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WESTERN Area MAILING INDUSTRY Focus Group Meeting

WESTERN Area MAILING INDUSTRY Focus Group Meeting. Operations update. Cathy Moon Mgr Operations Integration & Support February 25, 2014. Agenda. responding to changing landscape. qtr I service performance. MTE Update. Optimization Update. Label List Changes.

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WESTERN Area MAILING INDUSTRY Focus Group Meeting

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  1. WESTERN Area MAILING INDUSTRY Focus Group Meeting Operations update Cathy Moon Mgr Operations Integration & Support February 25, 2014

  2. Agenda • responding to changing landscape • qtr I service performance • MTE Update • Optimization Update • Label List Changes • Flats sequencing System (FSS) • Load Leveling Initiative • 24 Hour Clock Compliance • questions 2

  3. 203 3 9 177 171 168 3 160 8 3 155 3 7 151 7 147 4 145 4 7 4 6 4 6 4 98 6 6 82 82 84 80 78 78 77 78 91 83 78 73 69 66 62 59 57 2008 2009 2010 2011 2012 2013 Plan 2014 2015 2016 First-Class Standard Periodicals Shipping and Packages International Other Mail Volume Loss and Shift to a Less Profitable Mix Billion pieces High margin First - Class Mail will decline 34B pieces or 37% by 2016 vs. 2008

  4. Changing Landscape

  5. Profit Margin by Mail Class It takes ~$3 in Package revenue to make up the profitability of every dollar lost in First-Class Mail revenue. $28.9 Revenue Margin $16.4 $11.6 Attributable Cost 5

  6. Business Imperative for Change $16 Billion of Annualized Savings in the past seven fiscal years with workhours reduced by 24% Despite Significant Cost Reductions Losses Remain At Unsustainable Levels Savings (Billions) Total Workhours (Millions) Career Employees – Reduced by 205K since 2006, without layoffs Postal Service is More Efficient Than Ever 24.4 30 Annual Growth 1.2% [2000 – 2013] 25 20 15 TFP Cumulative Trend 10 5 Annual Growth 0.3% [1972 – 1999] 0 19721980199020002013

  7. SERVICE PERFORMANCE Standard and periodicals

  8. Standard Letters Service Performance SCF Letters NDC Letters +2.87 SPLY +3.59 SPLY - 92 91.00 - 88 - 84 - 80 % On-Time 90.83 89.95 - 76 87.96 86.36 - 72 - 68 - 64 Qtr 1 FY13 Qtr 1 FY14 Target 8 * Targets Shown are FY 2014 * Preliminary Qtr 1, FY 2014 Data

  9. Standard Flats Service Performance SCF Flats NDC Flats +2.38 SPLY +3.83 SPLY - 91.00 90 - 86 - 82 - 78 % On-Time - 74 84.17 81.79 - 70 74.27 - 70.44 66 - 62 Qtr 1 FY13 Qtr 1 FY14 Target 9 * Targets Shown are FY 2014 * Preliminary Qtr 1, FY 2014 Data

  10. Periodicals 1-2 Day Service Performance Periodicals +3.08 SPLY - 92 91.00 - 88 - 84 - 80 % On-Time - 76 83.87 80.79 - 72 - 68 - 64 Qtr 1 FY13 Qtr 1 FY14 Target 10 * Targets Shown are FY 2014 * Preliminary Qtr 1, FY 2014 Data

  11. Service Performance Continuous Improvement Focus • Lean Mail Processing (LMP) • Improving efficiencies in mail flows and cycle times through application of LMP Principles throughout the network • Load Leveling • Leveling the Monday workload to improve efficiencies and predictability in delivery performance • Leveraging IMb • Enhanced diagnostics to enable course correction to ensure FIFO processing and prevent service failure

  12. MTE Update

  13. Fall Mailing Season Update • Successful Fall Mailing Season!!! • No cancelled orders • Overall inventory exceeded demand, allowing us to fulfill every order • Strongest inventories of the past 5 years 13

  14. MTEOR Full Implementation • MTEOR moves toward full implementation • MTEOR will be launched for Local Mailers in all Areas in 2014 using a phased approach by Area • Southern Pacific – February 3, 2014 • Northern Pacific – March 3, 2014 • Eastern Area – April 7, 2014 • Great Lakes Area – May 5, 2014 • Southern Area – June 2, 2014 • Northeast Area – July 7, 2014 • Capital Metro Area – August 4, 2014 • Western Area – September 8, 2014 14

  15. Optimization Update

  16. Optimization Update • Network Rationalization – Phase 1 • Completed 176 Consolidations • Network Rationalization – Phase 2 • POSt Plan • 7,995 Implementations Completed in FY 2013 • Remaining 5,186 Will be Completed in FY 2014 16

  17. Advantages of a Transformed Infrastructure • Fewer Facilities • Denser Bundles/Trays and Pallets • Increased Equipment Utilization • Increased Productivities • Maximized Transportation • Better Utilization of Air/Surface Trips • Gain Economies of Scale • Right-sized Workforce • Employee Flexibility • Revised Pay Structure Complement

  18. Label List Changes Structured Release Cycle

  19. Structured Release Cycle • Background • Task Team #11 re-opened per request of mailing industry • USPS agreed to 30-day notification period • USPS can be more agile with labeling list changes (5-digit) through monthly update cycle • Enables top down management of labeling lists • Ensures alignment of mailer pre-sort & internal USPS sort schemes • Benefits of Top Down Approach to L012 and L006 Lists • Enables deeper pre-sort levels • Fewer piece and tray handlings • More efficient use of containers & transportation

  20. FSS Mail Prep & Rates

  21. FSS Implementation Savings Significant Savings • 2,400 Zones run on FSS daily • 45K City Carriers receiving sequenced flats • 4.5K City Routes Eliminated • Annual Reduction of 10M in-office hours • 7,100 Rural Carriers receiving sequenced flats • Annual Reduction over 1M in-office hours

  22. Benefits of FSS Implementation Pre-FSS Configuration Post FSS Configuration Significant Reductions in Required Facility Space 22

  23. Delivery Unit Consolidations Delivery Unit Optimization Benefits Consolidate Delivery Operations Economies of Scale • Clerical Resources • Replacement Carriers • Vehicle Utilization Reduced Transportation PO PO PO Reduced Facility Costs Hub Delivery Rts • Lease Costs • Custodial Costs Delivery Rts Delivery Rts 2,300 Delivery Unit Consolidations

  24. FSS scheme bundles Make bundles to match FSS sort-schemes (sort programs) FSS scheme pallets Make pallets of FSS scheme bundles to match a single FSS sort program FSS facility pallets Make pallets of bundles for multiple FSS sort programs in the same building FSS Mail Prep FSS mail prep makeup

  25. FSS Requirements • FSS bundle and container prep required in FSS zones • FSS scheme bundle allowed at any container presort level – e.g. MADC, ADC, 3D, SCF, FSS • FSS scheme bundle allowed entry at Origin, DNDC, DADC, DSCF, DFSS • No DDU entry for FSS scheme bundles • FSS scheme bundle minimums – Periodicals 6, Standard 10, or 3” for either regardless of number of pieces • In co-mail operations have option to prep HD or HD+ under FSS rules • Also option for pure HD or HD+ to prep to FSS rules if automation compatible • Periodicals in-county and out-of-county up to 5,000 pieces are excluded • First Class flats & Saturation mail is excluded from FSS prep requirements

  26. FSS Mail Prep Matrix Required @ 250 lbs PER CET 11AM Bundles prepared for a single FSS sort program FSS Scheme Pallet All bundles on pallet for same FSS sort program Optional PER CET 8AM FSS Facility Pallet Bundles prepared for a single FSS sort program Pallet contains bundles for any or all FSS sort programs processed in FSS site PER CET 8AM (if SCF has FSS zones) Automation compatible bundles CR-RT, 5-D, FSS scheme and SCF Other Presort Pallets or Sacks May contain FSS scheme bundles along with other presorted bundles

  27. FSS entry options and rates • Encourage entry at FSS facility • Pieces typically pay the same rate they would under normal presort • Except for pieces above 3-digit which pay 3-digit rate • Established DFSS (FSS facility) entry rate structure • Approximately 50% of FSS zones sequenced at a site are from another SCF • STD – piece discount $0.001 for pieces on FSS Scheme Pallets entered at DFSS (except pieces paying 3-digit rate which still get DSCF rates) • No pallet charge for Periodicals scheme pallets at DFSS (DSCF rate applies) • Only the pallet charge is waived, not all containers (trays and sacks must pay container charge)

  28. Without Required FSS Prep FSS currently sequencing only 60% Too many flats had little potential to reach the FSS operation… FSS Site Richmond Flats dropped at VA Beach DDU by mailer • USPS must transport from DDU to Norfolk plant, 80 miles to Richmond for sequencing on FSS and back to VA Beach • First Class and Periodicals can’t backflow and make service standard – requires costly manual casing • Even Standard mail is often not back flowed for sequencing – requires costly manual casing FSS Zones VA Beach SCF Pallet Flow of 5D bundles for VA Beach FSS zone on DSCF Norfolk pallet Pallet contains bundles for FSS and non-FSS zones Transport to Richmond Prep for FSS Bundle Sort Flats dropped at SCF Norfolk by mailer • FSS zones & non-FSS zones mixed on SCF pallet - requires bundle sort prior to transport to Richmond • Each FSS zone is only processed once per day, operation begins as early as noon • Periodicals generally cannot make the operating window / service standard – opportunity to sequence is lost

  29. With Required FSS Prep Value of FSS Scheme Bundles 2x #pieces per bundle ½ number of bundles to sort Larger bundles Fewer straps Less shrink wrap Increased productivity in prep operation Larger more uniform bundles Less mail damage Less bundles to sort = Additional APPS capacity For sorting packages Prep for FSS FSS Facility Pallet Advanced to front of queue Flow of FSS Scheme bundles on FSS Facility Pallet CET 8AM Transport to Richmond Prep for FSS Bundle Sort • Flats dropped at SCF Norfolk by mailer • Mixed FSS zones on pallet - requires bundle sort prior to transport to Richmond – advanced to front of the line • Each FSS zone is only processed once per day, operation begins as early as noon • Periodicals likely to make operating window - especially for later runs on FSS

  30. FSS Scheme Pallet FSS Scheme Pallet With Required FSS Prep FSS Scheme Bundles on FSS Scheme Pallet dropped at Norfolk SCF PER CET 11AM Bundle sort eliminated Bundle damage eliminated Pallet contains bundles for VA Beach run on FSS Cross-dock & transport to Richmond Prep for FSS Periodicals will be sequenced and make service standard FSS Scheme Bundles on FSS Scheme Pallet dropped at Richmond FSS PER CET 11AM Bundle sort eliminated Reduced handlings = less damage USPS transportation from Norfolk to Richmond FSS site eliminated Prep for FSS Pallet contains bundles for VA Beach run on FSS

  31. Facilitating DFSS entry at DSCF Richmond SCF FSS Site 47 zones Mailer has option to drop VA Beach FSS Scheme Pallets @ FSS site or SCF (80 miles apart) Norfolk SCF 32 zones FSS Scheme Pallet dropped at SCF Norfolk by mailer – PER CET 11:00 AM • FSS zones for one scheme only - requires transport to Richmond • Each FSS zone is only processed once per day, operation begins as early as noon • Periodicals must make the operating window & service standard Flats dropped at SCF Norfolk by mailer – PERCET 8:00 AM • FSS zones & non-FSS zones mixed on SCF pallet - requires bundle sort prior to transport to Richmond • FSS Facility Pallets (especially PER) advanced in queue to ensure availability for sequencing • Each FSS zone is only processed once per day, operation begins as early as noon • Periodicals must make the operating window / service standard

  32. Contents 2008 Strategies Continue: Flats Operations End-to-End Strategy Streamline and Simplify Mail Make-Up Reduce Number of Entry Points Induct Mail Where First Handling Occurs Bypass Sack / Bundle Distribution Move Mail up the Ladder to Automation Automate Sequencing of Flats for Delivery Leverage the Use of Data (Visibility) Technology: Now and in the Future 32

  33. FSS Strategy Which Strategies does FSS Impact? Flats Operations End-to-End Strategy Streamline and Simplify Mail Make-Up Reduce Number of Entry Points Induct Mail Where First Handling Occurs Bypass Sack / Bundle Distribution Move Mail up the Ladder to Automation Automate Sequencing of Flats for Delivery Leverage the Use of Data (Visibility) Technology: Now and in the Future 33

  34. Increasing FSS DPS% • Maximize Availability of Flats to FSS Operation • Require FSS Prep for STD, BPM flats & most Periodicals • Larger uniform bundles – less sorting & less prep • FSS Scheme Pallets required @ 250lbs (optional lower) • Bypass bundle sort operation – dock transfer or direct to SAMP • Provide incentive to enter at DFSS locations • Evaluating a more robust FSS pricing structure • Maximized 5-digit schemes on labeling list L006 • Monthly label list updates are key • Tested heavier PER for inclusion in co-mail (up to 24oz) • Provide option for HD & HD+ to utilize FSS prep, if meets 301.3 • Provide option for non-machinable PER up to 1” thick to utilize FSS prep, if meets 705.14 • Moving pallet stack limit from 4 to 6 34

  35. Smart Stack • Development Effort • Two RFI’s recently released (Fed Biz Ops) • Smart Stack Bundle Making System • Smart Stack Loading and Unloading System • Development Goals • For Smart Stack Bundle Making • Standardized bundles supporting automation • For Smart Stack Loading and Unloading System • Potential solution for creating and handling automation compatible bundles • Smart Tag Features Possible - • Number of flats in bundle • Mail Destination information • Dimensions of flats • Bundle height, weight • Indicate bound edge of bundle Smart Tag Smart Stack Bundle with Strapping and Smart Tag

  36. DSCF Standard Mail Load Leveling

  37. DSCF Standard Mail Load Leveling Overview • On average ~42% of DSCF Standard Mail volume is drop shipped by mailers on Friday. The disproportionate volumes committed for delivery on Monday results in: • Service Variability • Operational Inefficiencies • Increased Cost

  38. Current State FY13 Qtr 1 All Dropship Appointments / Vol for Full Service IMb Standard Mail 70,000 1,000.0 942.3M 900.0 60,000 800.0 50,000 700.0 600.0 40,000 523.3M Mail Volume (millions) Number of Dropship Appointments 500.0 434.1M 30,000 376.7M 372.8M 357.9M 400.0 300.0 20,000 200.0 10,000 65.8M 100.0 0 0.0 SAT SUN MON TUE WED THU FRI Dropship Appointment Counts Destination Piece Counts 38

  39. Current State Impact on Delivery – Average % of Standard Mail Delivered by Day 1,800 42.4% Monday Delivered Volume 1,600 35.4% Standard Letters 1,400 52.4% Standard Flats 1,200 1,000 Delivery Day Volumes 800 16.3% 600 13.0% 12.6% 10.5% 400 5.2% 200 0 SAT SUN MON TUE WED THU FRI Qtr 1, FY 2013 DSCF Standard Flats DSCF Standard Letters 39

  40. Percentage of City Carriers Returning After 1700 Current State Impact In FY 2013 54.4% of instances where a carrier returned to the office after 1700 occurred on a Monday 70.0% 60.0% 50.0% 40.0% Percent Returned 30.0% 20.0% 10.0% 0.0% Monday Total

  41. 24 Hour Clock Impact Disproportionate Monday workload not only results in late delivery and added costs, it also impedes our ability to meet critical 24 hour clock parameters resulting in: PROCESS INDUCT • Late processing DELIVER • Late / missed transportation • Additional processing / transportation costs • Service failure

  42. Expected Days of Delivery SCOPE OF LIMITED CHANGE DELIVERY DAYS MEETING SERVICE STANDARD Thursday Friday, Saturday, Monday Friday, Saturday, Monday DSCF Standard Mail** Dropped Before 4pm* on Current Proposed Friday Saturday, Monday Saturday, Monday, Tuesday Saturday Monday, Tuesday Monday, Tuesday, Wednesday Sunday Monday, Tuesday, Wednesday Monday, Tuesday, Wednesday *The current Critical Entry Time (CET) for Standard mail is 4 pm **For delivery in the continental United States 42

  43. Expected Days of Delivery What Doesn’t Change • Standard Mail dropped at a DDU does not change • Standard Mail dropped at a NDC does not change • EDDM-Retail does not change • Periodical/Newspaper processing does not change • First-Class Mail does not change • Priority Mail does not change 43

  44. South Jersey Test Scope: Evaluate the impact of load leveling the Standard Mail volumes received at the South Jersey P&DC across the days of the week. Test Location – South Jersey P&DC (First Lean Mail Processing Plant) Test Period – Sep 12th through Sep 26th, 2013 Delivery Zones Participating: 110 Delivery Routes Participating: 1,190 Standard Mail Volume in Evaluation: 5.3M pieces

  45. Test Results South Jersey P&DC Sep 14th – 20th • Efficiency • Reduced Total Weekly Carrier Work Hours • Reduced Carrier OT and Penalty OT 4,000,000 3,500,000 3,000,000 • Customer Service • Improved Carrier Return Times • Improved On-Time Service Performance 2,500,000 Test Week – Avg Delivered Volume by Day 2,000,000 20.8% 1,500,000 17.1% 15.4% 17.3% 15.2% 14.2% • Employee Satisfaction 1,000,000 • Overwhelmingly Positive Feedback 500,000 0 SAT SUN MON TUE WED THU FRI 45

  46. Next Steps • Continue Stakeholder Engagement • Add Additional Sites to Test Implementation Approach • Review Comments to Proposed Rule – Feb 13, 2014 • Publish Final Rule: February 28, 2014 • Receive PRC Advisory Opinion • Implement Change no Earlier Than March 27, 2014 46

  47. Going Forward USPS - Industry Collaboration • Provide Easy Access to Information and FAQs Updated Weekly on RIBBS • industryfeedback@usps.com • Committed to Collaboration/Communication Commitment to Communicate Success requires collective effort 47

  48. Expected Long Term Benefits • Predictable Service • Customer Satisfaction • Cost Containment 48

  49. 24 Hour Clock Compliance

  50. Collective Effort • Modify current 24 hour clock parameters to reduce the cycle time expectations of: PROCESS INDUCT • Collections • Processing DELIVER • Transportation • Delivery Target – 95% Carriers off the street by 1700

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