Mastering the Postage Rate Hike

Onsite presorting may be the best to way to minimize the impact of higher postage costs

By George Linkletter

There's good news and bad news about the U.S. Postal Service's rate hike.

The good news? At 5.4 percent, the increase is only about half the amount expected by many observers. The bad news? The increase will be followed by a second hike just a year later.

Increasing the rate in two steps over two years will certainly cushion its impact. But the staggered implementation might cause some mail center managers to absorb the cost increase instead of taking steps to avoid it.

And there are several good examples of how to minimize the increase. (See the previous column.)

One such example comes from the print/mail finishing operation of Northeast Utilities. NU delivers electric power in Connecticut, western Massachusetts, and New Hampshire and also operates Yankee Gas, a subsidiary which distributes natural gas for heating and cooking to sections of Connecticut.

Faced with a substantial postage rate hike just three years ago, the firm took the initiative and invested in onsite presorting technology. The result was a lower cost of postage, a rapid ROI, and faster delivery of customer correspondence. Here's how NU accomplished the task.

"Previously, we used a vendor for presorting and we enjoyed a long and beneficial relationship them," explains Tom Newton, the manager responsible for NU's print/mail finishing and the driving force behind the onsite presort solution. "But we needed to minimize the 2002 rate increase."

Newton and his team were in an enviable position. With 2.5 million customers, NU generates a substantial amount of correspondence that is distributed across a relatively small geographic area. The unit produces a minimum of 30 million statements each year, along with a large volume of general correspondence, collection notices and checks for employees and vendors. Virtually all of the mail goes to ZIP Codes in just three states, so NU benefits from density. And its address quality is excellent as well.

Which means NU was in an excellent position to bring the presort activity in-house and re-capture the $.03 per mailpiece fee charged by its presort vendor. And the potential savings -- roughly $900,000 a year -- meant that it could acquire first-class presorting technology.

Newton reviewed proposals from four sorter manufacturers and selected a model with 96 sort pockets. "We would have been very happy to have a 200-pocket sorter," continues Newton, "but we are located in a 50-year-old building and didn't have sufficient space."

Newton also employed a novel acquisition strategy: he hired Mark Fallon of the Berkshire Company, a noted industry consultant, as project manager to assure the equipment was manufactured and delivered as specified.

"While the concept of outsourcing is well-know, the idea of using a project manager to help acquire technology or equipment is still new to many senior managers our industry," he explains. "So it took several meetings to illustrate the benefit of using a consultant."

One of those benefits is focus, or simply allowing the print/mail finishing unit to concentrate on the task at hand. In Newton's case, he is responsible for a work force of nearly 20 who operate two shifts per day, five days a week, to get approximately 125,000 mission-critical customer messages in the mail each day.

Like many lean organizations today, NU does not have extra mid-level managers on staff who could oversee the acquisition of a significant piece of specialized equipment. "Fallon is an experienced print/mail finishing manager and exceedingly knowledgeable," Newton continues. "He helped every step of the way, from evaluating our RFP to assuring the on-time delivery of our customized equipment. If you've ever bought a particular piece of equipment, you know it's great to have an agent involved on your behalf.

It's similar to having professional representation in court. The cost is minor compared to the benefit."

Prior to the installation of the new sorter, NU was achieving a three-digit rate and paying a few cents per mailpiece to its presort service bureau.

After installation, NU is receiving a five-digit rate on every mailpiece every day. NU's current cost for postage is less than $.30 per mailpiece.

Newton estimates the ROI on the equipment purchase, i.e., the amount of time needed to pay back the investment, was approximately nine months.

There's also the added benefit of faster delivery. Newton's unit finishes the processing of mail everyday by 2:00 p.m. Since all mail is now presorted onsite, the finished mail is delivered to the U.S.P.S. earlier each day, which helps assure faster delivery.

"The U.S. Postal Service can accommodate only so much mail at any one time," says Newton. "Since our mail is deposited early each day, we escape the end-of-day bottleneck that can lead to delays. We also avoid any delays in delivery due to equipment downtime at the presort vendor."

Newton tracks delivery times closely and believes that virtually all of NU's mail to rate payers is now delivered next day.

Newton also points out that he still utilizes the presort bureau in special situations, such as handling the unit's overflow work. "If we fall behind in our processing schedule, especially on a Friday, we make certain to send certain messages out for presorting just to make sure they get into the mail promptly." An example? Shut-off notices. "We can't print a shut-off notice late on a Friday and then hold it until Monday just to a save a few pennies on postage. That wouldn't be fair to the customer and the state utility regulators wouldn't like it either."

NU sends mail to the pre-sort bureau whenever their sorter is down for scheduled maintenance. "It's better to pay the added fee and get the mail out as scheduled than hold it for processing two or three days later.

Besides, we don't have space to hold three days worth of mail."

Ideally, Newton would like to presort the mail in-line and avoid the need for the mechanical presorting altogether. But he doesn't live in a perfect world. "NU has grown through acquisition," he explains, "and it continues to evolve. Until the data systems and print files within the various operating companies are fully compatible, we'll continue to presort mechanically."

But that does not mean Newton is satisfied with the status quo. "A key priority for NU is to create 'softer' documents," he says. "We don't want to touch our customers with only a bill or statement."

"Ten years ago, we considered ourselves just production mail. We handled bills, statements and checks. But no more. The business climate is changing, customers have more choice, and we need to be more responsive to our internal customers."

Today, Newton's team actively shares their print/mail finishing expertise with the various operating companies. His unit acts like something akin to an internal service bureau. "Whenever possible, we try to lighten the burden from our internal customers and acquire added volume for our shop."

An example? Producing oversized statements for the sight-impaired

customers of the Public Service Co. of New Hampshire. "It's only five statements a day," says Newton, "but we can handle them far more efficiently than they can, so we do it."

Since other functions in the business units are producing more customer-friendly mailings, Newton wants to process those mailings as well.

"We have a small tabletop inserter that is ideal for smaller mailings," he says. And when the volumes start to increase? "We'll just migrate them over and handle them like our production mail applications."

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Comments? Contact georgeol@ntplx.net.