• on Apr 19th, 2010 in Delivery & Collection | 152 comments
    Public policy debates about solving the Postal Service’s financial crisis have largely focused on reducing costs by cutting service such as Saturday delivery, transitioning from brick and mortar post offices to alternative retail sales channels, or limiting other functions performed by the Postal Service. There has been less talk about the costs of meeting delivery service standards, which were reviewed following the passage of the Postal Accountability and Enhancement Act of 2006. Can the Postal Service relax some of its requirements to save money in transportation or processing costs? Right now, its goals are to deliver First-Class Mail in 1 to 3 days and Standard Mail in 3 to 10 days. A slight adjustment of these standards in particular areas might make it possible to save a great deal of costs. Instead of developing the goal first and trying to reach those levels, no matter how costly it is, maybe the Postal Service should closely analyze its infrastructure and develop goals that allow for reaching the greatest efficiencies. For example, if the service standards for bulk mail from Chicago to Los Angeles were given an additional day the Postal Service could avoid the expense of trucks and instead utilize economical rail transportation. A First-Class Mail package that currently travels by air could be carried by truck if given another day. By relaxing service standards, the Postal Service can move further towards a hub and spoke network, which could result in substantial savings. Currently, plants may have lots of half-empty, smaller trucks fanning out to a multiplicity of plants only once or twice a day. Under this new strategy, many trucks would go to a mail consolidation facility, which consolidates the mail and ships it on larger, fuller trucks to the destination facilities throughout the day. This design has the additional benefits of network stability and is capable of scaling up or down with changing mail volume. The bottom line is that the Postal Service and its stakeholders need to decide what service standards are worth the cost. The Postal Service should have an honest and informed discussion about the cost savings that it can pass on to the public by relaxing some of the present delivery service standards. Do you think the Postal Service should adjust its delivery standards to cut its costs? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
  • on Feb 16th, 2010 in Delivery & Collection | 11 comments

    By Robert Cohen

    Should the Postal Service pursue a last mile strategy? A strategy that emphasizes delivery and deemphasizes the retail, processing, and transportation functions which are outsourced explicitly or through pricing incentives. In some ways, the Postal Service is already pursuing a last mile strategy. Historically, the Postal Service has generally set worksharing discounts based on cost avoided. In other words, the discount is set at the amount of money the Postal Service saves if it doesn’t do the activity itself. If a presorter can sort the mail more efficiently than the Postal Service, it will choose to do so. This is good for society as a whole because it provides the lowest overall cost for end-to-end mail service. It also means that the Postal Service receives the same profit per piece whether it is workshared or not. The profit from the 80 percent of the mail that is workshared comes from delivery. A last mile strategy would mean that the Postal Service should extend worksharing to provide discounts for dropshipping bulk First-Class Mail. This would benefit many bulk First-Class mailers because the printing of their mail could be distributed around the country eliminating mail processing and transportation costs and delays. It would provide a greater incentive for First-Class mailers to use the delivery system, and research has shown that new worksharing discounts are highly stimulative to new volume. (See "The Effects of Worksharing and Other Events on U.S. Postal Volumes and Revenues" by Edward S. Pearsall available at www.prc.gov.) The introduction of dropship discounts in Standard Mail was associated with a large expansion of Standard Mail volume. The strategy would also imply that the Postal Service should move towards 100 percent passthrough for all its worksharing discounts and thereby reduce upstream costs to the mailers. Again, this would maximize the incentive to use the delivery network. In some cases discounts are not set at 100 percent of avoided cost because these discounts are not defined well and and they lead to anomalous results (e.g. Standard mail dropship discounts). The Postal Accountability and Enhancement Act of 2006 may have given the Postal Service the opportunity to adjust worksharing discounts so that they are less than avoided cost. Setting discounts that are smaller than avoided cost adds a small additional amounts of institutional cost contribution relative to the large amount included in the implicit price for delivery. It is, however, inconsistent with a last mile strategy because it increases upstream prices. Looking at the Postal Service more broadly, the strategy would encourage contracting out upstream activities that can be done at a lower cost than in-house. It may be that savings and service improvements could be generated by contracting out significant portions of the ground transportation network in a way similar to the FedEx air transportation contract. There are presorters in almost every large city that would be prepared to sort single piece and bulk letter mail. This would be most attractive in cities where the Postal Service’s processing productivity is comparatively low. Retail also deserves attention because much of this function could be contracted out. Selling some retail facilities and then contracting for retail services from the new owners could allow the full utilization of their commercial potential. Worksharing began as presorting in the 1970s and was a significant move in the direction of a last mile strategy because it allowed the bypass of some upstream activities. Over the years worksharing has been further developed so that it now encompasses almost all upstream activities. The result has made mail service in the United States a collaboration between the Postal Service, mailers, and third party providers. A rate structure was created around worksharing that put virtually all the institutional cost contribution of workshared mail in the implicit charge for the delivery function and the one thing the Postal Service reserves to itself is the delivery of mail to the mailbox. An explicit last mile strategy would simply be a continuation of the successful outsourcing strategy that began over thirty years ago. An unabridged treatment of this topic is available here. Mr. Cohen was the manager of the Mail Classification Research Division at the U.S. Postal Service from 1974 to 1978 when he joined the Postal Rate Commission, now known as the Postal Regulatory Commission. In 1979 he was named the director of the Commission's Office of Rates, Analysis and Planning. He retired from that position in 2005 and has been an independent consultant since then. DISCLAIMER: The views expressed in this post are solely those of Mr. Cohen and do not necessarily represent the views of the United States Postal Service or the Office of Inspector General. The U.S. Postal Service Office of Inspector General cannot guarantee the source, originality, accuracy, completeness, or reliability of any statement, data, finding, or opinion presented by this guest blogger.
  • on Dec 14th, 2009 in Delivery & Collection | 32 comments
    Did you know that one in seven people in the United States change their address each year? Naturally, this creates a tremendous challenge for the Postal Service, which strives to maintain a high-quality repository of current addresses.

    Change-of-address requests can be made in person at local Post Offices using a hardcopy form (PS 3575), or electronically using the Internet. They can even be made over the telephone. By far, the most popular way to change one’s official address is still using the hardcopy form, but those contemplating a move should consider their options carefully.

    While the Postal Service’s change-of-address process generally works properly, our audit found that improvements are needed in the way hard copy requests are processed, authorized, and validated. Although Postal Service employees should reject and return orders with no signature, in some cases change-of-address orders without a proper signature slipped through. We also saw signature mismatches and occasions when Postal Service employees rather than customers signed or initialed the forms.

    Is there a better way? We think there is. Our audit also examined the Internet and telephone change request systems. We found that these electronic alternatives are not only much more convenient for the customer, they are also far more effective in ensuring that only authorized and validated change-of-address requests are processed. Digital requests can be electronically matched against customers’ credentials quickly and efficiently. This results in a more secure environment, which is important because mail diverted to another location based upon unauthorized change-of-address orders is a major contributor to identity theft — America’s fastest growing crime.

    There has to be a catch, you say. Well, there is. This service costs $1. We think it’s a bargain! To change your address online, go to moversguide.usps.com. To change your address by telephone, call 1-800-275-8777.

    You should know the Postal Service does have systems in place to protect customers against unauthorized address changes. If a change of address has been submitted for you, the Postal Service will follow up with a Move Validation Letter. This letter is sent to your current address and notifies you that a request has been made to forward your mail to a new address. If you did not request to change your address, you should inform your local Post Office immediately as a potentially fraudulent situation may exist. In our audit, we found that the Postal Service generally sends these letters in a timely manner. Recently, the Postal Service has taken steps to further improve the timeliness of these letters, ensuring that they are processed within 3 to 10 days.

    What do you think about the Postal Service’s change-of-address process? How can it be improved?

    This topic is hosted by the OIG's Information Technology audit directorate.

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