Product Redesign

1

• Product Redesign
• MTAC Update
• August 8, 2002

2
PRODUCT REDESIGN
Process And Timeline
Year
0 1 2 3
Develop Refine Proposals
Cost Market Research
Prepare Filing
PRC Hearings
Implementation
May 02
May 01
May 04
May 03
3
Status Summary
PRODUCT REDESIGN

• Idea Development Refinement
• Largely Complete, Except for Parcels
• Four-Day Internal Package Summit
• Which Ideas Can Be Done When?
• Full Redesign Case Only
• Regular Omnibus Case
• Timing and Complexity of Omnibus Case
• Small Cases/Experiments/NSAs
• Hand-offs
• Things That Do Not Require PRC Approval

4
Status Summary
PRODUCT REDESIGN

• Market Research
• First-Class Dropship
• Shape-Based First-Class Rates
• Simplified Preparation Option
• Cost Analysis
• Preliminary Analysis of Piece Bundle Costs
• Other Cost Analysis Under Development

5
Cost-Based Rates
PRODUCT REDESIGN

• Heightened Awareness of Importance of Identifying
  Costs for More Components
• Bundle and Container Handlings
• Address Quality Elements
• Underlying Theme Provide Direct Incentives for
  Mailers to Create More Efficient Mail
• Provide Flexibility to Meet Individual Mailers
  Needs and Capabilities

6
PRODUCT REDESIGN
Mail Processing Costs Piece, Bundle, Container
FY 2000 Flats Mail Processing Costs Standard
Regular
7
PRODUCT REDESIGN
Flexible, Cost-Based Rates A First Step

• Establish flexible minimum for 5-digit bundles of
  AFSM-100 compatible Standard Mail flats
• Does not require rate case due to 3/5 rate in
  Standard
• Raise required minimum to 17 pieces from 10
  pieces
• Optional preparation from 10 - 16 pieces
• Improve overall piece and bundle handling
  efficiencies
• Status
• Federal Register Final Rule and Postal Bulletin
  notice cleared for publication
• Effective Date September 1, 2002 Changed to
  Sept. 5 to coincide with the next release of the
  electronic DMM.

8
Effects of Increased 5-D Bundle Minimums
PRODUCT REDESIGN
300,000
Bundle-Openings
240,000
180,000
120,000
60,000
0
5-Digit Bundle Minimum
9
Unit Cost Savings vs. 10-Piece Minimum
PRODUCT REDESIGN
0.3
0.2
0.1
0.0
5-Digit Bundle Minimum
Per-Piece Cost Savings (Cents)
-0.1
Mailing Density (Pieces in National Mailing)
45,000
-0.2
90,000
-0.3
-0.4
-0.5
10
Optimal Minimum Size for 5-Digit Bundles
PRODUCT REDESIGN
Size that minimizes USPS costs
11
Factors Affecting Optimal 5-D Minimum
PRODUCT REDESIGN

• Low Piece Weights
• More 5-D bundles convert into one 3-D bundle
• Low-to-Moderate Mailing Density
• 25 or more of 5-D bundles lt 17 pieces
• Ability to Build 3-D Bundles Up to 20-pound
  Limits
• If 3-D bundles limited to 3 high, get fewer 5-D
  bundles converting to one 3-D bundle

12
Need Your Help to Learn About Effects
PRODUCT REDESIGN

• Real Mailings, Not Simulated Mailings
• Make-up at 10-pieces alternative minimum
• Constraints on Make-up other than 20 lbs.
• Maximum Heights for Bundles in Sacks
• Maximum Heights for Production Reasons
• See Postal Bulletin for Details on Information
  Needed