1 Postal Operations John Rapp Senior Vice President, Operations

2 Fall Mailing Season

3 Excellent

4 Area Mail Processing (AMP) Studies Ongoing No Decisions Made Included in Network Redesign

Network Integration and Alignment February 2002

6 Vision: Create a flexible logistics network that reduces total costs, increases overall operational effectiveness, and enhances differentiation through superior customer services Objectives: Reduce combined (USPS & customers’) costs Eliminate service failures and inefficiencies Maximize surface transportation cube utilization Three Tiers: Node Optimization (NIA) Event Management Route Plans & Schedules Routing Decision Rules Dispatch & Routing Execution (SAMS) Track & Trace Visibility (SASS) Strategic Tactical Operational In Conjunction with NIA Tier 1 Tier 2 Tier 3 Network Integration and Alignment (NIA)

7 Node Optimization (NIA) Event Management Route Plans & Schedules Routing Decision Rules Dispatch & Routing Execution (SAMS) Track & Trace Visibility (SASS) Strategic Tactical Operational In Conjunction with NIA Tier 1 Tier 2 Tier 3 Network Integration and Alignment (NIA)

8 NIA Addresses Several Challenges Fixed infrastructure inhibits Our Ability to Adapt to Changing Business Requirements Disproportionate Increase in Transportation Costs over Last Decade Evolution of the Distribution Network Resulted in Non-Standard Operating Procedures Differing & Inconsistent Preparation and Entry Exist Between Classes & Subclasses of Mail Differing & Inconsistent Service Standards Exist Lack of an Integrated IT Solution

9 Existing Service Standards Cannot be Compromised Network Designed to Lower Total System Cost (USPS and Customers) Cost Savings Are Trackable, Measurable, and Capturable Labor Impacts Addressed Proactively An Integrated IT Solution is Critical to Our Success Logistics Network Capable of Rapid Response to Changes in Customers’ Requirements Assumptions

10 Overall Approach for NIA 1. Establish Baseline 2. Define/Analyze Alternatives 3. Develop Implementation Plan Change Management: Develop new long-term processes, establish skills and requirements. Select Modeling Tool/Model Baseline Logistics Network Develop and Select Scenarios/ Alternatives Identify Resource Requirements for Projects STEP 1 STEP 7 STEP 6 Analyze Network & Deployment Alternatives / Scenarios STEP 9 Refine Logistics Network Strategy STEP 12 Develop Phase II Implementation Plan STEP 13 Gain Mgmt Approval for NIA Opportunity Assessment STEP 0 Data Collection & Document As-Is STEP 5 Develop Business Case STEP 11 Validate Network Concept STEP 10 Mobilize Team and Project Start-Up STEP 2 Design Conceptual Model STEP 4 Confirm Business Strategy STEP 3 Develop Model STEP 8    Mailers’ input

11 Centralization CentralizationDecentralization One facility Hundreds of facilities (today) Fewer plants Transportation Hubs Consolidation Centers Outsourcing (Considered after the model produces results) OutsourcingNo Outsourcing Everything is outsourced No outsourcing Shared Transportation Outsource labor in a USPS plant Outsource functions to customer’s plants Business Requirements ChangeDon’t Change Completely redefine mail classes and other services No changes Alter service standards to improve service performance Additional Dropship Sell processing or transportation services Differentiation Differentiate by Shape Don’t Differentiate by Shape Separate Facility for each shape All shapes in same facility Letters and Flats in one type of plant Parcels & Outsides in another Differentiate by Mail Class Don’t Differentiate by Mail Class Separate Facility for each mail class All mail classes in the same facility Separate facilities for Preferred and Standard mail Separate facilities for Expedited, FCM, and Standard Examples of Scenarios to Be Analyzed

12 Centralization CentralizationDecentralization One facility Hundreds of facilities (today) Fewer plants Transportation Hubs Consolidation Centers Outsourcing (Considered after the model produces results) OutsourcingNo Outsourcing Everything is outsourced No outsourcing Shared Transportation Outsource labor in a USPS plant Outsource functions to customer’s plants Business Requirements ChangeDon’t Change Completely redefine mail classes and other services No changes Alter service standards to improve service performance Additional Dropship Sell processing or transportation services Differentiation Differentiate by Shape Don’t Differentiate by Shape Separate Facility for each shape All shapes in same facility Letters and Flats in one type of plant Parcels & Outsides in another Differentiate by Mail Class Don’t Differentiate by Mail Class Separate Facility for each mail class All mail classes in the same facility Separate facilities for Preferred and Standard mail Separate facilities for Expedited, FCM, and Standard Examples of Scenarios to Be Analyzed

13 Centralization CentralizationDecentralization One facility Hundreds of facilities (today) Fewer plants Transportation Hubs Consolidation Centers Outsourcing (Considered after the model produces results) OutsourcingNo Outsourcing Everything is outsourced No outsourcing Shared Transportation Outsource labor in a USPS plant Outsource functions to customer’s plants Business Requirements ChangeDon’t Change Completely redefine mail classes and other services No changes Alter service standards to improve service performance Additional Dropship Sell processing or transportation services Differentiation Differentiate by Shape Don’t Differentiate by Shape Separate Facility for each shape All shapes in same facility Letters and Flats in one type of plant Parcels & Outsides in another Differentiate by Mail Class Don’t Differentiate by Mail Class Separate Facility for each mail class All mail classes in the same facility Separate facilities for Preferred and Standard mail Separate facilities for Expedited, FCM, and Standard Examples of Scenarios to Be Analyzed

14 Integration Information Platform Industry Task Force Recommendations Product Redesign Equipment Deployment Facility Consolidation (AMP)

15 A More Cost Effective and Service Responsive Network Lower Costs System-Wide (USPS & Private Sector) Additional Opportunities to Partner With Customers and Consolidators Will integrate Various IT Solutions with NIA’s Logistics Optimization and Simulation Tools – Postal One! & SASS Increased Network Flexibility to Manage in an Uncertain Future What Does NIA Mean to You?