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DOCKET SECTION
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON,
D.C. 20268-0001
POSTAL RATE AND FEE CHANGES, 1997 1
Docket No. R97-1
DIRECT TESTIMONY
OF
SANDER A. GLICK
ON BEHALF OF
MAGAZINE PUBLISHERS OF AMERICA
I
I.
Autobiographical
Sketch
2
My name
3
is Sander
4
Performance
5
PPC
6
consulting
7
rapidly since our inception
8
500, a compilation
9
joining the firm, I have performed
10
Corporation
A. Glick.
provides
(PPC), a consulting
management,
services
and governmental
I am a Senior
information
to private
Analyst
at Project
firm based in ISterling, Virginia.
technology,
and
and public sector clients.
environmental
The firm has grown
in 1991; last year we were number 272 on the Inc.
of the fastest growing private companies
economic
in America.
and cost analysis
Since
for both private
clients.
II
12
I attended
the Maxwell
University,
School
of Citizenship
13
Syracuse
14
in 1994, and Carleton
15
Physics in 1993. While at Syracuse University,
16
Center for Technology
17
administering
18
companies
19
Research and Development
IF’ublic Affairs
where I received a Master of Public Administration
College,
where
I received
and Information
a National
regarding
and
Science
a BA, magna cum laude, in
Policy and assisted
the costs and benefits
degree
I was a graduate assistant
Foundation-funded
at
in the
in developing
and
survey of more than 500
of working
with Federally-funded
laboratories.
20
21
Following
my formal education,
22
the end of 1996, I was promoted
23
assisted
24
life-cycle
cost
25
collecting
data to implement
26
compliance
27
estimators
the Department
to Senior Analyst.
of Energy by developing
of cleaning
cost estimates
I joined PPC in 1994 a:s an Analyst.
up nuclear
weapon
the analysis.
Since joining PPC, I have
methods
production
for estimating
sites
I have also developed
and reviewed cost estimates
I
At
prepared
the
and then
regulatory
by other cost
I
II.
Purpose
of Testimony
and Summary
Conclusions
2
United States Postal Service witness
3
costs of Advance
Schenk develops
4
attributable
5
BRM) pieces, which is the basis for the six cent QBRM fee.
6
review her methodology
7
Schenk
8
alternative
9
responses,
to develop
10
account
II
Advance
12
whole.
Deposit BRMAS-qualified
estimate
and more reasonable
the Advance
BRM delivery
for Advance
assumptions,
the fact that 75 percent
Deposit
BRM (Advance
of the
Deposit
In this testimony,
l
and her mail flows. I use the same process as witness
a cost
regarding
estimates
Deposit
consistent
Deposit
BRM
but make
with her interrogatory
BRM mail flow.
I also take into
of this mail does not require
delivery,
costs are lower than for First-Class
so
Mail as a
13
Based
I4
upon
these
improvements
to her
15
attributable
lb
attributed
17
estimate, I propose a QBRM fee of two cents.
analysis,
I derive
a unit
cost estimate for BRM pieces, above and beyond the costs already
to First-Class
Mail, of 1.28 cents.
Reflecting this unit attributable
cost
18
19
Ill.
Witness
Schenk’s
Witness
Schenk
Methodology
20
21
22
billing for the Business
23
already
24
assessed
25
compatible
26
operations
attributed
estimated
rating, and
Reply Mail (BRM) service, above and beyond the costs
to First-Class
the mail flows
First-Class
“the test year costs of counting,
USPS-T-27
Mail.”
for Advance
Deposit
Mail and then applied
at 2.
To (do this, she first
BRM and other
automation-
unit cost differentials
for the
through which the mail flows.
27
Witness
28
incoming
Schenk found that the major difference
29
the
primary
30
receives
its incoming
31
Multiple
Position
sort,
most
secondary
Barcode
non-BRMAS
automation
sort on a Delivery
Sorter
(MPBCS),
2
in mail flow is that, after
while
Barcode
compatible
mail
Sorter (DBCS) or
Advance
Deposit
BRM
receives
operation,
its incoming
secondary
sort in one of three ways: (1) in the BRMAS
(2) on another barcode sorter, or (3) manually - and ,then processed
the Postage
Due Unit.
Figure 1 illustrates
the mail flow for Advance
in
Deposit
BRM.
Figure 1. Advance Deposit BRM Mail Flow (Exhibit USPS-27A)
I
Incoming Primary
I
Postage Due Unit:
postage due calculated;
deduction from advance deposit
8
9
10
II
Witness
Schenk
12
difference
between
13
Advance
Deposit
14
incoming
secondary
I5
(See Equation 1 below)‘:
calculated
the weighted
BRM (including
the unit attributable
cost of BRM as the
average cost of the three methods for sorting
Postage
Due Unit costs) and the cost for an
sort for an automation-compatible
piece of First-Class
16
17
18
19
20
21
22
23
(-N,, = I: HP,*c, )I - C”C (1)
where i = type of incoming secondary sort
pi = percentage of BRMAS receiving sort type i
c, = unit cost of type i sort
c,,=unit cost of incoming secondary sort of automation
compatible First-Class Mail.
’ The attributable cost for an incoming secondary sort for an automation compatible piece of
First-Class Presort Mail can be found by summing the weighted cost column for ‘Incoming
Secondary” on Page 13 of Appendix I of USPS-T-25.
3
Mail
I
IV.
Witness
Schenk’s
Witness
Schenk
Mail Flow Assumptions
1
3
surveyed
mail processing
to determine
4
Year 1996 mail flows for Advance
5
of LR-H-179,
6
secondary
7
sorters, and 66.5 percent was sorted manually (See Table 1 below).’
indicate
Deposit BRM.
facilities
that 14.2 percent
Her results, shown in Table 13
of Advance
sort in the BRMAS operation,
Base
Deposit
19.3 percent
EIRM received
its
was on other barcode
8
Table 1. Generation
9
of Final BRM Piece Courrts
10
Source of Piece Counts
BRMAS Software Report
EOR Counts from Barcode Sorter
Manual Counts/Other
Percent
‘of Volume
1’4.2
1,9.3
615.5
=5
II
I2
In calculating
the Test Year unit attributable
13
BRM, above and beyond
that of First-Class
14
inappropriate
regarding
I5
1996 to the Test Year.
16
from Advance Deposit BRM to PRM was entirely mail that, in the Base Year, was
17
processed
18
own statement
19
percentage
20
BRMAS-qualified
21
migrate to PRM,” she responded,
22
interested
23
willingness
24
fee more advantageous
assumptions
to the contrary.
Schenk
made two
that the mail whic.h would migrate
She makes this assumption
When
of BRM that is counted
Mail, witness
Deposit
how mail flows will change from Base Year
First, she assumed
in the BRMAS operation.
cost of Advance
asked,
“Please
confirm
despite
her
that a higher
and rated in the BRMAS operation
than of
mail that is not counted and rated in the BRMAS operation
“Not confirmed...
in QBRM or PRM will depend
to prepay postage and whether
financially”
.Whether
will
an organization
on a number of factors,
including
is
its
it finds a monthly fee or a per-piece
(MPAIUSPS-T27-5~).
25
26
27
Second, she assumed that all Advance Deposit BRM not processed
BRMAS operation was processed
manually.
She made this assumption
in the
because
2 When source is ‘EOR counts from barcode sorter,’ the pieces were soried on a barcode sorter.
When source is ‘BRMAS Software Report’. the pieces were sorted in the BRMAS operation.
4
I
she did not have an estimate of the cost of a barcode
2
BRM. She did indicate, however, that if one were able to develop a unit cost for
3
processing
BRM on a barcode
4
appropriate
to include the cost of processing
5
if costs could be developed”
6
7
V. Calculation
sorter,
(Response
it should
sort for Advance
be used:
“...it
Deposit
would
be
BRM in a barcode sorter operation,
to MPANSPS-T27-2~).
of Unit Cost for Automated
Sort
8
Even though the unit cost for a manual sort of First-Class. Mail is 4.7 cents
9
10,
higher than the cost per sort for sorting First-Class
II
witness
Schenk approximated
12
barcode
sorter (including
13
sorting Advance Deposit BRM (including
Mail on a barcode
the cost for sorting Advance
Postage
Due Unit activities)
sorter,’
Deposit BRM on a
as the cost for manually
Postage Due Unit activities).
14
In the absence
I5
of a bottom-up
BRM on a barcode
estimate of the cost for sorting Advance
16
Deposit
sorter and performing
17
Unit activities,
I8
an automated
I9
activities)
20
and a barcode
21
Advance Deposit BRM (See Equation 2 below).
I develop a more reasonable
sort of Advance
by subtracting
Deposit
all associated
Due
upper bound estimate of the cost of
BRM (including
4.7 cents, the cost difference
sort of First-Class
Postage
Postage
between
Due Unit
a manual sort
Mail, from the cost for manually
sorting
22
23
24
25
26
27
28
29
- (c,n”.,,,
- CRwccddw1 (2)
CRard~.Rml= CM.M.I.RRM
where c=unit cost per sort
Barcode indicates barcode sort
Manual indicates manual sort
BRM indicates sort of BRM mail
FCM indicates sort of First-Class mail
3 The unit cost for a manual sort from USPS-T-25, Appendix I, Page 13. Line ‘Manual/Auto
Sites” is 5.4474 cents. The cost for an automated sort from USPS-T-25, Appendix I, Page 13,
Line ‘DBCS First-Pass’ is .7412 cents. The cost for a DBCS sort is an upper bound estimate
because it has the highest unit cost of all BCSs shown on Page 13 of Appendix I of USPS-T-25.
5
Equation
I
(2) yields
a unit cost for a barcode
2
Postage
Due Unit activities)
of Advance
3
This is still an upper bound
.I
reasons:
estimate
Deposit
sort (including
costs for
BRM of 3.56 cents per sort,
of the cost for a barclode
sort for two
s
6
.
The depth of sort for a barcode sorter is deeper than the depth of sort of a
manual sort.
7
8
9
The estimate
l
assumes
that there is only one incoming
IO
BRM.
If two incoming
II
between
12
would be twice as large.
manually
secondary
sorts were required,
sorting and automated
.
14
15
16
VI.
17
percent of BRM, as opposed to 66 percent for First-Class
18
city delivery.
19
that for First-Class
20
cost difference
21
Exhibit MPA 4-2).
Witness
of Delivery
Schenk’s
Deposit
BRM
Cost Avoidance
response
to MPANSPS-T27-7
indicated
that only 25
Mail, requires rural or
For this reason, the BRM delivery cost per piece is smaller than
Mail as a whole.
between
Table 2 calculates
BRM and First-Class
a 2.74 cent unit delivery
Mail (For morla detail,
22
23
24
sort of
thfs cost difference
sorting of Advance
I3
Calculation
secondary
Table 2. Calculation
Item
Delivery Unit Cost
Percent Delivered
Total Cost/Total Pieces
of Delivery
Cost Avoidance
First-Class Mail
6.66
66%
BRM
6.60
25%
4.41
1.67
6
(in cents)
refer to
Calculation
of Attributable
Cost for Advance
I
2
3
VII.
4
unreasonable
5
flows.
6
For this reason, a more reasonable
7
for Advance
8
will be exactI;/ the same as Base Year mail flows.
9
delivery cost avoidance
As
described
earlier
assumptions
in
my
testimony,
to determine
In fact, her interrogatory
Deposit
BRM
witness
Schenk
makes
Test Year mail flows from Base Year
responses
contradict
the assumptions
method for determining
she made.
the attributable
cost
Deposit BRM would be to simply assume that Test Year mail flows
calculated
Using this assumption
and the
in Section VI, the Test Year attributable
cost
IO
for Advance Deposit BRM is 1.26 cents (For more details, please refer to Exhibit
II
MPA 4-l).
12
I3
VIII.
Determination
of QBRM Fee
I4
I5
Based upon an analysis
I6
QBRM fee, witness
17
cent fee based upon my attributable
I8
percent,
19
witness Needham.
which
Needham
of pricing criteria
proposed
is a significantly
and their application
a cost coverage
to the
of 1OEl percent.
A two
cost estimate yields a cost coverage
of 156
higher
contribution
than
that proposed
Thus, I believe that a two-cent fee for QBRM! is reasonable.
7
by
Exhibit
MPA 4-l.
Afternate
14.24% [I]
66.46% [2]+111-131
19.30% [3]
BRMAS Coverage Factor
Manual Sortation Factor
Other Barcode Sorter Factor
BRMAS
BRMAS
Processing
Postage Due Unit
Manual Sort, Postage Due Unit
Barcode Sort, Postage Due Unit
Cost Avoidance (Inc. Sec. Sort for Automation
Cost Avoidance (Delivery)
Weighted Cost Per Piece
Net Cost Per Piece
[l] Coverage Factor, USPS-T-27 at 12.
[3] LR-H-179, Table 13
[4] Exhibfi USPS-27C
[5] ExhibR USPS-27C
[6] Exhibi USPS-27C
r]=[rj]+[lnc. Sec. DBCS Unit Cost]-[Incoming
161Exhibn USPS-27C
[9] Exhiba MPA 4-2
ERMAS Fee Development
Comp. Piece)
Unit Cost
$0.0064
$0.0040
$0.0627
$0.0356
[4]
[S]
[6]
[7j
($0.0231)
($0.0274)
So.0633
$0.0126
[S]
[S]
[10]=[1]‘(~4]+[5])+[2~[6]+[3~[~
[11]=[6]+[9]+[10]
Secondary ManuaVAuto Sites Unit Cost] USPS-T-25: Appendix I, Page 16
Page 1
Exhibit
MPA 4-2. Unit Lkllvery
Cost Avoidance
FYI988
unn cost
(Cents)
VOlUmC
(000s)
Density
Single Pine Mters and Parcels
Single Piece Cards
III
5.Wl
4.367
PI
54.394310
[31
0.529
I41
26.774.590
0.736
1,671,707
Presort Cards
Mtero
Total First-Class
2,637
3,729
4,406
2,551,6&l
41,607.m
lW.999.542
0.726
0.622
0,663
1,652,523
34116,761
6wl7.660
ChWSUbCkSS
Mail
Percent Delivered
66%
25%
41%
First-Class Mail
BRM
Dinerence
[I] USPS-ISA.
[Z] USPS-WA.
(31 USPS-ISA.
Table A-6, Column (e)
Tabk A-S. Column (k)
Table A-5. Column (aa). Density=Pkces
I4=WM
l5l=llM31
[WJel
m Rwnrc
Pl=lN7l
Pl=[611W
uol=mPl
[ll]=[lO]-[S]
to MPNUSPS-T27-7
2.546540
I51
Deliver&Total
unit Cost
4.41
1.67
2.74
Pkces
Delivered
(000s)
PI
If01
iI11
wit
Cost par Piece Delivered
(Cents)
PI
9.45
5.93
3.91
4.54
6.68
la1
CERTIFICATE
OF SERVICE
I hereby certify that I have this day served the foregoing
participants
of record in this proceeding
Practice.
December
30. 1997
in accordance
dOClJm?nt
upon all
with section 12 of the Rules of