Lessons From the Flats Summit

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This month's Flats Summit was a chance for the mailing industry and the U.S. Postal Service to hear all about flats from a range of panelists. The summit was organized by Postcom and other trade associations to help attendees understand what's happening with flats and what might be in their future.

The future of flats clearly is a topic foremost on mailers' minds. The summit drew 300 attendees. About a week before the event, Postcom had to close attendance to additional attendees because of hotel constraints.

The summit began with a panel of mailers discussing their concerns. This was followed by the postal service discussing its flats strategy. Next was a panel of industry and postal experts leading us through the "economics of automation." We then heard from the engineers and the "technology landscape." This was followed by a wrap-up, and a somewhat heated discussion of possible next steps.

Let's go over the panels in more detail, starting with the one on industry perspectives.

This panel noted what flat mail is all about. They want their flat mailing package, be it a catalog, magazine, newspaper or oversized envelope, to stand out in the mailbox and to receive timely delivery. Their formats are driven by response rates, but they use USPS work-sharing discounts as much as possible. However, if it is a choice between cost containment driven by postal discounts and design flexibility driven by creativity, creativity usually wins.

The second panel's speakers were USPS officers. Given poor prospects for mail volume growth, the postal service is taking a hard look at expenses. The letter carrier is the backbone of the USPS. But to control expenses, the growth of the carrier work force must be contained.

Today, letter mail, but not flat mail, is machine-sorted into delivery sequence. The vision that has developed, to control costs, is to machine-sort letters and flats together into carrier delivery sequence. Then, when the carrier comes to work, instead of spending two to three hours sorting mail in preparation for delivery, he almost can go right out on his route. The saved hours would be used to increase the number of deliveries each carrier handles. A fallback position, based on the R&D results, would be to separately machine-sort letters and flats into delivery sequence. This methodology would be less productive but conceptually more doable.

The postal panel made clear that what has begun is a R&D project to determine:

o Whether it is possible to make such a machine(s).

o What the machine would cost.

o Whether the savings can justify the investment.

The USPS panelists tried to alleviate mailer concerns through these statements:

o Chief operating officer Pat Donahoe said "flat mail is an area of growth, and we won't stand in the way of that growth."

o Senior vice president of operations John Rapp said "we are not trying to standardize flats."

o Senior vice president, chief marketing officer Anita Bizzotto said that the postal service plans to be cautious and to solicit customer input, and that no decision has been made.

The bottom line, however, is that the USPS views this project as a way to drastically boost carrier productivity. The carrier force now averages about 500 deliveries daily. The sorting equipment envisioned could raise these deliveries to between 600 and 800. Given the current structure of 235,000 carrier routes, the savings would be substantial.

The next panel was mailer-oriented. It discussed in some detail USPS assumptions and alternative strategies. Anita Pursley, vice president of postal affairs for Quebecor World Logistics, proposed a cost-based rate structure, oriented to change mailer behavior, that could achieve substantial USPS cost savings without a requirement for significant capital investment.

The proposal is based on work begun as part of the current USPS product redesign effort. However, the redesign project seems stalled. Pursley, who co-chairs the Standard A redesign work group, is valiantly trying to get the USPS-initiated project back on track.

But from a mailer perspective, the most significant presentation was given by Halstein Stralberg, a longtime postal consultant to Time Inc. Stralberg, in a deliberate and methodical manner, questioned the assumptions that went into the USPS corporate flats strategy. Stralberg asked questions and provided answers that did not reflect well on the USPS strategy. According to Stralberg's analysis of the flats strategy:

o Projected cost savings are unrealistic.

o Additional mail-processing costs are understated.

o Delivery service speed and predictability will decrease.

o Today's low-cost flats will cost more.

Based on what I've learned at this summit and at prior flats strategy presentations, I've reached these conclusions:

o The USPS will and should proceed with the R&D project to determine the feasibility of merging letters and flats into carrier delivery sequence. Long term, the USPS must address the rising cost of the carrier work force.

o A joint USPS/industry effort is needed to analyze the Stralberg paper to determine whether the USPS savings assumptions are correct.

o The USPS needs to reinvigorate the product redesign effort since it seems to offer significant cost savings with minimal capital investment.

o The mailing industry needs to stay vigilant to ensure that USPS capital investment decisions are not made prematurely and that USPS machine specifications do not impinge on flats design creativity.

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