Modeling the U.S. Postal Network
December 8, 2010
Princeton, NJ
Agenda
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Introduction
The Postal Industry
The U.S. Postal Service & its Network Infrastructure
Postal Distribution Concepts
Modeling the USPS Network
Q&A
decision/analysis partners
● Founded 11 years ago
● Three practices



Logistics & supply chain
Information & communications technologies
Postal service
● Technical & management consulting

Operations management
Postal & Mailing Industry
Mailers
Service Providers
Strategy
Business Plan
Other Operators
Services
Postal
Sector
Policy
Laws
Regulations
Postal
Enterprise
Network
Delivery
Postal
Regulator
Operations
The Mail
● Mail vs Parcels -- Letters vs Flats
● C2C: Personal Communications


First class mail
Subject to electronic diversion
● B2C: Transaction & Advertisement


First & “standard” mail
Standard: 0.5%$ growth over next 10 years
● B2B: Transactions


First & Express
Eroded
● C2B: Bill payment & reverse logistics

Bill presentment in mail but payment online.
United States Postal Service
● 500 million pieces of mail daily

UPS: 15M Worldwide FedEx: 2.6M
● $68 billion Revenue

First-Class Mail $36 b
Ad $17 b
Others $15B
● Large infrastructure

269 Processing and distribution plants
 218,684 vehicles
● Evolving Network

Volume subject to the economy and electronic diversion
 923,595 new delivery points added to the network in 2009
 43.8 million address changes processed in 2009
USPS Postal Products
MARKET DOMINANT PRODUCTS
● First-Class Mail:
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
Single-Piece Letters, Cards
Presort Letters, Cards
Flats
Parcels
● Standard Mail:
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High Density and Saturation Letters, Flats &
Parcels
Carrier Route, Letters, Flats
Not Flat-Machinables and Parcels
● Periodicals Mail
● Package Services Mail
COMPETITIVE PRODUCTS
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Express Mail
Priority Mail
Parcel Select Mail
International Mail:


Expedited/Priority
Air Parcel Post
How the mail moves
(simplified version)
Delivery point sequence
in Trenton 085
to Princeton DDU
To delivery carrier
1
Mail collected
Sacramento CA
95818
To Post Office
95815
7
5
PHL
2
SFO 4
6
MEM
3
Mail sorted
at 958 to 94Z
then to SFO
Primary Sort
Delivery Sort
Mailers
How the mail moves
Platform Operations
Mail Processing
Advance Facer Canceller System
(AFCS)
Letters
Mail
Prep
Delivery Bar Code Sorter (DBCS)
DBCS Input/Output Subsystem
(DIOSS)
Flats
Automated Flat Sorting Machine
(AFSM 100)
Flat Sequencing System (FSS)
Small Parcel /
Roll (SPRS)
Small Parcel & Bundle Sorter
(SPBS)
Packages
Automated Package Processing
System (APPS)
BMEU
Hierarchy of Facilities
● National Distribution Centers (21)

Bulk Mail and Parcels Processing
 Two-tier Regional Distribution Secondary Sort
● Processing & Distribution Centers (About 300)

Facing & cancelling mail
 Outbound primary sort
 Destination Delivery Sequencing
● Surface Transfer Center (STC)

Tray & Container Cross-docking
Lettermail Plant
Parcel Sorter Flow Analysis
(Montreal)
Material Handling Simulation
(Montreal)
Network & Distribution Concepts
Why do we need a network?
● Transporting each mail envelope from
its origin to its destination with its own
driver would be prohibitively expensive,
so…
● We stage the mail and we bundle the
mail for transport and delivery

We collect the mail and stage it to process it and deliver
it once a day
 We sort the mail in order to bundle it for transport and
delivery
Bundling & staging are critical
distribution processes
Mode of Transport
Bundling/Staging
Freight Rail
blocks/unit trains
staged/switched in flat or hump
yards
LTL Trucking
Pallets, pallet positions
staged in warehouses
Container Shipping
Stacks in ships
staged in container ports.
The process of staging and sorting is common to transportation and distribution.
Flat objects such as envelopes provide a significant economic opportunity to
bundle. Postal processing represents about 82% of operating costs – transport
about 12%.
The Network
The Network
Network Layer
Elements
Time Horizon
Real Estate
Plants, Facilities
20 to 30 years
Equipment, Fleet
Sorting & material handling
systems, trucks, planes
5 to 20 years
People, Skills
Clerks, drivers, planners,
managers, trainers.
2 to 20 years
Sort Plans &
Schedules
Sort & operating plans,
transportation & other
schedules.
Real time to
1 year
Measurement, Mgt
& Planning
Evaluation, planning &
forecasting. Management
Real time to
3 months
What controls the flow of mail?
● In the short run, mail flows are under the control of

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Sort plans: bundling the mail into trays for further processing
Operating plans: staging the mail for processing, transport or
delivery, and
Schedules: Transport (trucks, rail, planes), people, facilities, etc.
Network Topology
● Layout pattern of interconnection of the elements of the
network
● Topologies and hierarchy of nodes imply a distribution
strategy:

Star: All P&DC connected to one central mega-plant
 Full mesh: Each P&DC connected to each P&DC
 Tree: Each P&DC is connected to a regional center
What impacts the network’s shape?
Alternative A
Alternative B
City 1
City 2
City 1
City 2
Vol V1
Vol V2
Vol V1
Vol V2
City 3
City 4
City 3
City 4
Vol V3
Vol V4
Vol V3
Vol V4
one day
one day
What impacts the network’s shape?
Alternative
Processing
Transport
A
● Several plants
● Smaller facilities
● Lower productivity per plant
● Additional handling for some mail
● Higher total processing cost
● Shorter trips
● Lower transport volumes
● Lower circuity (perhaps)
B
● One larger plant
● Higher productivity in the plant
(perhaps)
● Longer processing times
(perhaps)
● Longer trips
● Higher volumes
● More transportation
Network Modifiers
DPS Letter and Cased Volume History (City Delivery)
100.0
Cased Letters
DPS Letters
90.0
80.0
70.0
• FY 2007 USPS Sequenced
130 Billion Letters
Percent
60.0
• Resulting in Over $5 Billion
Annual Savings
50.0
40.0
30.0
20.0
10.0
0.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
Fiscal Year
2002
2003
2004
2005
2006
Cased Letter %
DPS Letter %
2007
2008
YTD
Plant Productivity
Hours per Piece Handled as a function of
Total Piece Handled per Plant per Year (M)
U-SHAPED PREDICTED WH / TPH AS A FUNCTION OF TPH
0.0200
0.0180
0.0160
WH / TPH
0.0140
0.0120
0.0100
0.0080
0.0060
0.0040
50
100
150
TPH
200
250
300
Network Modifiers
Processing Productivity Improvements
Barcoding
APPS
MLOCR
AFCS
RBCS
DBCS
AFSM
ATHS
IDR
DIOSS-EC
PARS
FSS
RCS
Other Changes
● Volume changes
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Volume/electr. diversion/recession
Mix
● Population changes

New addresses
● Mailer network induction sites
● Transport
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Aviation economics
Air security & handling
Fuel costs
● Increase in volatility
● International volumes
What impacts the network’s shape?
● The network is constrained by time

One-day service areas constrain operating plans and facility locations
 Three-day and some two-day areas require the use of air transport
● Larger processing plants are more efficient up to a
point

Mail can be sorted more continuously
 Efficiency per letter handled plateaus at a certain volume
 Mail can be sourced from longer distances
Modeling the Postal Netowrk
Objective
● Support USPS Office of Inspector General

Engage in public discourse about USPS network infrastructure
 Educate public policy debate and the policy establishment
 Provide benchmarks for public policy
● Introduce USPS management to new concepts
“Appreciate” the impact of initiatives on network topology
 Plan for the future at all five layers
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Approach
● A “complex” problem

Previous efforts at closed modeling failed
 Too many details – not enough details.
● Simulation approach

Stay away from complex mathematical constructs
 Emulate & evaluate distribution approaches & constraints
● Technology

Repast (Recursive Porus Agent Simulation Toolkit) Symphony: Advanced, free,
and open source agent-based modeling and simulation platform @
sourceforge.net
Douglas Samuelson and Charles Macal, "Agent-based Simulation Comes of Age," OR/MS Today, Vol. 33, Number 4, pp. 34-38,
Lionheart Publishing, Marietta, GA, USA (August 2006). http://www.lionhrtpub.com/orms/orms-8-06/fragent.html
Simulation
● Agent Class: Facility
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Subclasses: Consolidator and Non-consolidator
● An initial number of facilities are seeded
● Mail is directed from zips to facilities.

Operations in each plants are simulated based on mail input and output
 Cost are tallied: processing & transport
 Mail performance is tallied
Abstra
ction
Simulation Agent Class Hierarchy
Abstract Agent
Processing Agent
Standard
Plant
Consolidatio
n Plant
(Hub)
Transport Agent
Truck
(Surface)
Plane (Air)
Model Structure
Local
ZIP
Codes
Other Processing
Agents
Route
New
d
Mail
Mail
Incoming Mail
Mail To Deliver
Surface Transport
Agent
Routed Mail
Processing
Agent
Surface / Air
Transport Agents
Routing Rules
Processing Cost
Functions
Transport Cost
Transport Cost
Total Cost
Processing & Transport
Cost Parameters
● Processing Costs

Workhours (labor) computer based on plant productivity statistics
 Workhours include Primary Outgoing, Secondary Outgoing, or Incoming sorts
 Using average labor cost per hour
● Transportation Costs

Ground: $0.009 per cubic foot mile
 Air: $0.0006-8 per lb per mile flown depending on type of mail
● Statistical conversion factors are used
33
Distribution Strategies
● Point-to-Point
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Mail is sent directly from origin plant to destination plant
No intermediate stops,
By truck if <500 miles, by air if >500miles.
● Peer-to-Peer
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Mail takes the shortest-path route between origin and destination (Dijkstra's algorithm)
No surface transportation leg exceeds 500 miles.
● Hub-and-Spoke Consolidation
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All mail is routed through Consolidation hubs origin to destination
Except mail with the same O-D, which is just delivered locally).
● Hybrid Consolidation
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O-Ds that are <500mi apart exchange mail directly
Mail between all other O-D pairs (distance >500mi) is routed through Consolidation hubs.
Facility Placement Using 90mi
Service Radius
Service Radius: 90mi
Facility Count: 170
(includes 16 Consolidators)
35
Facility Placement Approach #1:
Maximum Service Radius, Example
Computed facility placements based on 150mi max service radius (for illustration):
Max Service Radius: 150mi
Facility Count: 82
(includes 15 Consolidators)
36
Distribution Strategies
●
Peer-to-Peer Strategy

Facilities attempt to send mail directly to the destination.
 Transportation inefficient - many trucks with small loads.
●
Consolidation Strategy

Select facilities are used as Consolidation points in the network
 Mail is routed through these hubs to achieve processing economies of scale
 Longer transportation distances, but trucks will be more full
37
Modeled Mail Types
Modeled Mail Types
Express
Priority
1st Class
Standard
Periodicals
Package
Letters
Flats
Parcels
Non-Presorted
Presorted
38
Sample Model Results
Strategy
Radius
# Facilities
P2P
90 Miles
Consolidation
200 Miles
90 Miles
200 miles
170
57
170
57
248K
277K
212K
211K
Ground
Transport
$13.3M
$22.8M
$21.0M
$30.4M
Late Mail
0%
10%
3%
13%
Work Hours
Transforming the Postal Network
Preparing the Postal Network
for the Future
The World will be increasingly…
● Digital: Use of data -- Mixed media
● Volatile: More rapid changes in volumes, mix, O/Ds
● Uncertain:
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Less predictable volumes
Harder to forecast
● Complex:
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Non-linear, difficult causal relationships
More difficult decision making
● Ambiguous: Lack of clarity
Role of the Model
● Use the model as a didactic tool

Model can never be complex enough to be realistic
 Use the model to develop cooperation and consensus
● Incorporate the model lessons in a larger context

The five layers
Preparing the Postal Network
for the Future
Real Estate
● Re-map/increase plant
capture areas
● Create/consolidate megaplants outside large
metropolitan areas
● Increase footprint flexibility:
Consider leasing/renting
space for processing in low
volume areas
● Develop R/E strategy to deal
with transportation congestion
and fuel costs
Equipment
● Design plants with standard
work centers
● Use multi-purpose MLOCR
equipment for increased
flexibility
● Leverage intelligent mail
technology to improve
productivity
● Create on-demand
transportation contracts and
fleet (power by the hour)
Preparing the Postal Network
for the Future
People
● Match manpower to needs
(increased use of part-time or
flex-time labor)
● More decision-oriented
culture - Cell-production
systems
● Improve how people
communicate, seek
innovation, and address
conflict
● Promote network-friendly
cooperation among managers
Sort Plans & Schedules
● Implement dynamic network
management system
● Enable operating plans –
perhaps sort plans – to be
adapted in the near/real time.


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To take advantage of excess capacity
Improve performance
Reduce costs
Preparing the Postal Network
for the Future
Measurement, Planning & Mgt
● Develop business analytics

Simulation
 Forecasting
 Predictive Modeling
● Institutionalize network control

Network cooperation and collaboration
● Develop dynamic network management capabilities

Ability to react
● Questions?