Digital SOS: How technology can save the USPS
- 09 December, 2014 02:45
Neither snow, nor rain, nor heat, nor gloom of night can compare with the challenges currently facing the United States Postal Service. Email continues to have a crippling effect on the centuries-old agency: The volume of first-class mail, or stamped mail, plummeted by 2.8 billion pieces in 2013.
A congressional mandate requiring the USPS to make regular payments into its future retirees' health benefits fund contributed to a staggering $5 billion net loss in the government's last fiscal year. And despite aggressive cost-cutting measures, like shuttering processing centers and slashing employee hours, 2013 still marked the Postal Service's seventh consecutive year of losses.
In the meantime, private-sector rivals like FedEx and UPS are luring customers away from the USPS's package delivery arm while sometimes relying on the beleaguered letter carrier for "last mile" delivery -- the final, and typically most expensive, leg of a route. And tech darlings like Amazon, Google and taxi service startup Uber are pushing the envelope with plans for innovative new services such as 24/7 delivery lockers, weekend pickup points and even (maybe someday) drone deliveries.
Even consumers are putting mail carriers' Reebok-wearing feet to the fire. The Postal Service counts every single American as a customer and delivers 158 billion pieces of mail per year, but the agency is battling negative public perceptions about its future. In a 2013 InfoTrends survey, 75% of consumers rated the Postal Service as important or critical today. However, a mere 36% of respondents believed it will be important 10 years from now.
And then there's Congress. Since mandating prefunding of health benefits in 2006, lawmakers continue to exert heavy control over the USPS, kiboshing cost-saving proposals like cutting Saturday deliveries and closing post offices.
At the center of this perfect storm is James Cochrane, a straight-talking, mild-mannered, 40-year veteran of the USPS. Cochrane didn't cut his teeth in Silicon Valley or graduate from MIT. Rather, the Jersey City, N.J., native began as a postal clerk and gradually worked his way up to CIO, a position he accepted just over a year ago.
"I'm a nontraditional CIO," Cochrane admits. "I don't write code, and my background isn't IT." However, he does have something industry observers believe will help transform the ailing delivery service into a business intelligence behemoth: business smarts.
Unlike more traditional public-sector CIOs, Cochrane has a mind for marketing, not mainframes, and a greater appreciation for streamlined operations than fancy operating systems. And it's precisely this pragmatism that's helping him tackle new digital initiatives, forge competitive partnerships and redefine the agency's IT shop.
Wait a minute, Mr. Postman
At the top of Cochrane's agenda is redesigning the USPS mail tracking system by encoding as much information as possible on its letter and parcel bar codes. Central to this initiative is the agency's Intelligent Mail bar code (IMB) system, which uses Intelligent Mail scanning devices and more than 8,500 pieces of automated process and sorting equipment to scan bar codes for information that is then transmitted to a central database.
Details may range from the type of mail being delivered to a parcel's final destination. With data gathered from more than 1 billion tracking events a day, the IMB system grants the USPS unprecedented visibility into its mail stream, enabling the agency to better manage cycle times, predict mail volume and drive efficiencies across the country's postal processing facilities.
But Cochrane believes the IMB's real value is in its power to help retailers and catalog companies create successful omnichannel marketing campaigns. Consider, for example, a clothing retailer that receives an email or text message alert from the USPS that a particular customer in Salt Lake City has just received the company's holiday catalog. Upon receiving this real-time alert, the retailer can immediately email the customer a digital coupon or promotional offer in an effort to drive sales and enhance the overall customer experience.
In addition to supporting such real-time responsiveness, the USPS is also using data to predict the future of mail delivery. Carefully tracking how mail moves around the country, from the moment a delivery vehicle arrives at a dock to the second a letter reaches a delivery point, provides the Postal Service with reams of information -- data that it crunches using predictive analytics tools and complex algorithms.
"I can sit here in Washington, D.C., and look at cycle times in a plant anywhere in the country and get a sense of how fluid their processing environment is and how predictable their service is going to be," says Cochrane.
Any given Sunday
Data analytics is also helping the USPS with dynamic routing -- the use of sophisticated computer models and data to map out the most efficient and cost-effective mail delivery routes. In November 2013, Amazon inked a deal with the USPS to deliver packages on Sundays in select cities. The partnership created a prime opportunity for the Postal Service to establish a stronger foothold in the burgeoning package-delivery market, and its package revenue increased 8% to $12.5 billion from 2012 to 2013.
"We're designing thousands of routes on a given Sunday which, in many ways, is helping us make this pivot [to parcel delivery]," says Cochrane. "If I'm excited about anything, it's understanding the data and the potential insights that it can give us."
But while dynamic routing is helping the USPS improve delivery planning and cut costs, crunching vast amounts of data requires a robust processing environment. For now, the USPS gets ample storage and the firepower necessary for fast analysis from in-memory computing tools and the open-source software framework Apache Hadoop, but Cochrane says data integration remains a challenge.
One popular private-sector trend that's driving innovation at the Postal Service is mobile. Over the past year, the agency has been replacing letter carriers' cellphones with 75,000 mobile delivery devices (MDD). Designed by Honeywell Scanning and Mobility, the handheld devices, used by carriers and mail processing workers, can access multiple wireless networks for real-time tracking of parcels and transmittal of data.
"Every minute, we're getting bread crumbs from our delivery vehicles telling us where our employees are, which allows us to ensure their safety, predict delivery times and pick up urgent materials from our customers' doors," says Cochrane.
Far away from the Postal Service's customers and carriers is a bustling IT department packed with software developers, analysts and engineers. Here again, Cochrane breaks from tradition -- opting to run his IT shop like the kind you'd find at a startup, not a staid government agency.
It's not that he never planned to go the traditional route. Cochrane tried centralizing the USPS IT team by establishing a Center of Excellence several years ago, but, he says, "I didn't get the response that I had hoped I would." Today, the shop operates as "more of a lab or studio where we bring people in and work on special projects and short-term wins," he says.
Subject matter experts in finance, human resources and operations are scattered throughout the organization, offering input when required, while a team of 1,000 IT professionals focuses on building systems and solutions. The USPS also employs about 80 data analysts, 80 payment technology specialists and 150 engineers who design and update sorting equipment.
Although not as centralized as most government IT shops, nor as nimble as a Silicon Valley startup, the USPS is working toward a universal goal: to redefine the role of IT. "We are not just an enabling function anymore," says Cochrane. "We're as core to what goes on around here as the chief operating officer and her team, or the chief marketing officer. That's the challenge that any CIO faces: Don't be a cost center; add value to the organization."
It's not the only challenge Cochrane faces. The USPS may be an independent establishment of the executive branch of the federal government, but Congress continues to wield enormous power over the agency, which is not funded by taxpayers. In recent years, congressional roadblocks have stymied Postal Service efforts to streamline operations, with lawmakers rejecting proposals to halt Saturday delivery of first-class mail -- a move that would help cut costs and drive revenue -- and preventing the USPS from consolidating little-used post offices in rural areas.
"We've been working within the government for over 240 years," Cochrane says. "We're proud of the fact that we're a government agency, don't get me wrong, but it does create different challenges."
Moreover, financial burdens imposed by Congress -- such as the retiree health benefits mandate -- have had a direct impact on the agency's IT budget. Saddled with 20-year-old delivery vehicles and aging parcel- and letter-sorting systems, Cochrane says the agency must be "very selective" in its purchasing process, and is often forced to put capital expenditure plans on the back burner.
Explaining the criteria used to determine IT spending, Cochrane says that "ROI wins -- we look at a bunch of projects and decide which ones are going to deliver the most value for us." For instance, after experiencing encouraging growth in its parcel delivery business last year, the agency plans to make "a significant investment" in that division's tracking and sorting technologies, according to Cochrane.
Signed and sealed
Another factor that handcuffs the USPS is the fact that, as a government agency, it must protect consumer privacy.
These days, everyone from big-box retailers to healthcare providers are leveraging data to better target consumers, cut operating costs and drive revenue. And the Postal Service is sitting on a gold mine of such data: the bits and bytes on every single piece of mail exchanged among millions of Americans and the companies that sell to them.
Alas, the USPS "is held to privacy statutes that are built for government agencies," Cochrane says. "We know a lot about where mail goes, and where packages go, but we really can't use that information in a way that other companies might."
That's a missed business bonanza, says John Callan, co-founder of Ursa Major Associates, a postal logistics consultancy. "The USPS probably has more data than the National Security Agency," says Callan, who created PostalVision 2020, an annual conference that challenges some of the industry's brightest minds to reimagine the U.S. postal ecosystem. "But like the NSA, they are certainly not supposed to use it for commercial gain or anything other than the job of delivering the mail effectively."
Some wonder, though, if it's the USPS culture -- not Congress -- that is preventing the agency from seizing prime business opportunities. As Callan says, "Digital technology is not an inherent skill at the Postal Service; transportation is."
Contributing to this skills gap is the fact that the Postal Service, like most government agencies, simply can't deliver the financial perks and foosball tables that lure up-and-coming IT innovators to tech luminaries like Google and Amazon. And efforts to embrace trendy technologies like cloud computing have raised the ire of authorities. In September, following an internal audit, the USPS inspector general wagged a finger at the agency for not properly controlling applications in its cloud environment.
On top of that, in early November, the USPS became a victim of a cyberattack that threatened to put the names, addresses and Social Security numbers of 500,000 of its employees at risk. "It's an unfortunate fact of life these days that every organization connected to the Internet is a constant target for cyberintrusion activity," Postmaster General and CEO Patrick Donahoe said in an email statement. "The United States Postal Service is no different."
Financial woes, congressional shackles, privacy regulations, security breaches and damning audits aside, the USPS continues to test new digital waters. In the fall, the agency introduced an augmented reality technology designed to convert standard print ads into interactive experiences. The system enables consumers to use a free Android or iOS app to view digital presentations when they scan special icons that marketers attach to advertising brochures sent through the mail.
The agency is also piloting its Federal Cloud Credential Exchange, a cloud-based clearing service that could act as a hub for validating the digital credentials of people who want access to online government services like health benefits packages and student loan information.
In the meantime, tech-savvy companies are forging ahead with services that promise to disrupt the parcel delivery industry. "Small flying vehicles will completely change the way we distribute small goods," says Andreas Raptopoulos, CEO of Matternet. A Silicon Valley startup, Matternet has developed a 7-lb. unmanned aerial vehicle, or drone, that can carry a 5-lb. load and travel up to 15 miles autonomously, guided only by a mobile phone app.
"The USPS might be comfortable thinking, 'We can keep on delivering letters,' but this is a dying industry," says Raptopoulos. "The growing segment is packages, and for package delivery, [drones] are the perfect transportation method."
Amazon and Google are also developing drones for futuristic delivery services in, respectively, their Amazon Prime Air and Project Wing programs. However, until the Federal Aviation Administration relaxes the rules on commercial drone use, drones are likely to remain "a novelty in the U.S. for some time and not serve as a primary source of revenue," says Matt Swain, a director at consulting firm InfoTrends.
Another emerging technology that's threatening to disrupt the delivery business is 3D printing. UPS has 3D printing centers nationwide where everyone from inventors to small-business owners are signing up to turn their prototypes into retail-ready products. UPS recently expanded those operations to nearly 100 more locations, and the overall 3D print service market increased by 21% last year, according to the Wohlers Report 2014.
Innovations like 3D printing rarely escape Cochrane's radar. "There's not much going on in technology that we don't keep our eye on," he says, noting that lately he's been following efforts to develop self-driving cars as Google gears up to release its driverless cars in 2017. But what direction the USPS heads -- be it obsolescence or digital innovation -- depends greatly on whether Cochrane, or Congress, is in the driver's seat.