THE FLATS SUMMIT: AN UPDATE

The following is a memorandum from PostCom Board Chairman Jim O’Brien to PostCom’s membership on the results of a meeting between a delegation of mailers and postal officials dealing with some key issues that had been raised in comments at the July Flats Summit. 

At the recent Flats Summit, one of the more controversial presentations was given by Halstein Stralberg, a consultant to Time Inc.  In his presentation, Halstein made a number of assumptions regarding the Postal Service’s next generation of automation equipment and operational requirements. 

At the conclusion of the Summit, John Rapp indicated that the Postal Service disagreed with the assumptions used by Halstein and offered to conduct a follow-up meeting to discuss the USPS position and increase the industry’s confidence level in the USPS strategy.   

That meeting took place on September 2 in Washington DC.  In attendance were USPS representatives from Operations, Engineering, Logistics, Delivery, Finance, and Pricing.  The senior executives from the Postal Service were John Rapp, Paul Vogel, Henry Pankey, Tom Day and Ashley Lyons.  The industry was represented by Halstein Stralberg, Bob O’Brien (MTAC Chair), and me (Postcom Chair).  Overall, it was an excellent meeting and the Postal Service’s responses went a long way toward addressing the industry’s concerns that were voiced at the Summit.  The following summary will hopefully give you a clear understanding of the meeting’s content and flow. 

The meeting began with a brief discussion of the finances of presort workshare.  I indicated that many in the industry are concerned that there may still be significant opportunities for plant savings to be achieved through worksharing and it may be possible to achieve those savings without making a significant investment in automation.   

With regard to the potential for delivery automation savings from DPP or FSS, John reiterated that if the economics for automation don’t make sense, they will not proceed.  To determine the economics, it is necessary to do research and development and feasibility studies so that an informed decision can be made.  We also briefly discussed mailers concerns that automation could result in a rate increase for mailers who currently perform a great deal of worksharing.  While it is extremely premature to discuss rates, the Postal Service indicated that it was has always been their goal to not see anyone’s rates increase as the result of automation.  It was also mentioned that the Postal Service has no intention of “throwing away” worksharing incentives because they’ve worked well at driving out costs in the past, however, at this point no one knows precisely what worksharing incentives will be required in a more automated environment. 

The industry has also expressed some concern regarding the Postal Service’s specifications for mail that will be viewed as machinable versus non-machinable.  John indicated that the starting point for all of the potential equipment vendors was to be able to handle all products that can currently be processed on the AFSM 100 and FSM 1000.  In addition, some vendors have indicated that they can will try to handle products beyond those worked on the FSM 1000.  This should come as good news to catalogers and magazine publishers with products that sometimes reach ¾ of an inch or greater thickness.  It was also noted that even in today’s highly automated letter mail environment, some mail is not machinable. The strategy for DPP calls for improvements that would process virtually all letters and flats with very little or no or residue volume.  The research and development process should better quantify the amount of residue volume. If this volume is too high, it will have a negative impact upon the cost justification of the equipment.  I walked away from this segment of the meeting with the impression that the Postal Service clearly heard our message at the Summit regarding creativity and design flexibility and will carefully consider mailer impact before proceeding. 

We also discussed the issue that if the USPS pursues an DPP or FSS strategy, many more pallets that are currently cross-docked or drop shipped directly to the DDU would need to be brought into the plant for processing.  The Postal Service is very aware of this and believes that with DPP or FSS there may be more opportunity to consolidate volumes to make fewer, heavier pallets to minimize space for staging. While P&DCs appear to be the likely location for FSS equipment, it is possible that DDU’s could be used for DPP operations.  No decisions on will be made until the space requirements for the equipment are known.  Tom Day indicated that they are looking at vertical pallet storage systems and is familiar with the Automated Storage and Retrieval System that is currently being used by Quad Graphics.  In addition, Tom plans to visit the upcoming Graph Expo in Chicago where many print industry suppliers display their products.  It’s clear that the USPS is seeking out best practices for moving products within their plants. 

Now, for some specifics on the FSS (Flat Sequencing System): 

• It would be a two pass system, but not the same as letter mail.
• It would result in carrier walk sequenced flats but there would be some residue that must be manually processed similar to letter mail.
• Letter carriers would be given three bundles for delivery: sequenced letter mail, sequenced flats, and manually cased mail (letters and flats).
• Each machine would process multiple zones.
• All mail would not be available for processing at the same time since about 3-4% of all flats is First Class mail that requires overnight delivery.  To get all of the mail through the machine’s two passes, the USPS will most likely employ a process of running both passes during tour three for the smaller zones and run heavier zones during tour one when all  most of the First Class flats are available.  By doing so, they will minimize the amount of manual casing required for the First Class flats.
• The USPS recently conducted a test to simulate flats sequencing using an AFSM 100 with some software modifications.  During this test, they ran a saturation mail product as well as the local newspaper inserts and the products ran well.
• FSS will would require mail to be staged prior to processing.  The second pass would immediately follow the first pass without the need for staging.

DPP (Delivery Point Packaging) is quite a bit different from FSS and here are some of the specifics: 

• DPP may use the same machine for processing both letters and flats.  The DBCS machines that currently process letter mail may no longer be used to sequence letters in DPP zones.
• DPP systems may contain a location for each delivery point within the cover delivery zone.  So, if a given zone services 30,000 delivery points, the machine or machines would contain 30,000 individual separations to sort the mail.
• Estimated space requirements are that 15,000 separations would require the same amount of space that is currently required for 30 manual cases.  Since each carrier route currently services approximately 500 delivery points, the space requirements would be roughly equal to service the same number of delivery points.
• DPP would be a one pass system, with mail being inducted and sorted into the machine until all of the mail for the zone has been processed.  As a result, mail can be processed approximately 20 hours per day, leaving 4 hours for routine maintenance.
• DPP machines would be modular so that additional capacity could be added if additional delivery points are added to the service area.
• The machines may use the vertical space to minimize the footprint within a facility.
• The individual separations could be flexible to allow for varying amounts of mail for each delivery point.

Other Issues: 

• The machines may work on a 5-digit scheme basis, so there would continue to be value in scheme sorting and drop shipping.  In addition, scheme based machines would lend themselves to co-palletization by mailers.
• Mailer applied 11-digit POSTNET barcodes will be required to support DPP and FSS.
• Good address quality is essential.
• Barcode quality will also be essential.
• The industry needs to focus on reducing the amount of UAA mail (Undeliverable As Addressed).
• Mailers must eliminate the use of ZIP+4 “default codes”, such as 0000 or 9999 when the true codes are not known for a specific address.

At the conclusion of the meeting it was quite clear that the Postal Service is giving careful consideration to the issues that are important to the industry.  In addition, they want to continue the involvement of mailers in the process.  To that end, Bob O’Brien and John Rapp are going to have a separate meeting to discuss the potential role that MTAC could play in keeping the communication open throughout the process. 

I walked away from the meeting with the feeling that the Postal Service and the mailing industry is are approaching these issues in a positive fashion.  While there are many difficult issues to be resolved in development and testing, I’m very pleased that John Rapp and his colleagues have involved the mailing industry in this process and that together we can ensure a successful outcome.