Corporate Flats Strategy

1. Corporate Flats Strategy MTAC November 7, 2002

2. Presentation Overview • Background • NearTermActions(FY 2003 and 2004) • LongerTermPlanning(FY 2005 andbeyond) • Delivery Vision • Summary

3. FY 01 Revenue From Flats: $16.1 Billion Periodicals: Mailbox Anchor That Generates Other Revenue Streams Standard Mail Revenue is Second Only to First-Class Mail Flats Rates Rising Faster Than Inflation Importance of Flats

4. Corporate Flats Strategy Introduced at the September 2000 Postal Forum USPS Committed to Flats Grow Customer’s Business Increase Capital Investment Maintain Affordability Improve Processes

5. Corporate Flats Strategy Distributed in July 2001 Introduced the Delivery Vision Focused on Improvements in the Near Term Overviewed the Longer Term Plans

6. Corporate Flats Strategy • Drive Down Costs Through Automation • Improve Processing Performance and Service • Create a Win-Win for Customers and the Postal Service

7. Last Year’s Progress • Completed AFSM 100 Deployment • Started FSM 1000 Modifications • Explored Mail Preparation Alternatives • Logs • Flats Feeder Assist Device • Fiberboard Trays • Pallet Movers

8. Near Term Actions • Manage the Base • Substitute Capital for Labor • Increase Customer Involvement

9. Manage the Base • Improve Operational Performance • Up-the-Distribution-Ladder • Increase Productivity • Reduce Mail Preparation Costs • Standardize Opening Units • Standardize Flats Distribution • Capture Savings

10. Summary QTR 1 FY 2001 QTR 4 FY 2002

11. piece handlings per workhour Qtrs. 1 to 4 Qtrs. 1 to 4 end of year FY 2000 FY 2001 FY 2002

12. Substitute Capital for Labor • Take Advantage of Latest Technology • Automatic Tray Handling System • Flats Feeder Assist Device • The AFSM 100 Feeder Modification • Pallet Movers • UFSM 1000 • ID Code Sort • Move More Mail to Our Processing Centers to Achieve Greater Depth of Sort(i.e., from the 5-digit level to carrier route)

13. Increase Customer Involvement • Structure Rate Incentives to Support Operations Objectives • Match Make-up to Processing Requirements • Increase Barcoded Flat Volumes • Improve Address & Barcode Readability

14. Where We Were • 4 Mail Streams: • Automated • Mechanized • FSM 1000 • Manual • Significant Piece Handling Costs • Increasing Mail Prep Costs • Increased Rates

15. Where We Want To Go • From 4 Mail Streams to 2 • Automated • Manual • Maximize 11 Digit Barcoded Volume • Minimize (eliminate) Small Bundles • Standardize • Physical Characteristics • Address Placement • Make-up and Presentation Then to 1: DPP

16. MTAC & USPS Working Together How Do We Get There? • Optimizing Readability • Conducting Mail Characteristics Study • Developing Alternative Flats Packaging • Developing Mail Preparation Alternatives • Reducing Bundle Breakage • Developing Irregularity Reporting

17. MTAC Workgroups Optimizing Readability • Address Block Location • Destination Address Format • Barcode Placement • Adhesive Labels • Extraneous Information

18. Developed Voluntary Guidelines for Flat Mail MTAC Workgroups Optimizing Readability

19. MTAC Workgroups Mail Characteristics Study Determining the Spectrum of Mail the AFSM Can Successfully Process • Basic size dimensions remain the same • Increase the maximum weight to 20 oz

20. MTAC Workgroups Alternative Flats Packaging • Identify Cost Effective Bundle Packaging for Mailers and USPS • Balance Cost of Material With Package Integrity

21. MTAC Workgroups Mail Preparation Alternatives Working with Mailers through MTAC • Mutually Acceptable Preparation and Handling Methods Drive Down Combined Cost

22. MTAC Workgroups Mail Preparation Alternatives • Flats Feeder Assist Device allows operator to handle heavy loads

23. Solution • Shrink wrap • Double band • Palletize • Weight – 20 pound max • Height – 6 inch max MTAC Workgroups Reducing Bundle Breakage • Controlled Testing of Various Packaging Materials

24. Long Term Plan: NO SACKS

25. MTAC Workgroups Irregularity Reporting Develop a Mechanism to Report Preparation Irregularities to Mailers and Mail Owners In a Timely Manner to Prevent Recurrence

26. Longer Term Plans • Evaluate Delivery Point Packaging • Prioritize Key Decision Points • Identify Potential Customer Impacts

27. Implement the Delivery Vision • Minimize In-Office Costs • Maximize Street Efficiency

28. Evaluate Delivery Sequencing Options • OPTION 1: Delivery Point Packaging Develop a machine that will use a one-pass system to sequence both letters and flats in delivery order. • OPTION 2: Flats Sequencing System Develop a machine that will use a two-pass system to sequence flats in delivery order.

29. Evaluate Delivery Sequencing Options • OPTION 1: Delivery Point Packaging Develop a machine that will use a one-pass system to sequence both letters and flats in delivery order.

30. The Postal Service’s Delivery Vision Option 1: Delivery Point Packaging NEAR TERM FY 2003 & FY 2004 MID TERM FY 2005 to FY 2006 Current Operations DPS Letters Direct to Street This time period will be used for planning purposes. Residue Letters & All Flats Cased Sector/Segment Firms Direct to Street Walk Sequence/ Marriage Mailings Direct to Street Start Research & Development for DPP

31. The Postal Service’s Delivery Vision Option 1: Delivery Point Packaging NEAR TERM FY 2003 & FY 2004 LONG TERM FY 2007 MID TERM FY 2005 to FY 2006 Current Operations Letters (DPS Not Required) DPS Letters Direct to Street Operational Planning Residue Letters & All Flats Cased One Bundle 100% Letters & Flats Direct to Street Flats (5 Digit Presort, No Carrier Route) Sector/Segment Firms Direct to Street Walk Sequence/ Marriage Mailings (Entered at DPP Location) Walk Sequence/ Marriage Mailings Direct to Street Start Research & Development for DPP

32. Evaluate Delivery Sequencing Options • OPTION 1: Delivery Point Packaging Develop a machine that will use a one-pass system to sequence both letters and flats in delivery order. • OPTION 2: Flats Sequencing System Develop a machine that will use a two-pass system to sequence flats in delivery order.

33. The Postal Service’s Delivery Vision Option 2: Flats Sequencing System NEAR TERM FY 2003 & FY 2004 Current Operations MID TERM FY 2005 DPS Letters Direct to Street This time period will be used for planning purposes. Residue Letters & All Flats Cased Sector/Segment Firms Direct to Street Walk Sequence/ Marriage Mailings Direct to Street Start Research & Development for FSS

34. The Postal Service’s Delivery Vision Option 2: Flats Sequencing System NEAR TERM FY 2003 & FY 2004 LONG TERM FY 2006 Current Operations MID TERM FY 2005 DPS Letters Direct to Street DPS Letters Direct to Street Operational Planning Residue Letters & All Flats Cased FSS Flats Direct to Street Sector/Segment Firms Direct to Street Residue Letters & Flats Walk Sequence/ Marriage Mailings Cased Walk Sequence/ Marriage Mailings Direct to Street Start Research & Development for FSS

35. Prioritize Key Decision Points • Fund Research and Development • Examine Competitive Prototypes • Evaluate Impact on Plant & Delivery Operations

36. Identify Potential Customer Impacts DPP FSS • 11 Digit Barcode • Standardized Piece Design • ID Tag • Presort (For Automated Zones) • Carrier Route Sorting • Make-up and Presentation • Entry Point

37. Implement the Delivery Vision • Minimize In-Office Costs • Sequencing Letters and Flats • Maximize Street Efficiency • Sequence Letters and Flats Together • One Delivery Point Package (DPP)

38. Summary • Near Term (FYs 2003 & 2004): • Increase Equipment Utilization • Reduce Mail Preparation Costs • Manage the Base • Involve Customers

39. Summary • Longer Term (FY 2005 & beyond): • Refine the Delivery Vision • Evaluate DPP & FSS Options • Develop DPP & FSS Technologies • Involve Customers

40. Corporate Flats Strategy