National Postal Forum USPS Flats Strategy

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

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

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

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

® Mail Mix - National Postal Forum Trends and projections 2020 projection indicates significant mail mix shifts from First-Class to Standard Mail Short-term Pieces (B) Longer-term 88 83 24. 5 B (30%) piece drop in FCM offset by 9. 2 B (12%) increase in Standard 52 Flats Track for Periodicals, Catalogs & Printers – NPF 2010 5

® National Postal Forum Flat Volume – Trends and projections RPW Flat volume decline 2020 projection -25% or 10 billion fewer flats annually Flat volume decline FY 2010 YTD -12. 4% Flats Track for Periodicals, Catalogs & Printers – NPF 2010 6

® Revenue & Costs – Trends and projections National Postal Forum ~ 1 million New Deliveries per year Addresses Millions Pieces/delivery 4. 9 3. 8 8% growth in possible deliveries 2. 8 162 150 2009 26% decline in average pieces per delivery 2020 Revenue and cost per piece Revenue and cost 2009 -20 growth $ Cost per piece 4% per year 96 -l Actual Forecast 88 -l 80 -l 76 -l . 46 . 48 2% per year Flats Track for Periodicals, Catalogs & Printers – NPF 2010 +2. 2% p. a. 1 RHB reset $76. 5 B Revenue +0. 5% p. a. 1 72 -l 68 -l 66 -l . 40 $95 B 92 -l 84 -l . 65 Revenue per piece Cost 0 -l 07 08 $69. 3 B $65. 8 B 09 10 +$7. 4 B interest 11 12 13 14 15 711 thousand FTEs in 2009 1 Per Annum: compound annual growth rate, 2010 -20 16 17 18 19 704 thousand FTEs in 2020 20 7

Closing Net Profit Gap ® National Postal Forum Actions within management control could close the FY 2020 gap by ~ $18 B Projected $7. 8 B Loss Net Profit Closes cumulative gap of $238 B Projected $9. 9 B Loss $0 $0 B $5 $10 $15 B $20 $25 $30 Short-term $35 2006 2008 2010 2012 2014 Flats Track for Periodicals, Catalogs & Printers – NPF 2010 Longer-term 2016 2018 2020 Fundamental Change will require stakeholder support/approval and/or legislative action Actions within management control will close $18 billion of the gap but not get to breakeven $33 B 8

® National Postal Forum Compensation & Work Hours Total Operation Expense – $70. 2 bil Compensation = $53. 2 bil Flats Track for Periodicals, Catalogs & Printers – NPF 2010 Source: 2009 Annual Report Total Work Hours = 1. 26 Billion 9

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

® Focus on Technology National Postal Forum q Fully automate flats processing ● ● q 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 Flats Track for Periodicals, Catalogs & Printers – NPF 2010 11

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

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

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

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

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

® FSS PROGRAM STATUS

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

® Installation & Operations Progression National Postal Forum Operational FSS # FSS Dulles 4 Columbus 2 Kansas City 2 Phx West Valley 3 Total 11 Restart of FSS # FSS April - August South Florida NJI NDC NW Boston Curseen Morris (WDC) Mid-Island Total 5 4 3 2 4 18 • 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 Installations complete or in progress 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 Flats Track for Periodicals, Catalogs & Printers – NPF 2010 # FSS 2 3 1 2 1 2 4 2 2 1 3 3 3 1 1 35 19

® FSS Operations National Postal Forum q Sequencing Operations ● Dulles – 4 FSS ● Columbus – 2 FSS ● Kansas City – 2 FSS ● Phoenix – 3 FSS # FSS On-line # Delivery Units On-line # Zones On-line Dulles P&DC 4 49 85 Columbus FSS Annex 2 24 30 Kansas City P&DC 2 18 44 Phoenix L&DC 3 11 37 11 102 196 FSS Site Totals Flats Track for Periodicals, Catalogs & Printers – NPF 2010 20

® FSS DELIVERY RESULTS

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

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

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

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

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

® DPS % Trend - Letters & Flats National Postal Forum 91. 8% DPS Letters Cased Letters 65% DPS Flats Track for Periodicals, Catalogs & Printers – NPF 2010 27

® FSS FUTURE

® Reacting to Volume Decline National Postal Forum q Significantly and rapidly declining volume makes over-deployment a possibility ● Inadequate Volume ● ● q 2006 2007 2008 2009 2010 - 0. 2% - 2. 6% - 12. 4% - 13. 8% - 12. 4% How low and how permanent? (YTD) The problem is not so much running out of volume…but lower than expected run volumes and daily sequenced volumes Efficiency Impacts Flats Track for Periodicals, Catalogs & Printers – NPF 2010 Target: 280, 500 pcs fed avg day 29

® Phase 1 A - Redirection National Postal Forum q In 2009 determined Phase 1 at-risk sites Insufficient volume Efficiency impacts q 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 Flats Track for Periodicals, Catalogs & Printers – NPF 2010 30

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

® FLATS OPTIMIZATION

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

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

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

® ALIGNING USPS / INDUSTRY PROCESSES & SYSTEMS

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

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

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

® Summary

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

® Flats Track Certificate Program 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 for Periodicals, Catalogs & Printers – NPF 2010 42

® National Postal Forum Flats Track Certificate Program - Questions 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 TRUE 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? FALSE 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. TRUE Flats Track for Periodicals, Catalogs & Printers – NPF 2010 43

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