Automation Projects Expected To Save $3 Billion
The U.S. Postal Service has embarked upon two automation projects that, within five years, could save nearly $3 billion in operational costs annually and reduce its employees’ workload by the equivalent of 37,500 full-time workers.
One system will arrange magazines and other large, flat mail in the order it is delivered by carriers. A second system will combine flat and letter mail into a single sequenced package. If the technology, which has not yet been proven, works as hoped, the daily tasks of a letter carrier could be reduced by 20 percent, said Tom Day, Postal Service vice president of engineering.
Postal Service spokesman Mark Saunders emphasized that though the automation will eliminate the need for 37,000 full-time workers, that does not mean any workers will actually lose their jobs. Because the Postal Service must serve about 1.5 million new addresses and other delivery points each year, the demand for carriers continues to increase, Saunders said.
Day said the effort follows two successful automation efforts: arranging letters in the sequence they are delivered in the 1990s, and automated processing of flats over the past three years.
“Despite this successful use of flat automation, we have not had an impact on the cost of flats in delivery operations,” Day said. “Today our delivery costs are approximately $18.5 billion. Over 20 percent of this cost is related to the time a carrier spends manually casing flats in the morning before delivering his or her route.”
Worker pay and benefit costs are the largest component of Postal Service costs — about 75 percent — and delivery costs alone, which include pay to letter carriers, are nearly 30 percent of all costs. It is imperative that the Postal Service get a handle on delivery costs, Day said.
“Now we want to do the same thing for flats as we did for letter mail,” Day said. “The ultimate vision is putting letters and flats together and in sequence ready for delivery.
“Over the last 10 years the Postal Service was very successful at controlling processing cost by automating the processing and sequencing of letter mail,” Day said. This program saves not only in distribution operations but in operations inside postal plants, Day said.
From 1993 to 2001, productivity of letter operations increased 83 percent, said John Rapp, Postal Service senior vice president of operations.
“We expect similar results as we implement our Corporate Flat Plan,” Rapp said. “Flat mail, which includes periodicals and Standard [or advertising] mail, is a valuable source of postal revenue. It represents 25 percent of the mail and generates approximately $16.1 billion annually.”
A former chief financial officer for the Postal Service called the projected savings for the sequencer and packager substantial.
“It underscores the worth of the whole automation program,” said Michael Riley, now president and chief executive officer of Riley Associates Consulting in Fairfax, Va. “They have invested about $13 billion in automation so far and they are realizing about $3 billion or $4 billion annual return. The operation savings . . . has been great over the years, and that ought to be a major thrust of management.”
Riley said the Postal Service’s estimated $2.8 billion savings annually may sound high, but it actually might work out to be even greater than that because wages can go up considerably over a few years.
Three corporations — Lockheed Martin Corp., Northrop Grumman Corp. and Siemans AG — are interested in developing the sequencing and packaging technology, and one of the three told Day that it could have a model ready for demonstration within two years.
Day said the competition for the technology is open to all comers, and he hopes smaller companies will be able to contribute at least some components.
“It might happen that we would use some components from two or all three of the major vendors,” Day said. “In fact, it would be best if there was not a single winner. If we were able to use contributions from two or even three of the major vendors, then they would continue to work on this distribution technology.”
The Postal Service Board of Governors approved an undisclosed amount for funding the research and development of the projects Nov. 5. The three major corporations will be putting up about half of the research and development dollars, Day said.
“By late 2004 we should be able to decide whether to pursue one or both or none of the projects, though there would be a much greater return on the packager,” Day said.
The delivery point packager combines letters and flat mail, including catalogs, and arranges them in order of delivery. Tests conducted in Carson City, Nev., and Sterling, Va., in which letters and flats were packaged in plastic bags and properly sequenced, showed a 20 percent decrease in delivery time on the route.
Day said he is confident the technologies will work.
“I’ve seen enough of the concepts from the three vendors that I believe that in the next two years we will be able to put together that system,” Day said. “This is the major distribution technology for the decade. Virtually every processing center in the country, more than 7,000, would be equipped with it.”
If all goes well, the equipment should be deployed in 2006 or 2007.
