and weights,
• Perhaps we just need a mailbox that is more machine-friendly….

Automated mail delivery could be done at night, when there is not traffic, relieving congestion and improving the environment. In FY 2009, USPS spent $9 Billion on delivery labor (just labor, in one year), and a large part of it could be potentially saved if delivery could be automated. One percent of that is $90 Millions.

I think the USPS should spend a little bit of money figuring this out…what do you think?

USPS recently announced the introduction of a new product line, Critical Mail.  Tailored for customers requiring mailing solutions for important documents, Critical Mail, may forebode the shift of USPS’s business model away from volume-driven revenues and toward value-based offerings (a recommendation we made in an earlier blog) .  The USPS suggests that Critical Mail will be valuable in a number of ‘situations’ such as event tickets, identification documents, stored-value cards, education transcripts, or urgent direct mail messages, suggesting the ‘contextualization’ of the transaction between sender and receiver.  We have long advocated that not all mail is equal, and that USPS must better understand the ‘purpose’ of the transaction in order to better serve its customers. USPS’s Intelligent Mail platform is ideally suited for this purpose.

Along this train of thought, one wonders if the introduction of Critical Mail may not precede and predict a change in overnight commitments for the rest of the mail.  In an age of instant communications, our market research indicates that mailers prefer consistency of service over speed.  Our analysis further shows that reducing overnight mail delivery commitments for the majority of first class mail (and often standard mail) may significantly reduce operating costs. By introducing ‘high-speed’ products for special situations, USPS may set the stage for better adapting its service standards to today’s customer needs, thus reducing operating costs and  hopefully maximizing reliability at the same time.