1. Corporate Flats Strategy MTAC November 7, 2002

2. Slide 2 Presentation Overview Background Near Term Actions (FY 2003 and 2004) Longer Term Planning (FY 2005 and beyond) –Delivery Vision Summary

3. Slide 3 Importance of Flats FY 01 Revenue From Flats: $16.1 Billion Periodicals: Mailbox Anchor That Generates Other Revenue Streams Standard Mail Revenue is Second Only to First-Class Mail Flats Rates Rising Faster Than Inflation

4. Slide 4 USPS Committed to Flats Grow Customer’s Business Increase Capital Investment Maintain Affordability Improve Processes Corporate Flats Strategy Introduced at the September 2000 Postal Forum

5. Slide 5 Corporate Flats Strategy Distributed in July 2001 Introduced the Delivery Vision Focused on Improvements in the Near Term Overviewed the Longer Term Plans

6. Slide 6 Drive Down Costs Through Automation Improve Processing Performance and Service Create a Win-Win for Customers and the Postal Service Corporate Flats Strategy

7. Slide 7 Completed AFSM 100 Deployment Started FSM 1000 Modifications Explored Mail Preparation Alternatives –Logs –Flats Feeder Assist Device –Fiberboard Trays –Pallet Movers Last Year’s Progress

8. Slide 8 Manage the Base Substitute Capital for Labor Increase Customer Involvement Near Term Actions

9. Slide 9 Improve Operational Performance –Up-the-Distribution-Ladder –Increase Productivity Reduce Mail Preparation Costs –Standardize Opening Units Standardize Flats Distribution Capture Savings Manage the Base

10. Slide 10 Summary QTR 1 FY 2001 QTR 4 FY 2002

11. Slide 11 FY 2001FY 2002 end of year FY 2000 piece handlings per workhour Qtrs. 1 to 4

12. Slide 12 Take Advantage of Latest Technology –Automatic Tray Handling System –Flats Feeder Assist Device –The AFSM 100 Feeder Modification –Pallet Movers –UFSM 1000 –ID Code Sort Move More Mail to Our Processing Centers to Achieve Greater Depth of Sort (i.e., from the 5-digit level to carrier route) Substitute Capital for Labor

13. Slide 13 Structure Rate Incentives to Support Operations Objectives Match Make-up to Processing Requirements Increase Barcoded Flat Volumes Improve Address & Barcode Readability Increase Customer Involvement

14. Slide 14 Where We Were 4 Mail Streams: –Automated –Mechanized –FSM 1000 –Manual Significant Piece Handling Costs Increasing Mail Prep Costs Increased Rates

15. Slide 15 From 4 Mail Streams to 2 – Automated – Manual Maximize 11 Digit Barcoded Volume Minimize (eliminate) Small Bundles Standardize – Physical Characteristics – Address Placement – Make-up and Presentation Where We Want To Go Then to 1:DPP

16. Slide 16 MTAC & USPS Working Together Optimizing Readability Conducting Mail Characteristics Study Developing Alternative Flats Packaging Developing Mail Preparation Alternatives Reducing Bundle Breakage Developing Irregularity Reporting How Do We Get There?

17. Slide 17 Address Block Location Destination Address Format Barcode Placement Adhesive Labels Extraneous Information MTAC Workgroups Optimizing Readability

18. Slide 18 Optimizing Readability Developed Voluntary Guidelines for Flat Mail MTAC Workgroups

19. Slide 19 Mail Characteristics Study Determining the Spectrum of Mail the AFSM Can Successfully Process Basic size dimensions remain the same Increase the maximum weight to 20 oz MTAC Workgroups

20. Slide 20 Identify Cost Effective Bundle Packaging for Mailers and USPS Balance Cost of Material With Package Integrity Alternative Flats Packaging MTAC Workgroups

21. Slide 21 Working with Mailers through MTAC Mutually Acceptable Preparation and Handling Methods Drive Down Combined Cost Mail Preparation Alternatives MTAC Workgroups

22. Slide 22  Flats Feeder Assist Device allows operator to handle heavy loads MTAC Workgroups Mail Preparation Alternatives

23. Slide 23 Controlled Testing of Various Packaging Materials Reducing Bundle Breakage Solution –Shrink wrap –Double band –Palletize –Weight – 20 pound max –Height – 6 inch max MTAC Workgroups

24. Slide 24 Long Term Plan: NO SACKS

25. Slide 25 Develop a Mechanism to Report Preparation Irregularities to Mailers and Mail Owners In a Timely Manner to Prevent Recurrence Irregularity Reporting MTAC Workgroups

26. Slide 26 Evaluate Delivery Point Packaging Prioritize Key Decision Points Identify Potential Customer Impacts Longer Term Plans

27. Slide 27 Implement the Delivery Vision Minimize In-Office Costs Maximize Street Efficiency

28. Slide 28 OPTION 1: Delivery Point Packaging Develop a machine that will use a one-pass system to sequence both letters and flats in delivery order. OPTION 2: Flats Sequencing System Develop a machine that will use a two-pass system to sequence flats in delivery order. Evaluate Delivery Sequencing Options

29. Slide 29 OPTION 1: Delivery Point Packaging Develop a machine that will use a one-pass system to sequence both letters and flats in delivery order. Evaluate Delivery Sequencing Options

30. NEAR TERM FY 2003 & FY 2004 MID TERM FY 2005 to FY 2006 Sector/Segment Firms Direct to Street DPS Letters Direct to Street Walk Sequence/ Marriage Mailings Direct to Street Residue Letters & All Flats Cased Current Operations This time period will be used for planning purposes. The Postal Service’s Delivery Vision Option 1: Delivery Point Packaging Start Research & Development for DPP

31. LONG TERM FY 2007 Letters (DPS Not Required) Flats (5 Digit Presort, No Carrier Route) Walk Sequence/ Marriage Mailings (Entered at DPP Location) One Bundle 100% Letters & Flats Direct to Street Sector/Segment Firms Direct to Street DPS Letters Direct to Street Walk Sequence/ Marriage Mailings Direct to Street Residue Letters & All Flats Cased Current Operations NEAR TERM FY 2003 & FY 2004 MID TERM FY 2005 to FY 2006 Operational Planning Start Research & Development for DPP The Postal Service’s Delivery Vision Option 1: Delivery Point Packaging

32. Slide 32 OPTION 1: Delivery Point Packaging Develop a machine that will use a one-pass system to sequence both letters and flats in delivery order. OPTION 2: Flats Sequencing System Develop a machine that will use a two-pass system to sequence flats in delivery order. Evaluate Delivery Sequencing Options

33. Sector/Segment Firms Direct to Street DPS Letters Direct to Street Walk Sequence/ Marriage Mailings Direct to Street Residue Letters & All Flats Cased Current Operations NEAR TERM FY 2003 & FY 2004 MID TERM FY 2005 This time period will be used for planning purposes. Start Research & Development for FSS The Postal Service’s Delivery Vision Option 2: Flats Sequencing System

34. Sector/Segment Firms Direct to Street DPS Letters Direct to Street Walk Sequence/ Marriage Mailings Direct to Street Residue Letters & All Flats Cased Current Operations FSS Flats Direct to Street Residue Letters & Flats Walk Sequence/ Marriage Mailings Cased DPS Letters Direct to Street NEAR TERM FY 2003 & FY 2004 LONG TERM FY 2006 Operational Planning Start Research & Development for FSS The Postal Service’s Delivery Vision Option 2: Flats Sequencing System MID TERM FY 2005

35. Slide 35 Fund Research and Development Examine Competitive Prototypes Evaluate Impact on Plant & Delivery Operations Prioritize Key Decision Points

36. Slide 36 11 Digit Barcode Standardized Piece Design ID Tag Presort (For Automated Zones) –Carrier Route Sorting Make-up and Presentation Entry Point Identify Potential Customer Impacts DPP FSS REQ ? YES ?? CHG

37. Slide 37 Implement the Delivery Vision Minimize In-Office Costs –Sequencing Letters and Flats Maximize Street Efficiency –Sequence Letters and Flats Together –One Delivery Point Package (DPP)

38. Slide 38 Summary Near Term (FYs 2003 & 2004) : Increase Equipment Utilization Reduce Mail Preparation Costs Manage the Base Involve Customers

39. Slide 39 Summary Longer Term (FY 2005 & beyond) : Refine the Delivery Vision Evaluate DPP & FSS Options Develop DPP & FSS Technologies Involve Customers

40. Corporate Flats Strategy