May 1, 2008
thought leaders | The DC Velocity Q & A

Pushing the envelope: interview with Paul Vogel

pushing the envelope: interview with Paul Vogel

From the pony express to its experiments with missile-based mail delivery, the USPS has never been shy about trying new ventures. Now it's making a play for a bigger share of the international business-mail market, and Paul Vogel's in charge.

By Mitch Mac Donald

The announcement didn't make much of a splash at the time. But a little over a year ago, the U.S. Postal Service upped the ante in the international mail wars when it announced it was going after a bigger share of the international business-mail market. As part of that push, it created a new Global Business unit to expand its business among international commercial mailers by offering them customized solutions and—something once unimaginable in the Postal Service's world—discounts.

To head the new Global Business organization, the USPS tapped Paul Vogel, a 38-year postal employee. Vogel now serves as managing director and senior vice president of the new organization, which essentially consolidates all postal international efforts—operations, transportation, finance, planning, information technology, account management, and postal relations—into one unit.

Vogel started his career with the USPS at the ground floor, working nights as a postal clerk while in college in Massachusetts. After college, he worked as a clerk and carrier before joining the Postal Service's management intern program in 1975. He has since served in numerous management positions in operations and logistics in New York City, Boston, Chicago, and Washington, D.C. Prior to his current appointment, Vogel was vice president of network operations, responsible for the national network of 350 mail processing and distribution centers, as well as the worldwide transportation network that moves the U.S. mail.

Vogel earned a bachelor of science degree in economics from Boston State College and a master of science degree in business management from the Massachusetts Institute of Technology Sloan Fellows Program.

He spoke recently with DC VELOCITY Group Editorial Director Mitch Mac Donald about his life's work; why FedEx and UPS are not the competition, but the "co-opetition"; and the Postal Service's short-lived flirtation with "rocket mail."

Q: You began your career with the USPS working nights as a postal clerk. How did you end up in logistics?

A: I was working my way through college, going to school during the day and working nights with the Postal Service as a clerk. As I graduated from college, I got into one of our management development programs. That exposed me to all of the different functions at the U.S. Postal Service, and one of those functions was logistics. I just absolutely fell in love with it. I have been working in operations, primarily logistics, for the past 30-plus years. The Postal Service has been very generous to me in allowing me to continue my education in this area. It is a subject that once you get into it, you either love it or hate it. I have fallen in love with it and have dedicated a career to it.

Q: Today, you are the senior vice president of global business. What are you responsible for in that position?

A: It means that everything that the U.S. Postal Service does with international services falls within the group I manage. That includes the international transportation and logistics as well as all of the processing facilities that we have here in the United States.

I also spend a lot of time dealing with all of the interaction that we have with other federal agencies, such as U.S. Customs, the Department of Homeland Security, and the State Department.

Ultimately, of course, I handle all of the dealings that we have with our international partners, including the air carriers, the foreign postal administrations, and the various integrators around the world that we do business with. I also have profit-and-loss responsibility, so all of the financial responsibilities including revenue fall under this group. As a result, we are constantly trying to grow the business and balance the network needs of a growing business. Our business has been growing very nicely.

Q: What is the overall scope of the U.S. Postal Service's operations?

A: We handle roughly 213 billion pieces per year—in fact, we do in one day what most of our integrators do in a year.We have about 37,000 retail outlets around the United States and take in about $75 billion in annual revenue.

Q: Everybody's familiar with the USPS's domestic services, but I don't think many people are aware of the scale of its international operations.

A: We are a country of immigrants and the need for us to do business internationally has always been driven, in large part, by that fact. That immigrant population wants to get stuff to their loved ones back home. We have pretty much always been a player in an effort called the Universal Postal Union, which links all of the postal services together. We have been a leader in that organization for the past couple hundred years.

The USPS has always striven to be the most convenient and cost-effective option for people. Today, we continue to extend that convenience to a lot of the small businesses, a growing residential customer base, and even some mediumsized and large businesses. They all rely on the Postal Service because of what I call our quick, easy, convenient solutions. They can just walk a package down the street to their local post office and they know it's going to get to its destination— domestically, but also internationally. They don't need accounts. They don't need big computer systems.

So we have been in the international business ever since the United States was in business and we are very prideful of the things that we have been able to accomplish. It is like the definition of logistics I read often in DC VELOCITY.

I know you've written in your monthly column that sometimes the best compliment a logistics manager can get is that the phone's not ringing. It's sometimes a good thing to be a bit transparent. We are not always visible with what we do. To an extent, we pride ourselves on being taken for granted.

Q: Given its unique position as a government agency that must also compete with private sector companies for services like parcel business, how much of what you do mirrors the activities of a private sector logistics company?

A: Actually, they are very similar. We are certainly a logistics company.

Q: To what extent do the USPS's domestic operations differ from the international operations you oversee?

A: We don't distinguish too much between how we handle and process international vs. domestic mail. It is all collected out of a collection box or out of a retail unit. It all rides the same trucks to our processing plants, where it is sorted. It differs slightly, obviously, in that the domestic mail stays within the country, whereas the international mail goes to one of our five key gateways around the United States, where it is broken down by country.

At that point in the network, the international stuff goes through all the different levels of containerization, documentation manifesting, and the different requirements that go along with international service, as I'm sure you know. Then it's handed off to one of our partners—we have considerably more partners in our international service than we do with domestic mail. Our relationship with the air carriers is pretty significant because we go to well over 200 airports around the world as well as almost 200 seaports worldwide.

Q: Can you explain in a little bit more detail how the Postal Service works with private sector integrators and consolidators, including its competitors, around the world?

A: At one point in time, we thought of companies like FedEx or UPS as competition. But now we're cooperating and competing with them simultaneously. We've even coined a new term, "coopetition," to reflect that blend of cooperation and competition.

We have come to realize that there are certain synergies and strengths that each one of the parties has. As an example, in certain delivery areas in the rural United States, we go there every day anyway because we provide a universal service, and oftentimes our "competitors" will use us for the delivery agent in some of those rural areas. Simultaneously, a lot of those integrators are great at flying airplanes and do a much better job at that than we have, so we use our integrators along with the commercial air carriers to fly a lot of the mail. We have significant revenue that we give our competitors every year to help us move the mail, not just domestically, but also internationally.

Q: In December 2006, the president signed into law legislation that gave the USPS more pricing flexibility. Can you explain a bit how that legislation changed things?

A: Under the former regulations, we had a Postal Rate Commission that would review our cost structures and do public hearings and eventually come up with rate recommendations for us. The PAEA, the Postal Accountability and Enhancement Act, created two distinct mindsets. One falls under the term that they call "market dominant," which you could kind of relate to a monopoly-type product, the universal service product so that every American will be able to receive mail deliveries and so forth. A lot of that is the more traditional monopoly products such as first-class letters and periodicals that require somebody to go every day to every door regardless of how much volume there may be. That is the one side. That is still regulated under this new act.

The act, though, also created a new service category for us called competitor products. With those competitive product categories, we have a lot of flexibility. The law states that we have to cover our cost structure, which obviously is a wise thing to do anyway. We are required to cover our costs by product and a mark-up to the overall institutional costs, which is pretty modest. It is 5.5 percent, if I remember correctly. After that, we've got tremendous flexibility to set prices based off of market conditions, off of other ways that we may want to expose products for the consuming public and find out what consumers really need in the new marketplace.

Q: Let's talk about metrics. What is the Postal Service doing to measure its performance?

A: A lot. A real lot, in fact. Every one of our major products, under PAEA, is required to have service measures. We measure any number of different categories and we group them as either financial or service measures.

Q: Let's start with the money. How do you measure financial performance?

A: We constantly look at what's needed to keep the revenue stream flowing. We are continually looking at ways to optimize our network to reduce costs. We're also looking for ways to make our transportation more efficient—evaluating our mix of air vs. surface transportation services, for example. There's a constant analysis of the number of processing centers we need around the United States.

Q: What kind of service measures do you use?

A: As I mentioned, every one of our products has a measurement. In the package business, the packages all have a bar code on them. All of those bar codes are associated with containers— whether those containers are small cartons or big truck trailers. We have agreements with our carriers that call for them to scan our items at both origin and destination. Our delivery partners abroad are also required to scan our items as they receive them at their offices of exchange all the way through their delivery. We reciprocate with the mail that is "destinating" here in the United States.

On the package express side, we have a sophisticated bar-code scanning system that not only gives us an end-to-end measure but also allows customers to track or trace. It also gives us a ton of diagnostic information so that we can constantly review where there are opportunities for improvement.

On the more traditional mail classes like first-class mail or periodicals, we also put bar codes on all of those pieces, which are scanned every time they hit our sorting and processing machines. That way we can track a letter all the way through the system, which gives us a tremendous amount of information to use to measure service. Also, we have contracted with IBM to measure performance under a program known as the EXFC or External First Class Measurement System. IBM provides us with an independent assessment of the actual time it takes a piece of first-class mail, once it's deposited into a collection box, to be delivered to a U.S. home, business, or post office box.

Q: What plans do you have for further efficiency enhancements?

A: In terms of new technologies, we are delving into RFID. On the international product, a lot of the mail containers that we ship on air carriers will carry RFID tags. Most of our offices or exchanges abroad and all those here in the United States are wired with scanning devices. We can track international pieces on an RFID system. It is a bit expensive, but it gives us very good diagnostic information. We are hoping that the price of RFID is going to come down significantly so that we can get more and more involved with the technology.

Q: If you could offer one piece of advice to young people considering a career in logistics, what would it be?

A: They need to be very flexible. The logistics industry continues to change as customer demands change and as technology continues to change, like the RFID systems we were just talking about. The bright young people coming into the business today will not only have to manage the process of moving stuff from one place to another, but also work with sophisticated technology that links the Postal Service's operations with those of its customers, vendors, and delivery partners.

Q: Any closing thoughts?

A: As I mentioned before, the logistics industry continues to change. There are a couple of leaders in the international logistics industry that are helping promote that change. I believe the U.S. Postal Service is one of them. That's been the case for the past 200 years. We were there with the pony express, we were there flying the first airplanes, we even tried missile delivery for a while. We are constantly looking to come up with new ideas. I constantly challenge not only my staff, but also providers and vendors to come up with new ideas and challenge the conventional wisdom. Oftentimes the response I get from that challenge is overwhelming. There are a lot of bright minds out there.

About the Author

Mitch Mac Donald
Group Editorial Director
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.

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