MTAC Workgroup 114 ® Establish Service Standards and Measurement Final Report MTAC General Session November 7, 2007

MTAC Workgroup 114 ® Joint USPS/Industry workgroup formed in February 2007 to develop recommendations on service standards and potential measurement systems, as required under Postal Accountability and Enhancement Act (PAEA) Workgroup Mission

MTAC Workgroup 114 ® Workgroup formed Feb Members (including all subgroup members) –63 mail owners –53 mail service providers –57 USPS –25 “observers” (GAO, OCA-PRC, PRC) 45 Full workgroup or subgroup meetings held Overview

MTAC Workgroup 114 ® Full workgroup co-chairs –Kathy Siviter, President, PCSi (PostCom) –Jeffery Lewis, USPS Strategy & Transition Group FCM subgroup co-chairs –Jody Berenblatt, Sr. VP, Postal Strategy, Bank of America –Chris Oronzio, USPS Mgr., Processing Center Ops Periodicals subgroup co-chairs –Dennis Farley, Distribution Director, ESPN The Magazine –Jo Ann Miller, USPS Mgr., Integration & Support Workgroup Structure

MTAC Workgroup 114 ® Standard Mail subgroup co-chairs –Wanda Senne, National Dir. of Postal Development, World Marketing –Kimberly Simard, Dir. of Marketing Services, L. L. Bean –Tom Foti, USPS Mgr., Integration and Planning, Product Development Package Services subgroup co-chairs –Tom Underkoffler, Dir. of Logistics, Medco Health Solutions –John Gullo, USPS Mgr., Product Development, Package Services Workgroup Structure (cont’d)

MTAC Workgroup 114 ® Workgroup Status Report Sept 21: Workgroup recommendations report submitted to USPS Sept 24: Workgroup industry co-chairs briefed PRC on recommendations Oct 2: USPS presented proposed standards to workgroup Oct 17: USPS published proposed standards in Federal Register (comments due November 16) Nov 7: Workgroup final report to MTAC; workgroup sunset

MTAC Workgroup 114 ® Executive Summary Service Standards & Measurement Recommendations –Cross-Product Recommendations –Product-Specific Recommendations Service Standards/Measurement Review Process Special Services Recommendations Review Recommendations and this Presentation Final Workgroup Recommendations (131-page report)

MTAC Workgroup 114 ® USPS should perform in-depth review of existing service standards for all market-dominant products and propose changes that reflect the USPS’ existing network capabilities and mail environment (e.g., drop ship). –USPS review performed March-Sept 2007 –Results shared with WG 114 in late August –Revisions made by USPS after further WG dialog –USPS proposed service standards published in Federal Register for comment reflect updated business rules Cross Product Service Standards Recommendations

MTAC Workgroup 114 ® Establish for all market-dominant products baseline Performance Goals for –On-Time Delivery that are aggressive, attainable, and affordable (only FCM goals exist today), with a published plan for improvement over time. –Service Consistency that will reduce the length and volume in the “tail of the mail” Cross Product Service Standards Recommendations

MTAC Workgroup 114 ® Percent of Mail Delivered Within Standard # of Days To Achieve 99% Delivered 1 Day Delivery Area95%3 days 2 Day Delivery Area92%5 days 3 Day Delivery Area90%6 days To Improve Service: –Increase the On-Time Percentage –Reduce the Days to 99% Delivered Improve Consistency: FCM Illustrative Report on Service Performance

MTAC Workgroup 114 ® Critical Entry Times (CETs) are integrally linked to service standards and performance measurement. New MTAC workgroup should be formed to focus on CET issues identified by WG 114, including: –USPS oversight of local facilities in setting/changing CETs –USPS should continue to consult with major customers entering mail at the postal facility in establishing/changing CETs –USPS should make CET data available to mailers, link to service standards –CETs must be tied to service performance measurement system Cross Product Service Standards Recommendations

MTAC Workgroup 114 ® USPS must submit plan on how it will achieve the new service standards, due to PRC/Congress by June 20, 2008 –USPS envisions achieving the new standards with existing network capabilities (e.g., without significant cost increases) –Plan to include: –CET changes (national, standardized CETs for Standard Mail and Package Services?) –USPS performance goals –Network re-design ? –What else? –WG recommends customers have opportunity to review and provide USPS with feedback on its plan Cross Product Service Standards Recommendations

MTAC Workgroup 114 ® Recommendations on communications and tools improvements –Service standards for all products need to be publicized, and detailed service standards information available to all product users (Periodicals, Standard Mail and Package Services standards not widely communicated in the past) –Better access to service standards information needed (e.g., web-based tools, etc.) –Improved functionality of service standards tools (users group should be formed) Cross Product Service Standards Recommendations

MTAC Workgroup 114 ® First-Class Mail Service Standards Recommendations Needs of product users –Consistent, Timely, Accurate, and Cost Effective Delivery (for both business and individual non-business mail) Existing Service Standards: 1 to 3 days Recommendation: Maintain existing standards –The USPS has regularly updated FCM service standards (most recently, a significant realignment in 2001) –Consistent, timely, accurate and cost effective mailpiece delivery expected by senders and receivers alike –Measure all FCM, not just collection mail (EXFC does not measure business FCM)

MTAC Workgroup 114 ® USPS Proposed First-Class Mail Service Standards (Domestic) * Alaska, Hawaii and Puerto Rico not included Mail Class Existing Standard USPS Proposed Standard First-Class Mail1-3 days1-3 days * No changes proposed by USPS except for non- contiguous U.S. locations (see specific 3-digit Origin/Destination ZIP Code pair data for specific proposed standards) –USPS’ proposed service standards for non-contiguous locations: can be up to 5 days

MTAC Workgroup 114 ® First-Class Mail Service Standards Recommendations Explore reducing instances of non-reciprocal FCM service Standards (currently 1,200 3-digit Origin/Destination ZIP Code pairs do not have reciprocal standards) USPS should evaluate network capabilities for non-contiguous locations, publish specific standards for comment –While any new standard should reflect the existing network capabilities, it is important that the USPS not add to or extend the time for delivery beyond that currently achieved Develop service standards for forwarded/returned mail, COA form entry CET issues (addressed in cross-product recommendations) Consistency improvements needed (addressed in cross-product recommendations)

MTAC Workgroup 114 ® International Mail (all products) is 3% of total USPS revenue and.37% of total volume Confusion regarding scope since USPS product reorganization (April 2007), therefore workgroup recommendation is focused on single piece international Workgroup International Single-Piece recommendations: –Focus on Service Standards and Measurements for the domestic portion of the service: 6-day standard for 90% of the volume –USPS should not be held accountable for service performance on International Mail when it is outside the control of the USPS (Another country/post, or Military dept) –End users (both business and individual) value any end to end reporting that may be available Service Standards for International Mail

MTAC Workgroup 114 ® Periodicals Service Standards Recommendations Needs of product users: –Periodicals must have timely, reliable and consistent delivery Existing Service Standards: 1 to 7 days Recommendation: Maintain existing standards –Service Standards have been set by the USPS for over 30 years and have been updated quarterly. Periodical mailers must be provided an opportunity for feedback on changes. USPS Proposed: Origin and destination-entry service standards, ranging 1-9 days; changes in standards for specific 3-digit ZIP Code origin/destination pairs

MTAC Workgroup 114 ® USPS Proposed Service Standards – Origin Entry (Domestic) * Alaska, Hawaii and Puerto Rico not included Mail ClassExisting Standard USPS Proposed Standard Periodicals Mail1-7 days2-9 days * Periodicals MailExisting Standard USPS Proposed Standard DDU EntryN/A +1 day DSCF EntryN/A +1 day DADC EntryN/A +1-2 days * USPS Proposed Service Standards – Destination Entry (Domestic) * Alaska, Hawaii and Puerto Rico not included + Existing standards do not take destination entry into account

MTAC Workgroup 114 ® Periodicals Service Standards Recommendations Emphasize importance of Critical Entry Times (addressed in cross- product recommendations) Ensure standards can be met for small density mailers using end-to-end network Recommended that USPS evaluate network capabilities for non- contiguous locations, publish proposed specific 3-digit ZIP Code origin/destination pairs for product user comment

MTAC Workgroup 114 ® Standard Mail Service Standards Recommendations Needs of product users: –Standard Mail users need consistent, predictable service Existing Service Standards: 3 to 10 days Recommendation: Maintain existing standards for origin-entered Standard Mail; develop service standards matrix for destination- entered Standard Mail; other recommendations –Service Standards set by the USPS over 30 years ago; not updated since that time, not based on existing USPS network capabilities, actual driving distance/time between points, and existing drop ship environment USPS Proposed: Origin and destination-entry service standards, ranging 2-10 days; changes in standards for specific 3-digit ZIP Code origin/destination pairs based on updated business rules

MTAC Workgroup 114 ® Standard Mail Service Standards Workgroup Recommendation: Range of Days USPS Proposal EntryCarrier Route Non-Carrier Route Same standards for all presort levels DDU0 to 2 daysNA 2 days DSCF2 to 3 days2 to 4 days 3 days DBMC3 to 4 days3 to 5 days 5 days Origin 3-digit O/D Pairs ± 1 or 2 days (depending on distance) 3 to 10 days No distinction in service standards based on shape

MTAC Workgroup 114 ® Standard Mail Service Standards Recommendations Improve consistency and predictability; recognize negative impact of early delivery Improve consistency and predictability; recognize negative impact of early delivery –USPS consistency performance goals as well as on-time perf. goals –Workgroup supports USPS’ plans to improve operational disciplines to improve Standard Mail service performance (e.g., limit deferability, keep local mail local, etc.) –Workgroup recommends service standards be a range of days, no broader than a 3-day window (except for origin-entered mail traveling greater distances) –2-3 day range of days is consistent with the USPS Fall Mailing Guidelines used since 1998 – A 5-day range, for example, would be too broad to effectively plan pre- and post mailing activities, and also does not recognize the negative impact of “early” delivery.

MTAC Workgroup 114 ® Standard Mail Service Standards Recommendations Establish aggressive service performance goal –95% USPS on time performance goal, to be achieved within existing USPS network capabilities and resources –Review at end of 2009 using 12 months of measurement data, then consult with product users Use of Requested In Home Dates (RIHDs). Workgroup recommends: –USPS continue to honor Requested In Home Dates (RIHD) when possible –New MTAC workgroup be formed to explore: ground rules for inclusion of RIHD mail in service performance measurement, processing of RIHD mail, relationship between RIHD and service standards –Workgroup supports inclusion of as much RIHD mail in service performance measurement as possible

MTAC Workgroup 114 ® Standard Mail Service Standards Recommendations Adjustment for fall mailing season (An additional processing day should be added to the service standard during the months of September through December because of heavy volume) –Product users need to be able to accurately predict service expectations, and adjust those expectations when heavy volume period causes over-capacity of USPS system –Service performance measurement scoring may not recognize sub-standard performance in a given month (e.g., annual scoring would average all months) Non-Contiguous Locations: USPS should adjust existing standards to reflect network capabilities, and publish specific standards for product user comment Bound Printed Matter Flats Service Standards should mirror Standard Mail standards

MTAC Workgroup 114 ® Package Services Mail Service Standards Recommendations Needs of product users: – Package Services users need Standards that are reasonable and consistent with the price of the service; meet delivery expectations of the customers – Consistency and reliability are key (Tail of the mail leads to higher customer service costs, lost revenues, and lost repeat business) Existing Service Standards: Package Services 2 to 9 days Standard Mail -- 3 to 10 days

MTAC Workgroup 114 ® Package Services Mail Service Standards Recommendations Recommendation: Maintain existing standards for origin-entered mail; develop service standards matrix for destination-entered mail; other recommendations –Service Standards set by the USPS over 30 years ago; not updated since that time, not based on existing USPS network capabilities, actual driving distance/time between points, and existing drop ship environment USPS Proposed: Origin and destination-entry service standards, ranging 1-8 days; changes in standards for specific 3- digit ZIP Code origin/destination pairs based on updated business rules

MTAC Workgroup 114 ® Package Services Mail Service Standards & Goals Workgroup modified its recommendations based on USPS network analysis and proposal Re-evaluate standards when performance data available Entry Point Existing Svc Stds (days) WG 114 Rec. Service Standard (days) USPS Proposed (days) Perf. Goal % Outlier Standard (days) Total Perf. Goal -- % Origin2 to 92 to 8 * DBMCN/A +2 to 3 *3 * DSCFN/A +1 to 2 * 2 * DDU N/A +1 * * Alaska, Hawaii and Puerto Rico not included + Existing standards do not take destination entry into account

MTAC Workgroup 114 ® Standard Mail Parcels Recommendations Maintain existing service standards for origin-entered Standard Mail parcels Service standards for destination-entered Standard Mail parcels should mirror destination-entry standards for Package Services mail Standard Mail Parcel service standards should be measured/reported separately from letters/flats. In future, Standard Mail parcels should have separate service standards (align with other parcels)

MTAC Workgroup 114 ® Package Services Mail Service Standards Recommendations Current performance for origin-entered Package Services does not meet current (and proposed) standards. Close gap gradually within 2 years of implementation without adding costs to product Non-Contiguous Locations. USPS establish service standards for non-contiguous locations based on existing network capabilities; re- evaluate after one year of actual service performance data No seasonality adjustment in service standards USPS should conduct a market survey to small business mailers/consumers to ensure proper input

MTAC Workgroup 114 ® USPS Proposed Service Standards – Alaska, Hawaii and Puerto Rico Performance Measured at Port of Entry –Alaska – Anchorage –Hawaii – Honolulu –Puerto Rico – San Juan Mail ClassDestination Entry Range (days) End-to-End Flow Range (days) AlaskaHawaiiPuerto Rico AlaskaHawaiiPuerto Rico First-Class Mailn/a 1 – 4 Periodicals1 – 61 – 71 – 22 – 212 – 23 Package Svcs1 – 71 – 81 – 62 – 192 – 22 Standard Mail2 – 92 – 102 – 83 – 223 – 24

MTAC Workgroup 114 ® USPS Proposed Service Standards – Volume Distribution First-Class Mail: 99.5% of current volume = 1-3 day service standard Periodicals: 85.6% of current volume = 1-3 day service standard; 92% of current volume = 1-4 day service standard Standard Mail: 78.6% of current volume = 2-5 day service standard Package Services (not including Standard Mail parcels): 82.9% of current volume = 1-5 day service standard USPS volume distribution analysis based on FY 2006 Billing Determinant data and FY 2006 ODIS/RPW data Don’t compare the % change of 3-digit pairs and % volume: For Periodicals, Standard Mail and Package Services, 0.3% of the 3-digit pairs represent almost 75% of the volume (because those products are largely drop ship-entered)

MTAC Workgroup 114 ® Evaluating the USPS’ Proposed Service Standards Mailers need to evaluate the impact of the USPS’ proposed service standards on their business Comparing the USPS’ proposed standards to existing standards may not be meaningful (e.g., for Standard Mail and Package Services the existing standards are 30 years old, have not been updated, are not based on existing USPS network capabilities, and do not reflect existing service levels…) A better comparison might be the USPS’ proposed standards to existing service performance…but that data is not always available The Key Question: Would the USPS’ proposed standards meet your business needs if the USPS were to achieve those standards?

MTAC Workgroup 114 ® All product users should evaluate and comment on the USPS’ proposed service standards –Federal Register notice (and MTAC 114 final report) posted on RIBBS in the MTAC front page –USPS proposed service standards by 3-digit pairs data available at: ribbs.usps.gov/svcstandardsprop USPS will publish final rule by December 20, 2007 New standards to take effect January 2008 (measurement to begin when?) USPS and PRC to continue consultation process USPS plan to Congress/PRC on achieving standards (due June 20, 2008) Service Standards: What Comes Next?

MTAC Workgroup 114 ® Establish annual formal review process for service standards and measurement (USPS, PRC, mailers) Quarterly update process for minor changes (with advance notice to mailers, opportunity for feedback) Formal review process for significant changes (FSS, network redesign, etc.) with customer feedback process Review of 2008 standards (when performance data available) –Non-Contiguous U.S. locations –Forwarded/Returned Mail –Special Services Ongoing Service Standards/Measurement Review Process

MTAC Workgroup 114 ® Today, customers use whatever process returns the best result (inconsistent points of contact, no escalation process, frustration for USPS and customers) USPS should develop formal process for resolving service issues, including escalation process USPS and mailer access to common measurement data for diagnostics Separate MTAC workgroup should be formed to work on service issue resolution process Service Issue Resolution Process

MTAC Workgroup 114 ® CONFIRM Delivery/Signature Confirmation Business Reply Mail Courtesy Reply Mail Registered Mail Certified Mail Merchandise Return Service Bulk Parcel Return Service Post Office Box/Caller Service Money Orders Certificate of Mailing Special Services recommendations

MTAC Workgroup 114 ® Service Performance Measurement Recommendations

MTAC Workgroup 114 ® Workgroup prefers Intelligent Mail-based measurement USPS should leverage IPC relationship Workgroup recommendations on alternative (external) measurement systems Small volume mailstreams may use different measurement systems/methodologies Measurement quality metrics needed (Start/Stop-the-Clock) New MTAC workgroup(s) on measurement/reporting needed Service Performance Measurement

MTAC Workgroup 114 ® Service Performance Measurement Measurement data quality access/retention recommendations Measurement reporting recommendations USPS should publish formal implementation time lines with milestones toward measurement systems Interim measurement solutions (including industry systems) should be explored External audit of measurement systems needed Outlined potential IM adoption barriers; IM gaps

MTAC Workgroup 114 ® Thanks to all the workgroup members – particularly the Subgroup Co-Chairs – for their participation!!