GAO: Intelligent Mail program might not be a good deal for mailers or USPS

The U.S. Postal Service plans to begin phasing in its new Intelligent Mail program May 11, which the agency has called the most complex program it has ever undertaken and which will involve upgrading almost 30 information systems.

The program is built around a new, smarter bar code that will help automate handling of bulk mail and is expected to provide big savings for both USPS and commercial mailers.

But the Government Accountability Office warns in a new report that given the complexity of the program and the costs of upgrading information systems and re-engineering business processes for both USPS and mailers, the program could be endangered. The Postal Service is operating without an adequate strategic plan or risk management, and continues to define requirements on the fly even as the program is ready to begin implementation, the report said and some mailers have said that the program’s pricing benefits do not provide sufficient incentives or even to recover their investments.

The new bar codes, which will be required for bulk mailers to receive special pricing for machine readable mail, are longer than the bar codes now used. They contain additional information to enable mailers to track individual pieces as they move through the postal network. It also could automate the labor-intensive job of receiving bulk mail and speed up processing. In addition to using the new bar codes, commercial mailers also will have to submit documentation on their mailings to USPS electronically.

The new bar codes are two-dimensional machine readable codes with 65 bars. Each bar will have fields for the type of service for the mail, a mailer ID assigned by the Postal Service, a six- or nine-digit unique ID generated by the mailer for each piece of mail, and a delivery point ZIP code of up to 11 digits.

The program began in 2002 and USPS began defining the requirements of the project in July 2008, designing the systems in October 2008, and started building the systems in November 2008. It has completed the upgrading of software to scan the new bar codes and is developing systems to process, manage and store the data. It has acquired hardware and hired contractors to develop software. Integrating this system with existing systems to share data will require changes to almost 30 systems, with 59 connections between systems.

To use Intelligent Mail, mailers will have to:

• Redesign mail to include bar codes on each piece, as well as on each container.
• Submit electronic documentation, including how mail pieces are placed in trays and containers.
  
• Electronically schedule an appointment to drop mail off at a USPS facility.

USPS will have to:

• Automate its mail verification process when bulk mail arrives.
• Reconcile mail scan data with mailers electronic documentation.
• Train staff.
• Create a common infrastructure to read and transmit data.
• Create a centralized data storage system.
• Develop systems to store and retrieve data.
• Establish methods to measure performance.
  
• Develop reports based on this data for regulators.

“Despite this aggressive schedule, a senior postal official told us that USPS discovered that it could not implement all of the desired functions of the system by May 2009, as originally planned,” GAO said. “Further, he said that additional functions may be added in future phases that will be determined at a later date.”

USPS tested the systems both internally and with mailers from February through April 2009. Plans originally called for it to go into operation in January, but that date was pushed back last year after the industry weighed in with concerns about program cost.

The new schedule calls for USPS to begin implementing the program internally on May 11 and to make it available for commercial mailers one week later to begin testing their systems’ ability to interoperate with USPS systems. Testing for each mailer is expected to take six to eight weeks. The second phase would begin in November when mailers would be offered discounts of .3 cents for each piece of first class mail using the system, and .1 cents for each piece of standard rate and periodical mail.

The discounts amount to $3 for each 1,000 pieces of first class mail and $1 for each 1,000 pieces of standard rate. That does not sound like a lot, but those classes of mail made up100 billion pieces of mail in 2008, and USPS estimates that the Intelligent Mail bar code will be used on more than half of those pieces this year. That would amount to savings of from $100 million to $300 million a year for commercial mailers.

But even that might not be enough. “A mailer told us that in order for the company to recover its costs, the discount would have to be one-half of 1 cent per mail piece, or much higher than the announced price incentives,” GAO said.

USPS said it could increase the discounts if necessary. But another area of concern is that the Postal Service could phase out the discounts before mailers had recovered their investments. Although USPS touts improved service and access to more information as benefits for the program, some mailers told GAO that without rate incentives, it might not make sense for them to participate in Intelligent Mail.

GAO is doing a separate study of IT management in the Intelligent Mail program.