Modeling the U.S. Postal Network

December 8, 2010

Princeton, NJ

Agenda

● 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

PostalRegulator

Policy

Laws

Regulations

MailersStrategy

Business Plan

Postal Enterprise

PostalSector

Network

Operations

Services

Delivery

Service Providers

Other Operators

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: Single-Piece Letters, Cards Presort Letters, Cards Flats Parcels

● Standard Mail: High Density and Saturation Letters, Flats &

Parcels Carrier Route, Letters, Flats Not Flat-Machinables and Parcels

● Periodicals Mail

● Package Services Mail

COMPETITIVE PRODUCTS

● Express Mail

● Priority Mail

● Parcel Select Mail

● International Mail: Expedited/Priority Air Parcel Post

How the mail moves(simplified version)

Mail collectedSacramento CA

95818To Post Office

95815

Primary SortDelivery Sort

MailersPHL

MEMSFO

Mail sorted at 958 to 94Zthen to SFO

Delivery point sequencein Trenton 085

to Princeton DDU To delivery carrier1

2

3

4

5 6

7

How the mail moves

Mail Prep

Letters

Flats

Small Parcel / Roll (SPRS)

Packages

Platform Operations Mail Processing

Advance Facer Canceller System (AFCS)

Automated Flat Sorting Machine (AFSM 100)

Small Parcel & Bundle Sorter (SPBS)

Automated Package Processing System (APPS)

Delivery Bar Code Sorter (DBCS)

DBCS Input/Output Subsystem (DIOSS)

Flat Sequencing System (FSS)

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 trainsstaged/switched in flat or hump yards

LTL Trucking Pallets, pallet positionsstaged 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 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?

City 1

Vol V1

City 2

Vol V2

City 3

Vol V3

City 4

Vol V4

City 1

Vol V1

City 2

Vol V2

City 3

Vol V3

City 4

Vol V4

Alternative A Alternative B

one day one day

What impacts the network’s shape?

Alterna-tive

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)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008YTD

Fiscal Year

Per

cent

Cased Letter %

DPS Letter %

Cased Letters DPS Letters

• FY 2007 USPS Sequenced 130 Billion Letters

• Resulting in Over $5 Billion Annual Savings

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

0.0040

0.0060

0.0080

0.0100

0.0120

0.0140

0.0160

0.0180

0.0200

50 100 150 200 250 300TPH

WH

/ T

PH

Network Modifiers

Barcoding

APPS

MLOCR

AFCS

RBCS

DBCS

AFSM

ATHS

IDR

DIOSS-EC

PARS

FSS

RCS

Other Changes● Volume changes

Volume/electr. diversion/recession Mix

● Population changes New addresses

● Mailer network induction sites● Transport

Aviation economics Air security & handling Fuel costs

● Increase in volatility ● International volumes

Processing Productivity Improvements

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

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 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

Standard Plant

Consolidation Plant (Hub)

Truck (Surface) Plane (Air)

Processing Agent Transport Agent

Abstract Agent

Simulation Agent Class Hierarchy

Model Structure

Other Processing Agents

NewMailNewMail

RoutedMail

RoutedMail

Routing RulesRouting Rules

Processing Agent

Processing Agent

Processing Cost Functions

Processing Cost Functions

Total CostTotal Cost

Transport CostTransport Cost Transport CostTransport Cost

Mail To DeliverMail To Deliver Routed MailRouted Mail

Surface Transport Agent

Surface Transport Agent

Surface / Air Transport Agents

Surface / Air Transport Agents

Local ZIP Codes

Local ZIP Codes

Incoming Mail

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

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Distribution Strategies

● Point-to-Point 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 Mail takes the shortest-path route between origin and destination (Dijkstra's algorithm) No surface transportation leg exceeds 500 miles.

● Hub-and-Spoke Consolidation All mail is routed through Consolidation hubs origin to destination Except mail with the same O-D, which is just delivered locally).

● Hybrid Consolidation 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 90miService Radius

35

Service Radius: 90miFacility Count: 170(includes 16 Consolidators)

Facility Placement Approach #1:Maximum Service Radius, Example

36

Computed facility placements based on 150mi max service radius (for illustration):

Max Service Radius: 150miFacility Count: 82(includes 15 Consolidators)

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

38

Express Priority 1st Class Standard Periodicals Package

Letters

Flats

Parcels

Modeled Mail Types

Non-Presorted Presorted

Sample Model Results

Strategy P2P Consolidation

Radius 90 Miles 200 Miles 90 Miles 200 miles

# Facilities 170 57 170 57

Work Hours 248K 277K 212K 211K

Ground

Transport

$13.3M $22.8M $21.0M $30.4M

Late Mail 0% 10% 3% 13%

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:

Less predictable volumes Harder to forecast

● Complex: 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

● 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)

● Re-map/increase plant capture areas

● Create/consolidate mega-plants 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

Real Estate Equipment

Preparing the Postal Network for the Future

● Implement dynamic network management system

● Enable operating plans –perhaps sort plans – to be adapted in the near/real time.

To take advantage of excess capacity Improve performance Reduce costs

● 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

People Sort Plans & Schedules

Preparing the Postal Network for the Future

● Develop business analytics Simulation Forecasting Predictive Modeling

● Institutionalize network control Network cooperation and collaboration

● Develop dynamic network management capabilities Ability to react

Measurement, Planning & Mgt

● Questions?