Optimized Postal Service Infrastructure

The Postal Service’s Office of Inspector General recently asked me alonge with Cliff Guffey, President of the American Postal Workers Union, John Callen, Director of Ursa Major Associates, LLC, to answer this question: What would an optimized Postal Service infrastructure look like in the 21st century and beyond?

The other two authors took very different approaches to answering the question.

  • Cliff Guffey – presents a vision for a vibrant competitive Postal infrastructure.  His post presents a vision of a postal infrastructure that maintains many characteristics of the existing United States Postal Service
  • John Callen - argues that the Postal Service should be limited to what it can do better than the private sector and either contract for  or exit from all other activities.  He sees the Postal Service infrastructure needs limited to continue to provide residential delivery service for a diminishing stream of mail and a growing stream of parcels

My post starts with the idea that the infrastructure must serve customer needs which includes a level of service quality at a price that purchaser is wiling to pay.  How close the Postal Service can have the infrastructure to meet those needs optimally depends upon the constraints that limit its ability to have that optimal infrastructure.  My post differs from Mr. Guffey’s in that I lay out a broader range of constraints that he did that prevent the Postal Service from having the optimal infrastructure from serving customer needs.  My post differs from Mr. Callen, as I think is approach sees the existing constraints as set and therefore the infrastructure has to be paired down to those services that can be provided under them.

I have re-posted my answer to the question below.   To see the other two posts in their entirety click the following link

Inspector General’s blog :  What Would an Optimized Postal Service Infrastructure Look Like in the 21st Century and Beyond

I also wrote a longer version of my answer that goes into more depth in regard to both what customer needs are and how labor, capital, and regulatory constraints affect what is the optimal infrastructure.  It illustrates how the constraints resulted in the Postal Sevice completed its network optimization initiative and some reasons why the network that the Postal developed will need to be changed in the future to make it more optimal than it is now.  It also provides a bit more detail as to the importance of flexibility of any transportation and distribution infrastructure to adapt to changes in customer needs.  The full response can be seen by clicking the following link:

Full response to the question


Response to the Question: What would an optimized Postal Service infrastructure look like in the 21st century and beyond?

In trying to define an optimized Postal Service infrastructure, I was stuck at trying to define what “an optimized Postal Service infrastructure” meant.  The problem that I had was not with the mathematics of optimization which is focused on either cost minimization or profit maximization but with four sets of constraints that affect the formulation of an optimization model.   These constraints are:

  • Customer service needs which determine product characteristics;
  • Labor management constraints that impact operating costs;
  • Capital spending constraints that limit options for infrastructure optimization; and
  • Regulatory constraints which modifies a market-driven optimal network to reflect political considerations.

While in the future, the Postal Service’s customers are going to need a postal infrastructure that offers both physical and digital delivery, this post will focus on the physical delivery infrastructure.  The information infrastructure that would be needed to either provide coordination between digital and physical delivery of different documents or transform a digital document into a physical one or visa-versa that an optimal Postal Service should offer will not be discussed.

Customer Service Needs

The service needs of the Postal Service’s customers have six dimensions:

  1. Access to services in a convenient manner;
  2. Delivery to a location that satisfies the needs of recipients documents and parcel;
  3. The speed that a document or parcel must be delivered from point A to B; 4.
  4. The reliability of a promised delivery commitment;
  5. Information on delivery status and reliability provided on a real time or near real time basis; and
  6. A price that makes the service financially viable. In determining the optimal infrastructure, customer service needs set the product characteristics offered at particular prices and the volume of mail and parcels that the infrastructure must handle.

However, as customer needs constantly change, communications access, processing, transportation, and delivery infrastructure will need to be re-optimized on a regular basis.

Labor-Management Constraints

As labor costs will always represent the majority of operating costs, any deviation from competitive levels of employment costs raise the cost inputs of optimization models and force an optimization modeler to generate a sub-optimal infrastructure to serve customer needs at prices the Postal Service can charge. Restrictions in management flexibility to schedule employees and use full and part-time employees affect the choice of access, processing, and delivery operating plans that can minimize operating costs and meet customer needs.  The greater the flexibility available the broader the set of customer needs can be met at the same cost level.  Therefore these restrictions influence which customer needs the Postal Service designs its infrastructure to meet and makes it difficult to justify a bigger infrastructure that can provide a higher level of service to some or all customers.

 Capital Constraints

The issue of capital constraints on the Postal Service infrastructure can be illustrated by the network optimization that the Postal Service plans to implement in May, delays in implementing its information architecture, and delays in replacing its delivery fleet.  In all cases, capital constraints have resulted in a sub-optimal solution. For example, the Postal Service’s network optimization used only existing facilities and existing equipment.   A green field optimization would have continued to use many existing plants but in many parts of the United States a new or expanded plant would have provided the proposed service commitments at a lower cost or even better service commitments at the same or lower operating costs than what were possible using only existing facilities.

Regulatory Constraints

The Postal Service’s regulatory constraints come from both laws set by Congress and regulations set by the Postal Regulatory Commission.   Regulatory and legal constraints have adversely affected both cost and revenue related factors that enter into analyses of the Postal Service’s optimal infrastructure needed to serve real customer needs.  Regulatory and legal constraints also slow needed infrastructure adjustments as market demand changes.

Conclusion

The optimal Postal Service infrastructure is not an ideal infrastructure.  It reflects the level of service that the Postal Service can offer at set prices and costs and still generate a return sufficient to allow it to be self-sufficient.   As such, the Postal Service cannot maintain an infrastructure that offer all customers exactly the level of service that they want but must try to provide an infrastructure that meets the needs of customers that it believes are most likely to require its services for the next decade or more. The optimal Postal Service infrastructure is not static as customer needs continually change.   Demand for the various services that the Postal Service offers change over time.  Demand for many existing services is expected to decline over the next decade.  The service and other product characteristics demanded by customers for current products will evolve as alternative communications and parcel delivery options develop. Labor-management, capital availability, and regulatory constraints all have the effect of making the Postal Service infrastructure sub-optimal for both meeting customer needs and ensuring that the Postal Service’s financial goals are met.  To the extent that that these constraints can be relaxed, the Postal Service’s infrastructure will move closer to an optimal level.

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One Response to “Optimized Postal Service Infrastructure”

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  1. Tom says:

    It would continue the proposition as it has since reorganization (PRA). Simply be a service organization first! To all constituents: business, public, government, etc. three year cycles of rate setting, First year profits (enough to make it thru 3 yrs), Break even (yr #2), Third yr – prepare for new rate setting in yr #4. Change rates to make them carry their own costs. The USPS can not bailout or support print media. also, the USPS must innovate with email, ecommerce, components. That is the future!Bring in new visionary leaders. Must get rid of Donahoe. first things first. the USPS bureaucracy (Postal managers) must be streamlined, i.e., RIF’d, retired, fired, let go, whatever. It is a (known) financial waste.

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