Tuesday, July 6, 2010

Is The FSS A Boondoggle? Tough Question #2 For The USPS

A couple of years ago, postal officials were telling catalog and magazine publishers that the Flats Sequencing System would dramatically lower the Postal Service's costs of handling our mail.

Now it's not so clear whether the $1.4 billion investment in Phase I of the huge FSS machines will even pay off. And that's a major annoyance to magazine publishers, who were singled out today for an  extra-special exigent rate increase today because the Postal Service can't get its costs of handling flat mail under control.

I’ll admit that it's a bit unfair to use the word "boondoggle" in reference to FSS because that word implies that there was no logic to the investment other than as a giveaway to the contractor, Northrop Grumman. But the Postal Service is playing into the hands of the nay-sayers and conspiracy theorists by not being more forthcoming about its struggles with the FSS machines.

I think the people who developed and approved the plan for automating the handling of flat mail honestly thought FSS would pay for itself in the form of reducing sorting and operating costs. Unlike some other Postal Service initiatives, there was competitive bidding and a careful planning process that responded to input from mailers and our suppliers.

But the plan, which was based on steady or growing flats volume, first started to go off the track when flat mail began declining rapidly (after double-digit postage increases for catalogs and magazines that scared both industries into change-the-business-model meetings with a "less print, more Web" mantra).

And it's been 10 months since the USPS's Office of Inspector General said no more machines should be deployed until the system met the minimum performance standards of the Northrop Grumman contract. The Postal Service responded by accelerating deployments and not officially revealing the results of further testing, though word keeps leaking out of problems with the machines.

The OIG released another study today stating "we identified several FSS machines [in northern Virginia] that were unavailable for several months and processing issues that negatively impacted delivery operations."

Even to those who are supportive of the FSS concept, it's starting to look as if postal officials so fell in love with the FSS plan and schedule that they couldn't dream of pulling the plug on the 100 Phase I machines or going back to the drawing board. The machines do seem to be saving money, especially in delivery operations, but are the savings enough to justify the huge capital investment?

No Phase 2?
One of the flood of documents the USPS submitted today with its rate proposal includes a statement that “the Postal Service intends to evaluate the feasibility of enhancing excess AFSM [Automated Flats Sorting Machine] 100 equipment to sequence additional flat mail not covered by the initial 100 Flats Sequencing System machines.”

Maybe that’s an ingenious approach to using equipment that’s been freed up by the FSS machines and the drop in flats mail volumes. It certainly sounds less costly than buying new FSS machines.

But the skeptic’s view is that postal executives are not seeing a favorable return on investment from the big capital outlay and therefore are eying "Plan B" (no more expensive new machines) instead of FSS Phase 2. And with the Postal Service revealing so little about whether the FSS machines are performing to standard, it's easy to be skeptical.

So as catalog and magazine publishers hear about the Postal Service's allegedly skyrocketing costs for handling flats mail -- despite our greater use of co-mail and dropshipping and the USPS's FSS investment --
don't be surprised if we start using the "B" word.

Related articles:
Next in the series: Why offer big discounts on a product that supposedly loses money?


Anonymous said...

If you look at all the buildings that had to be expanded or all the mail that had to be move or contracted out the cost would be over 1.4 billion.If they don't do what they were supposed to why buy them.EX. If I contracted for a machine that was to process 100 pcs an hour at 97% and it only processed 95 pcs at 90% I wouldn't pay for it.

Anonymous said...


drillsgt7 said...

i have told management of maintenace in kalamazoo michigan years ago the afsm 100 can flat sequence if anyone can help me push this up the the chain please contact me at drillsgt8@charter.net