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on the preponderance of available evidence, OTA concluded that it is quite unlikely that ZIP+4 usage will grow as fast as assumed by USPS.

Therefore, while the current USPS strategy of using single-line OCRs would provide an economic return considerably greater than not automating at all, other strategies offer a better return on investment, net present value, and net cash savings than the current strategy, especially if one assumes ZIP+4 usage at the lower range of alternate projections.

These other strategies involve extensive use of a competitive technology -- the multi-line optical character reader. Whereas the single-line OCR can read only the “last line” of an address (defined as city, State, and 5-or 9-digit ZIP code), the multi-line OCR can read up to four lines of the address and can process a large amount of 5-digit ZIP mail to the 9-digit level. In other words, the multi-line OCR is not as dependent on use of ZIP+4 to realize savings from automation.

OTA concluded that, whereas the multi-line OCR may not have been a technically viable alternative 3 or 4 years ago when USPS made its initial decision to go with single- line OCRs, the multi-line OCR is now fully competitive. OTA found that the multi-line OCR performs as well as the single-line OCR in processing 9-digit ZIP mail, and significantly better than the single-line OCR in processing 5-digit ZIP mail to the 9-digit level. The purchase and/or conversion and maintenance costs of the multi-line OCR are expected to be only marginally higher than the single-line! and the difference is negligible when compared to the additional savings expected over the life of the investment.

Based on the results of OTA’s cash flow modeling, the strategy offering the greatest economic return to USPS would be for USPS to proceed with the Phase II single- line OCR procurement, but simultaneously initiate release-loan testing (and any necessary related research and development) on single- to multi-line conversion, and then convert all single-line OCRs to multi-line as soon as possible, regardless of the level of ZIP+4 use. OTA has designated this the automatic conversion strategy.

Under conditions of high and median ZIP+4 usage, automatic conversion indicates a

marginally greater ($40 to OCR strategy. (Note: Net at 15 percent per year.)

$180 million) net present value compared to the single-line present value was calculated by discounting future cash flows But under low ZIP+4 usage, automatic conversion shows a

substantially As for total

greater net present value of $250 to $820 million net cash flows (undiscounted) over the life of the

compared to single-line. investment (1985-98), at

high ZIP+4 use, savings rate, and $560 million greater cash flow. million at median ZIP+4 usage and

multi-line performance, All other things being a dramatic $3.62 billion

automatic conversion shows a equal, this increases to $790 at low ZIP+4 usage, compared

to single-line.

[n the

shows a greater


out net

years (1994-98), under these conditions, automatic cash flow in the range of $440 to $580 million.


In essence, the substantially greater performance and savings of the multi-line OCRs with non-ZIP+4 mail far more than offset the slightly higher conversion and maintenance costs, such that multi-line OCRs offer a clear economic (as well as technical) advantage over single-line OCRs. Put more simply, if USPS were starting from scratch today, multi-line OCRs would appear to be the logical choice.


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