The Post Office Looks for Better Returns

Dec. 1, 2008
The deteriorating economy played havoc with the US Postal Service (USPS) as it has with a galaxy of other businesses. As it ended its Fiscal 2008, it

The deteriorating economy played havoc with the US Postal Service (USPS) as it has with a galaxy of other businesses. As it ended its Fiscal 2008, it found itself losing $2.8 billion. For the year, USPS saw its volumes at 202.7 billion pieces, which is a decline of 4.5% year over year with 9.5 billion fewer pieces handled.

Income for the year was $75 billion. Expenses totaled $77.8 billion, of which $5.6 billion was a payment required by the Postal Act of 2006 to pre-fund retiree health benefits. The Postal Service had undertaken some $2 billion in cost-cutting actions that included using 50 million fewer work hours than in Fiscal 2007.

“As we continue to reduce work hours and other costs, our top priority remains providing excellent service to our customers. The combination of excellent service and affordable prices makes Postal products a great value,” says Postmaster General John Potter.

Among other guiding principals of the Postal Act of 2006 is, “the adoption of corporate best practices, such as rational investments in the infrastructure, and the realignment of resources to match the changing needs of customers and mailers, in order to respond to the system's incentives.” This has led the Post Office to reach outside its walls to find and incorporate leading edge technology and services to enhance its offerings.

A case in point has been the use of its Highway Corridor Analytic Program (HCAP) developed by the USPS in conjunction with IBM Corp., with the use of ILOG's CPLEX mathematical optimization technology. HCAP is used to examine routing and scheduling options with the aim of minimizing USPS costs while meeting business goals.

Among other challenges for the USPS network is consideration of many levels of service for customers — including a variety of classes, types, sizes and weights. Added to these issues is the need to best allocate mail among available transportation resources.

“The USPS operates in a very unique business environment,” says E.J. Matto, Associate Partner, IBM. “The overall size of operations and the inherent logistical complexities create significant challenges in managing the transportation network. Using optimization technology for the transportation model helps the USPS uncover opportunities to streamline areas of long-haul transportation through consolidation.”

HCAP has provided USPS with optimized plans for the use of its existing assets including routes, delivery time, truck capacity restrictions and class of mail. The result has been savings of more than $10 million in the two years since HCAP was deployed.

In moving to improve freight traffic management, the decision was to select a third party supplier (3PL) to manage that portion of its activities, according to Franck Scheer, purchasing manager for the USPS. “We actually spent about a year and a half working developing a statement of objectives to use as criteria for selecting a business partner,” he says. The Department of Defense (DoD) had experienced a failed attempt with outsourcing to a 3PL. “They learned a lot out of that and went out with another solicitation I think is proving to be a little bit more successful,” he continues. The USPS sat down with DoD staffers who had worked on the initiative, learned from them, benefiting from their experiences.

Scheer recalls that, “We were looking for a company to come in and bring best business practices, best information systems technology to us as solutions.” The choice was Ryder Systems for handling cradle to grave transportation processing for USPS freight shipments. Within its service offering the 3PL handles back end operations including invoice validation and preparation for payment processing in addition to processing loss and damage claims.

Craig Clark, Ryder distribution traffic manager, explains, “the Postal Service had many entities needing to request transportation that were completely disconnected from each other. They were operating in a vacuum. We provide a web-enabled platform allowing entry of orders for transportation. We then are able to consolidate orders and optimally execute them.”

Ryder reports on-time pickup and delivery, consolidation opportunities and freight volume procurement it leverages along with a fuel surcharge program that has brought significant savings to the USPS. But Clark feels Ryder's true value is in its ability to capture and analyze data to demonstrate how the Postal Service business is operating and point out opportunities for greater economies.

“The whole idea about tightening your supply chain is not that you try to optimize each of the components, such as transportation, warehousing or packaging,” claims Scheer, “but that you try to come up with integrated solutions and ones that look at a much broader picture and try to get better performance at a lower price overall rather than each of the individual components. So that's what I think Ryder's forte is. Certainly that's worked to the benefit of the Postal Service by taking that more mature look and also working on a lot of continuous improvement projects.”

Though he won't quote specific dollar figures, Scheer says that the USPS has received benefits in the millions of dollars within the course of a single fiscal year. Savings have come in rate reductions or avoidance of paying some freight charges. Some of it has also come in the ability of Ryder to leverage volumes and negotiate better rates with individual carriers. But he feels greatest value has been through load consolidation and tradeoffs within the USPS supply chain between packaging, inventory management, and warehousing with transportation.

In addition to using third party providers the USPS has made changes in services it is offering to its customers. For example, Express Mail packages may be held at the local Post Office for pickup at times convenient to the customer. Customers can choose Express Mail Hold for Pickup through Click-N-Ship at Hold for Pickup — previously available for Express Mail purchased at Post Offices or Automated Postal Centers (APC) — is now available for online shippers.

“Hold For Pickup provides additional security for shippers who may not want expensive products or heavyweight goods left at home addresses,” says USPS expedited shipping vice president, Gary Reblin. One example of use of the service, he notes, is for businesses sending critical repair parts for field technicians to pick up.

An additional service now being offered is free Carrier Pickup for any Parcel Return Service (PRS) package. “It's an outstanding offering that makes an awful lot of sense,” claims Michael Twomey, chief financial officer of Newgistics. The company is a USPS approved third party reverse logistics provider for PRS. “Now a customer can arrange for a pickup, provide special instructions such as ‘the package will be by the side porch door,’ and those are printed every morning and handed to the carriers before they go out on their routes. The use of web service is very efficient.”

As far as costs to the consumer, Newgistics offers its SmartLabel, a pre-paid, pre-addressed return label on the order summary to be used to return products to retailers. Because Newgistics has PRS rates it is able to provide competitive pricing to its customers who, in turn, pass them on to their consumers.

“One of our advantages as a business and a provider,” says Twomey, “is that we have very advanced technology both on the return and delivery side. For carrier pick up, because we've got web services and are integrated with our customers, we are able to easily provide a link. Our application programming interface capability provides the link back to the USPS site for the pickup. We are making it very easy for our retailers to provide that capability to their customers.”

Looking at the delivery side, Twomey says the Postal Service is moving forward very quickly with technology improvements, one of which is the electronic verification system (EVS) that significantly speeds manifesting. It reduces costs for the USPS and shipper because there is much less manual auditing of packages. It is accomplished statistically, which significantly reduces the number of packages to be audited.

“We are 100% EVS compliant,” claims Twomey, “and are actually working on a schedule with the Postal Service to use EVS on the return side. So we'll have electronic manifesting on both ends. Our error rates on the front end are zero, which is great for customers, the Postal Service and us. We are really looking forward to bringing EVS to the return side.”

Another way the USPS is increasing revenues is through a rate increase that will go into effect on January 18, 2009 for Express Mail, Priority Mail, Parcel Select, Parcel Return Service and some international shipping products. Overall the increases are an average of 5%.

The USPS will be offering Commercial Plus pricing it claims is a great value for high volume Express Mail and Priority Mail users. On average when compared to retail pricing, the USPS says Commercial Plus for Express mail is 14.5% less and 7% less for Priority Mail. “Commercial Plus is a very competitive offering for commercial customers,” sys Reblin. “It offers lower prices that will reward them for shipping higher volumes with the Postal Service.”

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