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Decision Analysis

Introduction

USPS is approaching a critical decision point on postal automation strategy. At present, the USPS commitment is to the 9-digit ZIP and single-line OCR. USPS has developed 9-digit ZIP codes (ZIP+4) for the entire United States and prepared a national ZIP+4 directory, although as yet very few mailers are using ZIP+4. Also, USPS has procured and is installing Phase I automation equipment (including 252 single-line OCRs and 248 BSCs) and has received bids on an additional 403 single-line OCRs as part of a Phase II procurement. A selection decision is pending.

However, multi-line OCR technology has advanced to the point where it is fully competitive with single-line OCRs with respect to technical performance in processing ZIP+4 mail. In addition, multi-line technology offers a significant technical performance advantage over single-line OCRs in processing 5-digit ZIP mail to the 9-digit level.

Thus USPS faces a decision point as to whether to continue its commitment to ZIP+4 and single-line OCR technology or to modify that commitment in some way.

[n order to analyze the USPS decision, OTA has employed decision analysis techniques to: identify the range of options available to USPS; develop a probabilistic cash flow model of each option; assign probability distributions for key variables such as ZIP+4 usage and multi-line OCR performance; calculate the rate of return (ROI), net present value (NPV), total net cash flow, and annual net cash flow for each option; and conduct sensitivity tests of the results to changes in key variables.

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