Going postal (in a good way)

The embattled U.S. Postal Service (USPS) may not have a lot of folks in its corner right now. But you can put Ryan O'Connor firmly in the flag-waver camp.

O'Connor is the warehouse and logistics manager of Other World Computing (OWC), a Woodstock, Ill-based firm that makes computer hardware and is an online retailer for Apple Inc.'s line of computers and mobile devices. Privately held OWC generates between $75 million and $100 million in annual revenue.

In his role as keeper of OWC's fulfillment, distribution, and shipping flame, O'Connor has always wanted to do more business with the Postal Service. This was especially true on the international front, where USPS's relatively low-cost shipping options—in particular, the "Priority Mail" international flat-rate product introduced in the spring of 2009—seemed tailor-made for OWC's line of largely inexpensive merchandise, much of which couldn't be shipped overseas cost-effectively with FedEx or UPS.

But by the start of 2010, O'Connor was consumed with other issues, namely the inability of OWC's existing manifest system to keep pace with the retailer's postal volumes. Each day, OWC reconciled a manifest of more than 100 pages prior to USPS's pickup of the shipments at the company's warehouse in Woodstock, about two hours northwest of Chicago. Any discrepancy between shipment and manifest, such as a late-arriving package that appeared on Tuesday's manifest but had to be diverted into Wednesday's workflow, meant that the entire parcel batch could be held up until the problem was identified and remedied.

Beyond the labor costs involved in processing the manifest data, OWC faced the specter of dissatisfied customers if it couldn't make good on promises of next-day delivery. The lack of a bona fide automated solution also constrained the company from making a bigger push into potentially high-growth international markets.

An automated solution
On the advice of a USPS representative, O'Connor turned to Dymo Endicia, a Palo Alto, Calif.-based company that provides automated workflow solutions to large postal users. In September 2010, O'Connor integrated Endicia's workflow software, called "Label Server," into OWC's existing multi-carrier shipping program.

With the two programs working in sync, OWC was now able to receive and capture order data on a bar-coded pick ticket, select the delivery type and calculate shipping charges, and produce shipping labels in a fraction of the time it took to do the work manually.

At day's end, the Endicia software transmitted a one-page bar-coded manifest into the USPS system. Once the mail carrier scanned the form at pickup, the corresponding packages were formally entered into the USPS mail stream.

By integrating the programs, OWC saw an immediate return on its investment in labor, materials, and maintenance, mostly by converting a several-hundred-page paper manifest to a single-page document.

"The day we turned it on, we began saving, easily, 10 hours a week in labor costs just in processing, reviewing, and reconciling our manifests," O'Connor said. All told, the company has saved about $45,000 in labor costs over the past 18 months, he said.

But the biggest bang for OWC's buck has come from a faster, more efficient workflow that has enabled the company to process more shipments in a given work day and also allowed for more timely handling of late-arriving parcels.

All systems go
With an automated solution finally in hand, OWC's top management green-lighted O'Connor's proposal to shift more volume to the Postal Service. Today, OWC ships 15,000 packages a month with USPS, about one-third of its total monthly volume and up from 6,000 shipments a month in March 2010. It has grown its postal volumes without any corresponding rise in overhead, O'Connor said.

In an effort to increase sortation accuracy and improve operational efficiencies, OWC signed up for an overhead pusher solution proposed by material handling specialist Dematic. O'Connor said the new system boosted sortation accuracy to nearly 100 percent, while reducing power consumption by about 40 percent compared with its prior conveyor system.

OWC has also taken advantage of USPS's international flat-rate box service to slash its global shipping costs and make itself a more attractive value proposition to international markets. For example, a shipment that might cost nearly $30 to ship via one of the private carriers to Australia, OWC's second-largest international market, costs under $14 with USPS, according to O'Connor.

About 40 percent of OWC's products are priced at $50 or less, and the company passes on its shipping expenses, at cost, to its customers. Prior to the systems integration, OWC had a tough sell to international markets because the costs of shipping with the private carriers often exceeded the value of the goods being sent, O'Connor said. The lower shipping costs resulting from migrating more traffic to USPS have made OWC's goods more cost-competitive overseas and have been a big boost to its international business, which O'Connor said now accounts for about 10 percent of its volume.

Steve Rifai, director of operations for Endicia, said OWC is an example of how fulfillment operations can create value by aligning their operations with the post office's inherent strengths in serving the business-to-consumer market.

"Many of these companies are not getting as much leverage out of the USPS as they can," said Rifai. "There are things the post office truly excels at. When it comes to providing [business-to-consumer] deliveries for this group of shippers, they offer equivalent or better service than the private carriers."

The key, said Rifai, is for shippers to integrate the USPS infrastructure into their transportation operations.

"If you can optimize the post office, you will use more of the postal network. And you will benefit from excellent service at lower rates," he said.