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Overview

The United States Postal Service (USPS) is in the midst of implementing a major

postal automation program. This optical character readers (OCRs) and extended 9-digit ZIP code (known as

program includes acquisition of a large number bar code sorters (BCSs) along with adoption Of ZIP + 4).

of the

This postal automation program is intended primarily to reduce the amount of labor required to process mail, and secondarily to improve the quality of mail service. Since labor accounts for about 85 percent of total postal costs, reductions in the labor component of mail processing offer the greatest potential to cut current postal costs and restrain future cost increases.

USPS has already developed a national ZIP+4 directory, and since October 1, 1983,

has been encouraging business mailers cent per piece of ZIP+4 presort first optical character readers) and mailed

to use ZIP+4.

Mailers receive a discount of 0.5

class mail when OCR-readable (can in batches of 500 or more letters.

be read by For ZIP+4

non-presort first class mail, mailers OCR-readable and mailed in batches At present, very few mailers (59 as of

receive a discount of 0.9 cent per piece, when of at least 250 letters. Use of ZIP+4 is voluntary. late May 1984) have converted to ZIP+4.

Use of ZIP+4 allows USPS to sort letters down to the city block, building, or post office box, whereas the 5-digit zip code permits sorting only to the level of a smaller post office zone or a geographical area within a larger post office zone. The optical character readers are intended to read the ZIP+4 code, translate it into a bar code, and apply the bar code (with an ink jet printer) to the lower right-hand corner of the envelope. From then on, the letter can be sorted automatically by barcode sorters down to the level of carrier routes. All intermediate manual sorting is eliminated.

To carry out the automated sorting, USPS has already bought 252 OCRs and 248 BCSs (Phase I of the automation procurement) at a combined cost (including ancillary equipment and installation expense) of $234 million. USPS expects this equipment to be fully installed and operational by the end of 1984. And USPS has received bids on procurement of an additional 403 OCRs and soon will be soliciting bids on an additional

452 for

BCSs (Phase II this procurement,

of of

the automation procurement).

USPS has allocated

which

$363

million

is

for

capital

expenditure.

$450.2

million

The central issue addressed by this OTA technical memorandum is whether the current USPS automation strategy is technically and economically sound, and whether USPS should proceed to actual procurement of this equipment as planned or revise its strategy in whole or in part.

OTA concluded that the current postal automation strategy, while technically feasible, is not likely to achieve the greatest projected economic return to USPS when the uncertainty in ZIP+4 usage is taken into account.

USPS has based their “strategy on achieving 90 percent ZIP+4 usage (among large business mailers) within 5 years, and 27 percent after 1 year. Current estimates indicate that first year (1984) ZIP+4 usage will fall far short of original USPS projections. Based

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