The DMA'S Comments on USPS Transformation Plan

January 30, 2002

Ms. Julie S Moore

Executive Program Director

Office of Transformation, Strategic Planning

Room 4011

United States Postal Service

475 L’Enfant Plaza, SW

Washington, DC 20260-1520

(fax; 202-268-6269)

Dear Ms. Moore:

The Direct Marketing Association (DMA) appreciates the opportunity afforded its staff to meet last summer with the Office of Transformation team and to provide comments on the Outline for Discussion. We recognize the daunting nature of the task and that the September 30, 2001, document is a discussion draft. However, we are deeply concerned that this draft does not establish a base from which the Service can readily meet the very specific charge from Congress that the Service develop a comprehensive transformation plan.

In his testimony before the Committee on Government Reform of the House of Representatives last April, Comptroller General David Walker recommended that the Service develop a comprehensive transformation plan "that would identify the actions needed to address [its] financial, operational, and human capital challenges and establish a timeframe and specify key milestones for achieving positive results." [GAO-01-598T at p.2] In a June 14, 2001 letter the leaders of the Senate Committee on Governmental Affairs endorsed the Walker recommendation and directed that Service prepare and transmitted a plan to Congress.

The preface to the discussion draft states that "[t]he report is designed to generate discussion among all postal stakeholders to address the fundamental question…what should America’s postal system be like (or transform to) in the next decade?" While we recognize the importance of considering the views of stakeholders, we are concerned that the Service, whether or not to avoid controversy, chose not to provide its own specific views on transforming itself. Consequently, although the draft provides a fairly comprehensive discussion of the current state of its affairs, the draft does not convey the sense of urgency that pervades the postal community that transformation must begin

immediately to preserve this nationwide delivery system. That urgency is also implicit in the Service having been assigned the distinction of being placed on the General Accounting Office’s "high-risk" list of government agencies.

In place of specific plans with timetables and measurable objectives that might have been set forth for discussion and comment in the draft, the September 30 document offers what purports to be three parallel transformational phases. They are as follows: Phase One--Incremental Administrative and Operational Improvement (actions possible under current law); Phase Two--Moderate Legislative Reform; and, Phase Three--Structural Transformation. The DMA agrees that these three phases establish a workable framework to craft a transformation of the Postal Service. They should progress in parallel.

The discussion draft also has duplicative tasks in more than one phase. For example, streamlining networks through "consolidation initiatives" is part of Phase One while the Phase Two task is determining the "size, number, location … of all plants." This may be due to the fact that the Service has not established any plan of action for transformation. The DMA believes it is imperative that the Service begin the transformation immediately.

The DMA’s specific recommendations begin with the Mailing Industry Task Force. The Postal Service has already had lengthy and significant discussion with its customers. The Task Force Report contains significant recommendations which the Service should already have begun to implement. The DMA’s question is, "Why not?"

Phase One. Under current law, the Postal Service has authority to change mail classifications, adjust delivery and service standards, and establish the level of retail access. Phase One should not be constricted to assume the same standards as today. It is time to think outside the box. The Service should:

• Consolidate the facilities necessary to improve economic efficiencies.
• Outsource functions when efficiencies in service or cost can be achieved.
• Redesign product offerings from the ground up. Do not continue with product redesign based upon the old First-, second-, third-, and fourth-class models (The DMA knows these products have been renamed a few times, but a new name does not change a Chevy into a Mercedes). Start fresh and examine the efficiencies of handling product regardless of class.
• Bring negotiated service agreements to the Postal Rate Commission for approval. (Both the Chairman of the Commission and his predecessor have stated that NSAs may be established under current law. The Service has been working with mailers for over a year on specific NSAs. When will those be brought to the Commission?)
• Seek public service appropriations authorized since 1970.

Phase Two. The DMA is very disappointed that the draft does not contain specific proposals for "interim" legislative reform. There is very little time left to attempt enactment of reform legislation in this Congress. The March 30^th date for USPS delivery of its transformation plan is probably too late. A group of mailers and postal employee groups have worked together to craft compromise reform legislation. Rep. John McHugh and Rep. Danny Davis have embraced that attempt and have prepared draft legislation. Sadly, USPS has been silent on that bill. This is the only piece of legislation on postal reform that has a chance of enactment this Congress. USPS should be working with the legislators, its customers and employees to amend the draft so that we can all support it. Why is that not being done at this very moment?!!! Any interim legislation must:

• Increase USPS borrowing authority and remove restrictions on the use of that authority.
• Provide incentives for USPS management to reduce costs and consequences for the failure to reduce costs.
• Provide relief for mailers from the runaway postage increases (without relief the death spiral of higher rates--lower volumes--even higher rates--even lower volume will be the reality. The first quarter of FY 2002 is only the beginning.)
• Create a Post Office Closure Commission similar to the military base closure commission to insulate members of Congress from political fallout from efficient management of postal facilities.
• Create authority for USPS to adjust rates rapidly to meet market pressures.
• Establish explicitly authority for USPS to create negotiated service agreements.

Phase Three. The Transformation Plan should establish a framework to discuss and debate the future of the Postal Service. That debate must cover:

• Relationship of USPS to the U.S. Government.
• Relationship of USPS to capital markets.
• Relationship of USPS to its employees.
• Relationship of USPS to mailers.
• Role of USPS to facilitate commerce and communications.
• The letter monopoly.
• The mailbox monopoly.
• Ownership of USPS.
• Role of boilerplate Congressional directives (such as 6 day a week delivery in all appropriations bills).

The DMA cannot stress how imperative it is for the Postal Service to move quickly in all three phases. Phase One should already be in full bloom. We stand ready to work with the Postal Service on transformation. We need it. For the Postal Service to miss this chance at transformation would be tragic. Our economy cannot withstand a $900 billion

per year disruption. Nine million Americans need their jobs. Stealing a phrase used by President Bush, "Let's roll." The time for action is now.

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