1. ® Flats Track for Periodicals, Catalogs & Printers Steve Forte Senior Vice President Operations, USPS Rosa Fulton Executive Director, FSS National Postal Forum ®

2. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 2 National Postal Forum ®  Flats Strategy  Trends and Projections ● Mail Volume, Revenue, Costs  Controlling Costs & Improving Service  FSS Program Status & Results Agenda

3. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 3 National Postal Forum ®  Affordability ● Focus on reducing processing costs to keep flats affordable  Service ● Improve cycle times ● Foster flat mail growth  Align USPS & Industry ● Integrate mailer and postal processes & systems Flats Strategy

4. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 4 National Postal Forum ® Mail Volume - Trends and projections Pieces (B) 150 213 177 Short-term Longer-term and is projected to fall to 150B, by 2020. Volume fell from 213B to 177B pieces since 2006,

5. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 5 National Postal Forum ® 52 88 Mail Mix - Trends and projections Pieces (B) 2020 projection indicates significant mail mix shifts from First-Class to Standard Mail 24.5B (30%) piece drop in FCM offset by 9.2B (12%) increase in Standard 83 Short-term Longer-term

6. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 6 National Postal Forum ® Flat Volume – Trends and projections RPW Flat volume decline 2020 projection -25% or 10 billion fewer flats annually Flat volume decline 2020 projection -25% or 10 billion fewer flats annually Flat volume decline FY 2010 YTD -12.4%

7. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 7 National Postal Forum ® Addresses Millions 162 150 8% growth in possible deliveries 26% decline in average pieces per delivery Pieces/delivery ~ 1 million New Deliveries per year 4.9 3.8 2.8 20092020 $ Revenue and cost per piece Cost per piece 4% per year 2009-20 growth 2% per year Revenue per piece 711 thousand FTEs in 2009 704 thousand FTEs in 2020 1 Per Annum: compound annual growth rate, 2010-20 ActualForecast Cost Revenue +0.5% p.a. 1 +2.2% p.a. 1 RHB reset 96 -l 92 -l 88 -l 84 -l 72 -l 80 -l 76 -l 66 -l 68 -l 0 -l 1011121314151617181920090807 Revenue and cost.40 $76.5 B.46.48.65 $95 B $69.3 B +$7.4 B interest $65.8 B Revenue & Costs – Trends and projections

8. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 8 National Postal Forum ® Closes cumulative gap of $238 B $33 B Closing Net Profit Gap Net Profit $15 B Actions within management control will close $18 billion of the gap but not get to breakeven Fundamental Change will require stakeholder support/approval and/or legislative action $0 B 2006 2008 2010 2012 2014 2016 2018 2020 Short-term Longer-term Projected $9.9 B Loss Projected $7.8B Loss $5 $10 $15 $20 $25 $30 $35 $0 Actions within management control could close the FY2020 gap by ~ $18 B

9. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 9 National Postal Forum ® Compensation & Work Hours Source: 2009 Annual Report Total Operation Expense – $70.2 bil Compensation = $53.2 bil Total Work Hours = 1.26 Billion

10. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 10 National Postal Forum ® Delivery is the largest cost center  Approximately 1 million new Deliveries per year  Fewer Pieces per Delivery  Less Revenue per Piece  Increase Labor Cost and Fixed Street Delivery Network. Technology, Flats DPS, Network Changes, Process Improvements, and End to End Alignment USPS and Industry Managing Delivery Costs

11. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 11 National Postal Forum ®  Fully automate flats processing ● Implement Flats Sequencing ● Pursue additional Flats DPS alternatives  Automate flat mail preparation ● Implement “Automated Flats Prep (AFP)” ● Reduce manual flat mail preparation ● Bypass bundle distribution Focus on Technology

12. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 12 National Postal Forum ®  Unloads flat bundle pallets one layer at a time  Reads bundle ZIP Code and OEL  Cuts strapping / shrink wrap  Automatically loads bundles into ACT  Automatically loads ACTs onto dollies  Simultaneously processes 6 sort programs  Proposed deployment 2012 AFP – Automated Flat Mail Preparation Focus on Technology

13. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 13 National Postal Forum ®  Low cost controls upgrade solution – addresses SPBS end- of-life issues  Improved productivity – Integrated camera with OCR over transport  Improve sort accuracy when lower speed is used  New technology – lower maintenance costs  Proposed deployment Spring 2011 FaceKey Camera w/OCR Key Current SPBS Proposed APBS No codes Automated Package Bundle Sorter Focus on Technology

14. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 14 National Postal Forum ®  Network re-engineering  5-day delivery  Evaluate new strategies Network Changes

15. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 15 National Postal Forum ®  Process improvements ● Leverage Lean Six Sigma Process and IMB Data Analytics  Standardize operational processes  Improve cycle times  Replicate system wide Service – Improve Cycle Times

16. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 16 National Postal Forum ®  Mail preparation & entry ● Induct mail where processed ● Align mailer prep & USPS processing strategies  Improve address quality & readability ● Address list quality ● Quality barcodes  Maximize the automation of flats ● Automatable mail ● Automation characteristics Align USPS / Industry

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18. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 18 National Postal Forum ®  100 units  42 sites  Deployment restart April 2010 – July 2011  Provides DPS flats in carrier street trays FSS Program Overview Flats Sequencing System

19. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 19 National Postal Forum ® Installation & Operations Progression Operational FSS# FSS Dulles Columbus Kansas City Phx West Valley Total 4 2 3 11 Restart of FSS April - August # FSS South Florida NJI NDC NW Boston Curseen Morris (WDC) Mid-Island Total 5 4 3 2 4 18 Installations complete or in progress # FSS Orlando Van Nuys Indianapolis Trenton Greensboro Fox Valley Raleigh Herb Peck LA San Jose MI Metroplex South Suburban Springfield MA Palatine Middlesex-Essex Richmond Denver Anaheim Total 2 3 1 3 1 2 1 2 4 2 1 3 1 35 31 FSS installations complete in 12 FSS locations 11 operational systems in 4 sites Restart of FSS operations begin in May 29 FSS will be operational by mid October Total of 64 installations completed by September

20. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 20 National Postal Forum ®  Sequencing Operations ● Dulles – 4 FSS ● Columbus – 2 FSS ● Kansas City – 2 FSS ● Phoenix – 3 FSS FSS Operations FSS Site # FSS On-line # Delivery Units On-line # Zones On-line Dulles P&DC44985 Columbus FSS Annex22430 Kansas City P&DC21844 Phoenix L&DC31137 Totals11102196

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22. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 22 National Postal Forum ® Pre Flats Sequencing

23. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 23 National Postal Forum ® DPS Flats – Today, Fairfax VA

24. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 24 National Postal Forum ® Fairfax – FSS Route

25. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 25 National Postal Forum ® Fairfax – FSS Route

26. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 26 National Postal Forum ® Fairfax – The Results

27. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 27 National Postal Forum ® DPS % Trend - Letters & Flats 91.8% Cased Letters DPS Letters 65% DPS Flats

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29. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 29 National Postal Forum ®  Significantly and rapidly declining volume makes over-deployment a possibility ● 2006- 0.2% ● 2007- 2.6% ● 2008- 12.4% ● 2009- 13.8% ● 2010- 12.4% (YTD)  The problem is not so much running out of volume…but lower than expected run volumes and daily sequenced volumes How low and how permanent? Inadequate Volume Target: 280,500 pcs fed avg day Efficiency Impacts Reacting to Volume Decline

30. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 30 National Postal Forum ®  In 2009 determined Phase 1 at-risk sites  Insufficient volume  Efficiency impacts  Developed Phase 1 redirection plan  19 FSS were redirected  Removed two sites from original plan  12 new FSS sites identified  Overall 42 FSS sites versus 32 Phase 1A - Redirection

31. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 31 National Postal Forum ® Phase 1B – Redirection  Actual 2010 flat volume decline and recent studies on future volume projections drive additional concern for over-deployment of FSS ● Boston Consulting Group Study  Projecting additional 25% flat volume decline through 2020  Rerun deployment model with new projections ● 5 additional machines recommended for redirection ● Reviewing space in 5 locations

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33. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 33 National Postal Forum ® Integration of LSS Six Sigma Quality Defects  Goal – Improve performance on Customer CTQs  Focus – Use DMAIC with TQM tools to eliminate variation  Method – Management engagement, 1% dedicated as Champions and Black Belts Goal – Reduce waste and increase process speed Focus – Bias for action/ Implementing Toyota tools Method – Value Stream Mapping, ZIP-Forward events Lean Speed Waste Lean Speed Enables Six Sigma Quality (Faster Cycles of Experimentation/learning) Six Sigma Quality Enables Lean Speed (Fewer Defects Means Less Time Spent on Rework) Less Time Spent on Rework)

34. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 34 National Postal Forum ® Joint USPS & Industry LSS Activities Sterling, Dulles & Reston Annex – February 2009 Value Stream Map (VSM) Completed for R.R. Donnelley Facilities Reston Delivery Unit Sterling L&DC Dulles P & DC RR Donnelley Lancaster PA RR Donnelley York Consolidation Facility

35. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 35 National Postal Forum ® Flats Optimization Efforts – LSS USPS Flow

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37. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 37 National Postal Forum ® USPS & Industry Focus of process improvements Overview of Flat Process Print Create Mailing Bind Personalize Stitch/Staple Strap / Wrap Strap/wrap bundles Palletize Load bundles & wrap pallets Design Mailing Mailer Deliver Integrate flats / letters & deliver Sort & Sequence Piece distribution Manual / AFSM & FSS Flat Prep Unwrap / un- strap bundles Dump & Sort Bundle Distribution APPS / SPBS Unload & Transfer Flow to bundle distribution or dock transfer Mail OwnerMail Preparer USPS

38. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 38 National Postal Forum ® Other Joint Activities  MTAC Workgroups  Think Tanks – IDEAlliance  Flat Symposiums  ACMA Working Sessions  POAC & Redtag Meetings  NNA & NAA Meetings  National Postal Forum – Flats Track

39. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 39 National Postal Forum ® Where Can I Find Out More? http://ribbs.usps.gov/index.cfm?page=flat  RIBBs “All things FSS” ● New Phase 1 FSS Plan ● Phase 1 Zone Listing ● Change to Original FSS Locations ● New FSS Locations ● Phase 1 FSS Deployment Schedule by Machine

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41. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 41 National Postal Forum ®  USPS Committed to Flats  Grow Customer’s Business  Affordability Through Technology & Process Improvements  Maintain Customer Involvement Takeaways

42. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 42 National Postal Forum ®  What’s required to earn a certificate?  Attend five workshops of the Flats Track for Periodicals, Catalogs and Printers  How do I get my certificate?  Register for your certificate on the National Postal Forum Website before July 31, 2010  www.npf.org  Answer the three true/false questions for each of the five sessions you attended  Certificates will be mailed upon certification Flats Track Certificate Program

43. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 43 National Postal Forum ® True or False: 1. One major benefit that the Postal Service will realize with the FSS program is the sequencing of flat mail by machines reducing the work hours letter carriers spend manually sorting mail. 2. The USPS is not making any changes to the overall flats strategy as a result of flat volume decline? 3. The long-term flats strategy is to streamline flat mail preparation by working with the mailing industry to further explore opportunities that support by-passing bundle distribution and moving flat mail directly to the FSS operation. Flats Track Certificate Program - Questions TRUE FALSE TRUE

44. Flats Track for Periodicals, Catalogs & Printers – NPF 2010 44 National Postal Forum ®